Warren Buffett says that the presidential election for 2016 is already in the bag. And he thinks that the winter is none other than Hillary Clinton.
“Hillary is going to run,” said the CEO of Berkshire Hathaway at a Fortune magazine conference on Tuesday. And he added, “Hillary is going to win.”
Buffett was incredibly confident that the former Secretary of State was going to win her place in the White House. He was even willing to bet money on the outcome. The investor of renowned fame, however, was not as confident about who her major opponent would be if she chooses to run.
“I don’t know,” said Buffett about a potential challenger for Clinton from the Republican Party.
He’s not the only uncertain one. Republican voters have about 15 potential candidates to choose from, according to a story published on Tuesday by Politico. Some of the names thrown around as potential candidates include Gov. Chris Christie of New Jersey, Sen. Marco Rubio of Florida and former Gov. Jeb Bush of Florida.
“There’s going to be a lot of people that want to do it,” said Buffett.
It should be no surprise that Buffett is supporting Clinton. He backed her in 2008 when she first ran for the highest office in the land. During that time, he even offered support for Barack Obama, who was only a senator then.
Buying a share of Berkshire Hathaway Class A costs so much money that it could pay for a person’s entire college education. It can even buy two houses in Omaha, Nebraska. To put it another way, you could purchase 40,000 large Blizzards from Dairy Queen, owned by Berkshire Hathaway.
Why doesn’t Warren Buffett split the stock?
A week ago, the Class A shares of Berkshire Hathaway broke the $200,000 mark for the very first time. Berkshire shares are the highest priced stock on the United States stock market. The CEO and chairman, Warren Buffett, has resisted any urge to split the shares. There’s no reason to even consider that he might change the way he thinks now that they have reached this major milestone.
A company will increase the number of shares outstanding during a stock split. This effectively lowers the price of the shares accordingly. Splits do not change the fundamental value of a company by any means, but they do often turn a stock into a more attractive purchase for retail investors.
The Class A shares for Berkshire Hathaway recently went up 1.1% to reach $201,759. This gave Berkshire Hathaway a market value of roughly $327 billion, we learned according to FactSet.
For many years, Warren Buffett has argued that lower share prices would bring about a lot of short-term, speculative trading to the stock of his company. In a Warren Buffett biography titled The Snowball, Alice Schroeder, the author, chronicled why Warren Buffett – the Oracle of Omaha – was strongly against splitting the stock.
“I don’t want anybody buying Berkshire thinking that they can make a lot of fast money,” said Buffett to Alice Schroeder. “They’re not going to do it, in the first place. And some of them will blame themselves, and some of them will blame me. They’ll all be disappointed. I don’t want disappointed people. The idea of giving people crazy expectations has terrified me from the moment I started selling stocks.”
The argument above has fallen by the wayside since Berkshire decided to issue much cheaper stock in 1996 in the form of Class B shares. The newer shares were worth 1/30 of the Class A shares upon being introduced. They called them the “Baby Bs” and the shares were established because Warren Buffett was trying to outdo fund managers that intended to set up a mutual fund like structure that would sell smaller parts of the company in little slices. In 2010, Warren Buffett split the Class B shares at 50 to 1. He used Berkshire Hathaway stock to help pay for the $27 billion purchase of Burlington Northern Santa Fe Corp.
The Class B shares made it onto the S&P 500 in 2010 right after the split, and they are now currently worth 1/1500th of each Class A share, except in the case of voting rights, where the Class B shares only have 1/10,000th of the voting power. This past Thursday, shares were trading at $134.94.
But there is evidence that Warren Buffett is never going to split the Class A shares, and this evidence has been around for many years, especially since the Class B shares were created.
“My ego is wrapped up in Berkshire,” said Buffett to Fortune Magazine during a 1988 cover story. “… I can gear my whole life by the price of Berkshire.”
Quite interestingly, stock splits have been less popular as more public companies start to think like Berkshire Hathaway and Warren Buffett over the years. Between 2008 and 2013, only 12 of the companies on the S&P 500 split their stock each year, according to S&P Dow Jones indices. In a way to compare, during the 1990s, 64 S&P 500 companies, on average, would split their stock each year. During 1997, there were 102 stock splits in total.
