MONEY Warren Buffett

Was Warren Buffett Wrong About Google?

Warren Buffett, chief executive officer and chairman of Berkshire Hathaway Inc.
Brendan McDermid—Reuters Warren Buffett, chief executive officer and chairman of Berkshire Hathaway Inc.

Buffett and Munger may have been too optimistic about Google’s moat.

Warren Buffett and Charlie Munger have long gushed about Google’s GOOGLE INC. GOOG -1.42% dominance in Web search. Munger in 2009 said he had “probably never seen such a wide moat,” according to MarketWatch‘s reporting of Berkshire Hathaway’s BRK 0% shareholder meeting that year. At the same meeting, Buffett called Google’s business model “incredible” and intimated that he also believed the company had a sizable moat.

Six years later, Google’s once-impenetrable moat is showing signs of drying up. The company is struggling to maintain market share in Web search as the number of mobile apps and specialized search engines multiplies. Google needs fresh innovations to maintain its massive lead in search.

Google’s leaky moat

More than a decade after its initial public offering, Google is still dependent on its search-based advertising platform for the vast majority of its revenue. Over 68% of Google’s 2014 revenue came from advertisements served on its own websites (Google.com, YouTube, Google Finance, etc.), and its main search engine is still the crown jewel of the company.

Google is the undisputed leader in web search, but its moat may be narrowing. In January, Google’s U.S. market share slipped to below 75% for the first time StatCounter started tracking data in 2008. Compounding the problem, cost per click — what advertisers pay Google each time a user clicks on its search ads — has been declining for several quarters, falling 8% in the fourth quarter. Although the number of paid clicks is increasing, falling market share and cost per click are challenging Google’s growth expectations.

Internet in transition

Google’s main problem stems from the proliferation of new and better ways to search the Web. For instance, Web users increasingly employ specialized search engines, such as Amazon.com and Kayak, to search for certain information instead of using Google. As the Internet matures, niche search engines might direct more searches away from Google’s generalized system — turning Google’s recent market share struggles into a long-term secular trend.

The same trend toward specialized search engines is engulfing the mobile space as well. Users are increasingly turning to mobile apps like Yelp’s to make targeted searches. Yelp averaged 72 million monthly mobile unique visitors in the fourth quarter of 2014, up 37% from the year-ago quarter. Cumulative reviews grew 35% in 2014 to 71 million. While Google has responded to threats from Yelp with Google+ Local, it must continue to outmaneuver its competitors in order to maintain its mobile market share.

For now, Google maintains an outstanding 84% mobile market share, according toStatCounter. Mobile search now accounts for 29% of all search activity, according to a report by comScore,. which says smartphone searches grew 17% and tablet searches grew 28% in 2014, while desktop searches declined 1%. The increasing number of mobile searches is putting downward pressure on Google’s cost per click. Mobile ads are smaller and harder to fit on a screen than desktop search ads, thus making them a less profitable advertising avenue. As mobile searches ramp up, Google’s cost per click is declining — falling 10% in 2013 and 7% in 2014 for Google’s websites. This is the single biggest sign that Google’s moat might not be durable.

Was Buffett wrong?

Despite its challenges in mobile ad monetization, Google is still a strong and growing company. Paid clicks on Google websites increased 29% in 2014, more than offsetting its single-digit decline in cost per click and powering an 18% increase in advertising revenue.

However, investors shouldn’t let Google’s revenue growth mask its deteriorating cost-per-click numbers. If the metric continues to decline, Google’s profitability is sure to follow. This could be why Buffett hedged his stance at Berkshire’s 2012 annual shareholder meeting, telling investors, “I would not be at all surprised to see [Google] be worth a lot more money 10 years from now, but I would not buy [it]. I sure as hell wouldn’t short [it], either.”

Buffett knows Google has a powerful business model, but investors shouldn’t take its booming growth for granted. If Google fails to find a more profitable model for mobile search, long-term shareholders could be left holding a busted growth stock.

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MONEY Warren Buffett

Why History Will Forget Warren Buffett–But Investors Never Will

Billionaire investor Warren Buffett
Bill Pugliano—Getty Images

Unlike the great business moguls of America's past, Buffett didn't invent a product or process that will live on in perpetuity.

How will historians write about Warren Buffett 100 years from now? Will they treat him like the magnificent Commodore Cornelius Vanderbilt? Or will the 84-year-old multibillionaire play a more muted role in history books, akin to the venerated Gilded Age stock operator Henry Clews? I believe it will be the latter. While Buffett’s shareholder letters secure his place in the minds of curious future investors, his unique role in American finance, coupled with the fate of his fortune, seems to ensure a subdued legacy.

