On Wednesday night about 10pm somebody rang the doorbell at Mr. Buffet's house. Mrs. Buffet answered. It was a man with camo face paint and a toy gun.
Mrs. Buffet and a security guard took him into custody after a scuffle.
Obviously, somebody really wanted to know what his intentions are regarding BNSF. I wonder who has been missing from the forum for a couple of days?
edbenton wrote:To get this back on topic. He has now stated will be buying up to 25% total of the company. Not to shabby of an investmant. I wonder how many seats on the BOD they will let him pick. I know of about 1.9 million empolyees in a company that would love for him to come in and force a board to make some changes to.
Oh boy. The more I look at this, the less comparable they seem.
Take 1995 for example. A 57.4% gain in "book value" for BH. What that has to mean is that an existing asset, purchased perhaps years earlier, was liquidated -- probably at the S&P500 market value which was up considerably that year as well. But the Buffet asset wasn't measured against the market rise that year, it was measured against the acquisition cost of the asset possibly 20 years earlier. An asset that, on its own may have gained a 1000% in value, including dividends, over that 20 year period. Yet, it may have only represented 5% of BH net book value holdings but because of using the book value method of accounting, shows an enormous market value gain, leveraged by the gain in the S&P 500 itself over the 20 year period.
Even a "bad" year, such as 2005, is meaningless because it only shows that very little was liquidated in that year, and so very little book value conversion to market occured. That shows absolutely nothing except lack of activity, nor does it have anything to do with the market value of BH assets that year, and if I am seeing it correctly at this point, has almost nothing to do with the S&P 500 as a measure of "rate of return."
Alright, I was able to determine BRK.A share prices from January 12, 1990 to December 31, 2006 and then applied percentage gain/loss over the year. Here is the comparison against the S&P:
year BRK.A S&P500
1990 (20.0) (3.1) BRK.A begins January 12, S&P begins January 1.
1991 36.0 30.5
1992 29.5 12.7
1993 38.9 10.1
1994 24.9 1.3
1995 57.4 37.6
1996 6.2 23.0
1997 34.9 33.4
1998 52.2 28.6
1999 (19.9) 21.0
2000 26.6 (9.1)
2001 6.5 (11.9)
2002 (3.8) (22.1)
2003 15.8 28.7
2004 4.3 10.9
2005 .8 4.9
2006 24.1 15..8
Other than the 1990 discrepancy in starting dates, this should be a much more accurate measure of the performance of the two.
ed
Ok, it is gettng a bit murky here.
The BRK annual report indicates the "per share book value of Berkshire". So, I stand corrected on that. There is absolutely no comparison between the book value and the S&P500 with dividends reinvested. Better comparisons would be the BRK book value compared to S&P500 book value (if that exists) and even better the BRK annual return to investors vs S&P500's. I am sure Mr. Buffet and Mr. Munger have their reasons for using the comparisons they did, but I am not sure why.
However, I do stand by the moneycentral figures. Those indicate the investment results of BRK.A and S&P500. As you know the mutual fund VFINX (Vanguard S&P500 index) is a very close proxy for the index, basically slightly less due to expenses. I also compared the VFINX to both BRK.A and S&P500 and had similar results.
The share price appreciation of BRK.A and that of S&P500 (plus reinvested dividends) would be the best comparison here (IMO) and would take into consideration the enormous cash reserves held.
I am not sure where to find beginning and ending year share prices for BRK.A. I know Yahoo Finance has the historical prices but goes back only to January 12, 1990, just missing the cutoff time that we are comparing.
Perhaps a call to Berkshire Hathaway tomorrow will get me the info.
Sorry for the confusion on the data listed above for book value of BRK vs the S&P numbers. It wasnt intentional on my part and really is a bit misleading, at least on this discussion.
Thanks for putting that together, Ed. That shows the S&P at a 12.2% rate of return 1990-2007.
My problem with BH's reporting is the large amount of cash they held for several of the reporting years. There is no way they were getting the reported rates of return on that cash. Indeed, these numbers are not comparable at all.
The BH numbers you use are measured by book value plus accumulated dividends. The S&P is measuring market value. These are substantially different value measurements. Book value wouldn't plunge with the market and would look very good during bear markets. Indeed, BH could be holding companies with profoundly reduced market value, and by still reporting them at book value, 1) not show any loss at all compared to the market value of the same companies shown on the S&P 500, and 2) will show only the gains if they wait to sell until a higher value can be obtained. We could get a comparable S&P if and only if we only showed the good years of the S&P, since that is how Buffet is taking the choice of when he wants to report changes in valuation, whereas the actual S&P reports its valuations daily.