Google and Apple are two recent exceptions that are notable. Both company split their stock this year, with Apple surprising people with a seven for one stock split. Apple shares now trade below $100 per share, and before the split the company was trading above $600. “We’re taking this action to make Apple stock more accessible to a larger number of investors,” said Tim Cook, Apple CEO, this past April.
You should not expect Warren Buffett to utter those words anytime in the future.
Carol Loomis has an interesting charm bracelet that has a tendency to jingle a lot. It jingles so much because it contains charms of the miniature covers of the Berkshire Hathaway annual reports that she has edited for the CEO of Berkshire Hathaway, Warren Buffett, for over 40 years. In the past week, the 85-year-old Loomis announced that she plans to retire from Fortune magazine, where the native of Missouri has been an editor and reporter for 60 years since joining the staff in 1954. One final job that she will continue to do is edit Buffett’s yearly letter to shareholders of Berkshire Hathaway. Even though she doesn’t get paid – with the exception of a new charm for her bracelet each year – she has the opportunity to be one of the first to read the highly sought after thoughts about life and business from Warren Buffett, and she even has the opportunity to make suggestions as well. At heart, Carol Loomis is a reporter. She has stayed out of the limelight for the most part and mentions her friendship every time that she writes about Warren Buffett. When Buffett and Loomis went on a tour of the media to promote “Tap Dancing to Work,” her collection of Fortune stories about Buffett in 2012, she let the Oracle of Omaha handle most of the talking during the interviews.
But her close connection to Buffett has brought her media attention throughout the years, and this is especially true when she became just one of three journalists entrusted with the task of asking Munger and Buffett the tough questions during Berkshire Hathaway’s annual shareholders meeting held in Omaha. As an example, Loomis said this year that she detected “very strange, un-Buffett like behavior” when he chose to abstain instead of vote against the Coca-Cola executives’ high dollar pay package. Buffett is a member of the Coca-Cola board of directors. As well, Loomis is one of the directors of the Susan Thompson Buffett foundation – unpaid – which is funded by Warren Buffett and named after his wife that passed on from this world, and has been operating since the 1980s. People have asked Loomis if she’s going to write a biography about Warren Buffett, but she has demurred and said that she wouldn’t make a good biographer since she is such a good friend of his. Fortune says that she will continue to write for the magazine, but not in the capacity as a staff writer. Loomis said in a farewell note to colleagues, “I loved my job from the start and have always considered myself supremely lucky to be here.… I’m going to feel my way in retirement – read a novel or two – how about that for something new? Play more bridge. Play more golf.”
Many different commentators, including Thornton L. Oglove the veteran on Wall Street, feel that it is time for Warren Buffett to break up Berkshire Hathaway.
Not everybody agrees with it this particular stance, especially since the company will do better as a large entity. But that is just some people’s opinion. The truth is that it’s way more interesting to hear Charlie Munger and Warren Buffett talk about the split potential, or lack thereof.
Fortunately for us, during the annual meeting in 2014, Fortune magazine’s Carol Loomis asked Charlie and Warren about potentially breaking up Berkshire Hathaway. Below are some of the notes based on the question from Carol, and you can also read responses from Charlie and Warren.
Carol Loomis: Berkshire owns 79 unrelated businesses – a model which has almost universally not worked well, except that Berkshire. The probabilities do not seem favorable that it will work well for your successors.
Warren: The model has worked well for America. If you look at all these disparate businesses, such as if you looked at the Dow Jones index during its history as a single entity [though it rotated] going from 66 to 11,000… clearly something went right. Owning a group of good business isn’t a bad plan.
Many conglomerates, such as Litton or Gulf and Western, were financial engineering. You were put together to issue stock at 20-times earnings and buy stock at 10-times. The idea was to fool people with this chain-letter approach.
Our approach makes sense: great managers, great businesses, conservatively capitalized. Capitalism is about allocating capital, and we can do that without tax consequences. We can take money from See’s and move it to the place of best return, as the situation says, be it wind farms or whatever. And nobody is better to do that than Berkshire. But, it needs to be done with business-like principles, not stock promotion. You can see what happened with Tyco. If companies are issuing stock continuously, they are probably playing a chain-letter game. Charlie?
