Tag: Buffett

Buffett explained the three accounting methods of equity ownership.

He also discussed the impact of inflation again. Indeed, to be insulated, “business earnings consistently must increase in proportion to the increase in the price level without any need for the business to add to capital.”

Buffett like the GEICO buy. And he makes a point on “turnaround” – actually GEICO didn’t need a turnaround. GEICO was great and only needed to take a break it seemed.

The victims of high inflation were bond holders, which including insurers.  Buffett discussed

And one astonishing fact, when Berkshire issued bonds, it was 12.75% for $60mn!!

Buffett started to worry and talk about inflation.

Even compounded 20% return could mean nothing in purchasing power if inflation is 14%, as the other 6% is for tax.

After-tax purchasing power is a more useful measurement.

High inflation also means investing in long-term bonds was making losses.

Buffet was complaining about the gov and dollar – ” We have severe doubts as to whether a very long-term fixed-interest bond, denominated in dollars, remains an appropriate business contract in a world where the value of dollars seems
almost certain to shrink by the day.”

The sarcasm!

On the operation side, Berkshire needed to divest the bank as required by law.

And for textile – Buffett didn’t have confidence this time – ” ‘turnarounds’ seldom turn, and that the same energies and talent are much better employed in a good business purchased at a fair price than in a poor business purchased at a bargain price”.

One interesting comment is about market price.

Buffett likes weak market, as he would continuous be a net buyer in the market, it’s important to have comfortable entry prices.

Buffet also likes concentrated holdings, vs buying shares of many different companies.

Plan to read through Buffett’s annual letters.

Taking notes

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Buffett commented on businesses / industry.

He was in textile. Looking backward, it’s a hard industry that should avoid. Buffett defended that they got excellent management team and were a large employer while employees were accommodating (flexible pay?).

He wrote a lot on insurance, which seems growing extremely well.

He invested in banking (Illinois National Bank). Buffett spoke highly of the person / manager and the track record.

Buffett also wrote on investment philosophy.

He likes ROE. His rationale is that growth in EPS could be partially due to growth in equity.

He also talks about long-term holding vs. short-term gains. But he may as well sound a bit like bragging as he also got short-term gains.

He likes very good managers, so he focuses on “managerial economic performance”, which is better reflected in ROE.

His experience was that buying shares is cheaper than taking private of a business. And he could keep the existing managers on board. In fact, “we can obtain a better management result through non-control than control”, which I think is crucial to Buffett’s long-term success.

A digression – insurance businesses’ success relies on good managers, which also makes sense.