In this process, BH is reporting the rate of accumulation of new companies -- acquisition price plus accrued dividends.
That is not a "rate of return" comparable to what the S&P is reporting.
MichaelSol wrote: MP173 wrote: The investment results of BRK (Berkshire Hathaway, class A) and S&P500 are as follows, with all dividends reinvested:BRK.A beginning with $10,000 on 1-1-1990BRK.A current value $136,473 for a total return of 1266% over the time.S&P500 beginning with $10,000 on 1-1-1990 S&P current value $42,004 for a total return of 320%.Source: moneycentral.com (msn)I am not positive about the compounded return for both, I ran it on my HP10B and came up with 14.08% for BRK.A and 7.71% for S&P. Earlier, you stated, without dividends reinvested, that the shares had returned as follows:January 1, 1990 BRK $8350 S&P500 - $331.89Current BRK $118390 S&P - $1473.99This was a 1418% return for BH with the dividends retained and reinvested, and a 444% rate of return for the S&P without the dividends retained and reinvested (ie, they were paid out to investors).During that time frame, the S&P 500 paid out $2.4 trillion in dividends.How could the S&P earn a 320% rate of return with dividends included, and a 444% rate of return without the dividends included?From January 1970 to December 2006, the average compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 11.5% per year -- but this includes those awful 1970s years -- and has reached as high as 61% annually. I had earlier stated that the S&P for this time period (1990-2007) averaged 13%.
MP173 wrote: The investment results of BRK (Berkshire Hathaway, class A) and S&P500 are as follows, with all dividends reinvested:BRK.A beginning with $10,000 on 1-1-1990BRK.A current value $136,473 for a total return of 1266% over the time.S&P500 beginning with $10,000 on 1-1-1990 S&P current value $42,004 for a total return of 320%.Source: moneycentral.com (msn)I am not positive about the compounded return for both, I ran it on my HP10B and came up with 14.08% for BRK.A and 7.71% for S&P.
The investment results of BRK (Berkshire Hathaway, class A) and S&P500 are as follows, with all dividends reinvested:
BRK.A beginning with $10,000 on 1-1-1990
BRK.A current value $136,473 for a total return of 1266% over the time.
S&P500 beginning with $10,000 on 1-1-1990
S&P current value $42,004 for a total return of 320%.
Source: moneycentral.com (msn)
I am not positive about the compounded return for both, I ran it on my HP10B and came up with 14.08% for BRK.A and 7.71% for S&P.
Earlier, you stated, without dividends reinvested, that the shares had returned as follows:
January 1, 1990 BRK $8350 S&P500 - $331.89
Current BRK $118390 S&P - $1473.99
This was a 1418% return for BH with the dividends retained and reinvested, and a 444% rate of return for the S&P without the dividends retained and reinvested (ie, they were paid out to investors).
During that time frame, the S&P 500 paid out $2.4 trillion in dividends.
How could the S&P earn a 320% rate of return with dividends included, and a 444% rate of return without the dividends included?
From January 1970 to December 2006, the average compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 11.5% per year -- but this includes those awful 1970s years -- and has reached as high as 61% annually. I had earlier stated that the S&P for this time period (1990-2007) averaged 13%.
This sort of data, in easy form, is difficult to retrieve. I tried for several days and finally found it on the moneycentral site and that was only after signing up for an enhanced version. I also called Morningstar and Vanguard to get the "investment results, dividends reinvested for $10,000 frm 1-1-1990 to present. I was told by both companies that they could not provide me that information, which I found hard to believe. Vanguard kept me on hold for 15 minutes while they checked. I have to believe Morningstar had the resources, but didnt want to provide the service.
What I also did to check was create a spreadsheet with January 1, 1990 as the starting date with the returns per year for both BRK.A and S&P. This was fairly quick to do. I came up with very similar numbers ($136,473 and $42,000) as the moneycentral. My problem with that was determining the opening price of BRK.A in 1990.
