20 Episode results for "Greg Able"

264- Berkshire Hathaway Meeting Recap and Implications

Invested: The Rule #1 Podcast

44:37 min | 1 year ago

264- Berkshire Hathaway Meeting Recap and Implications

"Everybody this is built town and Danielle town. Welcome to the invested podcast. We are obviously in the middle of pandemic and we have massive things going on in every direction and we just got to hear from Warren Buffett this weekend and I think he had quite a lot to say particularly between the lines. And I think it's going to be really valuable for us to to chat about that today. So let's do that what you say. Wow we're diving right in. This is so for us. This is some serious things going on out there and we need them. There are serious things so it was the Berkshire hathaway annual shareholder meeting on Saturday. And this is normally an enormous woodstock of capitalism type of convention in Omaha Nebraska. I'm wearing right now. My shirt that I got there. Last year was the these woodstock of capitalism shirt. You good shirt when I got there. Last year wasn't nearly soon I did. Well the five K. Thing you know shirts much much better. This one's pretty awesome and it was a gift her friend so I love it so yes. It's usually this like fantastic. Gathering of investors and shareholders from all over the world and has been growing and growing and growing every year. But obviously this year it was not canceled but the the gathering part of it was cancelled so they put it online and streamed live on Yahoo Finance. If you missed it you can still watch it. It's still up there on Yahoo Finance the whole thing. It's about a five and a half hour video including the pre show in the post show and it's worth watching because it was sort of an interesting different situation so usually it's Warren Buffet and Charlie Munger onstage together. And that's it this year. It was Warren Buffett and Greg Able. Who's one of the? I don't know what his exact title is. But I sort of consider him to be be a vice president Bush person. He's kind of like in charge of all the stuff below Warren and Charlie and sort of next to a g chain and Ted Wexler and todd combs and and he was the closest geographically he apparently he lives about a two hour drive from Omaha. So He's the guy who drove in was on stage with Warren and what I thought was so interesting about. This is that they kept their commitment to the basketball arena where they have the meeting every year and they went ahead and set up their table the way it looked like just every other year and had put all the cameras in there and it just was this very strange empty set with nobody there except for this table with two guys. And that's what's on camera on young finance. It's so strange it's A. There's a lot going on there that I think is really important for for all of our listeners to understand and I don't want to kind of dive into that even going on with the setting no la going on with what Buffett was saying. Oh well yeah I was just giving the setting. Yeah Okay Good. Good good setting setting okay. So you're like fine. Whatever but I think I think the setting is important because the way he talked was different than other years. So go ahead. Yeah I think the way talked was vastly different than other years. If you'll remember back in two thousand eight he was really busy buying up companies in in the in the drop and he was very very out front about it. He said You know we're we are jumping in there and and you know we're buying now and what he said this time is. We have made any purchases we are. We haven't done anything because we didn't see anything attractive to do. And he's holding onto his capital basically says he wants to make Berkshire like stay at Fort. Knox and the implication there is I think well. I shouldn't say it's scary. Because essentially what he's saying is we don't know what's going to happen. And the range of possibilities of what could happen are enormous Which means that the range of possibilities includes what Dalia thinks is going to happen. Which is where already in a depression so I'd buffet is taking that into consideration and saying you know what if we're GONNA start putting capital to work. We can only do it when we're quite certain. That Berkshire is solid We've got one hundred thirty seven billion dollars. We have to make sure that Berkshire is rock. Solid can't miss on any of its obligations. It's got to be able to deliver on all of his obligations. Whatever those are and for that reason he's also not buying back Berkshire stock even though it hit down below. One seventy briefly. Yeah so what happened is he. Showed the the balance sheet for for the first quarter and it showed that they had sold off all of their airline stocks and not really bought anything of significance and then he said. I don't have to show you this and I normally wouldn't but this year I'm going to put up his April Balance Sheet. Which showed that? They hadn't really bought anything of any significance and then he basically said like that's just kind of how it is. He didn't really explain it. He said we want to make sure that we have enough capital. We have enough money to be Fort Knox to to be ready for