Charlie: I think there are a couple of differences between us and people who are generally thought to have failed at the conglomerate model. One is that we have an alternative. When there are no other companies to buy, we have securities to buy. Also, most of them were hell-bent to buy, and we feel no compulsion to buy for the sake of it. I don’t think we’re a standard conglomerate, and we’re likely to continue to do very well.
Many companies have abused and misused the conglomerate model. Investors have the right to look at conglomerates negatively, especially due to previous history. Berkshire Hathaway stands apart from the pack. From a fundamental standpoint, it makes sense. But this assumes that the company will continue to be properly managed.
It’s quite clear that Buffett does a great job managing it well, and he’s created a culture and organization that will allow his successors to eventually manage it correctly. Berkshire Hathaway shareholders will be very happy to know that the company is going to remain intact.
Warren Buffett’s annual letter to shareholders is his refresher course on the billionaire investor’s investing approach.
You can’t read Buffett’s letter until Saturday, but Fortune magazine got their hands on an excerpt which they posted on Monday on the Internet. Buffett’s longtime friend and Fortune writer, Carol Loomis, edits Buffett’s annual letter.
As a way to demonstrate key principles, Buffett uses two personal real estate investments as examples. He says to never try to predict the stock market or what the economy will do, stick to what you know and focus on the outcome of an investment and not the price.
“You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well,” wrote Buffett. “Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick ‘no’.”
The examples that Buffett used were the purchase of a 400 acre Nebraska farm in 1986 and a retail property purchased near NYU’s campus in 1993. He made both purchases after prices collapsed.
Buffett mentions that he didn’t know much about retailer farm, but he knew enough to understand that the farm near Tekamah would continue to be productive. He also knew that NYU students would still continue to find the retail center appealing. He finally mentioned that the biggest tenant at the New York property had a lease that was underpriced and it would expire nine years after he made the deal.
Buffett mentions that he knew both investments had very little downside even though he had visited the farm only twice and never actually visited the New York retail property.
Throughout the years, Buffett hasn’t looked for any price quotes for the retail property or the farm, and he doesn’t seem interested to sell. The CEO and chairman of Berkshire Hathaway mentions that stock investors should not feel eager to sell since markets offer price quotes at all times.
Buffett made the comparison that the stock market was like having a moody farm investor yell out prices of the value of Buffett’s farm each day.
“If his daily shout out was ridiculously low, and I had some spare cash, I would buy his farm,” said Buffett. “If the number he yelled out was absurdly high, I could either sell to him or just go on farming.”
The writer of “Of Permanent Value: The Story of Warren Buffett,” named Andy Kilpatrick said that Buffett’s annual letter provides a good summary of the techniques used that turned him into one of the richest men in the world.
“It was a great treatise on value investing,” said Kilpatrick.
Buffett mentions that he learned all about the secrets of investing from Benjamin Graham and his book “The Intelligent Investor.” Buffett also studied under Graham and also worked with him later on in his career.
For those investors who do not have the time or skill to estimate the value of investing, Buffett continues to repeat his standard advice: regularly purchase shares of a low-cost stock index fund.
“So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm,” said Buffett.
Warren Buffett leads Berkshire Hathaway, based out of Omaha, Nebraska, and his company owns more than 80 subsidiaries in a number of different industries. He has major investments in Wells Fargo, Coca-Cola and other mega-conglomerates on the stock market.
Buffett’s annual letter to shareholders, which is part of the Berkshire annual report, is one of the best read and most quoted business documents.
For the most part, the annual meeting hosted by Berkshire Hathaway is usually a lovefest for the Oracle of Omaha.
Things are going to be different this Saturday, when a hedge fund manager picked directly by Warren Buffett himself tries to add a measure of skepticism to the otherwise happy-go-lucky proceedings.
“It’s fair to say that I’m Daniel in the lion’s den,” said Douglas Kass this past Thursday during the middle of his trip to Nebraska. He is the head of Seabreeze Partner’s Management. “But I’ve prepared intensely.
Mr. Kass is openly bearish on Berkshire Hathaway and he believes that the stock price is going to fall. He is the latest addition to a shareholder meeting formula that has been in place for decades at this time. In early May of each year, over 18,000 shareholders head to Omaha in order to listen to what beloved CEO and Chairman Warren Buffett has to say.