Buffett’s contribution is hard to define

It would be silly to argue that Buffett isn’t one of the most accomplished Americans alive today. He transformed an ailing textile company into a vast conglomerate holding dozens of profitable subsidiaries. His investment returns over half a century are second to none. He taught millions of people how to invest in a prudent yet lucrative manner. And he acted as a savior during the worst economic downturn since the Great Depression, injecting billions of dollars into ailing businesses during the financial crisis of 2008-2009.

But unlike the great business moguls of America’s past, Buffett didn’t invent a product or process that will live on in perpetuity. Vanderbilt gave us steamship lines, the New York Central Railroad, and New York City’s Grand Central Station. Carnegie industrialized steel, paving the way for skyscrapers and the Golden Gate Bridge. Ford popularized mass production and democratized the automobile. Even J. P. Morgan, while playing a similar role to Buffett’s, put America’s financial sector on the map by supplanting the Rothschilds and Baring brothers at the summit of global finance.

By comparison, Buffett’s contribution is more elusive. As William Thorndike points out in The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success, Buffett’s innovation consisted of using insurance float to fund a corporate conglomerate. It was brilliant, and others have since copied this approach — most notably, hedge fund manager David Einhorn and the team at Markel Corporation — but outside of finance, Buffett’s innovative use of float is difficult for the average person to grasp and all but impossible to copy.

Forgoing dynasty and monuments to wealth

Buffett also decided nearly a decade ago to donate the lions’ share of his now $71 billion fortune to philanthropic organizations. He explained at the time that neither he nor his late wife Susan Buffett ever wanted to give their children dynastic wealth. “Our kids are great,” Buffett told Fortune’s Carol Loomis. “But I would argue that when your kids have all the advantages anyway, in terms of how they grow up and the opportunities they have for education, including what they learn at home — I would say it’s neither right nor rational to be flooding them with money.”

This decision puts Buffett in rarefied company. It elicits comparisons to Carnegie, who, at the age of 65, sold his empire to a J. P. Morgan-controlled trust, known today as U.S. Steel, and spent the rest of his life giving away his fortune. Or to Alfred P. Sloan, the one-time head of General Motors who, childless like Carnegie, used his fortune to endow an array of philanthropic organizations that continue to finance the arts, education, and science 50 years after his death.

But what distinguishes Buffett’s charitable giving from the likes of Carnegie’s and Sloan’s is its anonymity. The Ford family created the Ford Foundation. J. Paul Getty created the J. Paul Getty Trust. Robert Wood Johnson, a founder of Johnson & Johnson, has the Robert Wood Johnson Foundation. All of these people also have libraries, university buildings, museums, and performing arts centers that conspicuously bear their names. Meanwhile, Buffett is giving most of his wealth to the Bill and Melinda Gates Foundation.

Along these same lines, there’s little reason to believe that Buffett will leave behind grand residences or other monuments that will keep his achievements fresh in the minds of future generations. John D. Rockefeller built the Kykuit mansion. Two of Cornelius Vanderbilt’s grandsons constructed the Biltmore Estate and The Breakers. And J. P. Morgan’s library and mansion continue to occupy almost an entire city block in midtown Manhattan. Tens of thousands, if not hundreds of thousands, of tourists visit these residences every year. Yet Buffett still lives in the same five-bedroom house on Omaha’s Farnam Street that he purchased for $31,500 in 1958.

Buffett’s gift to future generations

What Buffett will leave, of course, are his letters to the shareholders of Berkshire Hathaway. These overflow with pithy anecdotes and invaluable lessons about investing, and they’re written in a style that’s accessible to even novice investors. They teach us the importance of being “greedy when others are fearful and fearful when others are greedy.” They introduce the concept of a durable competitive advantage. And they drive home the point that it’s “far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

However, while Buffett’s writings are destined to live on in perpetuity, they will eventually be familiar to only a small niche of investors. The legacy of Henry Clews, the famed money manager from the Gilded Age, serves as a revealing analogy. Like Buffett, Clews was brilliant, generous with his knowledge, and conscious to communicate the lessons he learned in accessible language. And like Buffett, Clews — though to a lesser degree — was financially successful and widely respected by his peers. But even though Clews went on to write the eminently readable and instructive classic on investing 50 Years in Wall Street, few people today have heard Clews’ name, and even fewer are familiar with his writings.

All of this isn’t to say that Buffett doesn’t deserve a greater role in history books than he seems likely to get. He personifies the American dream, second only to Benjamin Franklin. He achieved phenomenal success, becoming the world’s second-richest person without compromising his integrity or losing his humility. Yet by forgoing the opportunity to create dynastic wealth, choosing instead to vest his friend Bill Gates’ organization with the lion’s share of his fortune, Buffett has all but ensured for himself a diminished role in the minds of subsequent generations.

