11 ms·

I'm going to file this in the "no shit" drawer. Buffet is notoriously conservative and his shareholders (I'm one) understand that. I think the more people are t

by po 16y ago

I'm going to file this in the "no shit" drawer. Buffet is notoriously conservative and his shareholders (I'm one) understand that. I think the more people are talking about a given company, the less likely Buffet is to invest in it. That's not to say that those companies will fail, he's just not going to be the one betting on it. Many highly risky bets will pay off but he will not be sad that he missed it.

gte910h 16y ago
The less like a insurance company or business model that's 200+ years old, the less likely buffet is to invest in it. He seems to specialize in troubled traditional businesses which are mainly missing capital investment and insurance
- tptacek 16y ago
  NetJets doesn't fit that bill, but might be the exception that proves the rule. Also, "troubled" probably isn't the right modifier; he famously invests in managers in addition to proven businesses; he isn't a turnaround guy. How many companies has BRK bought where he replaced the CEO?
  - gte910h 16y ago
    Capitalization troubled. Family businesses who have an owner die, railroad needing capital to expand, financial services company needing more marketing cash, etc. You are right, he rarely replaces people. But when a business owner dies, and heirs need cash, guess who's there looking at the business to buy it? Also, it's not like a simple 3 line answer completely encapsulates his entire investment strategy. I'm just pointing out a typical thread that runs through many of his investments.
    - tptacek 16y ago
      I'd be interested in knowing which of the companies he sold were from "motivated sellers". But in the meantime: distressed shareholders are not the same thing as a distressed business. Also: every business is capitalization-troubled compared to BRK. :)
      - gte910h 16y ago
        There are more, but this is enough to show a bit of a pattern. And you do have a good point about distressed shareholders vs distressed businesses. But either one can drop the sell price (aka, make them undervalued). Nebraska Furniture Mart http://en.wikipedia.org/wiki/Nebraska_Furniture_Mart http://en.wikipedia.org/wiki/Nebraska_Furniture_Mart (Sold at age 90). Dairy Queen: (35% of it was owned by a 75 year old named John Mooty when BRK bought it in a takeover) Ben Bridge Jewelers (Chairman and a majority owner was 75 when sold to Berkshire: http://www.historylink.org/index.cfm?DisplayPage=output.cfm&file_id=7307 http://www.historylink.org/index.cfm?DisplayPage=output.cfm&...) Flight Safety http://www.beezernotes.com/wordpress/?p=4229#comment-30045 http://www.beezernotes.com/wordpress/?p=4229#comment-30045 (Sold at age 89)
        intended 16y ago
        After that quote I actually re-read the section in the Snowball where they talk about Mrs. Blumkin (Furniture Mart). 1) The business wasn't distressed and was doing great. 2) Mrs. B was growing old and her son Louie had taken over most of the work, she was still active in managing the carpet section 3) They were looking at a German company to take them over; their offer was $90.0 mn 4) Buffet told them they would get a higher valuation if they waited and then laid out the pros and cons of Berkshire being in charge. Also pointed out that many other firms would have managers which would inevitably try and run the show. 5) BRK wanted them on as partners to run the firm, without bringing someone in from the outside, which is something both Louie and MRs. B wanted. She didn't want to sell to a German company, being a Russian immigrant. 5.1) T His is generally BRK policy, it invests in strong, track record proven companies and teams, after doing massive amounts of diligence on them. 6) She then told him she wanted $55.0 mn in cash, for 90.0% of the company. 7) Buffet signed, with the caveat that if she wanted to change the deal she could. She said no. 8) Her son and his grandson stayed on and helped grow the business. 9) At some point Mrs. B got very irritated with her growing lack of control, and when her son/grandsons overruled her on a carpet purchase decision she got mad and left. 10) She started her own business opposite the road and began to beat Furniture mart. Since Buffet did not take sides she was quite hurt and betrayed. 11) BRK pays her $5.0 mn for the name of her new mart, makes sure shes happy and in charge of furniture mart, and ensures her non compete clause is bullet proof. Its an interesting story to read about, as is Mrs. B - she also had a laser focus on her expertise; she didn't care to go beyond it, and was extremely effective within it. She also made decisions quickly and never looked back. Funnily, 20% of the stake was held by her daughters, and her sons-in-law came to sign the deal. They were aware they would get more if they signed with the Germans but Mrs. B basically harangued them into submission - "how much do you want, I'll pay ya". Her management style was... interesting - Buffet had been told that she wanted to sell the place 20 years earlier. When he got there to sign the deal, Mrs B. had part of her office (may have been sons/in laws) lined up, just so that she could yell at them and call them a bunch of bums. Once she abused them enough, Buffet was allowed to walk away.