Throughout the years, the majority of the questions asked of Warren Buffett have been relatively soft. People ask about his religious beliefs and sometimes they may ask about the global economy.
This year, Buffett has chosen to try and toughen up the questions at the 2013 annual meeting. This is the exact opposite of what most publicly trading companies attempt to do. He also asked analysts and reporters to ask tougher questions this year as well.
But the boldest move yet is to invite Douglas Kass. He is a hedge fund manager that is known frequently for his contrarian positions. He often voices his opinions in appearances on television shows that talk about business, and he also has a column on TheStreet.com. It’s also known that Douglas Kass spent time working for Ralph Nader during his student years.
“See if you can drive the stock price down to 10%,” teased Warren Buffett while talking to his new foil in March during an interview on CNBC.
Over the years, Douglas Kass has repeatedly looked into the weaknesses of Berkshire Hathaway. He even wrote an article about them on TheStreet.com. The weaknesses mentioned at the time were the advanced age of Warren Buffett plus the company’s slow growth.
Douglas Kass has a short position on the shares of Berkshire Hathaway. He didn’t disclose the size of the position, but said it is an average size for him. Over the past month, Kass has thoroughly read up on Buffett and Berkshire Hathaway, and he’s whittled 25 attention grabbing questions down to just six.
If Buffett answers two of the six questions, it will generate seriously big news. The four others have never been asked of Buffett before.
At the same token, Douglas Kass says that he is actually a strong admirer of Warren Buffett, who some people refer to as the Oracle of Omaha. Since Kass first began his research, he said he found a number of similarities between himself and Buffett. One similarity is that they both have been treated for prostate cancer, and another is they both used to collect discarded horseracing tickets during their younger years.
Douglas Kass is bringing his son and a group of friends to his first Berkshire Hathaway annual meeting.
“I’m psyched,” said Kass. “It’s like the financial World Series to me.”
Apart from Douglas Kass, many of the usual elements that you’d find at a Berkshire Hathaway annual meeting will still be in place this year. Buffett is still likely to say that his company – a major conglomerate that owns running shoes, railroads and private jets as part of its holdings – has a full plan for succession in place when he finally does decide to retire from his position. (Don’t be surprised if he doesn’t say who he plans to have succeed him as CEO.)
It’s also probable that Buffett will discuss his burning desire to make bigger deals, which is his major claim to fame at this point. Oddly enough, neither of his acquisitions so far this year qualifies as giant takeovers. Along with a Brazilian investment firm, Berkshire Hathaway bought H.J. Heinz for $23 billion. Berkshire also purchased 20% of IMC, the Israeli tool maker. It already owned the other 80% of the company, and they paid $2 billion for the last 20%.
“It’s back to work; Charlie and I have again donned our safari outfits and resumed our search for elephants,” wrote Buffett in his annual letter to shareholders. The Charlie he’s referring to is his longtime investment partner and vice chairman of Berkshire Hathaway, Charles T. Munger.
It is also expected that Warren Buffett will discuss buying out newspapers recently, since he has bought 28 dailies over the last year and a half for a total of $344 million. This campaign for acquisitions is definitely not his most expensive to date, but Buffett describes it as an addiction because he sees such value in local newspapers.
It’s uncertain as of yet if anyone will ask Buffett about a future move to social media. At 11:20 AM on Thursday, Omaha time, Buffett decided to overcome his aversion to technology and posted his first Twitter message. He wrote “Warren is in the house,” and a cameraman from Fortune magazine caught the whole thing on video.
The tweet was reposted over 25,000 times later that same afternoon, and his Twitter account already has over 176,000 followers. Douglas Kass is among them, and he is also a prolific Twitter user. He is using the micro blogging platform to document his passage to Omaha.
This was a major surprise to everyone, since Buffett once said that he missed an important message about Lehman Brothers because he had no idea how to check the voicemail on his phone.
“I guess he’s not as much of a Luddite as he professes,” said Kass.
Buffett hinted that Twitter was a little bit more of his style than some of the other social media platforms.
“The co-founder came from Nebraska, so it can’t all be bad,” said Buffett in reference to Evan Williams, Twitter co-founder.