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MONEY Warren Buffett

The One Thing Warren Buffett is Wrong About

Warren Buffett, CEO of Berkshire Hathaway
CNBC—NBCU Photo Bank via Getty Images Warren Buffett, CEO of Berkshire Hathaway

Buffett's personal bias seems to be interfering with his judgment in food stocks.

Warren Buffett cannonballed through the food industry once again this past week, orchestrating a merger of Heinz and Kraft Foods KRAFT FOODS GROUP INC. KRFT -0.79% to create the world’s third-largest food company.

Buffett’s Berkshire Hathaway BRK 0% conglomerate and partner 3G Capital, a Brazilian investment firm, will pay a special dividend to Kraft shareholders worth $10 billion, and Kraft shareholders will own 49% of the new company while Heinz, which was acquired by Buffett and 3G Capital in 2013, will hold 51%.

This is far from Buffett’s first foray into the food business, but the deal seems questionable at a time when more Americans are shunning the packaged processed foods that Kraft is known for such as Velveeta and Lunchables, and its sales have been flat in recent years. Still, Kraft is a typical Buffett target with its portfolio of well-known brands and easy-to-understand business model. Berkshire is also a major holder of Coca-Cola COCA-COLA COMPANY KO -0.44% , and owns Dairy Queen, after acquiring it in 1997.

Buffett is a big personal fan of these brands, and readily admits that he eats “like a six-year old.” He has said he’s a regular consumer of Heinz ketchup, and Dairy Queen. He drinks at least five Cokes a day, regularly munches on Potato Stix, and told Fortune he had a bowl of chocolate chip ice cream for breakfast the day of the interview. Perhaps the octogenarian’s tastes may be clouding his judgement when it comes to his investments in the food world.

Coca-Cola COCA-COLA COMPANY KO -0.44% , for example, was one of the best performing stocks of the 20th century, but as soda consumption has fallen in the last decade, the stock has languished in recent years. Over the last five years, it’s returned 44%, against the S&P 500’s 74%, while in the last two years Coke is down 1%, compared to a 32% gain for the broad-market index. As long as people are turning away from soda, Coke’s prospects look poor.

In 1997, Buffett bought Dairy Queen for $585 million. At the time, it had 6,200 restaurants under its banner. Nearly 20 years later in 2014, it has only grown to about 6,500. As a minor subsidiary, Berkshire doesn’t break down Dairy Queen’s financial performance, but its average sales per store was just $659,000 in 2013, below most major fast-food competitors. Growth in individual stores has also significantly trailed the industry. In that time, McDonald’s, for example, has grown from about 23,000 restaurants worldwide to over 35,000. Fast casual chains have boomed as Chipotle Mexican Grill went from a handful of stores in 1997 to a valuation north of $20 billion today. Buffett may have gotten a good price for Dairy Queen, but the business is past its prime.

Heinz has only been under Buffett’s auspices for less than two years, but sales have been falling recently.

Like the recent Duracell deal, Kraft is yet another low-growth company with a strong brand. 3G has shown a knack with such businesses before, applying its playbook of cost-cutting and international expansion to ramp up profits. It worked with Anheuser Busch-InBev, and Heinz managed to grow profits last year. The group is now trying to pull the same trick with Restaurant Brands International, the result of the merger of Burger King and Tim Horton’s.

That may be the saving grace in the deal for Kraft, but the $10 billion dividend still seems like a generous gift for a company with flat sales that was valued at $35 billion before the deal was announced. If 3G can wring more profits out of Kraft, then perhaps the deal will pay off, but the business itself — with its products losing shelf space to organic competitors — looks weak. For a master of the deal like Buffett, the merger may pay off, but a Heinz-Kraft stock looks unappetizing for the average investor.

MONEY Warren Buffett

Investing Advice from Warren Buffett’s Right-Hand Man

Berkshire Hathaway Chairman and CEO Warren Buffett, right, and his right-hand-man, Charlie Munger.
Nati Harnik—AP Berkshire Hathaway Chairman and CEO Warren Buffett, right, and his right-hand-man, Charlie Munger.

Words of wisdom from Charlie Munger, vice chairman of Berkshire Hathaway.

There aren’t many iron rules of investing, but one of them is “When Charlie Munger speaks, drop everything and listen.”

Munger, the 91-year-old billionaire vice chairman of Berkshire Hathaway, has two amazing traits: He’s brilliant, which gives him authority, and he’s rich and old, which amplifies freedom of speech to a level most of us couldn’t get away with. He says what’s on his mind without fear of offending anyone. It makes him one of the most quotable investors of all time.

