Warren Buffett 01 (May 08 - Jan 10)

[winston]

Warren Buffett's Letter to Shareholders: Bearish or Bullish? by Louis Basenese

In this issue:
Why the gloom over Omaha is overdone.
Four signs the Oracle is bullish, not bearish.
One move you can make today to invest, and eventually profit, like Warren.

Details of Warren Buffett's 2008 Letter to Shareholders have been grossly exaggerated. Most media outlets - financial and mainstream alike -opted for the anti-Bing Crosby angle - accentuating the negative, and virtually eliminating the positive.

In fact, every article I read couldn't help from latching onto this single doom and gloom line: "We're certain, for example, that the economy will be in shambles in 2009 - and, for that matter, probably well beyond."

But don't be so quick to label Mr. Buffett as a sudden convert to the permabear camp. A careful study of his most recent letter - because they all warrant much more than a casual read - reveals he is unmistakably optimistic and bullish about the future for the markets.

Four Reasons Warren Loves Stocks... And You Should, Too!

To be clear, I'm not suggesting we've hit the bottom after Monday's 299-point rout. No one will know for sure until it's too late. Instead, I'm proposing we're darn near close. And albeit this is an unpopular stance, I'll take comfort knowing Mr. Buffett is on my side...

1. "America's best days lie ahead." (pg. 3)

There is no way to misinterpret this line. As Mr. Buffett advises, "Never forget that our country has faced far worse travails in the past." Like wars, panics, recessions, "virulent inflation" and a Great Depression. And "without fail... we've overcome them." This time will be no exception. And as Mr. Buffett revealed in his October New York Times Op-ed, he's deploying up to 100% of his portfolio to stand by this conviction.

2. "Stocks recover before the economy." (pg. 4)

You've no doubt heard this market wisdom before. But it's true. Data back to 1900 confirms stock markets tend to bottom four to six months before the end of a recession. And Mr. Buffett reminds us of the same, when he explains the economy "will be in shambles throughout 2009... but that conclusion does not tell us whether the stock market will rise or fall." In other words, the market's forward-looking tendency could result in a rally while the economy still sputters along.

3. "When investing, pessimism is your friend, euphoria the enemy." (pg. 5).

No doubt we're in a period of extreme pessimism. It's yet to be determined if we've hit the point of "maximum pessimism" ala John Templeton. Nevertheless, as Mr. Buffett realizes, and so should we, "The disarray in markets [gives] us a tailwind in our purchases." Or as Alex Green wrote on Monday, "From these depressed levels, stocks will almost certainly deliver generous returns in the years ahead."

4. "Clinging to cash is a 'terrible policy'." (pg. 16)

The temptation to retreat into or cling onto cash is great right now. But it's a "terrible policy if continued for long," says Mr. Buffett. It yields close to nothing and purchasing power will surely be eroded. That's why Mr. Buffett "is always a buyer of both businesses and securities." Given his 44-year track record, with only two down years, we should take heed and be just as acquisitive.

But where should we invest to weather the tail end of the storm and position our portfolios to profit? Here, too, it pays to take cues from Mr. Buffett...

Warren Buffett: The Ultimate Dividend Investor

Aside from his self-professed blunders in 2008 - investing in ConocoPhillips and "two Irish banks that appeared cheap to me" - Mr. Buffett made four investments that will stand the test of time, although they've largely been forgotten.

He purchased $15.5 billion worth of income-generating securities from Wrigley, Goldman Sachs, Constellation Energy and General Electric.

Without getting into the specifics of each deal, just realize this, he's earning above average yields: Wrigley (9.4%), Goldman Sachs (10%), Constellation Energy (14%) and General Electric (10%) - without taking big risks.

Case in point, he's not impacted one bit by GE's recent 68% dividend cut (which I predicted here) because he invested in preferred stock.

I don't have to tell you that we don't have access or the resources to capitalize on such sweetheart deals. But we can get pretty close...

All we have to do is buy recession-proof businesses, with decades of dependable cash flows, little or no debt, steadily increasing earnings and paying handsome dividends. That's a tall order, I know. But such companies do exist.

And forget that dividend investing is not glamorous. No one ever graced the cover of Forbes for his or her sanguine dividend-stock picking skills. But that's a good thing, as Mr. Buffett explains, "Beware the investment activity that produces applause; the great moves are usually greeted by yawns."

[winston]

By Porter Stansberry, S&A Digest

Poor Warren Buffett. The world's most famous investor has gotten killed over the last year, losing about $35 billion on Berkshire's investment portfolio. It's getting worse too: Wells Fargo cut its dividend [on Friday], a move that will cost Berkshire $336 million in lost income each year.

And now Congress seems poised to pass a bill that will allow railroad customers to sue the railroads under anti-trust law. That surely means an end to the huge growth in freight rates that had powered the stocks since the late 1990s and led many hedge funds to buy huge positions in the stocks. Buffett has been buying Burlington Northern all the way down.

You have to wonder what will happen to these stocks if Congress does pass the legislation and the hedge funds all try to sell at the same time...

