Mike Kueber's Blog

March 2, 2014

2013 – investing and Berkshire Hathaway

Filed under: Investing — Mike Kueber @ 2:50 am
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My 401k investments in 2013 were exceptionally successful, unless you compare them to other aggressive investors, who were rewarded by 32% from the S&P 500.  Really aggressive investors did even better, with a return of 38% from small- and mid-cap funds.  So the 40% that I invested in the S&P and the 24% invested in small- and mid-cap funds did really well.  Unfortunately, I had 24% in international funds that returned only 14% (“only” is a relative term), and even worse I had 12% in bonds that lost 3% for the year.  So much for diversification!

My non-401k investments did even worse because much of it was invested in Berkshire Hathaway and some was in Ford and Lifetime Fitness, none of which did as well as the S&P.  Regarding Berkshire, Warren Buffett this week issued his annual letter to the shareholders.  In the letter, he noted that the company stock gained a mere 13% in 2013, while its intrinsic value increased by 18%.  Although both of these gains were dwarfed by the S&P, Buffett explained that he and Charlie Munger expected the company to do better than the S&P in all bearish and modest years and to be beat often by the S&P in bullish years like 2013.

Buffett remains confident in America’s economy vis-à-vis the rest of the world, and he remains confident of Berkshire’s performance vis-à-vis the rest of the market.  As I read Buffett’s letter, he fortified my support of his leadership (including his transition planning), so I will continue to leave 10% of my total net worth with Berkshire.

Incidentally, Buffett’s letter noted that Berkshire’s net worth increased by $34.2 billion in 2013, but a related article in USA Today focused on the company’s record annual profit of $19.5 billion, which exceeded 2012’s of $14.8 billion.  Because the profit was expected to be $18 billion, I am hopeful that the market will correct upwardly this Monday.

 

 

 

 

October 17, 2013

Stock-market lesson learned from fantasy football

Filed under: Investing,Sports — Mike Kueber @ 4:15 am
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Fantasy football is a game that enables several friends to form a football league, with each acting like a general manager via drafts and trades to develop a roster of players.  And then each week one individual’s roster competes against another’s on the basis of basic NFL statistics that are commonly reported in the newspaper.

Fantasy football has been played since 1973, but its popularity was initially limited because it required so much bookkeeping.  That all changed in 1997 when CBS developed an online game that streamlined most of the bookkeeping.  Within three years most major sports websites, including ESPN and Yahoo, were hosting fantasy football leagues, and now there are more than 19 million people playing online.

My son Tommy formed two ESPN fantasy leagues this year and I’m in both of them.  As a kid who grew up comparing baseball statistics on the back of baseball cards, and as a fan who enjoys NFL football more than any other sport, this game is perfect for me.  I love watching my points roll in on Sunday (and Thursday and Monday, too), and then every Tuesday and Wednesday I make adjustments to my team based on which teams are playing each other and what players are free agents.

The most surprising thing about fantasy football is the amount of information that the websites provide about each player – information not only about past performance, but also about future predicted performance.  Obviously, the website’s guidance re: future performance depends on the skill of the website’s panel of experts, but most general managers are reluctant to deviate very much from the experts because those experts obviously have a lot more information and have spent a lot more time analyzing the information on each player.

And this brings me to the stock market.  If I am reluctant to disagree with a panel of experts regarding the performance of players whom I study and observe very closely, why would I think myself competent to buy stock from someone who is probably much more knowledgeable than me?  If a sports website is able to produce such an impressive display of information and give it away online, can you imagine the level of proprietary information that professional investors develop in making their million- and billion-dollar decisions?

The chances of some regular guy in San Antonio consistently out-smarting the market seem remote.  But, on the other hand, it’s just as unlikely that an amateur investor will do something really stupid, provided he diversifies.

February 2, 2013

Investment diversification

Filed under: Investing — Mike Kueber @ 3:28 am
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This morning brought me a reminder of the importance to diversify your investments. 