Now, regarding the dividends paid and compounding on the return, I agree that it is CRITICAL those numbers be included. For S&P500 it is part of the return. We both realize BRK pays no dividends so there would be no effect. Your comment regarding 1970 - 2006 S&P returns...I cannot verify those at these times, but I dont doubt your comment. It seems about right. I was a little puzzled the S&P return was as limited in 1990 - present (my calculations show 7.71% but I am not confident I used the correct formula).
Here are the returns for BRK.A and S&P for the years 1990 to 2006 (source Berkshire Hathaway annual report 2006, page 2). The S&P returns are "with dividends included".
Year BRK S&P
1990 7.4 (3.1)
1991 39.6 30.5
1992 20.3 7.6
1993 14.3 10.1
1994 13.9 1.3
1995 43.1 37.6
1996 31.8 23.0
1997 34.1 33.4
1998 48.3 28.6
1999 .5 21.0
2000 6.5 (9.1)
2001 (6.2) (11.9)
2002 10.0 (22.1)
2003 21.0 28.7
2004 10.5 10.9
2005 &nbs
I am going to provide this only for information purposes, not to escalate or to carry forth an argument. This conversation seems to have gotten a bit off track.
At this point I dont have a clue what BH paid for the shares of BNI and am not going to attempt to speculate what was paid for those shares. Thus, I am not justifying Mr. Buffet's performance results with BNI. That can be done far into the future.
What I will clarify, unemotionally, I hope is the performance of BH vs S&P500 over the period of time from 1-1-1990 thru present. It has taken a considerable amount of time and effort to find this information and I believe it to be true.
Please let me know if there are any corrections to these figures.
Michael, this is not to flame or escalate the previous conversation. I believe these are correct returns, based on a number of phone calls and other forms of investigation. To repeat, regarding BNI purchase price...I cannot say for sure, nor am I going to continue to speculate.
I was hoping that Jimmy Buffet would buy a piece of BNSF. Then it would become The BNSF and Margaritaville Railway.
Michael:I will cool it, have a great weekend.
Martin, I think you are correct, lets wait til next year.
joemcspadden wrote:Since BH was formed in 1965, the annual return on the S&P500 with dividends reinvested, has been 10.4% The BH annual return has been 21.4%
I understand that BH has done well over a long period of time. No one has said otherwise, and I am not sure why this conversation is being drug in that direction. This really has nothing to do with BN, unless the theory is being advanced that a successful investor cannot buy a stock priced above its sustainable level, because he has otherwise produced a healthy return on his investments. That's an interesting "theory" if so, but I don't think its a law that's been written. Just look at the link that Ed provided above and note the large negatives on the chart for USG and other companies in the BH fold recently.
However, here, we again go to a different metric. The 21.4% return, for instance, if true during the time frame that Ed proposed, 1990 to 2007, would mean that a BH share should have gone from $8,350/share to $228,814 instead of the $118,390/share that existed at the date Ed took the number. That's quite a shortfall on the expectation of a 21.4% rate of return.
If Ed is correct on the values of the stock at the points in time referenced, the 21.4% rate of return obviously did not happen over the time frame that Ed proposed.
And so what's the point, other than to offer that Warren Buffet has historically been a successful investor? Not sure, and I have no idea what it has to do with the price of BN stock.
What this conversation suggests to me confirms my earlier comment, that there are some here who believe, fervently, that Warren Buffet just could not have purchased some BN stock on the high side because ... he's Warren Buffet! Just look at his returns since 1990, 1965, all eternity!
The premise is ridiculous to me, but does confirm my remarks that this isn't about BN stock, this is a collateral exercise in hero worship. Well, let me make clear: I think Warren Buffet is a terrific investor and I agree 100% with his theory of investing.
And I also think he bought some BN stock on the high side of its value. I continue to suspect that BN stock is priced ahead of its intrinsic value, and that part of the reason for that is the presence of Warren Buffet as a well-advertised buyer.
Ed disagrees. So what. He has his reasons, and I have mine. Not really all that much to argue about. Either Buffet bought high, or he didn't. And the world will not change one iota either way. Not sure why anyone even wants to argue about it. Why offering an "estimate" becomes "we are to accept your "theory" as law" is a leap made by Ed all on his own, for whatever personal reasons he has to make such a crack. It is unjustified and looks more designed to merely pick a fight than offer any enlightening commentary. Pretty close to just name calling.
Ed, this is taking on the aspects of your comments on the GN a month ago-- you finally were just citing metric after metric to prove ... something, and if one didn't "work" you went to Moody's and found another one and threw it out. It just became a game of "gotcha" for you and you seem to get into it more recently than is typical.
