Investing 102

[GregWeld]

Originally Posted by chichirone

These are pretty good.

Buffett’s 2014 letter: Corporate cancers, preachers of pessimism and lessons of history

NEW YORK (MarketWatch) — He’s at it again.

In his annual letter to Berkshire Hathaway BRK.A, -0.48% BRK.B, -0.63% shareholders, Chairman and Chief Executive Warren Buffett continues his tradition of delivering all sorts of cleverly worded musings on the markets, on the state of American business and on his own quirks and peculiarities (and how they affect his relationship with longtime Berkshire vice-chair, Charlie Munger.)

If you have the time, it’s always worth reading the whole epistle. If not, we’ve settled on 13 of the choicest quotes.

“At Berkshire, we much prefer owning a non-controlling but substantial portion of a wonderful company to owning 100% of a so-so business. It’s better to have a partial interest in the Hope Diamond than to own all of a rhinestone. “

“My successor will need one other particular strength: the ability to fight off the ABCs of business decay, which are arrogance, bureaucracy and complacency. When these corporate cancers metastasize, even the strongest of companies can falter.”

“In the world of business, bad news often surfaces serially: You see a cockroach in your kitchen; as the days go by, you meet his relatives.”

“Who has ever benefited during the past 238 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder. In my lifetime alone, real per-capita U.S. output has sextupled. My parents could not have dreamed in 1930 of the world their son would see. Though the preachers of pessimism prattle endlessly about America’s problems, I’ve never seen one who wishes to emigrate (though I can think of a few for whom I would happily buy a one-way ticket).”

“The unconventional, but inescapable, conclusion to be drawn from the past fifty years is that it has been far safer to invest in a diversified collection of American businesses than to invest in securities — Treasuries, for example — whose values have been tied to American currency. That was also true in the preceding half-century, a period including the Great Depression and two world wars. Investors should heed this history. To one degree or another it is almost certain to be repeated during the next century.”

“Market forecasters will fill your ear but will never fill your wallet.”

“If you’ve attended our annual meetings, you know Charlie has a wide-ranging brilliance, a prodigious memory, and some firm opinions. I’m not exactly wishy-washy myself, and we sometimes don’t agree. In 56 years, however, we’ve never had an argument. When we differ, Charlie usually ends the conversation by saying: ‘Warren, think it over and you’ll agree with me because you’re smart and I’m right.’”

“We will never play financial Russian roulette with the funds you’ve entrusted to us, even if the metaphorical gun has 100 chambers and only one bullet. In our view, it is madness to risk losing what you need in pursuing what you simply desire.”

“Business models based on the serial issuances of overpriced shares — just like chain-letter models — most assuredly redistribute wealth, but in no way create it. Both phenomena, nevertheless, periodically blossom in our country — they are every promoter’s dream — though often they appear in a carefully-crafted disguise. The ending is always the same: Money flows from the gullible to the fraudster. And with stocks, unlike chain letters, the sums hijacked can be staggering.”

“At a healthy business, cash is sometimes thought of as something to be minimized — as an unproductive asset that acts as a drag on such markers as return on equity. Cash, though, is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent.”

“(We) frequently get approached about acquisitions that don’t come close to meeting our tests: We’ve found that if you advertise an interest in buying collies, a lot of people will call hoping to sell you their cocker spaniels.”

“Berkshire’s yearend employees — including those at Heinz — totaled a record 340,499, up 9,754 from last year. The increase, I am proud to say, included no gain at headquarters (where 25 people work). No sense going crazy.”

“Though practically all days are relatively uneventful, tomorrow is always uncertain. (I felt no special apprehension on December 6, 1941 or September 10, 2001.)”

The man is brilliant. I have a friend that is on the Berkshire board - she is also brilliant. Smart people surround themselves with other really smart people.

[Rod P]

Originally Posted by GregWeld

The man is brilliant. I have a friend that is on the Berkshire board - she is also brilliant. Smart people surround themselves with other really smart people.

there's an old saying I always remember told to me about surrounding yourself with others.....

If your the smartest guy in the room.....then your in the wrong room

[captainofiron]

what do you guys think about investing in the players in the "Cable wars"?

I was reading an article about cutting the cable and investing.

They were talking about how some invest in the big cable companies (comcast, att etc)

and some invest in the new comers who are looking to disrupt the cable industry (google with fiber, netflix, hulu, amazon etc)

But they were saying to instead invest in the content providers, since no matter who wins the battle to get the consumer the content, the content providers will still be there making money.

I was looking at FOX, AMC, VIA and DISCK

I watch a ton of programming on the channels under the Discovery umbrella and they look decent on the chart.

Thoughts?

[WSSix]

No idea, Captain. Though, I must say investing in the content provider sounds like the safer option.

With that said, anyone else having fun watching MCD?

[68Cuda]

Greg. The last 5 years have been nice... but I have to admit, since about the beginning of the year I have been feeling a bit nervous, kind of bearish so to speak. I am having trouble comprehending the market... last time I had this feeling was late 1999. I'll have to admit, this does not feel bad in quite the same way, just seems a bit high.

Is this just a natural reaction to the market hitting new highs?

What say you?

[GregWeld]

Originally Posted by 68Cuda

Greg. The last 5 years have been nice... but I have to admit, since about the beginning of the year I have been feeling a bit nervous, kind of bearish so to speak. I am having trouble comprehending the market... last time I had this feeling was late 1999. I'll have to admit, this does not feel bad in quite the same way, just seems a bit high.

Is this just a natural reaction to the market hitting new highs?

