stlplaceBerkshire B share (NYSE: BRK.B) traded heavily May 30 Friday.
(Full size picture here)
May be Bill Gates is selling on behalf of Gates foundation (USAToday article)? As you may know in 2006 Buffett donated large number of shares to Gates fundation (NYTimes article). I was wondering who is buying BRK.B on Friday? I know I could only afford 0.5 share at this time (hint: President Bush, could you speed up the tax rebate 🙂
It seems there is lots of confusion about Berkshire (NYSE:BRK.A, BRK.B) options (paper) loss in its Q1 earning report, especially among individual investors. First, let me quote Buffett’s take on those options in his recent annual shareholder letter (link to letters):
“The second category of contracts involves various put options we have sold on four stock indices (the S&P 500 plus three foreign indices). These puts had original terms of either 15 or 20 years and were struck at the market. We have received premiums of $4.5 billion, and we recorded a liability at yearend of $4.6 billion. The puts in these contracts are exercisable only at their expiration dates, which occur between 2019 and 2027, and Berkshire will then need to make a payment only if the index in question is quoted at a level below that existing on the day that the put was written. Again, I believe these contracts, in aggregate, will be profitable and that we will, in addition, receive substantial income from our investment of the premiums we hold during the 15- or 20-year period.
Here is a link to Q&A transcript of Berkshire Hathaway 08 shareholders meeting. I believe this is more comprehensive than CNBC’s live blog I posted earlier.
Berkshire first quarter earning
It went down more than 60% over same period a year ago (PDF). But the number does lie sometime, because this is mostly from paper loss of very long term derivative. One may wonder how come Buffett got into this derivative thing? Isn’t that risky?
Well, in a way we are all invovled in this derivative world. Think auto insurance. When we pay premium for car insurance, it’s like buying a put for our cars and the insurance company is selling the put. If the underlying (car) got demaged, we will be paid by the insurance company for the loss. But most of times our cars are fine, and the insurance companies make money. We all know insurance is Berkshire’s main business and Buffett’s expertise area. My point is Buffett is not new to derivative. He is the financial guru of our time. While his main expertise is buying common stocks and business (in which he emphasize the moat, the durable competitive edge), he also has good understanding and made money on bonds, commodity and foreign currency etc. One interesting example I read from his latest annual letter is he bought Amazon Euro (junk) bond after dot com bubble: he got upsides both from the apperication of Euro and Amazon itself a few years later.
Chinese speaking representative in BoA
We went to the local BoA branch, and to our surprise, one of the financial representative speaks Chinese (Mandarin). He said he had worked in Beijing. One thing I heard is foreigners in Beijing tends to learn Chinese, while those in Shanghai don’t. On a related matter, it appears the interest of learning Chinese is rising among foreigners.
Food stocks
(Update) Meet the Buffetts (NBR Susie Gharib interview with 3 Buffett children, Howard, Susie, and Peter).
Working with Buffett (NBR Susie Charib interview 3 CEOs working for Berkshire subsidiaries).
Berkshire shareholder meeting at its early days
Quote from CNBC:
Buffett: It’s a gathering of partners. And, you know, we have a lot of partners, but I like the fact they feel part of the act. And to see it’s a real company, real products, real people. And, I get to see real stockholders, so it’s, it’s, it’s a gathering.
Becky: It started out as a very small event. When was the first, when was the first one?
Buffett: Well, if you go way back we used to hold ’em in New Bedford, Mass., where Berkshire Hathaway started. So I would go back there. And, and it was me and somebody taking the minutes… And we would have about anywhere between 8 and 12 people, for the next 10 or so years until about 1981. And my aunt Katie would come and my Uncle Fred. I always packed the audience with people that would be sure to nominate me.
I printed out the CFA exam admission ticket yesterday, the test will be hold on June 7. Still got to read up the economics (my least favorite topic). So far I have read “financial management and statement analysis”, “quatitive methods”, “equity analysis and portfolio management”, and I’ve almost completed the “Options and derivatives”. Another thing I need to read is “Ethics”: I intentionally put it off and prepared to read it right before the test. As I get older, my memory is not as good 🙂
401k
I checked out the 401k and Rollover IRA at Vanguard this morning. I was surprised to find, after all these craziness, my portfolio is down 3.77% YTD. One thing I noticed is April was a good month for stocks. All the major indices went up.
Berkshire shareholder meeting
My wife used to joked with me: you always tout some stocks when you buy, then after it crashed, you will say it’s a crap (XFML, Heelys, LFT, Crocs).
I think I won’t say that for Mindray, and hopefully no hard feelings for BRK, either.
Sold Mindray MR
I sold my remaining Mindray (MR) shares just now, here are the reasons:
Mindray was doing OK up to this point. But I think it may have overpaid for the DataScope patient monitoring business. It paid 202 million, while the business has revenue of 162 m last year. The unit was not profitable according to one analyst, which I believe because I also did a little research myself. The cost structure of DataScope is higher than Mindray; the US medical device market is tough and will be tougher in the credit crisis. Note the hospitals usually need to borrow from banks to finance the new medical devices.
On other hand, at $31.88, the stock is not cheap (PE ttm of about 45). The company expects to grow revenue and earning by 40% this year.
Bought Berkshire BRK.B
I bought one share of Berkshire Hathaway (BRK.B) at $4349.89. This is Buffett’s company. If you have read my blog for a while, you know I have great respect for the Oracle of Omaha. Its main business (insurance) will be tough in the near term, but Warren has did some smart acquisitions lately (the Israel company, and a domestic diversified company, I could not remember the names but believe it or not, sometimes those unknown companies made a lot more real money than Crocs)…Although he scaled down the equity investing (relative to the big purchase mentioned above), he has continued to make money in stock market, notably the $3 billion profit from PetroChina last year.
I know no broker offer this as an option in IRA. But how about buying Berkshire (BRK.A, BRK.B) over mutual funds in a taxable brokerage account? Not only does Berkshire has a track record which beats almost all mutual fund (21.4% annual compound return in last 42 years) and the 10.4% annual return of S&P 500. See this Buffett’s 2006 letter for details. But also an investor get the service of the best investor with virtually no fees: Buffett is paid a salary of 100,000. So why don’t we all give the money to Buffett, rather than mess up with our own investments, which in most cases can not beat Buffett’s performance in long term.
I can think of the following reasons:
1) We think it’s harder and harder for Buffett to repeat the performance he had in last 42 years. It’s practical because as much as Buffett is getting better (he is a life long learner), his portfolio is growing so big that expecting an annual return of 20% is impossible.
and he had done it for 47 years (maybe not every year, but compound annual return), that’s pretty good.
The following is quoted from Buffett 2006 shareholder letter, you can get the full letter at Berkshire web site:
……
Let me end this section by telling you about one of the good guys of Wall Street, my long-time friend Walter Schloss, who last year turned 90. From 1956 to 2002, Walter managed a remarkably successful investment partnership, from which he took not a dime unless his investors made money. My admiration for Walter, it should be noted, is not based on hindsight. A full fifty years ago, Walter was my sole recommendation to a St. Louis family who wanted an honest and able investment manager.
The following is a one-year chart of Berkshire Hathaway (B share).
Fruit of the Loom, a whole owned subsidiary of Berkshire Hathaway (Buffett’s company), bought the intimate apparel business from VF corp. Here is the deal.