- silverbax88 16y ago
  That's not really accurate. Warren just only invests in companies with strong (provable) profit models at cheap prices. It doesn't matter what it is, it matters whether he (or you, or I, or anyone) can look at the numbers without guessing and see profit. Before the housing bubble burst, those mortgage-backed securities were being shopped to Buffet. Buffet said he wouldn't buy them because they were bundled millions of loans and he had no way of knowing what the health of those loans actually was. Not rocket science. Not new age, high tech or too young for him. Just no different than anyone should even be with their money. Would you buy a car for $25K if you did not know what year the car was, what model, what it looked like or what condition? But that is essentially what they were asking Buffet to do. And he didn't...but several people did.
  - gte910h 16y ago
    Passing on random financial instruments (which AIG Was a counterparty to quite a few of) is not the same thing as commenting on a social networking site or choosing to not invest in something tech related. Saying something is overvalued is buffet speak for saying "not cheap enough to be troubled" which is when he traditionally invests in things. He buys lots of family businesses upon death events, and some heavy industry suffering capital issues. Generally speaking, this precludes young firms from crossing his radar even. "Suffering capital issues" is similarly something you will rarely see in todays tech environment. Because a person is good at something doesn't mean he does everything perfectly. There are lots of great investments out there Buffet is not going to go anywhere near, that are conservative even. He definitely has a profile far more constrained than "proven business model" He's a good businessmen, no doubt about it, but because he dislikes something does not mean it's not a good bet, it just means it doesn't clearly fit into his "Nothing a little money can't fix" investment profile.
silverbax88 16y ago
And yet, people will still put money into it. Despite so many people, including very-often-right-even-when-the-economy-is-tanking Warren Buffet saying they are too expensive, people will put in money and claim ignorance and bamboozle-ment when it doesn't work out.
davidw 16y ago
IIRC, in the biography I read about him, he had the opportunity to invest in pre-IPO Intel, but turned it down because it was a market he didn't get, so he definitely does "lose some" from time to time, but on the whole, it seems to have worked out "ok" for him.
- tptacek 16y ago
  When we're talking about the kinds of companies BRK gets involved in, they are all businesses that you can reasonably expect to be around in 50 years. It's not just a "buy low, sell high, time the markets" strategy. To a certain, hyperbolic, extent, might not the difference between timing INTC and IPET just be granularity of time scale?
- georgieporgie 16y ago
  Remember the part about the airline industry talk? I can't help but see parallels in quite a lot of tech companies. In 2008, he said: The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down. The airline industry’s demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it. And I, to my shame, participated in this foolishness when I had Berkshire buy U.S. Air preferred stock in 1989. As the ink was drying on our check, the company went into a tailspin, and before long our preferred dividend was no longer being paid. But we then got very lucky. In one of the recurrent, but always misguided, bursts of optimism for airlines, we were actually able to sell our shares in 1998 for a hefty gain. In the decade following our sale, the company went bankrupt. Twice. (http://www.berkshirehathaway.com/letters/2007ltr.pdf http://www.berkshirehathaway.com/letters/2007ltr.pdf)
  - biggie7 16y ago
    Airlines are capital-intensive. Software is not. Big difference.
fleitz 16y ago
That's really it, Buffet doesn't make bets, he takes sure things when no one else wants them. This is why he always under performs the market in booms and outperforms during busts. He finds the companies he likes and waits for the price to be right. There is also a lot of synergy in his investments, if you look at Geico part of the reason they are able to offer such low rates is that they park most of their excess funds with Berkshire or other similarly outperforming investments. Or look at BNSF and their trackage to the Powder River Basin. He doesn't want to be in a company like Facebook because he doesn't know that they will be around in 20 years, nor are their competitive advantages (network effect) durable within the industry. Look at a company like Coca-Cola, their advantages are durable and customer base loyal. Coca Cola doesn't need frequent drinker miles to get their customers to remain loyal. One of the highly overlooked benefits of long term investing is the tax implications and associated transaction fees. If you buy and sell stock frequently you pay capital gains so any other investment needs to be better than the one you currently have by at least the capital gains you'll pay on the sale plus the brokerage fees.

