Blog Posts by Matt Nesto

Under Warren Buffett's leadership, Berkshire Hathway (BRK.A) has grown into a $270 billion company that owns ten of billions of dollars in common stock in companies like Wells Fargo (WFC), IBM (IBM), The Washington Post (WPO), and Coca-Cola (KO). In addition, the Buffett empire fully owns 80 businesses ranging from insurance to furniture to candy and ice cream.

At this year's annual shareholder meeting in Omaha, Nebraska, Buffett said at least eight of the companies he owns are so successful, that they would be on the Fortune 500 list if they were stand alone entities.

So how does a business change once it gets backed by Buffett?

Long before the billionaire got involved, Dairy Queen had been busy dishing up dillies and other delectable treats for more than 60 years at its thousands of iconic stores scattered around the country.

While the Berkshire Hathaway (BRK.A) billionaire’s sweet tooth is the stuff of legend, so is his business acumen and eye for a deal. When he got the chance in 1998 to acquire this household name, he scooped it up on the cheap.

"Over the last five years, we've had some tremendous growth," says Dairy Queen International President & CEO John Gainor from the floor of the Century Link center in Omaha, Nebraska. "Right now we have 6,300 stores, we're in 22 countries. Our international business continues to grow. We have 1,100 units in international markets, and our biggest international market is China where we have 550 stores."

And Dairy Queen isn’t alone. In fact, business after business in the Buffett empire will tell you that the prestige, autonomy and financial clout that comes from being a part of Berkshire Hathaway is a huge competitive advantage. But this doesn't mean the company gets gutted or restructured.

One year and 35% after their last get together, Berkshire Hathaway (BRK.A) (BRK.B) shareholders have plenty to be happy about. The company posted a 51% increase in first quarter profits, earnings of nearly $3,000 a share, a 5.5% increase in book value and, most of all, a record high share price that has made Berkshire the fifth most valuable company in the world.

It’s a quarter and a trend that renowned Buffettologist Jeff Matthews says reflects the fact that Berkshire’s 80 businesses are in the right place at the right time.

"What it says is the U.S. is doing great. Companies like GE and Siemens that are worldwide are having trouble outside the U.S. Berkshire is 95% U.S. and they're knocking the cover off the ball," he states from the exhibition hall at the Century Link Center in Omaha, Nebraska.

Of course, with each passing year, the talk only grows about who will ultimately try to fill the shoes of 82-year-old chairman Warren Buffett. In fact, the first question at today's annual shareholder meeting raised the issue. Buffett confessed it's “the number one subject our board considers at every meeting.”

That said, he also assured the crowd that preserving the culture is key to future success after he’s gone, noting that if "something foreign were introduced into this system," the partners and shareholders would reject it.

His 89-year-old vice chairman, Charlie Munger, was characteristically more blunt on the matter, saying, “To all the Mungers in the audience, don’t be so stupid as to sell these shares.”

When Warren Buffett takes the stage at the Berkshire Hathaway (BRK.A) annual meeting this weekend, the love and adulation of his 50,000 followers will almost be palpable. And why not? At nearly $160,000 a share, the stock is up almost 30% since the last time they met, having outperformed the S&P 500 by a 2-to-1 margin. Since the last outing in Omaha, there has also been nearly two dozen acquisitions, a handful of strategic investments and a down-tick in the political rhetoric and tax policy promotion that was irritating to some of his affluent fans.

While acknowledging that Berkshire investors are happy with their stock and loyal to their leader, Larry Swedroe, author of Think, Act, and Invest Like Warren Buffett, says most actually ignore his most basic advice.

"I think it's one of the great anomalies," Swedroe says in the attached video, explaining that people almost always name Buffett as the greatest investor, "yet often do the opposite of what he instructs."

He cites three key areas where the Buffett faithful look the other way, including the Oracle's commandment to ignore all market forecasts, to never time the market, and to be passive rather than active when it comes to investing.

It may not be the best six months we've seen in this post-recession period, but the 18 percent rally in the S&P 500 (^GSPC) since November is certainly the longest streak of monthly gains. With stocks pushing deeper into record territory, John Canally, economic strategist at LPL Financial, says investors need to heed the conflicting signals.

"It's very strange. You have markets telling different stories," he says in the attached video. "I think I trust the commodities markets a little bit more than the U.S. stock market as an indicator."

While stocks have been able to overcome every obstacle for the past 6 months, Canally says they're sending an "everything is great" message to investors, while bonds and especially commodities are reflecting the risk of deflation or economic contraction.

