Quick: Let me ask you a question. What would you put a bet on? Which company goes to $1 trill first: Apple or Berkshire Hathaway?
Buffett: Oh, I’d bet on Apple just ’cause they’ve got a stronger position.
Category Archives: general
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
BERKSHIRE HATHAWAY INC.
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.
on BHSI
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
on BNSF
Last year, for example, in a disappointing year for railroads, BNSF’s interestcoverage 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 https://finance.yahoo.com/brklivestream. 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
Commitments
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.
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.
Müller:No need. The technology is so sophisticated that I can hear you even when I’mpeeing.ten Doornkaat:Good. Then perhaps you can come up with some answers while you’re peeing, too.(Laughter)
Tüngler: A clear opinion has emerged, which we at the DSW share, that the numbershave not been manipulated, massaged or falsified.
SimFin.com, 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 https://simfin.com/start
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
Fun with numbers: US Railroads
Some (almost) uncommented fun with numbers.
Revenues of US Railroads in USDmn:
Genesee & Wyoming: from $ 385 mn in 2005 to $ 2,000 mn ten years later
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.
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.
