When Warren Speaks, Wall St. Listens

When Warren Speaks, Wall St. Listens

By Gerald Harris

Warren Buffett is probably the best-known, most admired, and most successful investor of our era. His market strategies have made him one of the wealthiest people on the planet, and countless individual investors also have made large fortunes simply by purchasing shares in Berkshire Hathaway, the holding company he runs, and holding them for the long term.

Every year, Buffett, who has been in charge of Berkshire for more than five decades, writes a letter to the shareholders in the annual report and uses the forum to comment about investing, Wall Street, and life, among many other topics. His letter is eagerly anticipated up and down The Street and analyzed in detail by analysts, and this year’s letter, released in late February, was no exception.

So what kind of year did Berkshire have in 2017? Put it like this: You and I should be doing as well. The company had net earnings of nearly $45 billion. And the book value – the amount it is worth – jumped by a very hefty $65.3 billion to $348 billion. In commenting on these results, Buffett said that the $65.3 billion increase is “real – rest assured of that.”

One of Buffett’s long-term goals is to beat the S&P 500, and last year was another one in which he did. The S&P had a very good year, rising by 21.8 percent. But Berkshire’s stock did even better, as the price rose by 21.9 percent. 2017 was an outstanding year by any measure. However, considering that Berkshire has grown to a gargantuan size, posting significant percentage gains is becoming progressively more challenging.

Buying Bargains

One of the main strategies Berkshire has embraced over the years is acquiring high-potential companies at very favorable prices and growing them. Among Berkshire’s fully-owned subsidiaries are GEICO, Dairy Queen, Lubrizol, Fruit of the Loom, and Flight Safety International. And it also has minority but still significant interests in American Express, Coca-Cola and Apple, among many other well-known firms. Press reports of Buffett buying or selling stock in any company always drives their shares significantly.

Following are excerpts from this year’s letter to shareholders, which not only explain the events of 2017 but also give readers an idea of Buffet’s up-to-the minute views of the market and hint at what Berkshire may have in mind for the upcoming year. Along the way Buffett comments about a variety of subjects:

Virtually everything Buffett says and does receives
a great deal of coverage, but is it possible
that he has a Jewish connection the press has missed?

*Acquisitions: Berkshire hasn’t made any significant purchases for a long time, but that’s not because the company is not interested. Buffett noted that acquisitions “need to have a sensible purchase price.” With a war chest of $116 billion at the end of 2017 Berkshire can buy almost any company it wants to without resorting to debt. Buffett believes that opportunities to purchase high-potential companies at value prices will be available going forward.

*Volatility: “There is simply no telling how far stocks could fall in a short period,” he wrote. “Even if your borrowings are small and your positions aren’t immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions.”

*Markets: “Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics, or a familiarity with Wall Street jargon. What investors need instead is an ability to disregard mob fears or enthusiasms and to focus on a few simple fundamentals.”

*Bonds: “Bonds can be risky too. It is a terrible mistake for investors with long-term horizons – among them pension funds, college endowments, and savings-minded individuals – to measure their investment “risk” by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk.”

Buffett’s Jewish Connection

Virtually everything Buffett says and does receives a great deal of coverage, but is it possible that he has a Jewish connection the press has missed? The answer is yes. One example is a transaction in 2012, when he decided to invest in chametz, of all things.

Here’s what happened. At the time, Rabbi Jonathan Gross was the rabbi of Beth Israel Synagogue, the only Orthodox shul in Buffett’s home city of Omaha. It was shortly before Pesach, and Rabbi Gross needed to sell the chametz belonging to the members of the shul to a non-Jew, in accordance with Jewish law. Rabbi Gross decided to contact Buffett, explaining that the members wanted to sell their chametz at a low price, but after Pesach, anxious to eat bread, cookies, and pasta, would be willing to repurchase it for a high price. Buffett purchased the food at a fair price and donated it, along with all the proceeds, to a local food bank.

That was not his only connection to the Jewish community. Last June Buffett traveled to New York to help sell Israel Bonds to a group of investors from the U.S., Canada, Mexico, and Brazil. The event helped raise $140 million and followed an event in Omaha that raised more than $60 million for the same cause. Buffett owns at least $5 million of Israeli bonds in his personal portfolio. Separately, over the years, he has made acquisitions of some small Israeli companies and a few others that were not so small, such as his purchase of ISCAR in a deal valued at $4 billion.

Buffett also has been generous with praise of both Israel and its citizens. “Israel is the best place to invest because of its people,” he told Israel Hayom. “There is no other place with such high-quality people, with the motivation and abilities that Israelis have.” And he added that Israel needs to continue doing what it does. “You are a nation of fantastic entrepreneurs with fantastic capabilities.”

In late February, Berkshire’s “A” shares were trading in the 316,000/share range, slightly below their all-time high; it is the highest-priced stock in the history of the stock market. Berkshire’s shares have never been split, and Buffett has said that he never will split them.

Sources: Investopedia;
USA Today;



Gerald Harris is a financial and feature writer. Gerald can be reached at geraldhrs@yahoo.com