Category: personal_noteS

[Reading Buffett] 2007

CEO & company – “a terrific CEO is a huge asset for any enterprise”, but “if a business requires a superstar to produce great results, the business itself cannot be deemed great”.

Truly great businesses, earning huge returns on tangible assets, can’t reinvest internally with high ROIC for a long time.

FlightSafety is a “put-up-more-to-earn-more” type of business – good but not extraordinary.

Buffett acknowledged the mistake in investing in the shoe business, using equity.

“Overall, we are delighted by the business performance of our investees. In 2007, American Express, Coca-Cola and Procter & Gamble, three of our four largest holdings, increased per-share earnings by 12%, 14% and 14%. The fourth, Wells Fargo, had a small decline in earnings because of the popping of the real estate bubble.”

Buffett sold PetroChina in 2007.

Buffett also did well in currencies.

Investing in China: little differentiation != real competition

Sometimes, it does seem that even SOEs in China doesn’t have monopoly. For example, there are 3 telecom companies, and multiple banks.

However, there are also no real market competitions. E.g. you don’t see China telecom operators competing for customers by offering differentiating product offerings.

Consumers didn’t get a wider range of choices via these seemingly “competing” businesses. 

How these businesses “split” profits looks more like a “political” question, rather than a economical one.

[Reading Buffett] 2006

Buffett talked about the trade deficits US occurred – “Making these purchases that weren’t reciprocated by sales, the U.S. necessarily transferred ownership of its
assets or IOUs to the rest of the world. Like a very wealthy but self-indulgent family, we peeled off a bit of what we owned in order to consume more than we produced”.

And the “reverse compounding” of more interests on interests.

Those two problems, mentioned in 2006, are now the focus of US gov.

Buffett had some other issues to consider – how to retain talents.

[Reading Buffett] 2005

It does seem that Buffett’s reputation has helped him a lot in acquiring businesses – the access to deal flows is unparalleled.

Buffett is question if climate changes have happened so that the frequency of hurricanes (or other natural disasters) rises, which costs insurance companies a lot more. Berkshire decided to raise prices for those mega-cat policies.

Buffet again showed his dislike for of all sorts of “helpers”.

On succession – “When their abilities ebb, so usually do their powers of self-assessment. Someone else often needs to blow the whistle. ” “If I become a candidate for that message, however, our board will be doing me a favor by
delivering it.”

[Reading Buffett] 2002

“An insurance business has value if its cost of float over time is less than the cost the company would otherwise incur to obtain funds.”

Buffett didn’t like derivatives –

  1. it’s hard to know true earnings (economics) leads to “weak” numbers; easy for frauds or near-frauds to rise
  2. it may increase short-term cash illiquidity problems
  3. it creates chain risks in the system (counterparty risks)

[Reading Buffett] 2001

By focusing on experience, insurance companies received no premium on terrorism risks.

“Predicting rain doesn’t count; building arks does.”

If a company is focused on “winning” market share too much and loses sight on profits, there will be problems.

Buffett recognized several previous mistakes – those happened in General Re, and some in investments like Dexter (shoes).