There's just nothing really to "prove" here. Let it go ....
MP173 wrote: Define "data".You have no "data" for this. You have your "theory". I have admitted that I cannot prove what BH paid for these shares. I DONT KNOW. But, we are to accept your "theory" as law. I dont believe everything I read on the internet, but at this time it is the best I can come up with.Do you have actual data as to what BH paid for the shares of BNI? Yes or no.
Define "data".
You have no "data" for this. You have your "theory". I have admitted that I cannot prove what BH paid for these shares. I DONT KNOW. But, we are to accept your "theory" as law. I dont believe everything I read on the internet, but at this time it is the best I can come up with.
Do you have actual data as to what BH paid for the shares of BNI? Yes or no.
Ed, you're going off on some chest-thumping here that is completely inappropriate.
I specifically stated "That is the basis for my estimate that, prior to April 4, BH was paying as much as $85 to $90 a share since ..."
Note the words "my estimate". And I explained my basis for that estimate. In detail. Look up the word "estimate" -- it is a judgment or opinion. Nothing more, other than that I have to take the time to explain the word to you.
At least, unlike you, I did examine, as a basis for my opinion, a pattern of purchasing and volumes traded prior to April. My words and intentions were pretty clear. "We can only theorize ..." is a concession that was clear from the outset and which you have tried to turn into one of your number games ... throwing out a variety of metrics you don't even understand to prove "something" -- it's hard to tell what, now you've escalated this into a Warren Buffet vs the S&P -- is far more than a mere discussion about BN stock and whether it is priced rationally. Indeed, no one has to accept my "theory as law" since I plainly labeled it an "estimate."
This "prove it" baloney takes this entire discussion far beyond where it should have gone. Indeed, it once again attempts to put words in my mouth. This is getting to be a habit ....
Cool off ...
MichaelSol wrote: MP173 wrote: Oh, one more thing.Perhaps instead of comparing BH's investment in KO to that of the S&P between 1990 and the present, perhaps you should compare BH's share price to that of S&P.January 1, 1990 BRK $8350 S&P500 - $331.89Current BRK $118390 S&P - $1473.99S&P has had a pretty good run, BRK much much better.Yes, perhaps there is a reason my "default" is what it is after all.This is becoming your typical, "let's change the metric to something else" response. I have not ever said that BH was poorly managed or run, or that WB did not follow sound principles. I have discussed only the BN purchases. Ed, these discussions become uniformly bizarre where you seem to labor under an urgent need to prove "something" and start casting about for completely unrelated subjects. And then go "aha!" about something that no one was talking about. This isn't the first time where you have launched off into something else. What's your point? WB does a good job in general? No one said he didn't. This was a conversation about BN stock specifically (and Coca Cola when someone felt a need to bring it in).That just puts words in the conversation that weren't there.Why you need to do that, every time, is beyond me. Good luck.But, let's look at it, since you brought it up.I needn't point out that the S&P represents a substantial increase in the number of shares outstanding over the time period you mention, whereas BH has had no stock splits nor issues. You knew that.You also know that the value "per share" is not comparable over the time frame involved, particularly since BH never issued a dividend, whereas the S&P companies kicked out billions in dividends.If the S&P dividends had been held and reinvested, as BH did, for a "share price" of BH at $118,390, an S&P equivalent share price would be $5,621, based on the 1990 comparisons you recite, $8,350 vs $332..If indexed, $1 of BH stock over the time period you use would be worth $13.17. A single $1 of an S&P "share" without issuing dividends would be worth $16.99. This is why a dividend reinvestment mutual fund easily did better than BH.Your choice of the metric is odd, since I am sure you knew that because of the dividend anomaly, the comparison would be completely misleading, in fact, completely false ... in addition to changing the subject.Or was the whole idea to change the subject?
MP173 wrote: Oh, one more thing.Perhaps instead of comparing BH's investment in KO to that of the S&P between 1990 and the present, perhaps you should compare BH's share price to that of S&P.January 1, 1990 BRK $8350 S&P500 - $331.89Current BRK $118390 S&P - $1473.99S&P has had a pretty good run, BRK much much better.Yes, perhaps there is a reason my "default" is what it is after all.
Oh, one more thing.
Perhaps instead of comparing BH's investment in KO to that of the S&P between 1990 and the present, perhaps you should compare BH's share price to that of S&P.