whatever happens and we don't want to be dependent on the kindness of our friends and we are. We don't want to be dependent on the kindness of our enemies and we really don't want to be dependent on the kindness of our friends and basically he said that over and over over the roughly four hours of him talking without really saying anything more than that which I thought was rather frustrating. I like him to just come out and say why he's conserving all of this money. It's because he thinks something really bad could happen but he didn't actually come out and say that he just kept saying we. WanNa be ready. We don't know what's going to happen. There's no way to know nobody knows but we're going to be ready. And the reason it's been a chunk of time on on the economy's performance in seventeen eighty nine right with a focus on one thousand nine hundred eighty nine and nineteen fifty one which is a period of time that took the US stock market. Well over twenty years to get back to where it was right right so that should be a clue I think. Yeah it was the sort of juxtaposition of he spent the first forty five minutes giving like a basically a US economic history lesson and ended it with. That's why I believe in betting on America. I think anybody who bets on America's GonNa do fine and then twenty two years from now. Well he didn't say that part for that was clearly. Yeah there was on America. Put Your Money. In Index Fund in twenty two years from. Now you'll break even. That was clearly the implication to stick with it and from there. He went to the balance sheets where he said. We didn't find anything attractive to buy in March at the low of the market. He said people were starting to call him. And Charlie right as the market to that low around March twenty third. They were starting to get calls and then he said that the second the Fed acted and put all that money out there to be available to companies The calls dried up and they got terms better than Berkshire would have given them from the government from us from the taxpayers. We gave them terms better than Berkshire would have given them so. I'm really curious what you think about this. What I got out of this and I'm I'm I'm sort of naturally leaning toward being less confident about the ability of the economy to come roaring back and confident when last week. You told me that it was probably going to be a depression and we were already in it now. I'm thinking wow it's more than probably I'm thinking that the impact of all of this shutdown for example. The impact on travel talked about it. Briefly is that there is a huge domino effect that goes on with the economy and employment and so fewer people travelling means fewer jobs in all sorts of industries He also said that the energy real estate and retail industries are all facing gigantic problems. That are are likely to reverberate. All the way through the economic system and into the banking system in spite of the fact that the banks are in better shape than they've ever been in history probably And I think he added that this is a great time to borrow money money. Yeah amazing and and yet that means the flipside is. It's not a great time to lend it right. And if you're a banker you probably already figured out right. So man alive. Think about the industry that he highlighted there that are in really bad potentially in really bad trouble real estate gigantic industry all right And and think about you okay can borrow money which is great for real estate. You'd think except that people are going to be pulling back from buying stuff And if you are expecting that it's a bad time to lend. What could that mean? Maybe it means it's Interest rates are going to go up in which case you don't WanNa lend long at a low interest rate the retail industries. We all know what's going on with shopping centers everywhere. There's virtually shut down and are trying to figure out a way to reopen. But are people going to congregate right? I can tell you I can answer that one. I can answer that one. Yes yes I agree with you. People aren't going to Congress. We we send hundreds girlfriend. Alexis down to pick up something at. Lowe's that we needed and she had to wait two hours in the parking lot them to bring this thing out and you order online and pick on the. Yeah Yeah exactly. And they just were overloaded. Parking lot she said was packed packed. Okay I mean people are going to go to the shopping centers. There's no doubt in my mind so I think that the risk for retail shopping centers is a little over overstated. If you have the right stores in there so there there's something there maybe we can invest in. The energy industry is a trainwreck. Obviously I mean. I don't know if you knew this. But the price of oil in the United States in Texas briefly hit minus forty dollars a barrel. Yeah minus thirty seven. I think okay minus thirty seven meaning come and get it and I'll pay you to take it away and is currently hovering around twenty Which adjusted for inflation means? We're at Lowe's historical lows. We are though like this isn't just sort of like. Oh my goodness can like. We stopped using oil. So yeah you stopped driving less. Saudi Arabia flooded the oil market