Since becoming active in the stock market in the spring of 2009 (a fortuitous time because the market bottomed out on March 9, 2009), my favorite stock has been Life Time Fitness.  In addition spending a couple hours every morning at a Life Time gym just a couple of miles down the hill from me, I have experienced the pleasure of watching my Life Time stock, which I purchased for $15 and $19 move up and up, eventually doubling.

In 2010, I sold about 50% of my Life Time stock at $35 to pocket a portion of my good fortune (and to go forward with house money), and on Christmas Eve I sold 50% of my remaining shares at $49.  My thinking was that I had too large a percentage of my brokerage account (15%) invested in one small company (plus more than 40% in one large company with an aging savant – Berkshire). 

But as the stock continued up through January to almost $53, I started having second thoughts.  I still loved the gym, and it had been the best stock I had ever owned.  How loyal was that?  Beyond second thoughts, I started having daydreams, too, about “what if” I had shown courage and invested my entire brokerage account in Life Time?  I could have more than tripled my account.

Then came this morning.  When I checked my brokerage account this morning, the following news from Market Talk was waiting:

  • 8:57 EST – Life Time Fitness’ (LTM) preannounced 4Q miss and downbeat guidance sends shares tumbling and leads William Blair to cut its rating on the gym operator to market perform. While dues growth remains “solid” thanks to price increase, “we are increasingly worried that LTM is walking a fine line between monetizing members and engendering member pushback,” says William Blair. Following 3Q which saw the largest sequential increase in attrition since 2008, membership growth was weaker than expected in 4Q, says the firm.  Shares fall 16% to $42.60 premarket.

By the close of the day, Life Time was down $11.37 (22.41%) to $39.36.  Wow.  That’s a big loss, but I would be really kicking myself if I had been greedy.  Everyone knows that it’s crazy for casual investors to avoid diversification.

p.s., on Christmas Eve, I also sold 33% of my Berkshire.B for $90 because Buffett can’t live forever.  Today it closed at $98, and I think I will start kicking myself for not trusting Buffett to outlive me.

July 29, 2012

Retirement investing in the age of Romney

Filed under: Investing,Issues,Politics — Mike Kueber @ 6:47 pm
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My investing for retirement benefited from lucky timing – I worked when there was an overlap of the pension age and the 401(k) age. 

When I entered America’s fulltime workforce in November of 1979, many employers, including my three employers from 1979 to 2006, provided pensions to their employees.  In 1978, however, a small seed was planted that eventually grew into something so big that it overshadowed pensions in my lifetime.  That seed is called 401(k), a provision in the Internal Revenue code that allows employees to invest deferred income and to avoid paying taxes until the income is eventually claimed during their retirement. 

The 401(k) started small, with few people recognizing its potential.  When I started with State Farm Insurance in 1981, I think they called it their Incentive & Thrift plan, with annual limits of about $300 ($25 a month), which the company would match if it had been profitable that year.  When I arrived at USAA in 1987, I think their plan was called Savings & Investment Plan (SIP).  At some point, the name 401(k) was adopted as the generic title for all these plans.  In fact, Wikipedia reports that the term 401(k) is even used in other countries to describe their plans even though their enabling laws  are not enumerated 401(k).  The amount that can be deferred is currently capped at $17,000 per year.          

In 1998, the federal government created some competition for the 401(k) by creating a Roth IRA.  The Roth doesn’t defer income, but rather it allows an employee (a) to invest money that has already been taxed and (b) to not pay taxes on any capital gains.  Although most investing experts equivocated on their analysis, there was a slight consensus that the Roth IRA was probably preferable to the 401(k).  A major drawback for the Roth IRA was that its cap, currently $5,000 a year, was much less than the 401(k).  In 2006, however, this drawback was eliminated by the creation of the Roth 401(k).

The comparison of Roth to non-Roth accounts might be further complicated if Mitt Romney becomes president in 2012.  According to MittRomney.com, Romney proposes to eliminate taxes on dividends, interest, and capital gains on taxpayers who earn less than $200k a year.  .  Inexplicably, this fascinating proposal has received little coverage or analysis.  Obviously, it would encourage non-wealthy taxpayers to save and invest.  I wonder, however, how it would affect the Roth v. non-Roth analysis. 