S&P has had a pretty good run, BRK much much better.
Yes, perhaps there is a reason my "default" is what it is after all.
This is becoming your typical, "let's change the metric to something else" response. I have not ever said that BH was poorly managed or run, or that WB did not follow sound principles. I have discussed only the BN purchases.
Ed, these discussions become uniformly bizarre where you seem to labor under an urgent need to prove "something" and start casting about for completely unrelated subjects. And then go "aha!" about something that no one was talking about. This isn't the first time where you have launched off into something else. What's your point? WB does a good job in general?
No one said he didn't.
This was a conversation about BN stock specifically (and Coca Cola when someone felt a need to bring it in).
That just puts words in the conversation that weren't there.
Why you need to do that, every time, is beyond me.
Good luck.
But, let's look at it, since you brought it up.
I needn't point out that the S&P represents a substantial increase in the number of shares outstanding over the time period you mention, whereas BH has had no stock splits nor issues.
You knew that.
You also know that the value "per share" is not comparable over the time frame involved, particularly since BH never issued a dividend, whereas the S&P companies kicked out billions in dividends.
If the S&P dividends had been held and reinvested, as BH did, for a "share price" of BH at $118,390, an S&P equivalent share price would be $5,621, based on the 1990 comparisons you recite, $8,350 vs $332..
If indexed, $1 of BH stock over the time period you use would be worth $13.17. A single $1 of an S&P "share" without issuing dividends would be worth $16.99. This is why a dividend reinvestment mutual fund easily did better than BH.
Your choice of the metric is odd, since I am sure you knew that because of the dividend anomaly, the comparison would be completely misleading, in fact, completely false ... in addition to changing the subject.
Or was the whole idea to change the subject?
So, let me get this straight...you are saying that BH has underperformed the S&P500? I know we are getting off the subject. I will admit this. What should I do, just simply take what you say as universal truth without comment or question? Should we all agree that BH has had losses of 15% on it's BNI since purchasing without any data? Again...define "data". Show me the prices paid and I will accept it.
I do admit that I did not take reinvested dividends into account in comparing S&P vs BRK. My bad, as we used to say.
So, in summary:
1. I will investigate the total returns of S&P 500 vs BH since 1990 with all dividends reinvested. This may take a few days.
2. I will make a call to BH on Tuesday and check other sources (better than my "internet sources") to attempt to determine if an average price can be determined.
3. I will attempt never to change the subject of a conversation, without so noting.
Happy Labor Day,
If you dont, we can only theorize until that data becomes available.
Prove me wrong and I will admit it. By gum!
You also know that the value "per share" is not comparable over the time frame involved, particularly since BH never issued a dividend, whereas the S&P companies kicked out billions (trillions?) in dividends.
MP173 wrote: My data was referenced in my post dated August 31, 2007, 512am. Obviously, you either did not read that post, didnt check it out, or ignored it.
My data was referenced in my post dated August 31, 2007, 512am. Obviously, you either did not read that post, didnt check it out, or ignored it.
"An internet source I examined indicated he had made purchases of 37,808,400 shares of BNI over a three month period of time with a return of 6%. This can be located at form4oracle.com/insider?cik=0001067983. If this link doesnt work, try searching SEC filing Berkshire Hathaway in Google. It will be there."
Baloney. Read what? Read it yourself. That source doesn't list anything prior to April 4. It doesn't even discuss the shares -- market or not -- acquired prior to April. It does disclose that purchases made on that date were between $81 and $82 -- which is within the range I specifically included.
If you will note, the pre-April 4 purchases are not disclosed, as they were held "beneficially" for BH by the following subsidiaries of Berkshire Hathaway Inc.: National Indemnity Company ("NICO") (14,404,930 shares); National Fire & Marine Insurance Company ("NFMIC") (1,322,100 shares); and Columbia Insurance Company ("Columbia") (23,300,400 shares). Each of NICO, NFMIC and Columbia is a subsidiary of OBH, Inc. ("OBH").
You provided no data for those shares, so what's the point?
I disclosed my pre-announcement data and the basis for my conclusions.
You have made something up about that time frame, you have offered no data, and by gum, you are going to stick with it, whatever it is.
Wheat prices are at an all time high. You and the Montana farmers should be very happy. I have no wheat, but my corn will do very well. Refresh my memory, please on where I specifically stated that Staggers reduced wheat rates. My memory is short these days, not selective.