What say you?

Not being mean here -- please understand the response.


Go to any company that has a chart longer than say 20 years.... put the chart in ALL mode. If the chart goes back to about 1950 --- how many "NEW HIGHS" were put in as we climbed from a DOW that was about 300 back then.

The DOW was 130.57 on January 1st 1941....

The reason that I have urged people to buy DIVIDEND paying stocks is because we can not rely on day to day price increases to fund our retirement savings or our retirement income. That takes cash flow. If the stocks you own are paying dividends and they are being re-invested - then if the market takes a dip - you will be buying MORE shares - which is a good thing! The whole point of this long winded thread is to get people to STOP trying to second guess the "market" and just buy the best of the best - that pay dividends - and HOLD ON TO THEM for the long term. Be a Warren Buffett.... He buys - he never sells... he's one of the richest men on the planet.

If you sell every time you "think" you know what's going to happen -- you're never going to get anywhere with your investments. The market will - mark my words WILL - go down.... it will also go back up - or maybe just tread water for a long period of time (as in YEARS - not days). You will never know in advance when any of that is going to happen.

[68Cuda]

Originally Posted by GregWeld

The reason that I have urged people to buy DIVIDEND paying stocks is because we can not rely on day to day price increases to fund our retirement savings or our retirement income. That takes cash flow. If the stocks you own are paying dividends and they are being re-invested - then if the market takes a dip - you will be buying MORE shares - which is a good thing! The whole point of this long winded thread is to get people to STOP trying to second guess the "market" and just buy the best of the best - that pay dividends - and HOLD ON TO THEM for the long term.

Greg - just occasionally have doubts - I know, hold the course. I don't do much of anything in this arena on a whim. I'll obsess about it for a while before I do anything. In the 90% of my 401k that I can port to a self directed brokerage account I am about 10% MO(since 2012), 6% CAG (since 2010), 8% JNJ (since 2011), 6% KMB (since 2011), 10% MRK (since 2011), 8% NUE (since 2011), 12% VZ (since 2012), and 8% WM (since 2012). I moved about 10% to BP and 10% to GE this past December... my only real recent moves. So, as you see, not a lot of jumping in/out or churning and all of them are big names that pay decent dividends. Of course the account is set up to reinvest on all of them. Of the 10% that I cannot do the brokerage on, about 1/2 is in company stock and the rest is in "growth" funds. I have another little IRA account we set up that has mostly KMB and PG that I have held since 2011. And then there is my wife's 401 which is stuck in some generic Schwab funds, but there are not very many choices for us in that one.

[gearheads78]

Originally Posted by 68Cuda

Greg. The last 5 years have been nice... but I have to admit, since about the beginning of the year I have been feeling a bit nervous, kind of bearish so to speak. I am having trouble comprehending the market... last time I had this feeling was late 1999. I'll have to admit, this does not feel bad in quite the same way, just seems a bit high.

Is this just a natural reaction to the market hitting new highs?

What say you?

I think oil being down and it says down will have a ripple affect in the overall market. I think we will see it more around here than other parts of the country. I personally know 2 guys that were making a ****load of money in West Texas that live here and they are back home looking for work now. They were both spending and buying up toys, new big houses, reasturants every day they were home ect.

I keep telling people around here so happy about cheap gas that they need to be carefull what they wish for. They might get it and nothing comes free.

[ErikLS2]

Originally Posted by 68Cuda

Greg. The last 5 years have been nice... but I have to admit, since about the beginning of the year I have been feeling a bit nervous, kind of bearish so to speak. I am having trouble comprehending the market... last time I had this feeling was late 1999. I'll have to admit, this does not feel bad in quite the same way, just seems a bit high.

Is this just a natural reaction to the market hitting new highs?

What say you?

I've kinda wondered at times if we're getting to 1999-2000 levels. Take a look at these two charts. If you look at individual tech names like Cisco, Intel, etc the spread is much wider between then and now. I think the biggest risk is some geo-political or terrorist event, aside from that things look pretty good I think, but what do I know, my crystal ball broke last week

http://www.multpl.com/

http://www.multpl.com/shiller-pe/

[GregWeld]

Please remember that the build up to 1999 was a whole bunch of investment into companies that had nothing behind them! They were "eyeball counts" and "page views" and a whole bunch of crap metrics that meant nothing! That was the whole "dot bomb" era.

Now... we repeated this in a round about way when anyone and everyone could buy a house with nothing down - and zero payments and zero job or income to support it. That was a house of cards that had to implode on itself.

Today you need real income and a down payment to buy a house -- and the whole 1 year no interested etc is all but gone.

Ditto the companies you SHOULD be investing in. They should have real brands with real sales and real profits and paying dividends supported by all of that. If you choose to play the "maybe some day they might grow into a real company" that's a whole other scenario. When I "invest" in companies that maybe one day might be something ---- I might buy a couple hundred shares of that -- versus 1000's of shares of the real stuff. So if you buy 100 shares of Ford - or Coke - or McDonalds -- maybe you'd buy 10 shares of GoPro or Alibaba.... Just saying.

The only thing I'd be really wary of right now is INTEREST RATE SENSITIVE STOCKS.... Stuff that might find themselves in an interest rate squeeze with a bunch of low yielding rate investments in a rising rate environment. Banks might actually do well in this scenario because they're spreads might increase but they won't if the consumer says NO to the higher mortgage rates. Remember that in order to make money with higher rates -- you have to be able to lend that money out! So we'll see how the public reacts to that when and if it happens.