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Berkshire Hathaway 2020 Annual report [pdf]
- mxschumacher 6y ago"In no way do we think that Berkshire shares should be repurchased at simply any price. I emphasize that point because American CEOs have an embarrassing record of devoting more company funds to repurchases when prices have risen than when they have tanked. Our approach is exactly the reverse." For many companies, the approach seems to be "we've paid our dividends, we have some cash left over, let's buy back our own stock" - with a complete disregard for the valuation. Buying your own shares at too high a price (see GE and US airlines) is equivalent to incinerating money, whereas buybacks at low prices (Teledyne, Apple) do wonders for returns. If you run a listed business you have to think long and hard about what your firm is worth without just looking at the market price. William Thorndike's book "The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success" [0] makes that point beautifully Right now it is interesting to observe that many companies are doing the opposite of buybacks at a record clip, the share issuance of firms like Twillio is astounding. [0] https://www.goodreads.com/book/show/13586932-the-outsiders https://www.goodreads.com/book/show/13586932-the-outsiders
- rini17 6y agoThey don't know what to do with the money, when there's no R&D anymore.
- IgorPartola 6y agoSo why not pay it out as dividends?
- votepaunchy 6y agoDividends are a forced distribution for the shareholder. With the ability to sell fractional shares, stock buybacks are equivalent to optional dividends.
- mxschumacher 6y agoAnd friendlier in regards to taxation. Doing a roundtrip of buying more shares with dividends means paying income taxes.
- jogjayr 6y agoI hear this a lot, but is it really true? For shares of US companies (or foreign companies listed on US exchanges) held for > 60 days before the ex-dividend rate, dividends are taxed at the long-term capital gains rate.[1] 1. https://www.investopedia.com/ask/answers/090415/dividend-income-taxable.asp https://www.investopedia.com/ask/answers/090415/dividend-inc...
- skybrian 6y agoThe rate may end up the same in many situations, but it’s still helpful to control the timing on when you pay long term capital gains. With dividends you’re still paying now rather than later, or perhaps never. (There’s no capital gains on donated stock or inherited stock.)
- christophilus 6y agoThe point is that you pay 0 tax until you sell. That’s better than being forced to pay long term capital gains every year on a dividend.
- IgorPartola 6y agoDo most people reinvest dividends in the same stock? What you say makes sense, but I can also see holding a stock and using the dividends for another use, for example just cash withdrawals or to buy another stock.
- yCombLinks 6y agoI don't know if it's "most people", but basically every dividend stock has a DRIP program that will automatically use your dividends to purchase shares of that stock. It's a very common strategy outside of the frenzied trading encouraged by apps like robinhood.
- ldbooth 6y agoSome would say this is equivalent to "we've got no better ideas, here, see if you can put the capital to work". Given they are known for expert capital allocation that'd undermine investor confidence.
- jacquesm 6y agoA buyback of company shares with company funds drives up the price of all the shares including those of the executives and board members making the decision.
- mxschumacher 6y agoWell, exchanging cash for an overvalued stock does not drive up prices for long. I have mentioned negative examples above
- jacquesm 6y agoIt only needs to be long enough to sell...
- lotsofpulp 6y agoI wonder if there is any measurable impact from share buybacks propping up or raising price which increases market cap which causes index funds to increase their holdings which then also props up or raises the price, etc.
- gweinberg 6y agoNo it doesn't. There are fewer shares in the company, but the company is worse less. There's no good reason to think that in general the remaining shares in a company will be worth more or less after buyback than what they would be worth if the company had simply held onto the money.
- jacquesm 6y agoTypically, when there is demand the price goes up, the stock price is not hard linked to the company value, it can lag, lead or even temporarily be correct but generally speaking it takes a while for an over or underpriced stock to catch up to the real value, long enough that there are whole industries dedicated to spotting these differences.
- esja 6y ago
- 11thEarlOfMar 6y agoI'd like to see a book about 8 CEOs who did everything wrong and wound up bankrupting the company. Not a blurb, like these 25[0], but an in-depth, biographical play-by-play. It takes decades to destroy a Blockbuster or Borders and likely there was more than one CEO involved. Decades is a long time to watch a train wreck and keep doing the wrong thing. [0] https://www.gobankingrates.com/money/business/most-epic-corporate-downfalls/ https://www.gobankingrates.com/money/business/most-epic-corp...