Munger gave a talk this week at the Daily Journal, where he’s chairman. Investor Alex Rubalcava took notes. Here are some great things Munger said (my comments below).

“I did not succeed in life by intelligence. I succeeded because I have a long attention span.”

Time is the individual investor’s last remaining edge on professionals. If you can think about the next five years while most are focused on the next five months, you have an advantage over everyone who tries to outperform based on sheer intellect.

“The finance industry is 5% rational people and 95% shamans and faith healers.”

There are few other industries in which people are paid so much to be so consistently wrong while clients come back for more without demanding any change.

“I think that someone my age has lived through the best and easiest period in the history of the world.”

People ignore the really important news because it happens slowly, but obsess over trivial news because it happens all day long. News headlines will forever be dominated by pessimism, but by almost any metric we are living through the greatest period in world history.

“When things are damn near impossible, maybe you should stop trying.”

Related: Everyone should know the difference between patience and stubbornness. Patience is the willingness to wait a long time while remaining open to changing your mind when the facts change. Stubbornness is the willingness to wait a long time while ignoring and dismissing evidence that you’re wrong.

“Other people are trying to act smarter. I’m just trying to be non-idiotic.”

Napoleon’s definition of a military genius was “The man who can do the average thing when all those around him are going crazy.” It’s the same with investing: You don’t have to be brilliant, you just have to consistently be not stupid.

“If the incentives are wrong, the behavior will be wrong. I guarantee it.”

Anyone criticizing the behavior of “greedy Wall Street bankers” underestimates their tendency to do the same thing if offered an eight-figure salary.

“I don’t spend too much time thinking about what is almost certain never to happen.”

This likely includes: accurate economic forecasts, stable markets, consistent outperformance, reasonable politicians, and hyperinflation.

“I don’t think anything that any average person can do easily is likely to be worthwhile.”

Good investing hurts. It’s not any fun. It requires the ability to endure things most people aren’t, such as bear markets that last for years and times when you perform worse than average.

“The way to get rich is to keep $10 million in your checking account in case a good deal comes along.”

You don’t need $10 million, but cash in the bank will be the best friend you’ve ever had when stocks fall. If you’re upset that your cash is earning a dismal interest rate right now, you’re doing it wrong. Cash’s value isn’t its ability to earn interest. Providing flexibility and options is how it earns its keep.

“Nobody survives open heart surgery better than the guy who didn’t need the procedure in the first place.”

Avoid debt. Spend less than you earn. Advocate humility. Learn from your mistakes. If you can manage to not screw up too many times in investing you’ll probably do just fine over time.

For more:

MONEY Food & Drink

Velveeta, Meet Ore-Ida: Kraft, Heinz Merger to Combine Iconic Brands

The proposed merger of food giants will put Kraft Macaroni & Cheese and Heinz Ketchup under the same roof.

MONEY Warren Buffett

3 Warren Buffett Habits We Should All Adopt

Warren Buffett, chairman and CEO of Berkshire Hathaway
Lacy O'Toole—CNBC/NBCU Photo Bank via Getty I Warren Buffett, chairman and CEO of Berkshire Hathaway

Warren Buffett has grown from a boy who at 7 years old roamed the streets of Omaha selling bottles of Coca-Cola for a nickel to a man who now sits atop the Berkshire Hathaway BRK 0% empire he created, with over $525 billion in assets.

Are you curious to know what habits enabled him to get there? Well, there are three we all can, and should, adopt.

Never stop learning

In the 50th annual letter to Berkshire Hathaway shareholders, Charlie Munger, the longtime second-in-command at Berkshire, spoke about one of Buffett’s most enduring and important traits that led to his success:

Buffett’s decision to limit his activities to a few kinds and to maximize his attention to them, and to keep doing so for 50 years, was a lollapalooza. Buffett succeeded for the same reason Roger Federer became good at tennis.

Buffett was, in effect, using the winning method of the famous basketball coach, John Wooden, who won most regularly after he had learned to assign virtually all playing time to his seven best players. … And Buffett much out-Woodened Wooden, because in his case the exercise of skill was concentrated in one person, not seven, and his skill improved and improved as he got older and older during 50 years.

In other words, Buffett figured out what he was good at and stuck with it through thick and thin, always honing his skill.

In the book Outliers, Malcolm Gladwell suggests that for anyone to truly become an expert at something, there is some element of inherent skill involved, but there is also a key component of practice. And the key is dedicating at least 10,000 hours of time to become a true expert. Gladwell asserts: “[P]ractice isn’t the thing you do once you’re good. It’s the thing you do that makes you good.”