Going back into late 2006 and early 2007, there were some pretty big trading days for BNI, several in excess of 5 million shares. There was also a shift in the activity in February with considerably more days of trading in excess of the "1 to 3 million range". As you stated the share price of BNI started moving upward in a pretty positive move.
In closing, I cannot specifically state when and at what price BH bought BNI shares.
Nor can you.
Stalemate.
You can believe that BH paid prices which resulted in 15% losses by August.
I do not see that.
I will call BH Tuesday morning to see if that information is available.
Until then, have a great holiday weekend.
MP173 wrote: Michael:Support your statement with data that BH has lost nearly 15% off BNI stock purchased since March/April. No more theories, show us the data.More later, gotta run. Happy Labor Day weekend to all,ed
Michael:Support your statement with data that BH has lost nearly 15% off BNI stock purchased since March/April.
No more theories, show us the data.
More later, gotta run. Happy Labor Day weekend to all,
Well, I am still waiting for your data on how wheat rates have fallen under the Staggers Act.
Read my post of August 30, 9:59 a.m.. Unlike you, I specifically cited numbers, dates, and my conclusions. Indeed, I stated specifically: "That is the basis for my estimate that, prior to April 4, BH was paying as much as $85 to $90 a share ..." -- a courtesy you have never extended on any of these discussions even as you mistate what I proposed to gain some point that you feel you need to score.
You may not agree with my analysis, but at least I made one based a specific set of activities at a specific point in time that was consistent with the outcome.
For your information:
8/28, 2:51:
"Assuming Berkshire Hathaway bought it's stock at share prices somewhere between 85 and 90, and the stock briefly traded as low as 75 recently, that represents a loss of between 13% and 17% in value."
And what was the specific basis for my assumption, I explained that 8/30:
"And prior to April 4 is the period that I referred to as the benchmark for subsequent purchases.
"Ordinarily, BN shares trade in the 1-3 million share volume range. BN's market "momentum" is generally positive, and on 1/17/07 showed a 1.28 momentum benchmark at 77$/share. Within a few days, volume trading shot up to 6.7 million shares. Somebody had entered the market big time, and was buying at 81.6, with a "momentum" metric of 7.21 -- very high. On February 14, shares traded at 4.8 million shares at 84.6, and on February 22, traded at a high during the day of $85.9 -- the source of the $86 a share, I referred to.
"On February 26, momentum went negative, and shares dropped to 81.22 on 2/27, there was a selloff at 6.4 million shares -- I am sure Buffet was buying in there somewhere, although guessing when a player might be selling to drive the price down is pure guess work. Might be buying, might be selling. In any case, there was a strong market, measured by momentum, between January 17 and February 26. It pushed the stock to nearly $86 a share. And that had to be because someone was buying the stock at that price -- or more in outside market channels.
"During those few weeks of significant activity, the market was priced at between $81 and $86.
"During that run-up, large private block purchases would have commanded a premium from sophisticated institutional investors because the price was clearly going up, and that is part of what would drive the market price up as well since these guys talk over coffee about what they just did with their portfolio.
"That is the basis for my estimate that, prior to April 4, BH was paying as much as $85 to $90 a share since 1) BH was clearly the source of the buying power that drove the market price to $86 at a key point in the buying cycle, and 2) $81 to $86 are appropriate market benchmarks for estimating the cost of private block purchases as they provided a floor estimate for the premium, which I estimated at $85 to $90. Historically, that is a small premium compared to that offered for large share interests in other contexts, and I am not going waste any further energy arguing that a 5-8% premium for large blocks of shares is unreasonable by any stretch compared to the market price plus costs and commissions incurred in purchasing similar amounts in the market. It isn't.
"Now, Ed argued that purchases since then have averaged much lower purchase prices, and attempted to assert that this somehow disproved my premise. However, that put words in my mouth I did not say.
"On the contrary, what happened is exactly what I said would happen when a price drops sharply against an originally higher purchase price -- in an effort to reduce the average cost per share. Such purchases can stand as evidence that a higher price was previously paid rather than the Ed's apparent default position that everything the man does is automatically brilliant."
I hope that clears things up for you Ed.
