Warren Buffett

Buffett and Budweiser

April 22, 2005

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Last month, I bought Anheuser-Busch (NYSE: BUD) in my retirement account. My primary reason for buying was that BUD traded at the low end of its historical valuation for a fine company that has consistently increased its sales, earnings and dividends. Yesterday, the stock popped 7% on the company’s terse announcement that Warren Buffet has bought a significant stake in the company.

While, it doesn’t hurt to have the world’s greatest investor in your corner, BUD faces significant short-term challenges: volume growth is anaemic, the company issued a recent profit warning, it is facing competition from a reinvigorated SAB-Miller and consumer preferences for other alcoholic drinks. In its favour, the company is a mighty marketing and profit machine and will be a significant player in the fragmented global beer industry. A-B is a growing presence in China that could drive its long-term growth.

Long-term investors will be pleased with A-B’s prospects, while Wall Street’s focus on the company’s short-term performance will likely depress the stock. Just a day after the Buffett announcement, two brokerages have downgraded the stock, citing near-term challenges.

Notes From The Berkshire Hathaway Annual Report

March 18, 2005

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I finally got around to reading the 2004 Berkshire Hathaway Annual Report. My fellow-bloggers have already posted about the report here and here. Like always, the report provides clear insight into the performance of the Berkshire empire, the outlook for its subsidiaries and is liberally interspersed with Buffettisms aimed at the ordinary investor.

Right off the bat, Mr. Buffett reminds investors the virtue of low-cost index funds and warns that expenses and frequent trading are the enemy of long-term success. He then provides insightful commentary on the main business activities of Berkshire.

It was widely reported that Mr. Buffett is bearish on the US dollar and has purchased foreign exchange contracts to benefit from any slide in the dollar. Mr. Buffett’s actions pose a dilemma for foreign investors: We can buy dynamic, fast growing American companies, but see the gains evaporate in foreign exchange losses.

In an era when corporate insiders feather their nest at the expense of minority shareholders, Berkshire’s treatment of shareholders as fellow-owners is refreshing. All public companies should follow Berkshire’s example and align the interests of board members with that of shareholders. Mr. Buffett writes: “In our view, based on our considerable boardroom experience, the least independent directors are likely to be those who receive an important fraction of their annual income from the fees they receive for board service (and who hope as well to be recommended for election to other boards and thereby to boost their income further)” and goes on to provide an example where such conflict of interest hurts shareholders.