He cites examples such as Bill Gates, who sneaked out of his parents’ house at night while he was in high school to learn computer coding, or the Beatles, who played eight hours a day in various bars across Hamburg, Germany, before they really mastered their craft.

And the same is true of Buffett, as he himself once remarked:

I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business. I read and think. So I do more reading and thinking, and make less impulse decisions, than most people in business. I do it because I like this kind of life.

In the same way, in his hit song “I Know I Can,” rapper Nas said:

Boys and girls, listen up / You can be anything in the world, in God we trust / An architect, doctor, maybe an actress / But nothing comes easy, it takes much practice

So no matter where life takes you or what you do, always remember — whether you learn from Buffett, the Beatles, Bill Gates, or Nas — while we’ll never be perfect, persistent practice will always help take us one step closer.

Patience is key

The world around us is moving at a speed that is truly hard to grasp. As The Wall Street Journal reported, “[I]t took 75 years for telephones to achieve 50 million users, while Angry Birds reached that goal in a mere 35 days.”

Another of Buffett’s distinct and admirable characteristics is his patience.

In 2003, he noted:

We bought some Wells Fargo shares last year. Otherwise, among our six largest holdings, we last changed our position in Coca-Cola in 1994, American Express in 1998, Gillette in 1989, Washington Post in 1973, and Moody’s in 2000. Brokers don’t love us.

But consider for a moment his remarks in the 2010 letter to shareholders, in which he said that for Berkshire to succeed:

We will need both good performance from our current businesses and more major acquisitions. We’re prepared. Our elephant gun has been reloaded, and my trigger finger is itchy.

It’s widely thought that means Buffett intends to purchase a single business worth tens of billions of dollars. While his trigger finger was itchy in 2010, and Berkshire’s cash pile now stands at over $60 billion, Buffett has distinctly been willing to sit on the sidelines until the right opportunity presented itself.

There is obvious value in moving quickly into something if it’s a no-brainer decision and time is of the essence, but otherwise, we would all do well to take a step back and exhibit a little more patience.

And that could be patience in buying batteries at the grocery store, or, like Buffett, the company that makes those batteries.

Give credit where it’s due

One of the final things to note about Buffett is his eagerness to commend the team of managers who surround him.

Consider his 2009 remark about Ajit Jain, who heads Berkshire Hathaway Reinsurance and is widely speculated to be a candidate to replace Buffett atop Berkshire:

If Charlie, I, and Ajit are ever in a sinking boat — and you can only save one of us — swim to Ajit.

Or his remarks about Todd Combs and Ted Weschler — who each manage a sizable stock portfolio at Berkshire Hathaway — in the 2013 letter:

In a year in which most equity managers found it impossible to outperform the S&P 500, both Todd Combs and Ted Weschler handily did so. Each now runs a portfolio exceeding $7 billion. They’ve earned it. I must again confess that their investments outperformed mine. (Charlie says I should add “by a lot.”) If such humiliating comparisons continue, I’ll have no choice but to cease talking about them. Todd and Ted have also created significant value for you in several matters unrelated to their portfolio activities. Their contributions are just beginning: Both men have Berkshire blood in their veins.

Or consider his praise for Tony Nicely in 2005:

Credit Geico — and its brilliant CEO, Tony Nicely — for our stellar insurance results in a disaster-ridden year. … Last year, Geico gained market share, earned commendable profits, and strengthened its brand. If you have a new son or grandson in 2006, name him Tony.

And the list could go on and on.

Here’s a man worth more than $70 billion, who understands that the works of others were just as important to his success as his own. So no matter where we are, we should always take the time to thank the people who helped us get there.

While we’ll always only be ourselves, adopting these three habits will help us no matter where our path takes us.

MONEY Warren Buffett

Airbnb Will Let You Stay in Warren Buffett’s Childhood Home

Warren Buffett's childhood home
Airbnb

Assuming you’re a Berkshire Hathaway shareholder.

One lucky Berkshire Hathaway shareholder will get to spend a weekend in Warren Buffett’s childhood home, Airbnb announced Tuesday.

The contest comes after the legendary investor and Berkshire CEO said room rental service Airbnb was a good option for company shareholders looking to travel to Omaha for an annual shareholder meeting.


The Buffett contest is only open to Berkshire Hathaway shareholders. Anyone interested has to do the following:

Provide your name and address and a few creative answers to the following questions:

(a) What are you most excited to experience in Omaha? (200 words max)
(b) What are you most looking forward to at the Berkshire Hathaway Shareholders Meeting? (200 words max)
(c) What’s your favorite Airbnb experience? (200 words max)
(d) What’s next on your travel bucket list? (200 words max)

While a stay in Omaha, Neb. may not seem like much of a travel weekend to some, for fans of the Oracle of Omaha it’s akin staying a night in the Lincoln Bedroom. No word on whether people staying in the house will be required to stick to the Buffett diet, largely made up of Utz Potato Sticks, ice cream and Coca-Cola products.

