Warren Buffett

A Compilation of Warren Buffett’s Online Articles

December 5, 2012

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I recently ordered Tap Dancing to Work, a collection of articles on (and sometimes by) Warren Buffett that had appeared in Fortune magazine over the years. Unfortunately, I found the book somewhat disappointing because I had already read the better bits over the years (most of it is already available online) and the bits that I had missed (usually the older articles) were hardly interesting. A further quibble is that some of Mr. Buffett’s work that were published elsewhere are not included in the book.

If you have an hour or so and are interested in reading some of Mr. Buffett’s works check out the following articles available online. And prepare to be amazed by a guy who has made some astonishingly prescient market calls despite claiming to have no idea where the markets are headed short-term.

Buffett: How inflation swindles the equity investor

By Warren Buffett, Published May 1977 in Fortune Magazine

For many years, the conventional wisdom insisted that stocks were a hedge against inflation. The proposition was rooted in the fact that stocks are not claims against dollars, as bonds are, but represent ownership of companies with productive facilities. These, investors believed, would retain their value in real terms, let the politicians print money as they might.

And why didn’t it turn out that way? The main reason, I believe, is that stocks, in economic substance, are really very similar to bonds.

The Superinvestors of Graham-and-Doddsville

By Warren Buffett, Published 1984 in Hermes, Columbia Business School Magazine

I’m convinced that there is much inefficiency in the market. These Graham-and-Doddsville investors have successfully exploited gaps between price and value. When the price of a stock can be influenced by a “herd” on Wall Street with prices set at the margin by the most emotional person, or the greediest person, or the most depressed person, it is hard to argue that the market always prices rationally. In fact, market prices are frequently nonsensical.

Mr. Buffett on the Stock Market

By Warren Buffett, Carol Loomis, Published November 1999 in Fortune Magazine.

I think it’s very hard to come up with a persuasive case that equities will over the next 17 years perform anything like–anything like–they’ve performed in the past 17. If I had to pick the most probable return, from appreciation and dividends combined, that investors in aggregate–repeat, aggregate–would earn in a world of constant interest rates, 2% inflation, and those ever hurtful frictional costs, it would be 6%. If you strip out the inflation component from this nominal return (which you would need to do however inflation fluctuates), that’s 4% in real terms. And if 4% is wrong, I believe that the percentage is just as likely to be less as more.

Warren Buffett On The Stock Market

By Warren Buffett, Carol Loomis, Published December 2001 in Fortune Magazine.

Even so, that is a good-sized drop from when I was talking about the market in 1999. I ventured then that the American public should expect equity returns over the next decade or two (with dividends included and 2% inflation assumed) of perhaps 7%. That was a gross figure, not counting frictional costs, such as commissions and fees. Net, I thought returns might be 6%.

Today stock market “hamburgers,” so to speak, are cheaper. The country’s economy has grown and stocks are lower, which means that investors are getting more for their money. I would expect now to see long-term returns run somewhat higher, in the neighborhood of 7% after costs. Not bad at all–that is, unless you’re still deriving your expectations from the 1990s.

Buy American. I Am.

By Warren Buffett, Published October 2008 in The New York Times

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Buffett’s Big Bet

By Carol Loomis, Published November 2009 in Fortune Magazine.

Will a collection of hedge funds, carefully selected by experts, return more to investors over the next 10 years than the S&P 500?

That question is now the subject of a bet between Warren Buffett, the CEO of Berkshire Hathaway, and Protégé Partners LLC, a New York City money management firm that runs funds of hedge funds – in other words, a firm whose existence rests on its ability to put its clients’ money into the best hedge funds and keep it out of the underperformers.

Why stocks beat gold and bonds

By Warren Buffett, Published February 2012 in Fortune Magazine.

My own preference — and you knew this was coming — is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola (KO), IBM (IBM), and our own See’s Candy meet that double-barreled test. Certain other companies — think of our regulated utilities, for example — fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.

And last but not least, Buffett’s Letters to Shareholders usually contains a nugget or two of investment wisdom.

Buffett Partnership Ltd. Letters, 1959 to 1975.

Berkshire Hathaway Inc. Shareholder Letters, 1977 to 2011.

Warren Buffett on Stocks, Bonds and Gold

February 23, 2012

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In a column in Fortune magazine (see Warren Buffett: Why stocks beat gold and bonds), Warren Buffett explained why he prefers stocks over cash, bonds and gold. It is true that cash does not fluctuate in nominal value but its returns are close to zero after one accounts for inflation and taxes. At today’s low yields, he quips that bonds are “priced to deliver return-free risk”. Buffett also pointed out that despite its stellar recent returns, gold has limited uses and does not produce an income stream. Therefore, he says, he prefers stocks to bonds and gold:

My own preference — and you knew this was coming — is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola (KO), IBM (IBM), and our own See’s Candy meet that double-barreled test. Certain other companies — think of our regulated utilities, for example — fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.

It is interesting to contract Buffett’s enthusiasm for stocks in 2012 with another Fortune column he co-authored in 1999 (see Mr. Buffett on the Stock Market) in which he took a decidedly downbeat tone on stocks. He explained that stocks were so richly priced at that time that investors would be lucky to earn 4% in real terms, which would leave them disappointed with stocks. With so many investors fleeing the stock market these days, those words are now sounding very prophetic.

Notes from the 2010 Berkshire Hathaway Annual Report

February 27, 2011

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Warren Buffett’s annual Letter to Shareholders is always worth reading even if you didn’t own any shares in Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B). Here are some of the highlights from 2010 letter to shareholders released over the weekend and available on the Berkshire Hathaway website:

  • Conventional wisdom has it that America’s best days are behind it and economic might is going to inevitably shift eastward. Buffett, however, is optimistic about America’s prospects. He says that the country’s best days lie ahead because America’s system for unleashing the human potential is the same it has been in the past. (Pages 3-4).
  • If you invest is stocks, you have to have confidence that management will invest retained earnings sensibly. Buffett points out that a dollar of earnings in the hands of Sears Roebuck’s CEO had a far different story than a dollar entrusted with Sam Walton. (Pages 7-8).
  • Next, Buffett explains the business results in Insurance (Pages 8-11), Berkshire’s vast empire selling everything from candies to underwear (Pages 12-14), Railroads and utilities (Pages 14-15) and stock holdings. (Pages 17-18).
  • Buffett warns investors against putting too much stock in net earnings, which can be gamed by management. Instead, he counsels investors to pay close attention to changes in book value and a company’s operating earnings. (Pages 20-21).
  • Buffett counsels investors to eschew leverage, which can magnify gains but can turn lethal to a portfolio. Instead, he explains why despite very low interest rates investors Berkshire keeps plenty of cash around just in case things go horribly wrong as they did in September 2008. If there is only one thing you can read in this year’s letter, it should be Pages 22 to 25.

Quotes

On Leverage: “And as we all learned in third grade – and some relearned in 2008 – any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people.”

On reaching for yield: “We agree with investment writer Ray DeVoe’s observation, “More money has been lost reaching for yield than at the point of a gun.””

On availability of credit: “Borrowers then learn that credit is like oxygen. When either is abundant, its presence goes unnoticed. When either is missing, that’s all that is noticed. Even a short absence of credit can bring a company to its knees.”

On market volatility: “As one investor said in 2009: “This is worse than divorce. I’ve lost half my net worth – and I still have my wife.””

On homeownership: “But a house can be a nightmare if the buyer’s eyes are bigger than his wallet and if a lender – often protected by a government guarantee – facilitates his fantasy. Our country’s social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford.”