at the same time. Like yes. This is. What happened is brilliant. Wasn't it was like I? It coming two months out like this is happening. You know and it's going to frankly not get better actually. I've been surprised that the prices bounced back so quickly. But it's not going to get better very quickly because we're not coming back to using the kind of oil. We used to use very quickly but it will start to come as people start flying and using offices and traveling again so she brings us to the next question or are people going to travel and fly and US offices people will. Some people will for sure pressure by that piece written for show. Fine I mean. I see pictures online of people on airplanes. And what the airplanes are you airplanes. That are packed full of people. Yeah because I think we're going I think because they're running so few flights that No Way I'm getting on an airplane will meet either. But we don't have to if you were if you were dying. I would get on airplane right like you know what I tell you. I would say but I'm saying like there are situations in which you're like all right the benefit outweighs the price here. I'm going to get on that airplane and lots of people are in those situations I would tell you I'm dying. I don't want you to come and get this stay home and we'll zoom right up until the last second. Oh that sounds great but look at. There's another industry gigantic industry. That's in trouble right. Which One k. I still I'm astonished. I The cruise lines of course would be the last place I would ever go right. Well and their full their full for the fall. Apparently no-one thinks like me. And they're all just going to go get on a cruise ship together. I know I know so so I do struggle a bit with these sort of doomsday views. That no one's going to go back to realize because I think we've also seen it. Yes not as widespread. But we've seen it like after SARS and after murders we saw that in Asia. They went back to normal life but a lot of them were masks and it became normal in Asia to wear a mask around when you're traveling on an airplane and people in the West wrote. You know generally didn't do that and if you do it you get weird. Looks and I think we're going to start to to. That's going to become more normal across the entire world but people are still going to get on the airplane. They're just gonNA wear the mask so I think. I think there's one thing about Berkshire that that gives buffet an insight that we should pay attention to for sure. And that's how broadly diversified they are. And how many industries they're in EPA with some of the best people in the in those industries working directly for buffet. So he gets to talk to them. They send him to be able to across the economic spectrum like unbelievable view and so. Here's why I think the stuff I'm saying. And you're saying like people are going to congregate people are GonNa go to the mall. People are going to go on cruises we learn. Yes all of that. I think is right. And that's why Buffett didn't come out and say hey guys we've got a huge problem here but the question is if the virus comes back in a major way and we don't have a treatment and we don't have a vaccine then that's when all bets are off and I think that's why he was sort of saying over and over like I don't know what's going to happen it could be bad. It could be fine but I don't know what's going to happen so Berkshire is prepared either way right exactly and for us. What this means to me I actually is that Burks I'm GONNA take it. The buffet is making Berkshire Fort. Knox Okay but you and I don't have to be Fort Knox. We don't have to be prepared from because of obligations to pour out billions of dollars. We don't have to do that. We're not backstopping anything except US right so we have to be Fort Knox tasks but not to anybody else. We're not obligated anybody else. For anything and that changes the picture quite dramatically in terms of our comparing Berkshire survivability to our own survivability Berkshire has to be able to deliver on all of its obligations as an insurance company. Yeah and and and to keep all of its sub businesses going properly might need capital We don't have to deal with that. We just have to be us. Get us through this right and so if if we are and what that might mean though is that we got to watch out for our jobs right. Make sure that we're going to be employed. And if there's a lot of Of Companies that have shut down. Then there's going to be a lot of people unemployed if you're not if you're not one of them you know. Thank the good Lord Right. You're in an industry that is doing all right But some of you are going to be an industries that are not doing all right and that means you're gonNA act very conservatively with your money. You're not going to put your money into things that can go down and leave you with half of your capital when you might need your capital right so you you're going to be very very careful about how you use that cash and and what that means to me is a there's a little bit of of a similarity between Burke Shire and the way we're thinking if if you're worried about your job then you do have an obligation to your family and you're going