One of the major advantages of Roth investments is that taxpayers don’t have to pay taxes on their capital gains, as compared to the 25%-35% rate on gains under a 401(k).  Well, under Romney’s proposal, non-wealthy taxpayers would never have to worry about capital gains, so the Roth vehicle would become superfluous.  And if Roth is better than the non-Roth, then the non-Roth would be less than superfluous.

There are, however, two advantages of the Roth and non-Roth plans, that promise to keep them in play:

  1. Most employees don’t have the necessary discipline to save and invest independent of a formal company structure.
  2. Most employers provide employees incentives to participate in a company plan by matching contributions.

For taxpayers with discipline, the enactment of the Romney proposal might generate the sort of energy that capitalism thrives on.

July 28, 2012

My new investing strategy

Filed under: Investing,Retirement — Mike Kueber @ 6:05 pm
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As someone who is fascinated by investment strategies, I have read about a variety of techniques to minimize risk and maximize returns – e.g., dollar-cost averaging, ladder purchases, re-balancing of assets, and numerous diversifying techniques, including indexed mutual funds.  Because I believe the ups and downs of the stock market can’t be timed, I generally don’t focus on trying to buy low and sell high.  Instead, I’m a confirmed buy-and-hold guy.  And, as a young guy, I’m 100% in the market.

Last week, however, with the stock market returning to a relatively high level (and with me not being as young as I used to be), I decided to implement a strategy for moving some of my nest egg out of the market.  This strategy, which I invented, takes advantage of market swings, akin to the dollar-cost averaging strategy.  (Although I am claiming to be the inventor, I’m sure thousands or millions of other people have thought the same thing).   

My plan is to take 5% out of my stock-market nest egg and move it to cash.  Then whenever the market recoups that 5% withdrawal (on average, twice a year), I will take out 5% more.  Thus, I will be forever selling stock on an upswing, and my stock-market nest egg will stay at the same level, less inflation.  A $100k nest egg would periodically generate $5k into cash, and a $1 million nest egg (which seems to be the target for many white-collar workers) would periodically generate $50k into cash.     

The only weakness with this strategy that I can detect is if the market drops and doesn’t return to the earlier level for several years.  If such an event occurs, I hope that I will have pocketed enough earlier withdrawals to avoid selling during a downturn.  But if I have to sell during a downturn, I will be especially motivated to keep the withdrawal to the smallest amount necessary (less than 5%).

A lot of investment advice must be tailored to an investor’s comfort level with risk.  In the past, I was comfortable with all of my savings in the stock market.  Whether the market went up or down, I knew that it had almost no effect on my lifestyle.  My co-workers and I called it paper loss (or paper gain).  Now that I have retired and am spending my savings, the ups and downs of the market are real, not abstract. 

When I sell 5% of my stock on Monday and move it to cash, I am going to feel a lot better knowing that I have cash to live on for a long time and won’t have to sell any additional stocks unless the market continues its upward march (in which case, I will have another 5% cash to live on for a long time times two).  The ups-and-downs of the market will once again be relatively abstract.

Because of my skin in the game, I have been rooting for President Obama’s success for the past three and a half years.  That is also one of several reasons why I am rooting for Mitt Romney to win in November.

July 19, 2012

Should I buy stocks or do my gambling in Vegas?

Filed under: Investing — Mike Kueber @ 2:21 pm
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The roller-coaster ride provided by the stock market since the turn of the century has scared off a lot of potential investors.  Lots of my friends consider the market to be too risky, so they prepare for retirement by parking their savings in places that will almost certainly return less value (albeit only slightly less) than they started with.  So much for the “power of compounding,” which was the universal mantra at the end of the 20th century. 

The market naysayers often compare the stock market to gambling, and I have a friend who says he prefers to get his gambling fix by going to Vegas instead of playing the market.  He says Vegas gives better odds.  Is that true?

The major difference between Vegas and the stock market is that Vegas returns less than the amount bet.  If $100 is bet, Vegas will return only $90 or so and keep the difference as a commission, rake, vig, or juice.  By contrast, the stock market will, over time, return about 10% a year more than it takes in, less a relatively small amount for broker’s fees.  Thus, your chance of winning in the stock market appear to be much better than in Vegas.  But that conclusion may be premature because there is a double-edged sword in the stock trading that is more likely to cut you than protect you. 

