Needing help from the most experienced and intelligent board on Yahoo. Considering converting IRA to Roth. All of last 12
years of 401K and profit sharing in this IRA...now self determined...and 98% in BRK.B. 10 to 15 years till I retire. I see the
change to Roth as a no-brainer (unless income tax changed to sales tax). Especially since I intend to leave this money in BRK.B
until the end and enjoy the no tax when taken out. Also, thinking of moving it to reg account at 59 1/2...to take advantage of
margin purchases - yes, this would be taxed. Please...needing serious help to a muddled mind.
When Buffett was much younger his investment
philosophy closely parallelled Ben graham. However, as the
years went buy it became very difficult, in my opinion,
for "pure" Graham followers to find stocks trading at
less than book value, for example, especially in the
large cap universe. It became necessary for Buffett to
invest in larger companies as BRKA grew. A pure value
investor in the Ben Graham mode would not be able to find
one largecap stock today that would meet his/her
criteria. Even a Tweedy Browne (a firm that adhered to
Graham's philosophy longer than most) can't find real
value plays today in larger stocks. As Buffett aged his
strategy showed more characteristics associated w/ Mr.
Fisher's writings. Munger, whose philosophy is closer to
Fisher's, also impacted Buffett immensely. Buffett became
willing to pay up for fantastic monopoly-like businesses
and recognized the great value of a brand franchise.
It is extremely interesting to study Buffetts
transgression from Graham-type investing to Fisher/Munger
types. Given the size of his investment portfolio and
the changes that have taken place since Graham wrote
Security Analysis, I don't think Buffett had an
alternative to his transformation.
Has anybody read Common Stocks, Uncommon Profits
written by Fisher? Seems to me that WB philosophy leans
more toward him than Ben Graham even though Graham is
his foundation. In this book, Fisher states "Don't
stress over diversification." BRK is very diversified
and so to are its shareholders because of it. Just
curious about Fisher cause I don't see him mentioned on
this board, yet his writings are so Buffetesque.
Thanks for the Morningstar connection. During our
visit Sunday, we found Borsheim's price tags on
selected pieces rather humurous..."Price of 1 'A' Share,"
"Price of 4 'B' shares," etc. Most expensive item we saw
was about $850,000 (less 30%!); but there was
probably something we missed!
Even though it
occurs each year, it's still surprising to see the
buying frenzy that goes on during the weekend. Some
people spend HUGE sums of money! Buffet tables and bars
serving champagne, wine, Coke products (free, of course)
were set up in the mall center for all shareholders to
Reportedly, Borsheim's is second only to
Tiffany's Fifth Avenue in single store sales volume and
first in the independent store category...in Omaha, NE
of all places!
Another of Buffett's major themes is that you
should invest in businesses with high returns on equity
(ROE). His favorite kind of business is one that
produces a high return without requiring a lot of capital;
the worst kind is one where you have to invest a lot
of capital for a low rate of return. Though he had
many good things to say about McDonald's, Buffett
hinted that one reason he reduced his holdings in that
company is that it owns most of its restaurants, and is
thus more capital-intensive than Dairy Queen, which
owns a much smaller fraction of its stores. When asked
whether he thought there were bargains to be had in the
Japanese stock market, Buffett replied that the low prices
there are justified, because of the low ROEs of
Japanese companies. As he noted, "It's hard to get rich
with a low ROE."
Still another favorite idea
that Buffett repeatedly emphasized on Monday is
quality, both in the company itself and in the people
running it. When Berkshire Hathaway buys a business, they
buy the management as well. One key question they ask
about top managers is: does this person love the
business, or do they love money? They look for people who
love the business first, and so far they've had a
pretty good batting average. Extending the baseball
analogy, Buffett also said that he doesn't tinker with his
managers' "batting styles," as long as the business is
successful. He never imposes decisions from the top and has
no formal system for tracking what his managers do,
since he realizes that they know a lot more about their
business than he ever could. As Charlie Munger put it, "We
have decentralized power to a point just short of
The particular investment
decisions Warren Buffett has made are not necessarily for
everybody, as he would be the first to admit. Each
investor's goals and areas of expertise are different. But
the basic principles Buffett uses are based mainly on
common sense: Concentrate on what you know best, and
look for quality companies to invest in. In a field
often ruled by irrationality and a herd mentality, a
little common sense can go a long way.