to have to hold onto cash to make sure you're able to handle that and do whatever you have to borrow borrow bunch of okay now. This is not a pinch advice to you. It's not a recommendation. It's just an opinion. Yeah Yeah Yeah I'm GonNa give you an opinion and and And take it as education and entertainment. Only but I'm going to give you this opinion and my opinion would be if I were in that situation where I had limited cash and I was working a job that might go away. I would immediately go borrow as much money as I could. My House I would go borrow on a personal credit line. If I could get it I would load up on cash right now at this ridiculously low interest rate. That's out there you know. We're talking about three percent or something even five percent historically all the time. I've been an adult five percent was like Nirvana if you could ever get five percent which you could never get until just recently so i. I don't know if you would agree with this Daniel but that's what I would do. I would gather in cash I would hoard it. I wouldn't spend it. I'm not going to go out and spend it. I'm just going to make sure that I've got coverage and the reason I'm going to do that is because they can't throw me in a debtor prison. They can't beat me to get the money back. I do have bankruptcy protection. I can go back up. It's certainly don't want to but I'm going to behave. Just like the CEOS of companies that are getting in trouble. They're doing that very same thing right now. They are going out and borrowing every cent. They've got Boeing just did that. They borrowed down every cent. They could get in their rawling credit lines and everybody'll berkshires even bothering my like you just said if it's right for them then it's you gotta think about it and I and I know there's an ethic about not being in debt you know. Certainly that's very good advice. But it's only good advice if you have a job if you don't have a job and you need to feed your family and you need to have a cushion against five years of economic disaster. You are going to wish that you had another hundred grand in the bank. You're gonNA wish you did. And if the downside of getting your hands on another hundred thousand dollars is that you have to go bankrupt because you can't pay it back will. Oh my you know that is not being taken out and put against the wall and being shot all right. You're not going to prison. Take advantage of the system to protect yourself. The people I'm talking to are the little guys. They're not the big guys. They're not people with lots of lots of options that you can exercise on. You know you lost this job but I'm really well educated. I can go get that job. I am talking to the people who are not in that position. They lose that job. They're not going to get another job. Just aren't going to be jobs for that. I think the debt can be scary and really put you in a massive hole and going bankrupt is not the panacea that you're making it sound it follows. You wait wait. Walk me through. I think panaceas a little bit loaded but walk me through. Why Borrowing One hundred thousand dollars losing your job. Not being able to pay it. Back you the they're foreclose on your house right. These are all really rough time stuff. Got A hundred grand and you go bankrupt. You go bankrupt. You know you're not going to go bankrupt at one hundred grand in your bank spending the money. You're not going to go bankrupt till you're broke but I mean look compare that to not doing it. You don't have a job you've still got a mortgage you still lose your house anyway. You Got Three Thousand Dollar House. I think it's a lot to say and I think we don't. I want nothing to do with that advice or recommendation or opinion per people. I think. Put this all on me. And if I'm hearing from regulatory authorities about how terrible that is that I'm just going to refer to them. To See of Boeing talked to him if he can do it. Why can't the little guy do it? Why can't the little guy do it to protect his family and things get bad than UK? You take advantage. I mean bankruptcy laws. Are there for a reason they. We don't want people to suffer endlessly for financial error. And Look. This isn't even financial error that you created this corona virus disaster. And if you can take some degree of refuge by getting loans right now banks are willing to give you loans than your credit worthy and West to say instead. Why don't we say instead? Take advantage of the opportunities that are available to us right now for the P P P the unemployment options that are out there take advantage of the stuff that isn't going to create a permanent not permanent but how long has bankruptcy last seven years seven year. Huge problem but it is permanent. Because you do have to say on forms if you've ever declared bankruptcy for the rest of your life so it is permanent. Now I've financial adviser. I am not a financial planner financial anything but I feel very uncomfortable with the opinion that you just said so i WanNa make sure I put that out there. This stuff follows well. I am not very conservative person. And here's the problem. People who have assets and education don't see the world the same way that people don't have