Some Quotes from Warren Buffett’s 2016 Berkshire Hathaway Annual Report

Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. – Warren Buffett, 2016 annual report


Some notes/Quotes I made during reading the annual report:


on Berkshires intrinsic value
By our estimate, a 120%-of-book price is a significant discount to Berkshire’s intrinsic value, a spread that is appropriate because calculations of intrinsic value can’t be precise.
 on insurance business
For example, if the insurance industry should experience a $250 billion loss from some mega-catastrophe – a loss about triple anything it has ever experienced – Berkshire as a whole would likely record a large profit for the year. Our many streams of non-insurance earnings would see to that. Additionally, we would remain awash in cash and be eager to write business in an insurance market that might well be in disarray. Meanwhile, other major insurers and reinsurers would be swimming in red ink, if not facing insolvency.
GEICO’s growth accelerated dramatically during the second half of 2016. Loss costs throughout the auto-insurance industry had been increasing at an unexpected pace and some competitors lost their enthusiasm for taking on new customers. GEICO’s reaction to the profit squeeze, however, was to accelerate its new-business efforts. We like to make hay while the sun sets, knowing that it will surely rise again.
We expected significant losses in the early years while Peter built the personnel and infrastructure needed for a world-wide operation. Instead, he and his crew delivered significant underwriting profits throughout the start-up period. BHSI’s volume increased 40% in 2016, reaching $1.3 billion
Last year, for example, in a disappointing year for railroads, BNSF’s interest
coverage was more than 6:1.
To supply a very crude measure, however, our revenue per ton-mile was 3¢ last year, while shipping costs for customers of the other four major U.S.-based railroads ranged from 4¢ to 5¢.
on BH Energy
Low prices are a powerful way to keep these constituencies happy. In Iowa, BHE’s average retail rate is 7.1¢ per KWH. Alliant, the other major electric utility in the state, averages 9.9¢.
on “Forever-Stocks”
Sometimes the comments of shareholders or media imply that we will own certain stocks “forever.” It is true that we own some stocks that I have no intention of selling for as far as the eye can see (and we’re talking 20/20 vision). But we have made no commitment that Berkshire will hold any of its marketable securities forever.
on dividends vs. capital gains
Berkshire, like most corporations, nets considerably more from a dollar of dividends than it reaps from a dollar of capital gains.
on Jack Bogle
He is a hero … to me.
on Berkshires annual meeting
The annual meeting falls on May 6th and will again be webcast by Yahoo, whose web address is The webcast will go live at 9 a.m. Central Daylight Time.

Random thought on selling stocks

Circle of Competence don’t means that you have to know everything about a company and you will do fine for me – you also have to know yourself – how will you react under pressure, under seductions? As Ben Graham have written, you can find the biggest danger for your portfolio in the mirror.

One of the hardest tasks in investing is finding out how to act right when selling a stock. With this article I will look at the difficulties and forces that come into play when I’m thinking of how to sell a stock. I hope this will make me better in that area.


Beeing aware of some psychological pitfalls


If people commit, orally or in writing, to an idea or goal, they are more likely to honor that commitment because of establishing that idea or goal as being congruent with their self-image. Robert Cialdini on Wikipedia

Seeing oneself as a value-investor and buying a stock is a perfect commitment according to Cialdini. Buying a stock is linked with:

  • creating a self-image (I am a value investor who is practising buy-and-hold)
  • effort (you research, you push the buy-button, you pay the money)
  • a decision
  • (maybe) making your decision public (blog, friends, your broker)

Once a commitment has been made, the psychological program that is called “I made that decision-I will stand to it” starts working. You can imagine easily how this affects the selling of an already owned stock.

Continue reading

Some links and some HealthCareStocks worth a look

  • Gannon and Hoang writing about MSC Industrial Direct (MSM): A Metalworking Supply Company (link)
  • The Brooklyn Investor Blog is active again (link I), (link II)
  • I believe my pig whistles: Muddy Water, who famously short Ströer, released Ströer AGM Transcript (link)

ten Doornkaat: You then said you had an investigation conducted by Ernst & Young (EY). This is the same company that prepared the annual financial statements. What did you expect? That they would come forward and say, Oops, sorry, we’ve made a mistake, we’re returning our auditor’s licence to practice? This is laughable.

No need. The technology is so sophisticated that I can hear you even when I’m
ten Doornkaat:
Good. Then perhaps you can come up with some answers while you’re peeing, too.
Tüngler:  A clear opinion has emerged, which we at the DSW share, that the numbers
have not been manipulated, massaged or falsified.


Continue reading, the Wikipedia for financial data – free

Today I found a new, free source of financial data that I want to share with you:
SimFin is a crowd-sourcing platform for free high quality fundamental financial data.  Access the SimFin application at
What I like the most about this service is, that they use the original reporting form. Usually free databases provide standardised numbers like Revenue, EBITDA, EBIT and Operating Income. Here you can choose between a standardised version and the original reporting form.
For example they provide the revenue data for Tesla Motors Inc. sorted by “Automotive” and “Services and other” or for GoldmanSachs Group Inc. you get the revenue sorted by  sectors like “Investment banking “, “Commissions and fees  ” and so on … this gives you a better overview about the special character of a business.
The numbers are sorted in Income statement, Balance Sheet and Cash Flow Statement.