Kathman, editorial analyst for StockIdeas, an electronic
newsletter accompanying Morningstar StockTools , wrote this
article. If you�ve got thoughts or questions about this
column, you can send him an e-mail at firstname.lastname@example.org .
For one weekend every May, Omaha, Nebraska
becomes the investing capital of the world. That's when
Warren Buffett and Charlie Munger hold the Berkshire
Hathaway shareholders' meeting, which over the years has
evolved into a three-day celebration of Buffett and his
folksy but influential investment wisdom. This year's
meeting attracted 11,000 of the Berkshire faithful to
Omaha for minor league baseball, Borsheim's jewelry,
Dairy Queen, and, of course, plenty of Buffett.
Most of Berkshire's shareholders are individuals
rather than institutions, and Buffett said during the
meeting that he prefers it that way. He likes knowing
that his investment decisions make a difference in
people's lives, and he feels a sort of kinship with this
group of people who share his outlook on investing. The
shareholders, in turn, showered Buffett with adulation during
the weekend, cheering him wherever he appeared. He
spent several hours talking to people and signing
autographs Saturday night at the Omaha Royals baseball game,
then again Sunday night at Dairy Queen. One journalist
at the packed Sunday press conference likened this
reception to that normally given to rock stars, which
prompted Buffett to quip that he's no Mick Jagger.
Of course, everyone wanted to know what Buffett and
Munger thought about a multitude of issues. The duo
obligingly answered all questions thrown at them, both in a
half-hour press conference on Sunday and in the six-hour
Q&A session that made up the bulk of the actual
meeting on Monday. Some of the questions were
predictable. Buffett and Munger were repeatedly asked where
the market is headed, and they just as repeatedly
said they don't know. Three different people asked
Buffet whether he would buy Berkshire Hathaway's stock
at its current price (around $69,000 a share), and
each time he politely but firmly said he doesn't make
buy/sell recommendations. But plenty of people asked
incisive questions, and Buffett's answers provided some
new twists on the same general themes he's been
emphasizing for years.
First and foremost, Buffett
says you should stick with what you know. Charlie
Munger pointed out that there's no credit for "degree of
difficulty" in investing, as there is in diving, so you might
as well go with the investments that you feel
comfortable with. Buffett cheerfully admitted that plenty of
people have made money on computers and the Internet,
and said he admires Bill Gates of Microsoft and Andy
Grove of Intel. But he just doesn't understand
technology very well, and so he's content to let others make
the money there. He prefers to invest in businesses
where he knows what they're going to look like in ten
years, and technology is changing so fast that it's hard
to look that far ahead with any confidence.
See's Candies for example? [Note:
See's, which specializes in boxed chocolates, is another
Buffett: We�ve tried 50 different
ways to put money into See�s. We actually bought a $13
million or $14 million building in Los Angeles--350,000
square feet--last year. If we knew a way to put
additional money into See�s and produce returns a quarter of
what we�re getting out of the existing business, we
would do it in a second. We love it. We play around
with different ideas, but we don�t know how to do it.
We do know how to do it at GEICO, and we know how to
do it at FlightSafety. But with some businesses we
haven�t figured it out yet.�
Munger: By the way,
we really shouldn�t complain about this because
we�ve carefully selected a bunch of businesses that
just drown in money every year.
That's why we
wondered what you do with all that money!
That�s our job, and right now we�re not doing much with
Do you ask your operating managers
to think about these questions?
sure. I just sent out a report to one of them at
another company who�s done a great job making small
add-on acquisitions. We want them to do it. But we don�t
want them to do it at any cost and just to feel that
it�s a blanket mission. We do want them to be alert to
that sort of thing. Any time they can make a small
deal that enhances their position at a reasonable
price, we write them a check that day.�
ask you a question on corporate governance? You've
been very vocal about shareholder rights and
shareholders thinking like owners. Morningstar's very well
known for mutual funds, so I wonder if you have any
observations about mutual-fund shareholders, their rights, and
the way they're been treated?
Buffett: I think the
independent directors have been anything but independent.