This post originally appeared on Fortune.com.

MONEY Warren Buffett

33 Amazing Numbers From Berkshire Hathaway’s Golden Anniversary Shareholder Letter

Berkshire Hathaway Chairman and CEO Warren Buffett
Nati Harnik—AP

These numbers illustrate the magnitude of Buffett's achievement -- as well as the "Berkshire system."

As a boy, Berkshire Hathaway BRK 0% CEO Warren Buffett was obsessed with numerical data. You get some sense of this when you go through his annual letters to Berkshire Hathaway shareholders, which are peppered with statistics. The most recent letter, which celebrates 50 years of Buffett at the helm, is rich with numbers that illustrate how uncommon this conglomerate is — and how it was built to be different.

The miracle of compounding (but not at head office!)

Value of $10,000 Invested at the Start of 1964
Berkshire Hathaway S&P 500 Index (with dividends included)*
End-of-2014 value $75,121,300 $1,129,600
Compound annual gain 21.6% 9.9%

*This is a theoretical figure for comparison’s sake — the S&P 500 index is not directly investable.

Let’s look at some numbers that tell the Berkshire story, along with some quotes from Buffett.

$18.3 billion: Berkshire Hathaway’s increase in net worth during 2014. That gain in book value is greater than the book value of more than four-fifths of the companies in the S&P 500.

9 1/2: Number of Berkshire-owned businesses that would be listed on the Fortune 500 if they were independent — the “1/2″ refers to H.J. Heinz, which Berkshire owns with 3G Capital. (“That leaves 490 1/2 fish in the sea. Our lines are out.”)

340,499: Number of Berkshire Hathaway employees (including those at Heinz).

25: Number of people who work at Berkshire Hathaway’s headquarters (includes the chief executive officer and chairman).

Berkshire’s “Powerhouse Five” businesses

$12.4 billion: Pre-tax 2014 earnings of Berkshire’s “Powerhouse Five” — its five largest non-insurance businesses (Berkshire Hathaway Energy, BNSF, Iscar, Lubrizol, and Marmon).

$1.6 billion: Increase in Berkshire’s “Powerhouse Five” pre-tax earnings.

One: Number of “Powerhouse Five” businesses owned by Berkshire a decade ago (Berkshire Hathaway Energy, then known as MidAmerican Energy, which earned $393 million at the time).

$6 billion: The amount railroad operator BNSF expects to spend on capital investments in 2015 — 26% of estimated revenues!

15%: Percentage of all inter-city freight — whether it’s transported by truck, rail, water, air, or pipeline — carried by BNSF (“the most important artery in our economy’s circulatory system”).

Insurance: “Berkshire’s core operation”

“Berkshire’s huge and growing insurance operation again operated at an underwriting profit in 2014 — that makes 12 years in a row — and increased its float. During that 12-year stretch, our float — money that doesn’t belong to us but that we can invest for Berkshire’s benefit — has grown from $41 billion to $84 billion. Meanwhile, our underwriting profit totaled $24 billion during the twelve-year period, including $2.7 billion earned in 2014. And all of this began with our 1967 purchase of National Indemnity for $8.6 million.”

1 1/2: Length of contract, in pages, sealing Berkshire’s acquisition of National Indemnity and National Fire & Marine in 1967 for $8.7 million. (See for yourself: The purchase agreement is reproduced on pages 128-129 of the annual report — the link opens a PDF file.) Not surprisingly, no lawyers or investment bankers were involved in drafting or negotiating the contract.

$111 billion: National Indemnity’s net worth today, according to generally accepted accounting principles.

$22.7 billion: Amount paid out in claims by Berkshire’s insurance operations in 2014.

$7.1 billion: Single premium on a reinsurance policy written for Lloyd’s in 2007. (Berkshire Hathaway has written every property/casualty policy with a premium in excess of $1 billion — there have been eight of them.)

Odds and ends

$40.5 million: Sales at the Omaha Furniture Mart in the week surrounding the 2014 annual meeting — that’s roughly 4.5 times average weekly sales.

$30 million: The price Berkshire Hathaway paid for See’s Candy in 1972 — 7.5 times trailing pre-tax earnings.

$1.9 billion: See’s Candy’s cumulative pre-tax earnings since its acquisition.

$40 million: Aggregate incremental investment in See’s Candy required to produce those $1.9 billion in earnings.

45%: Approximate U.S. market share of Berkshire subsidiary Clayton Homes in manufactured homes.