While gambling in Vegas is essentially a game of chance, stock-market prices are driven by knowledge and information, and unfortunately those of us in the hinterlands have little of either.  When we are buying a stock based on our knowledge and information, someone else with more knowledge and information is selling that stock to us.  The same symmetry applies when we are selling a stock. 

Based on this information imbalance, I suspect that casual stock traders probably have as much chance of winning in the market as they would in Vegas.  But there is a winning strategy for the market and that is “buy and hold.”  People who employ this strategy (especially with index mutual funds) will likely have a positive return while minimizing broker’s fees and eliminating the need to battle wits with someone who is much better armed, figuratively speaking.

June 22, 2012

Insider Trading

Filed under: Investing — Mike Kueber @ 2:58 pm
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Yesterday, the stock market had its second worst day of the year.  The huge sell-off defied easy explanation, but then overnight Moody announced that it was dropping the credit rating of many of the world’s largest banks, a significantly negative development.  From the news reports, I gleaned two issues:

  1. When stock prices tumble, why do analysts report that there were more sellers than buyers?  From my perspective, it seems that there are always the exact same number of sellers and buyers.
  2. Insider trading – i.e., trading based on non-public information – is supposed to be illegal, but based on my experiences with my stocks, I have noticed that stock prices often move dramatically before significant announcements and the movement almost always correctly predicts the effect of the announcement.  This causes me to believe that insiders had non-public information and acted on it. 

Yesterday, I suspect that insiders knew about the Moody downgrading and sold their over-valued stocks to law-abiding rubes.  All the more reason to keep your trading to a minimum.

May 13, 2012

Sunday Book Review #73 – Investment Mistakes

Filed under: Investing — Mike Kueber @ 2:30 am
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Investment Mistakes is a simple compilation of 77 common errors made by investors.  Most of them are obvious and could have been written by any investor with a modicum of experience.  For example:

Mistake #2 – Do You Project Recent Trends Indefinitely into the Future?

Mistake #3 – Do You Believe Events Are More Predictable After the Fact than Before?

Mistake #4 – Do you extrapolate from small samples and trust your intuition?

Mistake #35 – Do you understand the arithmetic of active management?

Mistake #59 – Do you have too many eggs in one basket?

I’m not saying these points are inaccurate, or that being reminded of them isn’t a good thing.  It’s just that they aren’t great insights.    

As I was writing this review, my best friend Mike Callen, investor extraordinaire, called me to discuss various issues on his mind, and we spent a little time talking about investing.  (If you know Mike, you know he doesn’t need much prompting to share his collected wisdom.)  In the span of less than five minutes, Mike revealed that he regularly makes the following mistakes:

            Mistake #11 – Do you let the price paid affect your decision to continue to hold an asset?  (Mike will hold forever to avoid admitting a loss.)

            Mistake #12 – Do you believe you are playing with the house’s money?  (Mike regularly travels to Vegas and Reno, and still has a stash from a large jackpot that he is willing to lose incrementally without feeling any guilt or remorse.  His wife feels strongly that this is a mistake because she can think of some alternative uses for the money.)

            Mistake #15 – Do you let friendships influence your choice of investment advisors?  (Mike still holds a grudge against a friend who steered him wrong.  Live & learn?  Maybe.)

            Mistake #31 – Do you believe hedge fund managers deliver superior performance?  (Mike thinks hedge-fund managers are the gold standard.)

            Mistake #39 – Do you confuse before-the-fact strategy with after-the-fact outcome.  (Based on his experience in watching certain business and the entire market, Mike thinks he can buy high and sell low – a stock, an industry, or the entire market – by exercising some judgment and intuition.

