I like that BRK beat the market last year by 10bps. Much of my savings is in BRK. The way I look at it, you're actually investing in dozens of well-run cash-generating companies.
What really sold me on BRK was how Buffet started a massive capital improvements project into their railroad business. If my memory serves me right, the investment was around $8bn, maybe 3 years ago or so. This was an investment in infrastructure on a scale not seen - and certainly beat railroad competitors in terms of capex by 2x or 3x.
My revelation was: had the railroad business gone to the market to raise those funds how would it have gone down? Bankers would have had a field day with fees. Traders would rush in. Speculators would dump the stock or bonds at a moment's notice.
BRK creates near zero friction within its businesses. You have cash in one place, you can just move it easily to another place where its needed, simple.
Here in Minneapolis we have a logistics practice for Amazon a buddy of mine works for. He mentioned sort of offhandedly that Amazon has already maxed overland and air shipping capacity in the 48 states. The BNSF investment seems even more brilliant knowing that now.
It's funny you should ask. Buffett has actually said that if a company is not able to find good ways to reinvest their earnings, then it should be issued to owners as dividends. Buffett is actually breaking that rule right now by Berkshire Hathaway having a massive cash balance.
He doesn't have a good way to reinvest just now but probably believes one will turn up. He came out pretty well having a lot of cash in 2008. As a Berkshire shareholder I'd much rather have the cash sitting with Buffett rather than paid to me as a taxable dividend.
Buffet's letters cover this well with respect to other stocks. Basically: if a company reinvests profits and grows, you as owner now own part of a more valuable thing.
This will increase share value on average over time. This isn't speculating in a capital gains increase. This is a measureable increase in value based on earnings.
So, if coca cola increases profits, berkshire can reasonably expect this is to their direct benefit: even if coca cola pays no dividend. They could have basically.
And you can realize a gain when you eventually sell.
Interesting thought. I suppose it depends on whether you believe in the dividend irrelevance theory or not. Who can put money to better use? You or Warren?
if you think you can make better use of the dividend, why buy that company's shares at all?
even if a dividend were break even compared to the capital gains from reinvesting directly, you would still come out worse from having it taxed as income.
It's not that simple; a company may have a great use for part of their revenue but not for the rest. If a company spends $1 to make $2, but can't simply spend $2 to make $4 (market may be tapped out, or require lowering prices to reach the rest - reducing the average returns), they have to figure out some different way to spend the extra $1, and which you might think they are not good at.
In fact, this is easy to see in practice: Apple has tremendous amounts of capital reserves which they are just investing on the market. In fact, $35B of those are in US Treasuries. Is it that absurd to think one can make a better investment than that?
Depends how you do it and tax treatment an dif your working or not in the UK you can use ISA's to avoid all tax on dividends.
Also in the UK you have a separate tax allowance for dividend income.
What I also do is stop reinvesting dividends when funds are at a premium to NAV. I have also stopped reinvesting dividends as I think the market will fall this year - I can then buy after the market has fallen.
You could also be cute and reinvest your dividend income into a pension and get tax relief back.
Not really. People were worried about Steve Jobs and Apple. They did fine.
I think Buffet has instilled enough of his values and vision in the company, memorialized in the annual letters, books, interviews. The concepts will live on.
> Let's look at Apple 10 years after Jobs' passing. 3 years to go! How have you liked Apple's innovations since 2011?
it's always important to remember that the CEO is not solely responsible for the successes and failures of a multi-billion dollar company.
that said, it's really hard to look at apple under cook's leadership and say that it's anywhere near as innovative as it was with jobs at the helm. the bulk of their current revenue is just riding the wave that jobs started with the first iphone. the iphone x is the most daring thing they've done in years, and it's basically just an iphone with a big screen.
the iOS UX is still really good, but it's not much better than a clean android setup. on the other hand, the desktop UX feels very dated at this point. I never thought I would find windows to have a more modern look and feel than apple, and it's downright depressing to see what the mac pro has become.
the company still performs very well as an investment vehicle though; I doubt they are in any trouble in the near-medium term.
Apple watch was after Jobs died, it's a success even if no one thinks it is. There's a very real chance nothing they do will ever compare to the Iphone.
I agree it's too early to say. I don't think we can just look at a timeline though... we'll at least need to know what the next big market is, before we can say they lost their ambition/ability or waited too long. Even the iPod depended on hard drive miniaturization for example, it probably wasn't possible years earlier.
>> Not really. People were worried about Steve Jobs and Apple. They did fine.
Oh, I wouldn't say that. Succession risk is a lagging indicator. That Apple is doing fine now - extremely well, actually - and has for a few years since Jobs passed away is no good predictor of the future. There are a lot of reasons to be short Apple's long-term future; moreso since Jobs died.
Not to mention - BRK is more than just Buffet - it's also Munger. This is pure speculation, but I would have to guess that the people next in line are chosen for a certain code of ethics consistent with WB/CM.
Yeah ethics and quite a number of other characteristics. Buffett has written quite a lot about it. It this letter:
>Each has been with Berkshire for decades, and Berkshire’s blood flows through their veins. The character of each man matches his talents. And that says it all.
given it will probably be Ajit or Greg as things stand. Quite likely Greg as CEO.
All companies will need to find new CEOs every 5 years (give or take), and none of them get to fill the seat with Warren Buffett. So there's certainly no succession risk unique to Berkshire.
What really sold me on BRK was how Buffet started a massive capital improvements project into their railroad business. If my memory serves me right, the investment was around $8bn, maybe 3 years ago or so. This was an investment in infrastructure on a scale not seen - and certainly beat railroad competitors in terms of capex by 2x or 3x.
My revelation was: had the railroad business gone to the market to raise those funds how would it have gone down? Bankers would have had a field day with fees. Traders would rush in. Speculators would dump the stock or bonds at a moment's notice.
BRK creates near zero friction within its businesses. You have cash in one place, you can just move it easily to another place where its needed, simple.
EDIT: It was $5bn injection in BNSF in 2014: https://www.fool.com/investing/general/2014/02/05/berkshire-...