by po 16y ago

gte910h 16y ago

The less like a insurance company or business model that's 200+ years old, the less likely buffet is to invest in it. He seems to specialize in troubled traditional businesses which are mainly missing capital investment and insurance

tptacek 16y ago
NetJets doesn't fit that bill, but might be the exception that proves the rule. Also, "troubled" probably isn't the right modifier; he famously invests in managers in addition to proven businesses; he isn't a turnaround guy. How many companies has BRK bought where he replaced the CEO?
- gte910h 16y ago
  Capitalization troubled. Family businesses who have an owner die, railroad needing capital to expand, financial services company needing more marketing cash, etc. You are right, he rarely replaces people. But when a business owner dies, and heirs need cash, guess who's there looking at the business to buy it? Also, it's not like a simple 3 line answer completely encapsulates his entire investment strategy. I'm just pointing out a typical thread that runs through many of his investments.
  - tptacek 16y ago
    I'd be interested in knowing which of the companies he sold were from "motivated sellers". But in the meantime: distressed shareholders are not the same thing as a distressed business. Also: every business is capitalization-troubled compared to BRK. :)
    - gte910h 16y ago
      There are more, but this is enough to show a bit of a pattern. And you do have a good point about distressed shareholders vs distressed businesses. But either one can drop the sell price (aka, make them undervalued). Nebraska Furniture Mart http://en.wikipedia.org/wiki/Nebraska_Furniture_Mart http://en.wikipedia.org/wiki/Nebraska_Furniture_Mart (Sold at age 90). Dairy Queen: (35% of it was owned by a 75 year old named John Mooty when BRK bought it in a takeover) Ben Bridge Jewelers (Chairman and a majority owner was 75 when sold to Berkshire: http://www.historylink.org/index.cfm?DisplayPage=output.cfm&file_id=7307 http://www.historylink.org/index.cfm?DisplayPage=output.cfm&...) Flight Safety http://www.beezernotes.com/wordpress/?p=4229#comment-30045 http://www.beezernotes.com/wordpress/?p=4229#comment-30045 (Sold at age 89)
      - intended 16y ago
        After that quote I actually re-read the section in the Snowball where they talk about Mrs. Blumkin (Furniture Mart). 1) The business wasn't distressed and was doing great. 2) Mrs. B was growing old and her son Louie had taken over most of the work, she was still active in managing the carpet section 3) They were looking at a German company to take them over; their offer was $90.0 mn 4) Buffet told them they would get a higher valuation if they waited and then laid out the pros and cons of Berkshire being in charge. Also pointed out that many other firms would have managers which would inevitably try and run the show. 5) BRK wanted them on as partners to run the firm, without bringing someone in from the outside, which is something both Louie and MRs. B wanted. She didn't want to sell to a German company, being a Russian immigrant. 5.1) T His is generally BRK policy, it invests in strong, track record proven companies and teams, after doing massive amounts of diligence on them. 6) She then told him she wanted $55.0 mn in cash, for 90.0% of the company. 7) Buffet signed, with the caveat that if she wanted to change the deal she could. She said no. 8) Her son and his grandson stayed on and helped grow the business. 9) At some point Mrs. B got very irritated with her growing lack of control, and when her son/grandsons overruled her on a carpet purchase decision she got mad and left. 10) She started her own business opposite the road and began to beat Furniture mart. Since Buffet did not take sides she was quite hurt and betrayed. 11) BRK pays her $5.0 mn for the name of her new mart, makes sure shes happy and in charge of furniture mart, and ensures her non compete clause is bullet proof. Its an interesting story to read about, as is Mrs. B - she also had a laser focus on her expertise; she didn't care to go beyond it, and was extremely effective within it. She also made decisions quickly and never looked back. Funnily, 20% of the stake was held by her daughters, and her sons-in-law came to sign the deal. They were aware they would get more if they signed with the Germans but Mrs. B basically harangued them into submission - "how much do you want, I'll pay ya". Her management style was... interesting - Buffet had been told that she wanted to sell the place 20 years earlier. When he got there to sign the deal, Mrs B. had part of her office (may have been sons/in laws) lined up, just so that she could yell at them and call them a bunch of bums. Once she abused them enough, Buffet was allowed to walk away.
silverbax88 16y ago
That's not really accurate. Warren just only invests in companies with strong (provable) profit models at cheap prices. It doesn't matter what it is, it matters whether he (or you, or I, or anyone) can look at the numbers without guessing and see profit. Before the housing bubble burst, those mortgage-backed securities were being shopped to Buffet. Buffet said he wouldn't buy them because they were bundled millions of loans and he had no way of knowing what the health of those loans actually was. Not rocket science. Not new age, high tech or too young for him. Just no different than anyone should even be with their money. Would you buy a car for $25K if you did not know what year the car was, what model, what it looked like or what condition? But that is essentially what they were asking Buffet to do. And he didn't...but several people did.
- gte910h 16y ago
  Passing on random financial instruments (which AIG Was a counterparty to quite a few of) is not the same thing as commenting on a social networking site or choosing to not invest in something tech related. Saying something is overvalued is buffet speak for saying "not cheap enough to be troubled" which is when he traditionally invests in things. He buys lots of family businesses upon death events, and some heavy industry suffering capital issues. Generally speaking, this precludes young firms from crossing his radar even. "Suffering capital issues" is similarly something you will rarely see in todays tech environment. Because a person is good at something doesn't mean he does everything perfectly. There are lots of great investments out there Buffet is not going to go anywhere near, that are conservative even. He definitely has a profile far more constrained than "proven business model" He's a good businessmen, no doubt about it, but because he dislikes something does not mean it's not a good bet, it just means it doesn't clearly fit into his "Nothing a little money can't fix" investment profile.

