Warren Buffett Watcher

Warren Buffett isn’t all about finance and investing. He is often quiet in his political beliefs, but his interest in politics spans back decades. He even surprised some by giving a public endorsement of presidential candidate Barack Obama recently (that should say something to those who wonder about Obama’s fiscal policies). Here are 6 political books that Warren Buffett recommends:

1. In an Uncertain World: Tough Choices from Wall Street to Washington by Bob Rubin
2. Nuclear Terrorism: The Ultimate Preventable Catastrophe by Graham Allison
3. The Audacity of Hope: Thoughts on Reclaiming the American Dream by Barack Obama
4. Will America Grow up Before it Grows Old : How the Coming Social Security Crisis Threatens You, Your Family and Your Country by Peter G. Peterson
5. Epidemic of Care: A Call for Safer, Better, and More Accountable Health Care by George C. Halvorson

Five (or Six) Political Books That Warren Buffett Recommends | Business Pundit

In his annual report for Berkshire Hathaway, top investor Warren Buffett acknowledged that financial statements require a degree of guesswork. Buffett has made a fortune looking at financial statements and balance sheets and predicting the future direction of companies, but he is now making it clear that not all the information is out there, and sometimes we just have to make a guess that makes the most sense.

For more information from the Berkshire Hathaway Annual Report, refer to the companies website. You’ll find this year’s annual report, along with reports from past years. Unlike most annual reports from big companies, Berkshire reports are actually an education read for both novice and expert investors.

Sunday Funnies: Buffett makes his best guess - BloggingStocks

I’d be a bum on the street with a tin cup if the markets were always efficient.
- Warren Buffett

The fact that people will be full of greed, fear or folly is predictable. The sequence is not predictable.
- Warren Buffett

These are just two of many Buffett gems found in this collection of Buffett quotes.

I found a great post over on DoughRoller.net comparing the investment value of Berkshire Hathaway stock versus a mutual fund. Although the popular holding company run by Warren Buffett may seem a lot like a mutual fund, there are some fundamental differences that can make Berkshire Hathaway the better investment.

Many people hear about Berkshire Hathaway and immediately think “I can’t afford that stock.” That’s poor financial thinking, because the actual price of a stock has very little relation to the value of the company or whether or not you should be buying it. Although the Berkshire Hathaway A shares make the headlines with their six figure price per share, there is also a B share option that is exactly the same as the A shares but 1/30th the price. It’s basically a smaller piece of the same pie.

The main reason that Berkshire Hathaway is better than a mutual fund is the low cost. There’s no 1% (or more) fee that you’ll see on almost all mutual funds on a stock like Berkshire. The costs of running Berkshire for a year are less than 1/100th of 1% the value of the company.

Other factors that make Berkshire a good investment are taxes (no dividends from Berkshire mean no taxes until you sell the stock) and the diverse selection of companies owned by the holding company. Sure, they tend to not own those fast-rising internet stocks that also tend to crash back down to earth in short time, but the companies they do own range from insurance to newspapers to steel makers to Coca Cola. A little bit of everything, and only the companies that some of the best investors in the world agree are long-term money makers.

Here’s a link to the DoughRoller post.

Warren Buffett has rode the waves of wise investments back to the #1 spot on Forbes annual list of the world’s richest men. His personal wealth grew by $10 billion last year, from $52 billion to $62 billion. Mexican telecom mogul Carlos Slim came in second place with $60 billion in personal assets. Bill Gates is down to #3 after spending the past 13 years at #1.

Buffett announced last year that he would be donating the majority of his accumulated wealth to the Bill & Melinda Gates Foundation, a charity that funds major projects around the world - most of them health related.

Berkshire Hathaway CEO Warren Buffett is looking for a successor. No, he’s not looking for someone to take all his money. He just wants someone to run his company when he’s gone.

The successful candidate for this job will have most of the skill that Warren Buffett possesses. Those include investment savvy, people skills, and lots and lots of patience. This is not a job for someone who loves to buy and sell stocks. It’s a job for someone who enjoys researching companies and discovering value. Berkshire Hathaway is big on buying good companies, not on selling bad ones.

It can be safe to say that Buffett looks at fewer stock price charts in a given month than most investors do in a day. The price of a stock is only relevant when its bought. The numbers that matter before a purchase include revenue and market share.

Warren Buffett is one in a million, maybe one in a billion. People who think they can do what Warren Buffett does are a dime a dozen. Good luck with the search, Mr. Buffett.