 Out of the 77 mistakes listed in this book, there were a few that contained excellent insights.  Specifically:

            Mistake #11 – Do you let price paid affect your decision to continue to hold an asset?  I share my friend Mike’s weakness for this mistake, especially when dealing with a stock.  For some reason, I don’t feel the same way about my 401k investments.  For many years, I would tell co-workers that I would decide every day whether to have my 401k in stocks, bonds, or cash, and that it was irrelevant what I paid for those assets.  But when it comes to an individual stock, I am loathe to sell it for a loss.  If I need to sell some stocks, I will almost always sell one on which I have made a nice profit and therefore will be subjected to a capital-gains tax.  Go figure.

            Mistake #14 – Do you believe you are playing with the house’s money?  Again, I share this mistake with my friend Mike.  When my Ford or Lifetime Fitness stocks do down, I don’t get stressed because they have already gone up so much that they remain immensely profitable.  Yet when Goldman Sachs goes down, it feels horrible because it causes my loss to balloon. 

Mistake #22 – Do you confuse great companies with high-return investments?  I bought my Ford and Lifetime Fitness stock because they were great companies whose stock price had been a lot higher before the bubble popped in 2007-2009.  But for all I knew, they could have been already priced more than they were worth.  Old saying – I’d rather be lucky than good.

Mistake #36 – Do you understand that bear markets are a necessary evil?  This section was fascinating because it described not only the cyclical nature of business, but also the risk-premium that is created by the cycle.  If business (and the market) was steady, then the risk-premium would go away and stock returns would more closely approximate fixed income investments.     

Mistake #40 – Do you believe that stocks are risky only if your horizon is short?  The authors point out that this mistake is based on the American experience to date, but fails to consider that the American experience has been exceptional.  Other countries have not been so lucky – e.g., Egypt, Argentina, Japan. 

            Mistake #48 – Do you confuse speculating with investing?  “Investors get compensated for taking systematic risks – risks that cannot be diversified away.  The compensation is in the form of greater expected returns.  Bad risk is the type for which there is no such compensation.  Thus, it is called uncompensated or unsystematic risk.  Equity investors face several types of risk:

  1. First, there is the systematic risk of investing in stocks.  This risk cannot be diversified away, no matter how many stocks or different asset classes you own….
  2. Second, various asset classes carry different levels of risk.  Large-cap stocks are less risky than small-cap stocks, and glamour (growth) stocks are less risky than distressed (value) stocks.  These two risks cannot be diversified away.  Thus, investors must be compensated for carrying them.
  3. The third type of equity risk is that of the individual company.  The risks of individual stock ownership can easily be diversified away by owning passive asset class or index funds that basically own all the stocks in an entire asset class or index fund….  Since the risks of single-stock ownership can be diversified, the market does not compensate investors for taking that type of risk.  This is why investing in individual companies is speculating, not investing.  Investing means taking compensated risk.  Speculating is taking uncompensated risk.” 

Fascinating.

            Mistake #49 – Do you try to time the market?  This mistake is the most obvious, but I include it here because it contained two eloquent quotations:

  1. “It must be apparent to intelligent investors that if anyone possessed the ability to [time the market] consistently and accurately he would become a billionaire so quickly he would not find it necessary to sell his stock market guesses to the general public.”  David L. Babson, 1951.
  2. “Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient.”  Warren Buffett.

 

 

February 28, 2012

Buffett’s wisdom – continued

Filed under: Investing — Mike Kueber @ 6:49 pm
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Yesterday I blogged about Warren Buffett’s most recent letter to the Berkshire Hathaway shareholders.  Compared to other editions of the shareholder letter, I thought this edition was relatively skimpy, and in my blog I noted only three significant Buffett insights – (1) a replacement CEO for Berkshire had been selected, (2) the economy in America would rebound vigorously as soon as the housing overstock was sold off, and (3) Berkshire Hathaway would continue buying back its stock because it was underpriced.

But no sooner had I posted the entry to my blog than I had a conversation on investing with an old USAA friend.  This friend has a seven-figure 401k, a beautiful house with no debt, and a sizable inheritance, yet he is concerned that his current cash flow will be stressed as his kids get to college.  Talk about looking far and wide to find something to be unnecessarily worried about.