silverbax88 16y ago

And yet, people will still put money into it. Despite so many people, including very-often-right-even-when-the-economy-is-tanking Warren Buffet saying they are too expensive, people will put in money and claim ignorance and bamboozle-ment when it doesn't work out.

davidw 16y ago

IIRC, in the biography I read about him, he had the opportunity to invest in pre-IPO Intel, but turned it down because it was a market he didn't get, so he definitely does "lose some" from time to time, but on the whole, it seems to have worked out "ok" for him.

tptacek 16y ago
When we're talking about the kinds of companies BRK gets involved in, they are all businesses that you can reasonably expect to be around in 50 years. It's not just a "buy low, sell high, time the markets" strategy. To a certain, hyperbolic, extent, might not the difference between timing INTC and IPET just be granularity of time scale?
georgieporgie 16y ago
Remember the part about the airline industry talk? I can't help but see parallels in quite a lot of tech companies. In 2008, he said: The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down. The airline industry’s demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it. And I, to my shame, participated in this foolishness when I had Berkshire buy U.S. Air preferred stock in 1989. As the ink was drying on our check, the company went into a tailspin, and before long our preferred dividend was no longer being paid. But we then got very lucky. In one of the recurrent, but always misguided, bursts of optimism for airlines, we were actually able to sell our shares in 1998 for a hefty gain. In the decade following our sale, the company went bankrupt. Twice. (http://www.berkshirehathaway.com/letters/2007ltr.pdf http://www.berkshirehathaway.com/letters/2007ltr.pdf)
- biggie7 16y ago
  Airlines are capital-intensive. Software is not. Big difference.

fleitz 16y ago

That's really it, Buffet doesn't make bets, he takes sure things when no one else wants them. This is why he always under performs the market in booms and outperforms during busts. He finds the companies he likes and waits for the price to be right. There is also a lot of synergy in his investments, if you look at Geico part of the reason they are able to offer such low rates is that they park most of their excess funds with Berkshire or other similarly outperforming investments. Or look at BNSF and their trackage to the Powder River Basin. He doesn't want to be in a company like Facebook because he doesn't know that they will be around in 20 years, nor are their competitive advantages (network effect) durable within the industry. Look at a company like Coca-Cola, their advantages are durable and customer base loyal. Coca Cola doesn't need frequent drinker miles to get their customers to remain loyal. One of the highly overlooked benefits of long term investing is the tax implications and associated transaction fees. If you buy and sell stock frequently you pay capital gains so any other investment needs to be better than the one you currently have by at least the capital gains you'll pay on the sale plus the brokerage fees.