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I found this invaluable list of Berkshire Hathaway shareholder letters from 1977 through 2005. These will take a long time to read. I would suggest reading one per night for the next month. Really take your time with them. Buffett likes to keep things simple, so the ideas from these letters will not be over your head, even if you are a novice.

These letters alone are worth more than a collection of a dozen other investment tips books, or hundreds of “get rich quick” books and newsletters. Simplicity in investing at its best, and proof that you don’t (and shouldn’t) need to trade stocks every hour, or every day, or even every month to be a solid investor. The next time someone tells you value investing is boring, ask them, “what’s so boring about Warren Buffett’s multi-billion dollar fortune?” Point out how many new Ferraris it could buy.

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Yesterday, I looked at how Warren Buffett thinks. Today, we take a look at how he does it. Here are some of his preferred methods:

Return on Equity = Net Income / Shareholder’s Equity. Look at this stat over 10 years for a company. Yes, that does involve a lot of math. You need to understand how this type of investing works and the time it involves.

Debt Equity Ratio = Total liabilities / shareholder’s equity. You want a low number here. A high number indicates the company is financing itself with debt. That means they are more volatile, and interest rate hikes could hurt this company more than a competitor without as much debt.

Profit Margin = Net income / net sales. Is this number high? Is it increasing? That would be a very good sign. These numbers usually only increase when management has firm control over costs while at the same time driving good sales numbers.

Other questions (and Buffett’s preferred answers):
Has the company been around for 10 years or more? (Yes)
Does the company rely heavily on one commodity, such as oil or steel? (No)
Is the stock selling at a 25% discount to real value? (Yes)

This is not set in stone. You can go back and find many great Buffett investments that did not meet this criteria. That said, if you can find a few stocks that meet everything above, you will have a very good chance of seeing nice returns over the next few years.

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I had to revisit the “How to Think Like Warren Buffett site, because I think it’s a great resource for investors everywhere. The ideas behind Buffett’s investments are much more important than their names or even how they performed in the long run. Trying to copy Buffett’s success by investing in what he’s bought recently is about as useful as trying to win the World Series by signing players from the 1975 Cincinnati Reds. What was good once may be on social security now.

Berkshire Hathaway’s success can be traced to the kind of investments they make. People call their investments old-fashioned, centered around companies that make things like food and furniture. That statement might be partially right, but it misses a key concept. Buffett has always preferred investing in companies that he can understand. He wants to know how they make their money, what their market is, what the rational future expectations might be. Older companies just tend to be simpler to understand.

A candy maker pays for sugar, other ingredients, and manufacturing equipment, along with employee wages. Their revenue comes from selling the candy. They will probably also have marketing costs. Add up the revenue and subtract the costs and you’ve got a good idea how much money they make.

Check out the trackback for more information on thinking like Buffett, although I doubt anyone can really get into his mind. I’m told he’s always been a bit of a savant with numbers, with the ability to look at a balance sheet and figure out what numbers look wrong in mere seconds. It was a feat his mentor, Benjamin Graham, was also known for, although not on Buffett’s level. In order to make up for that lack of skill, you’ll have to put in even more hours pouring over the numbers.

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Warren Buffett is very rich. Even after giving away most of his fortune to the Bill and Melinda Gates Foundation, he’s still worth billions of dollars. Don’t say that he just gave that money away for the tax write-off. Buffett’s never been about that kind of thing.

He doesn’t hire some hot-shot tax advisor to do his taxes, even though they probably could have saved him billions of dollars through the years. He just receives the paperwork from the IRS in the mail, fills it out, and sends the government the millions of dollars he owes them. Does he complain about his taxes? Hardly. The only thing he complains about is the taxes the secretaries and clerks that work for him have to pay.

Buffett recently looked at the taxes paid by people who work in his office. As a percentage of their income, the secretaries and clerks pay more in taxes than Warren Buffett, a man who could never spend all the money he has in a dozen lifetimes. That’s not fair, says Buffett.

In class warfare, the wealthy class will always find a way to win economically. That’s why the rich pay less of their income in taxes than the poor. Increasing the tax on income above $5 million by 5%, for instance, would likely erase the federal deficit. Would anyone really feel that kind of tax? Probably not. For a person who made $100 million last year (and yes, there were plenty who did), it would mean an increase of less than $5 million. When you’re pulling in $100 million a year, $5 million isn’t going to break the bank. Add in the rest of their tax bill, and they’ll still have a good $50 to $60 million to throw around on their yacht or Italian roadster.

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