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

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.

-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

-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.

-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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