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Warren Buffett Reveals the Keys to His Investment Philosophy and How it Relates to Current Market Conditions

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Warren Buffett Reveals the Keys to His Investment Philosophy and How it Relates to Current Market Conditions
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In an Oriental Trading Company warehouse just outside of Omaha, Warren Buffett, Chairman and CEO of Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) sat down this morning with Becky Quick to lay out some of his recent philosophies on the markets and Berkshire Hathaway.

Here are some highlights:

What is the likelihood of adding another manager? -Quite unlikely, would be more likely to pay the current managers more. -The current managers (Todd Combs and Ted Weschler) love working for Berkshire, and probably will be in 20 years.

DirecTV:
-Todd and Ted have both put money into the company, both managers concentrate money into a small number of stocks -The Berkshire managers do not check with each other before investing, the fact that both put money into Directv (NASDAQ: DTV) is a coincidence

DaVita:
-If pension fund money is included in the short list of companies owned, DaVita (NYSE: DVA) would be included -DaVita is a healthcare company that focuses on dialysis products. -Berkshire owns roughly 13 percent of the company.

Thoughts on the Sequester:
-It's a terrible way of cutting expenses, but that doesn't mean that its a bad idea. -We have increased taxes and run stimulus, and we are now cutting expenses. -Things have gotten out of hand when you create a monster so bad that it would force both sides to negotiate, and instead of negotiating, you let it out. -May have four political parties: Extreme right, regular republicans, extreme left, and regular democrats. -Real problem in the House is that there are not two parties, but three.

Selling Puts on the S&P:
-Continuing to bet on markets going higher, and its been paying off hugely.

Insurance Operations:
-Geico getting the highest closure rates. -Selling below rates from other competitors, and enough for it to be appreciable -The only reason you buy is to save money, and closure rates at Geico are higher than they have ever been. -Profitable even with payouts for Sandy, which were three times higher than those for Katrina. -Largest insurance provider in the New York area.

Will You Now be Paying Higher Taxes than Your Assistant or Secretary:
-Capital gains will rise -Payroll taxes and income tax will rise, roughly eight points -Will probably be the lowest paying tax payer in the office at the end of the day.

Should There be a Grand Bargain?
-We were very close 18 months ago. -Doubts there will ever be a grand bargain.

Politics:
-Buffett stated that he had voted for Obama, but that 10 of his 12 papers endorsed Romney. -More shareholders probably voted for Romney, if Buffett owned 100 percent of Berkshire, he'd control editorial policy, but he does not.

On Fed Policy:
-Decisions are being made on the belief that money is basically free. -Unwinding the Fed policy will be very difficult. -Will be the biggest economic event for market participants in a very long time. -He is a fan of Ben Bernanke, but he doesn't think its predictable how this policy will unwind.

The Euro:
-A sustainable system has still not been worked out for the Euro -Europe is not going down the drain, in ten years it will be producing more goods.

On the Size of Government:
-Shouldn't be more than 21 percent of GDP, with revenue no more than 18.5 percent of GDP

Is Buying Newspapers like Collecting Cars?
-It has to pencil out. They're smaller deals, but they have to be profitable. -Wouldn't consider Chicago Tribune or Los Angeles Times. Hard to edit and run.

Are there other consumer products companies you're looking at?
-Not right now -Likes the business, so if something comes along for the right price, they'd be ready to buy more. -Would be surprised if 20 years from now they do not have more. -One company he is currently looking at, would not reveal what it was other than saying “it was in business” and not a consumer products company.

Health Care Costs:
-They are the “tapeworm of the US economy” -We pay 17.1 percent of our GDP for health care, while our closest competitors pay over 6 points less. -Would get the heads of the biggest clinics and hospitals together to see how we can lower costs to 15 percent of GDP.

If Interest Rates Rise:
-In the case that rates rise, asset values will decrease. -Stocks are not as cheap as they were 4 years ago, but they're still very cheap. -Government bonds are still a terrible buy.

Take on J.C. Penney and Ron Johnson: -Not rooting against J.C. Penney (NYSE: JCP) -When you start arguing with your customers about what they want, you have a very tough path ahead of you. -It isn't enough to just catch up from some distance behind.

On Marissa Mayer Ending Telecommuting at Yahoo:
-At Berkshire employees come in every day. But managers like Ted Weschler could easily work from home, as Ted does for 2-3 days a week. -Not familiar with Yahoo (NASDAQ: YHOO) culture, so won't really make a comment.

What was his best Career Choice?
-Going to Geico. -If he hadn't learned the insurance business while he was there, he says he'd be much worse off.

Would Berkshire ever Acquire an Airline?
-Has all the ingredients of a bad business. -Historically have done very poorly. -Maybe if it consolidated down to two companies he'd consider it.

Is HFT a real threat to the retail trader?
-A flash crash doesn't make a difference over a 5 to 10 year holding period. -Getting instant quotes on price should be an advantage, but many people think that means they have to constantly change their positions, this isn't the case.

Can You Get a Fair Shake on Wall Street?
-Retail traders can always buy a low cost index fund. -If you pay high fees to invest, you need to reconsider your strategy. -Should buy a diversified group of high value companies through an index fund, and then forget it for 5 years.

Are There Still big Conflicts of Interest on Wall Street?
-People selling securities to you are often making a lot of money on them. -Always ask what people are getting paid for the sale. -You can own index funds for a very low cost.

Posted-In: Becky QuickNews Hedge Funds M&A Economics Success Stories Media General Best of Benzinga

 

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