13%: Clayton Homes’ market share in 2003, the year Berkshire acquired it.

Investments

$15.6 billion: The amount of capital Berkshire Hathaway extended to businesses in a three-week period during the height of the financial crisis, including $3 billion to General Electric GENERAL ELECTRIC COMPANY GE -1.3% , $5 billion to Goldman Sachs GOLDMAN SACHS GROUP INC. GS -1.1% and $6.5 billion to Wrigley.

$42 billion: Total unrealized gains at the end of 2014 on Berkshire’s “Big Four” equity investments — American Express, Coca-Cola, IBM and Wells Fargo.

$1.6 billion: Dividends received by Berkshire on its “Big Four” stocks in 2014.

$12.5 billion: Year-end value of Berkshire’s “phantom” stake in Bank of America. (Berkshire has the option to purchase 700 million shares of Bank of America before September 2021 at a cost of $5 billion, an option it expects to exercise just before its expiration. Money has a time value, after all — no sense in making the outlay today.) Berkshire will almost certainly become Bank of America’s largest shareholder, in addition to being Wells Fargo’s largest shareholder.

And the mistakes (there have been some doozies!)

$444 million: Berkshire’s after-tax loss on its investment in UK retailer/grocer Tesco.

$5.7 billion: Current value of Berkshire Hathaway shares that Buffett paid for the acquisition of Dexter Shoe (the 1993 purchase price was $433 million).

Zero: Current value of Dexter Shoe.

$50 billion: The minimum amount by which Berkshire Hathaway’s net worth would exceed its current value “if it had seized several opportunities it was not quite smart enough to recognize as virtually sure things,” according to Vice Chairman Charlie Munger’s estimate. Those mistakes include “not purchasing Wal-Mart stock when that was sure to work out enormously well.”

$100 billion or so: The amount “diverted … from BPL partners to a collection of strangers” by Buffett’s decision to acquire National Indemnity through Berkshire Hathaway rather than via Buffett Partnership Limited directly. BPL owned a 61% stake in Berkshire Hathaway — the “collection of strangers” Buffett refers to are Berkshire Hathaway’s then-minority shareholders.

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Warren Buffett Just Predicted the Next 50 Years for Berkshire Hathaway

Warren Buffett
Lacy O'Toole—NBCU Photo Bank via Getty Images

While the days of Berkshire's amazing 20% average annual returns are likely a thing of the past, Buffett expects Berkshire to outperform the market.

Berkshire Hathaway is one of the most fascinating stories in the history of investing. In the 50 years Warren Buffett and his management team have been running things, a struggling textile company has transformed into one of the largest corporations in the world, with dozens of household-name subsidiary companies and an equally impressive stock portfolio. In the process, early investors have gotten very rich, with the per-share book value rising from $19 to $146,186 during the past half-century.

In Buffett’s most recent letter to shareholders, he discussed his thoughts on Berkshire’s next 50 years. Here’s what Berkshire investors can expect — straight from the pen of the Oracle of Omaha:

Berkshire will not be a good short-term trade, ever

Buffett said that the chance of permanent capital loss with Berkshire is the lowest among any single-company investment. But he added a caveat: If the company’s valuation is high, say approaching two times book value (it’s at about 1.5 times book value now, so not too far off), it could be years before investors realize a profit.

In other words, Berkshire has never been, and will never be, a good “traders’ stock.” The company has one of the most shareholder-friendly business models in the world, but it is geared exclusively toward long-term investors. As a result, Buffett recommends that investors should look elsewhere for investment options if they plan to hold their shares for less than five years.

Berkshire can survive the “thousand-year flood”

Not only will Berkshire be prepared to withstand any economic storm, but the company is positioned to capitalize when things go bad. The company maintains a huge earnings stream, a great deal of liquid assets, and virtually no short-term cash requirements.

This combination keeps Berkshire immune to virtually any adverse market conditions. This is illustrated by the company’s performance during the financial crisis of 2008-09, when Berkshire not only survived, but took advantage of “discounts” in companies like Goldman Sachs.

Berkshire will maintain rather large stockpiles of cash (at least $20 billion at all times, according to Buffett) in order to weather any storm and capitalize on developing opportunities. As Buffett said, “if you can’t predict what tomorrow will bring, you must be prepared for whatever it does.”

Earnings power will continue to grow

Perhaps Buffett’s boldest prediction is that Berkshire can build its per-share earning power every year. This might sound like a lofty expectation, considering he’s talking about a five-decade period. However, it could be achievable.

Now, this prediction doesn’t mean earnings will increase every year. It does, however, mean that each and every year, Berkshire will create the potential to earn more than it did the year before. Actual earnings gains (and declines) will depend on the U.S. economy, but the company will keep moving forward no matter what the economy is doing.