- 1123581321 6y agoTake a look at Jim Collins’ How the Mighty Fall. https://www.amazon.com/How-Mighty-Fall-Companies-Never/dp/0977326411 https://www.amazon.com/How-Mighty-Fall-Companies-Never/dp/09...
- sjg007 6y agoYahoo is a case study I think.
- dominotw 6y agoBut doesn't he mention how good the gains in apple ownership made by berkshire due to apples' own buyback program and their near future plans to buyback more. > repurchases when prices have risen Apple did and planning to the exact thing
- impulser_ 6y agoAnother example of good use of share issuance would be AMC. They have been raising a lot of capital during the pandemic through share issuing. Saving their business.
- ketamine__ 6y agoCharlie Munger spoke at the Daily Journal annual meeting. There wasn't a live audience this year and it felt stiff and uncomfortable.
- zrail 6y agoDupe: https://news.ycombinator.com/item?id=26285185 https://news.ycombinator.com/item?id=26285185
- mxschumacher 6y agoThis thread is older, you are linking to the duplicate
- bretpiatt 6y agoNot exactly a dupe, Annual Letter != Annual Report.
- marc__1 6y agoInteresting that there are no comments on the 750m investment in Snowflake made last year, which is now valued at 1.7b https://whalewisdom.com/filer/berkshire-hathaway-inc#tabholdings_tab_link https://whalewisdom.com/filer/berkshire-hathaway-inc#tabhold...
- deleted 6y ago[deleted]
- mxschumacher 6y agoWhat kind of commentary would you expect on such a small position?
- dominotw 6y agoIts their first pure tech play, surely deserves a mention of this major shift of their attitude towards 1. unprofitable 2.tech stocks? Surely their investors are anxious to know where they stand on it
- marc__1 6y agoThey were notoriously for buying $10.7b worth of IBM shares in 2011 and selling in 2018 for a loss north of 30% [0]. In retrospect it was an obvious mistake, but these investment decisions always are. SNOW is unique in their portfolio because it is the only investment in tech. What comes to mind is: -how and who made the investment decision (does Buffett knows how valuable Snowflake is for tech?); - will they start investing in later-stage pre-ipo companies (Stone Payments is a Brazilian fintech that is akin to Snowflake in the timing and size of committment)? [0] https://www.cnbc.com/2018/05/04/warren-buffett-says-berkshire-hathaway-has-sold-completely-out-of-ibm.html https://www.cnbc.com/2018/05/04/warren-buffett-says-berkshir...
- ijamj 6y ago> SNOW is unique in their portfolio because it is the only investment in tech. In addition to the 1.72B in Snowflake, I see 1.74B in Amazon and another 117.7B in Apple. https://www.sec.gov/Archives/edgar/data/1067983/000095012321002786/xslForm13F_X01/0000950123-21-002786-3286.xml https://www.sec.gov/Archives/edgar/data/1067983/000095012321...
- ArtTimeInvestor 6y agoI would love to see a long term comparison between Berkshires performance and a "Buy and hold the Nasdaq and reinvest the dividends" strategy. Without dividends, the Nasdaq 100 had an annualized ROI of 13.85% since 2021-03-31 which is the first date Google shows in the Nasdaq chart. Any ideas how to get data on Nasdaq with reinvested dividends?
- mdorazio 6y agoIt's going to depend on your tax rate and the expense ratio of whatever Nasdaq ETF you choose unless you're planning to self-manage 100+ company investments. Dividends get taxed (usually) as income, so you'd have to deduct that from the average dividend yield. QQQ, for example, has a 0.2% expense ratio and around 0.55% yield. If you assume 30% tax rate on the dividends, the after-tax, after-expense yield is under 0.2%, or basically negligible even with compounding. If you want to compare dividend reinvestment, you should stick to non-tech indexes.
- bulletsvshumans 6y agoIn the U.S., dividends are taxed at the capital gains rate if you’ve held the stock for a year or more. They are taxed as income only if youv’ve held the stock for less than a year.
- jedberg 6y agoAnecdotally I can tell you that lately the buy Nasdaq was a much better option. I bought VTI and BRK.B at roughly the same time, and VTI has doubled and BRK.B has had a modest return.
- tertius 6y agoWho cares about short term fluctuations?
- deleted 6y ago[deleted]