That doesn't mean he's bailing on stocks, it simply means he's positioning for a modest pullback. "If and when we do get a pullback, it's not going to be a 10-20% pullback like we had in these past three years," he says, noting the improved fundamentals, especially in the housing sector.

It only took a year and about $6 billion of lost sales to get here, but JCPenney (JCP) says it's learned its lesson. In a humbling new multi-media ad campaign, the Texas-based department store chain is openly admitting that it messed up when it revamped its stores, styles and sales promotions under the brief leadership of former CEO Ron Johnson.

As my co-host Jeff Macke and I discuss in the attached video, the mea culpa is remarkable on many fronts but it remains to be seen if the strategy works. It's a strategy that is more in line with its historic roots and formerly loyal customers rather than the younger, hipper shoppers it was aiming to attract, which is evident from the vintage storefront photos shown in the opening frames of the 30-second spot.

Within its plea for scorned customers to "come back" is the admission that JCPenney made mistakes, but more so, as the ad copy goes, that they intend to correct them.

"Some changes you liked and some you didn’t, but what matters from mistakes is what we learn. We learned a very simple thing, to listen to you. To hear what you need, to make your life more beautiful. Come back to JCPenney, we heard you. Now, we’d love to see you."

As much as the video is reaching out to the sentimentality of its core middle-aged demographic, the 110-year-old retailer with 1,100 stores is also mindful that not all of its customers are older, as evidenced by the 3.6 million "likes" on its Facebook page, as well as an active presence on Twitter where it is hosting a dialog with its 115,000 followers under the #JCPListens theme.

A month ago, investors let out a collective gasp when the government revealed that only 88,000 jobs had been created in March. But contrary to conventional wisdom, this awful and unexpected update on the most important aspect of our economy did not tank the markets, it sparked a rally.

Today, with stocks about 2.5% higher than they were in early April and trading at record highs, we find ourselves on the cusp of another critical payroll report. Only this time, expectations are low and falling as investors brace for disappointment.

"You still have a lot of stuff pushing down on hiring," says John Canally, economic strategist at LPL Financial, in the attached video. "Because companies can't grow revenues, the only way they can control costs is to not do a lot of hiring."

As of now, consensus for Friday's report from the Department of Labor stands at 155,000 total jobs and no change in the 7.6% unemployment rate. While today's weaker than expected ADP/Moody's report will surely lead to some downward revisions over the next two days, Canally doesn't think we'll see anything nearly as a bad as what we saw in March.

''I think in the past, people would have marked down their numbers for the jobs report a little further," he says, adding his belief that over the past year or so the recently revised ADP report "has lost a little street cred.''

If you haven't noticed, natural gas has gone from laughing stock to favorite commodity over the past year as the price of our most abundant fossil fuel has more than doubled.

While many investors look to lighten up and lock in gains at this time of year, Jeff Hirsch, editor-in-chief of Stock Trader's Almanac, says although the list may be short, there are some bullish seasonal trends in play in May.

"Two things that are really in the middle of a good season are natural gas and crude oil," Hirsch says in the attached video. "They are impacted by the heating season, but also the cooling season and the driving season. So that whole build up period between December and June/July when the usage that drives that bullish season for gas and oil."

And of the two, he says nat gas looks to be the better bet right now. Not only is new demand coming on line but the price is breaking out to a two-year high. "We also think we had a secular low last April (at $1.96 m/btu) for the nat gas market. (UNG, FCG)," he says of the crash that took prices to generational lows. "It's nice that we have a lot of gas but there's more demand coming in and the supply is being taken up."

Beyond the sluggish economy and tight job market, one of the biggest challenges graduating college students face is finding something substantial to put on their slender resumes. This experience deficit has become increasingly problematic for business school grads, given the record number of MBA degree holders being pumped into the system each year and the reduced opportunities that exist.

But there may be hope, at least for the financially minded, thanks to the first-ever All-America Student Analyst Competition --a real-world, risk-adjusted contest that measures students' stock picking and portfolio management prowess over a four-month period.

"There are a lot of stock picking competitions that go on, but generally the winner is the person that has the best luck or puts all their money into a penny stock that goes up 4000%," says John Power, CEO of Mark My Media, the Connecticut-based firm that oversaw the trading tournament in conjunction with Institutional Investor.

As Power explains in the attached video, six different performance factors where used to add an element of professionalism and sophistication that's not normally found in these types of contests. It's a component he says is critical because it shows that students are not only "able to pick stocks, but to manage portfolios in an effective way."