Tag Archives: Buffett

Why Buffett bought BNSF and did stock split?

buffett burger
(Source: lsnhs.leesummit.k12.mo.us)

I can think of a few reasons:

1) He sees value in BNSF;

2) He want to use some cash so that his successor won’t have too much cash to squander (this is legit considering his age, and a lot of times people make mistake when they are rich);

3) Last but most important, financial crisis taught Buffett a lesson: liquidity is very important. GE and GS got his endorsement and got cash by issuing stocks in one day. Buffett could not do that before buying BNSF and the stock split. Now he can. BRK is S&P component, much more widely held. “Get access to capital market” is one reason Goldman went public in 1990s.

I think Buffett only said 1. But I think 2 and 3 are also the factor here. Remember Buffett was against stock split up to this BNSF deal. Although he said publicly splitting Berkshire stock is for small BNSF shareholders, a valid point. Nonetheless I would be astonished that was the only reason to overthrow 40 years belief/rule in one deal.

Portfolio management: lessons learned from Buffett

“Be Greedy When Others Are Fearful”: Why Buffett Didn’t Buy More at the Bottom (Yahoo Tech-ticker)

More importantly, I think controlling one’s emotion is key in this market (like yesterday and today :-(. Obviously easily said than done. Yesterday I read the WSJ top page story on people trading AIG stock, most of them lost money eventually (I believe so, at least most people gave back the gains). Trading AIG stock is an extreme example, because of its volatility in last month (August).

Other lessons from Mr. Buffett:

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NRG Energy: a better way to play Buffett?

When I say “play Buffett” I meant people who follows Buffett investing strategy, more specifically people who buy and hold his company Berkshire Hathaway (NYSE: BRK.A, BRK.B) stock. This is not easy as Buffett’s strategy is not clear cut, and his company stock is mostly overpriced in recent years (because of his fame), not to mention doing homework on Berkshire is almost mission impossible (at least I felt I cannot understand his corner stone business: insurance). So here is a better way:

Buying the stocks Buffett bought

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Exelon NRG Energy saga continues

(Presentation May 27) NRG Energy at Deutsche Bank Securities Energy & Utilities Conference.

(Noise from OptionMonster May 27) Options prepare for drop in NRG. I am not expert in Options, but I think stock price should affect option (derivative) price, not the other way around (as the NRG options shown in Yahoo Finance). Maybe guys at OptionMonster make more money from writing articles (selling Ads) compared to trading options 😀

(Daily Herald May 26) Analyst: Exelon will need to increase its bid for NRG

(Business Wire May 21) Exelon Receives FERC Approval for Proposed NRG Acquisition. Notice this is one of many regulatory hurdles EXC needs to overcome before the acqusition going through.

(WSJ May 15) Exelon CEO: If NRG Energy Bid Fails, Will Look Elsewhere

Notice earlier this year Exelon won 51% NRG shareholder via. the tender offer (WSJ article).

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Buffett bets on Wells, US Bancorp

From Yahoo Tech-ticker.

I don’t know about Wells, but I have US Bancorp shares (NYSE: USB). The stock appears expensive if you look at the price book ratio, which is a common metric to measure bank stocks. But USB is a very different bank compared to others, it’s a conservative lender. Since I opened my checking account with USB a few weeks ago, I had opportunity to visit the branch, it’s clean, and looks much sharp then the Bank of America branches I visited. Maybe, USB could get some deposit base from B of A, amid all the controversies around B of A. The USB stock was obviously knocked down last week due to secondary offering (raise money to repay TARP, or to get out of TRAP to be more precise). Today it got a nice bump from Buffett endorsement.

Reference: gurufocus Buffett buy.

Random thoughts on Berkshire annual meeting weekend

(Update 04May09) Buffett CNBC interview. (Monday Becky Quick)

I did not go to the Berkshire annual shareholder meeting, partly because of the recession (cost cutting), partly because I sold the stock recently (note: one does not have to buy stock to get the admission ticket, they sell it at $5 on eBay). There are live blog and twitter on the meeting (6 hours Q&A), such as MarketBeat (WSJ), CNBC BuffettWatch and NY Times Andrew Sokin. But there are no webcast, because Warren and Charlie are old fashioned.

Succession plan
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How many banks are too big to fail?

Week in review 042009 – 042509

According to Obama administration‘s stress test, the magic number is 19. Basically they are saying the US gov will do whatever necessary to keep the big ones afloat because they are systematically important. Or in laymen’s words, they are too big to fail. Sorry, those smaller ones, I mean not so small regional banks such as Regions Financial, SunTrust, and Keycorp.

How many banks seized by FDIC this year so far?
29 (according to CNNMoney). But this is not the point, the point is many banks are taken over by stronger ones (such as First Idaho bank branches taken over by US bank), before the seizure of FDIC. As explained in CBS 60 minutes (video) couple weeks ago, FDIC will try to sell a bank asset and deposit (secretly) when it finds the bank cannot survive. If it cannot find a buyer, then it will take over. In this case, FDIC will not run a bank forever. Like in the case of IndyMac, it sold the operations to private investors after certain period. So, the right question is, how many banks failed this year? I guess only FDIC and OTS (Office of Thrift Supervision) knows.

Who is the next Sun Microsystem
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Buffett NRG Energy average cost

From gurufocus, we can see investor gurus like Buffett’s buy and sell actions, usually 45 after the close of a quarter. NRG Energy is an interesting one, because it’s going to build the first nuclear power plant in the US for 30 years, and the offer Exelon put up last Oct. (0.485 share of Exelon for each share of NRG). More interestingly, Buffett’s Berkshire started buying NRG since last year. Here is the transactions: http://www.gurufocus.com/StockBuy.php?action=buy&GuruName=Warren+Buffett

2Q 08: $42.40 * 3,280,100 = 139,076,240
3Q 08: $35.50 * (5,000,000 – 3,280,100) = 61,056,450
4Q 08: $21.50 * 2,200,000 = 47,300,000

By my calculation average cost Buffett paid for NRG is 247,432,690/7,200,000 = $34.3657

Buying a stock Buffett was buying gives one some comfort because Buffett usually did his homework, and adhere to his rules (business; moat; management; price etc). Buying a stock at discount of the price Buffett paid offers some margin of safety. BTW, NRG closed at $18.33 today, about 50% of the Buffett price :-)

Downside
The main downside of NRG is more than 50% of shareholders already accepted the tend offer from Exelon (they surrendered). Exelon extends tend offer till June 26. So hold on the stocks, just like the Oralce of Omaha does.