They wrote the Investment Company Act in 1940 and made
these provisions for independent directors on the
theory that they would be the watchdog for all these
people pooling their money. The behavior of independent
directors in aggregate since 1940 has been to rubber stamp
every deal that�s come along from management--whether
management was good, bad, or indifferent. Not negotiate for
fee reductions and so on. I�m a huge admirer of John
Bogle and what he�s written. A long time ago an
attorney said that in selecting directors for mutual
funds, the management companies were looking for Cocker
Spaniels and not Dobermans. I�d say they found a lot of
Cocker Spaniels out there.
Thank you very much.
P o s t e d :�� 0 5 - 0 6 - 9 8
editorial analyst for Morningstar StockInvestor,
transcribed this interview. He can be reached at
Morningstar is the greatest...
A Quick Q &
A With Warren Buffett
The day before
Berkshire Hathaway�s annual meeting, Warren Buffett and
Charlie Munger headed to Borsheim's, the massive Omaha
jewelry store owned by Berkshire. They answered
questions, mingled with shareholders, and signed autographs.
(As Buffett noted in Berkshire's latest annual
report, Charlie only smiles if the paper he signs is a
Borsheim's sales ticket.) After an afternoon press
conference, Buffett and Munger slipped into the office of
Susan Jacques, the CEO of Borsheim's, for some
one-on-one interviews. Morningstar quizzed the two men on
their investment philosophy.
What is it that
really piques your interest in a stock? What tells you
that it could be interesting?
Buffett: We�re so
limited now because we can only go into very big
companies. Charlie and I are probably familiar with every
company in the United States--in a general way--that we
can have the kind of position we would need to have
[to make a difference in Berkshire Hathaway�s
performance]. We look for the ones where we think we know what
they�re going to look like in 10 years. If the price gets
attractive and we know a little about the management, and
we�re quite sure--within a range--what they�re going to
look like in 10 years, we�re in our area. We buy them
when the prices are right, like Coca-Cola was some
Do you have advice for the
individual investor to help them narrow the stock universe?
Buffett: They ought to think about what he or she
understands. Let�s just say they were going to put their whole
family�s net worth in a single business. Would that be a
business they would consider? Or would they say, �Gee, I
don�t know enough about that business to go into it?�
If so, they should go on to something else. It�s
buying a piece of a business. If they were going to buy
into a local service station or convenience store,
what would they think about? They would think about
the competition, the competitive position both of the
industry and the specific location, the person they have
running it and all that. There are all kinds of
businesses that Charlie and I don�t understand, but that
doesn�t cause us to stay up at night. It just means we go
on to the next one, and that's what the individual
investor should do.
So if they're walking through
the mall and they see a store they like, or if they
happen to like Nike shoes for example, these would be
great places to start? Instead of doing a computer
screen and narrowing it down?
Buffett: A computer
screen doesn�t tell you anything. It might tell you
about P/Es or something like that, but in the end you
have to understand the business. If there are certain
businesses in that mall they think they understand and
they�re public companies, and they can learn more and
more about them.... We used to talk to competitors.
To� understand Coca-Cola, I have to understand Pepsi,
RC, Dr. Pepper.
Munger: And Cott. Cott is the
one you have to understand more than anything else.
[Note: Cott is a Canadian company specializing on
low-priced, private-label soft drinks.]���
question has to do with reinvesting capital. You take
pretty much 100% of the cash flow out of the businesses
Buffett: We have a lot of money coming
...and you reallocate the capital.
Especially since it is so difficult to find new companies to
add to the portfolio, why not reinvest more in some
of the existing companies you have in order to
Buffett: That�s the best thing to do. If you�re talking
about the operating businesses, we�re pouring it into a
company like FlightSafety, for example, in terms of
[buying flight] simulators. We�re pouring it into
promotion at GEICO. [Note: FlightSafety, a subsidiary of
Berkshire Hathaway, provides training to operators of
planes and ships. GEICO is the seventh largest auto
insurer in the United States.] But for a lot of them
there�s not much w
Check out http://www.morningstar.net
two cover articles today, from an analyst and an
Good luck finding a transcript.
Last year, the closest analysis was the one done by
morningstar.net, you can still get to in the research archives,
under Berkshire Hathaweek - the Capitalist's Woodstock
(many like to say they were there...some even are
telling the truth.)
My wife says I can go next
year, but we need to drive from Washington, DC and go
through her birthplace of Newton, Iowa.
to mind a good company for WB, Maytag.
stream of consciousness blathering.