Past performance will not be duplicated

Many casual observers were put off by the following line from the letter: “Berkshire’s long-term gains … cannot be dramatic and will not come close to those of the past 50 years.”

However, this really shouldn’t be much of a surprise. There is only a finite amount of money and investment opportunities in the world, and as companies grow, it gets tougher and tougher to maintain a high growth rate. For example, Apple has increased in value by more than 100-fold since 2004. Would it be reasonable to expect the same over the next decade? Of course not! That would make Apple a roughly $70 trillion company.

The same principle applies to Berkshire. Repeating its performance of the past 50 years would produce a book value per share of roughly $1.2 billion, along with a market capitalization of more than $900 trillion, which would be completely impossible in the absence of extreme inflation.

But the right people are in place to deliver for shareholders

While his time at the helm might be nearing its end, Buffett reassured investors that over the next 50 years, no company will be as shareholder-oriented as Berkshire. Buffett is completely confident the company will have the right CEO, management team, and investment specialists in place, as well as safeguards to protect shareholders in the event that the wrong person is put in charge.

As Buffett stated in a past letter to shareholders: when the market soars, Berkshire may underperform; when the market is down, Berkshire will outperform; and over any full economic cycle, Berkshire will outperform the markets. While the days of Berkshire’s amazing 20% average annual returns are likely a thing of the past, the company’s winning philosophy and business model remain the same, and will deliver for shareholders for decades to come.

TIME energy

This Is Why Warren Buffet Dumped His Exxon Holding

Berkshire Hathaway Chairman and CEO Warren Buffett during an interview with Liz Claman in Omaha, Neb. on May 5, 2014.
Nati Harnik—AP Berkshire Hathaway Chairman and CEO Warren Buffett during an interview with Liz Claman in Omaha, Neb. on May 5, 2014.

The leading investor likes "buying things cheap"

America’s leading investor, Warren Buffett, gave a wide-ranging interview to CNBC in which he gave a fitting explanation of why his company, Berkshire Hathaway, sold all its stock in Exxon Mobil Corp. in the fourth quarter of 2014.

Buffett’s bottom line? “We thought we might have other uses for the money,” he said, and was quick to add, “Exxon Mobil is a wonderful company.”

The Nebraska-based entrepreneur, often referred to as the “Oracle of Omaha,” didn’t say what “other uses” he might have for the $3.7 billion that he’d invested in Exxon Mobil. But he did say why he sold the stock.

“Its current earning power, obviously, is diminished significantly from where it was a year ago, as is true with all oil companies,” Buffett said, referring to the drop in profits, and sometimes losses, suffered by energy companies because of the 8-month-old plunge in oil prices. “But Exxon Mobil has been one of the great investments of all time.”

Read more: Buffet Dumps Exxon Amid Price Slump

Berkshire had held 41.1 million shares in Exxon, worth an average of $90.86 per share in 2013, according to the oil company’s latest annual report. In fact Berkshire was one of Exxon’s largest shareholders until the stock selloff. Exxon shares sold for nearly $3 more during that period, so it’s possible that Buffett even made a profit on the sale.

This and other sales of assets, as well as various acquisitions, were not made public until a regulatory filing on Feb. 17, which is required of investors who manage more than $100 million.

So can Buffett’s reasoning be taken at face value? Was he simply looking for another place to put his money? Evidently so, according to Fadel Gheit, an analyst for Oppenheimer & Co. in New York. Despite its prowess investing in a variety of industries, Berkshire has “not really had the hot hand in energy,” he said, and the plunge in oil prices means the rules have changed dramatically.

Perhaps the best way to understand Buffet’s benign attitude to Exxon Mobil is to liken it to his feelings about IBM. Like Exxon Mobil, IBM has suffered lower sales, yet Berkshire increased its stake in the computer company during the fourth quarter of 2014 and now holds 77 million shares.

Read more: Why Oil Prices Must Go Up

Still, Buffett said, he thinks IBM will continue on a steady course, with no spikes or plunges in its earnings, and its stock price remains stable, making it easier to sell if the need arises.

“The best thing that could happen,” Buffett said, “would be if the stock did nothing for five years. … People have the conception – misconception – [that] when we [investors] buy a stock, we like it to go up. That’s the last thing we want it to do.”

Buffett, sitting in his Omaha office, added, “Look around the room. You can see I like buying things cheap.”

And that may be Buffett’s point about Exxon Mobil: The drop in oil prices can’t last forever, and a bottom will emerge eventually. And from there, logic would dictate that the only direction for Exxon Mobil’s stock would be up.

This article originally appeared on Oilprice.com.

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