– Porter Stansberry

[winston]

WB is on CNBC now

[helios]

what did he say?

this sunday, i was catching up on the SnówBall book (left ~100+ pages)

in particular, i like this chapter 53, which reads:

The Genie

When i was 16, i'd just 2 things on my mind - - girls and cars, i wasn't very good wih girls. So i thought about cars. i thought about girls, too, but i'd more luck with cars.

let's say that when i turned 16, a genie had appeared to me. And that genie said, Warren, i'm going to give you the car of your choice. it'll be here tomorrow morning with a big bow tied on it. brand-new. and it's all yours.

having heard all the genie stories, i'd say: what's the catch? and the genie would answer: there's only 1 catch. This's the last car you're ever going to get in your life. so it's got to last a lifetime.

if that'd happened, i'd have picked out that car. but, can you imagine, knowing it'd to last a lifetime, what'd i do with it?

i'd read the manual about 5 times, i'd always keep it garaged. if there was the least dent or scratch. i'd have it fixed right away because i wouldn't want it rusting. i'd baby that car, because it'd have to last a lifetime.

that's exactly the position you're in concerning your mind and body. You only get one mind and one body. And it's got to last a lifetime. now it's very easy to let them ride for many years. but if you don't take care of that mind and that body, they'll be a wreck 40 years later, just like the car would be.

it's what you do right now, today, that determines how your mind and body will operate 10, 20, 30 years from now.

[helios]

page 708, he explained his "Twenty Punches" approach to investing.

"You'd get very rich. If you thought of yourself as having a card with only twenty punches in a lifetime, and every financial decision used up one punch. You'd resist the temptation to dabble. You'd make more good decisions and you'd more big decisions."

[helios]

page 741,

What is the ideal business? a shareholder asked ...


The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compunding machine.

he said, So if you'd your choice, if you could put a hundred million dollars into a business that earns twenty percent on a hundred twenty million the following year and on a hundred forty-four million the following year and so on. You could be redeploying capital at [those] same returns over time. But these are very, very, very few businesses like that ... we can move that money around from those businesses to buy more businesses.

[mocca_com]

Buffett Dismisses Stress Tests for Assessing Banks (Update1) By Betty Liu and Erik Holm

May 2 (Bloomberg) -- Berkshire Hathaway Inc. Chairman Warren Buffett dismissed the importance of the government’s stress tests of major U.S. financial institutions in helping him assess banks he invested in.

“I think I know their future, frankly, better than somebody that comes in to take a look,” Buffett said before the start of Omaha, Nebraska-based Berkshire’s annual shareholder meeting today. “They may be using more of a checklist type approach.”

Berkshire’s second-largest holding by market value after Coca-Cola Co. is Wells Fargo & Co., the biggest bank on the U.S. West Coast. Berkshire also owns stakes in Goldman Sachs Group Inc., Bank of America Corp., the biggest U.S. bank by assets, as well as U.S. Bancorp, M&T Bank Corp. and SunTrust Banks Inc. Buffett says he judges banks by their “dynamism” and their ability to gather deposits.

“If you look at Coca-Cola today, for example, and just looked at a balance sheet, it wouldn’t tell you anything at all about Coca-Cola,” the billionaire investor said. “It’s what the product is.”

The 19 banks in the stress tests, designed to show whether they need more capital to withstand a deterioration of economic conditions, hold two-thirds of the assets and more than one-half of the loans in the U.S. banking system, according to a Federal Reserve study released April 24.

The tests, originally scheduled for release on May 4, are set to be disclosed after U.S. markets close on May 7, according to a government official who spoke on condition of anonymity.

Preliminary Results

The banks received preliminary results last week and have been debating the findings with regulators. Officials favor tangible common equity of about 4 percent of a bank’s assets and so-called Tier 1 capital worth about 6 percent, people familiar with the tests say. Tangible common equity, or TCE, is a gauge of financial strength that excludes intangibles such as trademarks that can’t be used to make payments. Tier 1 capital is a broader measure monitored by regulators.

“With banking, low cost money is the key,” Buffett said. “My guess is that would not be weighted like a whole bunch of little ratios of this or that.”

“If you are producing your money currently at roughly 1 percent, which the best of them is, and somebody else is producing it at 2 percent, that’s exactly like a copper line that has a $1 a pound cost versus a $2 a pound cost,” Buffett said. “That’s hugely important over time.”

To contact the reporters on this story: Erik Holm in Omaha at [email protected]; Betty Liu in Omaha at [email protected]

[kennynah]

in essence and an over simplification, if i am not wrong, this guru bases his investment judgement on his years of experiences founded on common sense...

[iam802]

Buffett Dismisses Stress Tests for Assessing Banks (Update1)

http://www.bloomberg.com/apps/news?pid= ... refer=home

May 2 (Bloomberg) -- Berkshire Hathaway Inc. Chairman Warren Buffett dismissed the importance of the government’s stress tests of major U.S. financial institutions in helping him assess banks he invested in.

“I think I know their future, frankly, better than somebody that comes in to take a look,” Buffett said before the start of Omaha, Nebraska-based Berkshire’s annual shareholder meeting today. “They may be using more of a checklist type approach.”

....

[cif5000]

Buffett Is Less Bullish on U.S. Than You Think: Alice Schroeder

http://www.bloomberg.com/apps/news?pid= ... gpE2pRx5eU