Some links:

Berkshire Hathaway (link)
J M Smucker (link)
GoldmanSachs (link)
Nice service: when you like what you see you can download the data as excel spreadsheet!
As always, the problem with every Wikipedia-like database is that everybody can write false articles/data in it. So before making big decisions, please double-check the data. For getting a first overview about a company this service seems perfect. Did I already mentioned that the service is free?
Note: The Service is in Beta stadium. Sometimes the system is not working fast and there is not all data available

Hormel Foods 2Q 2016

Hormel Foods Corporation is an American food company based in Austin, Minnesota. Hormel sells food under many brands, including the Chi-Chi’s, Dinty Moore, Farmer John, Herdez, Muscle Milk, Jennie-O and many more.

From the Hormel Foods 2Q 2016 report

The company reported fiscal 2016 second quarter record net earnings of $215.4 million, up 20 percent from net earnings of $180.2 million last year. Diluted earnings per share for the quarter were $0.40, up 21 percent from $0.33 last year. Sales for the quarter were $2.3 billion, up 1 percent from last year.

The stock lost about 8,5% on that news – wall street is a crazy planet.

I played around with some numbers. I am calculating with an EPS of 2,11 US$ for 2020 which is a very conservative assumption. Considering a PE-ratio of 16 (decreasing ratio, this could be wrong) in the future the stock would sell at 33,76 US$ in year 2020 – which is lower than now.

Hormel 2Q16

 Effective May 16, 2016, the company paid its 351st consecutive quarterly dividend, at the annual rate of $0.58.

At 35,48 USD for the share the dividend yield is at 1,6%

Hormel Foods is without questions a high-quality business but for me it is selling at a to high price, even after the drop yesterday.


Disclaimer: The content contained on this site represents only the opinions of its author(s). I may hold a position in securities mentioned on this site. In no way should anything on this website be considered investment advice and should never be relied on in making an investment decision. As always please do your own research!

Some links

Bayer AG is exploring a potential bid for U.S. competitor Monsanto Co. (link)

The Staples/Office Depot Merger got killed (link). I am curious how/if this will affect the Walgreen’s/Rite Aid merger and how the merger will turn out in general

Famous short seller Jim Chanos on Cheniere, Energy Industry and LendingClub

Royal Dutch Shell’s net debt is the largest of any company in western Europe (here)

Nordstrom, Fossil Group Inc and some other took a beating last week (link)(link2)


And additionally some interesting financial history documents:

Enron annual report 2000 (here) note: bankruptcy on December 2, 2001

WorldCom annual report 2002 (here) note: On July 21, 2002, WorldCom filed for Chapter 11 bankruptcy protection


Foot Locker, Inc: buy

I have already looked at Foot Locker Inc here and now have researched the shoe retailer further. And I mostly liked what I saw. This are my additional notes as pros and cons:


Of course not everything is clear in the future: I am a bit concerned that their profitability will go down in a “reverse to the mean” manner – maybe their success will attract competitors and copycats. On the other handit seems like they have some fanbase (link, german)

Eddy Elfenbein today wrote this:

One area of concern for the economy and the market is consumer spending. This week, several retail stocks fell sharply after Macy’s and Nordstrom reported disappointing sales … The online retailing giant seems to gobble up everything in its path. This week, Amazon broke $700 per share.

I see eCommerce as threat to them but people mostly buying shoes in stores because they want them to fit. At least that’s the case with me (and I am buying online lot). Nevertheless this is clearly something to have an eye on in the future.


They have a strong Cash Flow, low debt and net cash. And they have grown nicely (Sales & Sales per Gross Square Foot ) in the past few years. The management have definitely done a lot of things right in the past.

I looked at their 2011 annual report (wich includes the numbers from 2007 till 2011) and they got quite passable through the financial crisis. Revenues were down but I think that’s O.K. – they recovered quickly.

As seen on Insider Monkey:

…Foot Locker also received a boost of confidence from the hedge fund community as a whole, as 35 of the funds followed by Insider Monkey held a position in the company at the end of 2015, up from 25 registered a quarter earlier. Foot Locker, Inc. (NYSE:FL) has a market cap of $8.62 billion and pays an annual dividend of $1.02 per share, the equivalent of a 1.78% dividend yield….

…Billionaire Ken Griffin is also bullish on Foot Locker, Inc. (NYSE:FL), with his fund Citadel Investment Group having reported a massive increase in its Foot Locker holding over the fourth quarter, to 2.75 million shares.


Some more fun with numbers:

I looked at their debt situation to define a discount rate: Morningstar Debt/Bonds overview FL

They have a year 2022 – 8.5% bond outstanding which is currently trading at 4.93% yield to maturity. I assumed a 6.5% discount rate for the equity.

I calculated with the assumed sell price for the year 2020 which I see at 107,85$ (of course things could turn out quite different). I discounted this price with a rate of 6,5% and came up with a “net present value” of about 82$. (note: this calculation does not include or consider dividends).

Discount Rate
2020 107,85
2019 100,83
2018 94,28
2017 88,15
2016 82,42
NPV 82,42
Current price 63,2
Upside 30%

Bottom line:

Considering the stock is now somewhere around 60 US$, this produces a 30% upside. So I bought a small amount.

The buy in Portfolio context:

As the market has rallied (or at least not crashed) for about 7 years and I defiantly want to have enough cash arround. So I bought just a small position for my portfolio. I am willing to add to the Position if the price will decline while the business-outlook stays the same. This Investment case needs at least some modest growth to turn out well.



The content contained on this site represents only the opinions of its author(s). I may hold a position in securities mentioned on this site. In no way should anything on this website be considered investment advice and should never be relied on in making an investment decision. As always please do your own research!

Some links

Aswath Damodaran is trying to value Valeant (link here)

Jim Chanos on Idea Generation Through Pattern Recognition (link)

Gannon and Hoang writing about Grainger & Moats around Ad Agencys

A list of the 100 Highest Paid CEOs (link)

A list of the most heavily shorted stocks (link)