On the other hand, you emphatically stated there was a 6% gain, then admitted you guessed we couldn't really know what he paid prior to April 4. Where's your data, indeed...
joemcspadden wrote:Michael--The point I was trying to make was that Buffet does not engage in thekind of thinking or investment strategy you were attributing to him when you implied that his recent and subsequent purchases ofBNI stock might have been "to prop up a deteriorating price situation."He doesn't care what the price is now, because he doesn't plan to sell.If the price of the stock goes down in the near term, that will please him--because it presents an opportunity to by more of what he determined was a good deal at the higher price.Joe
Well, what he is "thinking" is not in my ability to gauge. It is the automatic assumption by many that whatever they think he is thinking, he must be right, and therefore they are too!
Coca Cola was one of his biggest investments, and yet lagged the average market gain over the 20 year period you suggested by nearly 30%. That's a huge underperformance. Is that also a "good deal" because he obviously paid too much? And waited and waited, until now Pepsico has stolen the march?
My point is that some assess a stock's prospects by whether or not Warren Buffet buys it or not. It seems both a poor guide from the very example you cited, and it is a poor way to analyze stocks or companies in any case. Ironically, it not the way Buffet says he does it either. And that's my point.
And, read my post. I stated he was buying at the lower prices the stock is now receiving to leverage his gains if it goes back up. I mentioned that the strategy goes back to Russell Sage.
It doesn't mean the higher prices paid earlier were shrewdly paid.
It does confirm what some were saying on the earlier thread that the stock, and his purchases, were overpriced, and that opinion contrasted with the bold pronouncements there that Buffet, and only Buffet apparently, could see the PBR business and that BNSF served "West Coast ports."
joemcspadden wrote:MichaelSol--You make a lot of interesting points. The problem is that none of themhave anything to do with Warren Buffet. The very notion that he wouldcontinue to buy stock in a company to "prop up a deteriorating situation"is so foreign to his way of thinking, it is off the charts. The typical WallStreet clowns exhibit this king of behaviour--but not him.Yes, if a stock price goes down after he makes an initial investment in acompany, he will frequently buy more. Why? Because he discerns an evengreater discrepancy between the value Wall Street is currently placing onthe stock and what he has determined to be the "intrinsic" value of thecompany.The "intrinsic value," in the way he uses the term, involves a calculation ofthe present discounted value of future profit streams. Buffet will be thefirst to tell you that calculating this is as much of an art as it is a science,but he's gotten pretty good at it!His cost basis in his ownership of 8.6% of Coca Cola is $1.3 billion. The current market value is $9.65 billion. But this is almost 20 years afterhe made the bulk of his purchases.
This is probably as good an example as any. His investment in Coca Cola averaged an 11% annual gain. The S&P averaged 13%. His Coca Cola investment was short by nearly $4 Billion of what the average stock gain was over the time period. Any Fidelity mutual fund did better.
I admire Buffet as much as the next guy, but in this context, on an earlier thread, there was considerable commentary about BN's stock already being somewhat overpriced, and that Buffet was buying at a historical high, a high that did not appear sustainable. Whatever the shrewdness of buying high, it is true that even if you do so, and live long enough, you can show profit. It's generally easier to do, however, by buying low at the outset.
Coca Cola is a good example. Long enough to show a big profit? Sure.
Shrewd? Not even by the average gain shown by the average company on the S&P 500. Coca Cola was at the bottom of the pack. Exactly what is it you propose to show by that example? And that was one of the few companies that he was actively involved in management.
Go back to the earlier thread and read Ed's comments on that astute investment. As I called it at the time, it was cheerleading, pure and simple, abandoning any pretext to analysis based on actual facts, just as on this thread a hypothetical buying strategy has been fabricated whole cloth just to preserve/enhance the perception of Warren Buffet's "shrewdness" even though the strategy has no factual basis whatsoever. For some reason, it seems important to some to "interpret" events through a Warren Buffet "filter" and if there are no facts -- doesn't matter. It's Warren Buffet!
To me, this suggests it really doesn't matter what a company does, if Warren Buffet invests in it, that's all that needs to count -- and read your post over to see how strongly your belief system causes you to offer an example that does not even support your proposition -- because facts don't matter where conventional wisdoms are concerned, and perhaps where a little hero worship is thrown in to boot.
And my point is exactly as you say -- the assessment of BN should not have anything to do with Warren Buffet, and my criticism is precisely that -- posters judging BN based entirely on their hero worship of Warren Buffet rather than the intrinsic quality of BN and how this may in fact be distorting the current stock price.
Our community is FREE to join. To participate you must either login or register for an account.