My friend went on to express concern for preserving his estate for his kids.  Ever since the crash of 2008-2009, he has been too skittish to invest in the stock market.  He has inherited a sizable amount of agricultural real estate, but he is planning to sell that because he suspects that its current pricing is a bubble that is ready to burst.  The only safe investments probably would not keep up with inflation.  He was perplexed because he seemed to have no good choices. 

Following our conversation, I recalled that Warren Buffett’s most recent shareholder letter directly addressed my friend’s concerns.  In the letter, Buffett described three broad categories of investment – (1) currency-based investments, such as bonds and money-market funds (2) non-productive assets, such as gold, and (3) productive assets, such as businesses and real estate.

Buffett’s letter contained devastating critiques of currency-based investments and non-productive assets:

  • Currency-based investments.  Most of these currency-based investments are thought of as “safe.” In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge. Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as the holders continued to receive timely payments of interest and principal. This ugly result, moreover, will forever recur. Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation. From time to time such policies spin out of control.  Even in the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire. It takes no less than $7 today to buy what $1 did at that time. Consequently, a tax-free institution would have needed 4.3% interest annually from bond investments over that period to simply maintain its purchasing power. Its managers would have been kidding themselves if they thought of any portion of that interest as “income.”  Today, a wry comment that Wall Streeter Shelby Cullom Davis made long ago seems apt: “Bonds promoted as offering risk-free returns are now priced to deliver return-free risk.”

 

  • Non-productive assets.  Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices. A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond. Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.

 

Ultimately, Buffett concludes that the ownership of productive assets is not only the most profitable, but also “by far the safest”:

  • Our country’s businesses will continue to efficiently deliver goods and services wanted by our citizens. Metaphorically, these commercial “cows” will live for centuries and give ever greater quantities of “milk” to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk. Proceeds from the sale of the milk will compound for the owners of the cows, just as they did during the 20th century when the Dow increased from 66 to 11,497 (and paid loads of dividends as well). Berkshire’s goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety – but we will also be owners by way of holding sizable amounts of marketable stocks. I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we’ve examined. More important, it will be by far the safest.

Buffett concedes that Berkshire keeps between $10 and $20 billion in currency-based investments for business-purchasing purposes, and my USAA friend obviously has liquidity needs related to his kids’ college education.  But if I were in my friend’s financial position, I would put my assets to work and stop being concerned.

Buffett’s 2011 letter to his shareholders

Filed under: Investing — Mike Kueber @ 3:34 am
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Although the timing of my retirement (March 2009) was excellent for purposes of investing in the stock market (the market has doubled since then), my timing for investing in Warren Buffett’s Berkshire Hathaway (April 2009) couldn’t have been worse.

In Warren Buffett’s annual letter to his shareholders, he always begins by comparing his company’s performance to the S&P 500.  In the past 48 years, Berkshire Hathaway has averaged a 19.8% gain as compared to 9.2% with the S&P, and Berkshire Hathaway has outperformed the S&P in 40 of those 48 years.  Unfortunately for me, two of those bad-performing years were 2009 and 2010.  According to Buffett’s most recent shareholder letter, Berkshire in 2011 finally returned to supremacy over the S&P, but just barely – 4.6% to 2.1%.  That’s better than nothing.

The big story from the 2011 letter is that Buffett’s successor has been selected, although the successor’s identity was not disclosed:

  • Your Board is equally enthusiastic about my successor as CEO, an individual to whom they have had a great deal of exposure and whose managerial and human qualities they admire. (We have two superb back-up candidates as well.) When a transfer of responsibility is required, it will be seamless, and Berkshire’s prospects will remain bright. More than 98% of my net worth is in Berkshire stock, all of which will go to various philanthropies. Being so heavily concentrated in one stock defies conventional wisdom. But I’m fine with this arrangement, knowing both the quality and diversity of the businesses we own and the caliber of the people who manage them. With these assets, my successor will enjoy a running start. Do not, however, infer from this discussion that Charlie and I are going anywhere; we continue to be in excellent health, and we love what we do.

In the letter, Buffett also suggested that (a) the American economy will enjoy a vigorous rebound as soon as the excess supply of houses is inevitably exhausted, and (b) Berkshire will continue to buy back its shares because they are underpriced. 

I think I will hold onto my shares.

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