those things see it. I mean you've never been in a position like I've been in in my life and so I don't think I don't think it's fair for you to say that it. It's it's a wrong idea to take advantage in every way of the of the system. I think you should do that if you're if you're a family that doesn't have those kind of opportunities. Doesn't have those kinds of advantages in your life. I would say Dang it you get the cash where you can get it if somebody Linda to you. Then they think you're worth the risk and they're hedging that risk out there in many ways that you don't know anything about so take advantage of it and I honestly I. I'm just that guy I would. I would do that for my family if I thought I needed to do that. To protect you thought I needed to if I suffered a loss of my credibility because I went through a bankruptcy I also happen to know that the year after you go bankrupt is people are massively willing to lend you money. Just why what do you mean you happen to know that I just happen to know? I've seen people go back. There astonished what happens on the other end of it come out of bankruptcy and guess what? People WanNa lend you money. You know why. Why can't go bankrupt again for a certain number of years Gosh but yeah so messed up. Welcome to the real world and by the way do not be a martyr to your credit score. Okay You GotTa do what you gotTa do. And if you're buried under debt and you lose your job in this whole pandemic don't I in my view. I this is just my opinion. Okay but in my view don't be plagued by the bill collectors that are GonNa just harass you death When these companies sell your loan to them and they just turned over to professional collectors who will just climb down your chimney and the only thing that stops him as bankruptcy. You can bankrupt yourself right out of those situations and I would. What are you doing and just like blown away right now really. Yeah you think this is terrible advice. I don't think it's good advice. No advice it's not advice. Just want to say it's an opinion and I admit it's aggressive and I admit it's a little radical and I admit it would be seen by many people who are in mainstream positions to be unethical. I Got Yeah. I'd like to go back to buffet topic for today. Who We're out out out of whose mouth I certainly don't think those words would ever come. No I wouldn't. He sitting on forty billion dollars. He's not gonna say stuff like that. Now come on. I mean the guy like came out of not nothing but a reasonably middle class family. He is not like some guy who grew up on Park Avenue. He knows what what it is to be relatively normal all right and Edwina brokerage represented the United States in the House of Representatives. He not normal his dad also basically lost everything in one thousand nine twenty nine which he talked about in the meeting which was really interesting because he said that the clients stopped like he was kind of embarrassed to be around the clients that he had sold stocks to because then all the stocks crashed and he lived in small town Omaha and he had recommended to these people that they buy and then they lost most of their money and so they he wasn't able to sell stock anymore and I think he said is this right. He said his grandfather owned a grocery store and so his grandfather said I'll give. They had no money so his grandfather said. I'll give you groceries On credit and you can pay the bill later. Buffet was like it was like he wasn't so generous. My grandpa he was a businessman. I don't like the characterization of him. Some guy who liked grew up super privileged. I think he would disagree with that. I think he he certainly says he grew up very privileged in the sense of having all the opportunity in the world. But you know he wasn't rich. Yeah I I'm I'm just thinking. Buffet is not an example of somebody. Who's Normal Chair? He's not arm fair enough. And so leaving behind this controversy. Leave it out there to figure out what you WanNa do and whether you think it's unethical and to go after money may not be able to repay. It's highly unethical and highly dangerous to one's future. So do you think it's highly unethical for serious question? Do you think is highly unethical for Boeing to borrow down its term land. Is that also highly unethical? No if not why is that? Not But why is it wrong for me? I didn't is it for a plumber. Listen go out and borrow. Money doesn't know if he can repay. Boeing thinks very strongly in the ninety nine percent kind of very strongly that it will repay that money. There are many companies that have drawn down on their lines of credit in the last two months. They think they're going to be able to repay it. They're trying to bridge a bridge loan. They're trying to bridge the gap here and get back to normal earnings. So I think Boeing definitely thinks it will pay that money back going going around going. Well we can't wait to not pay this. Why could refit for all of our careers but they also understand that? They wouldn't get length the money if they didn't have assets to cover it and those assets are in fact covering those loans. That's how those people are going to get paid back doesn't mean Boeing's not GonNa go bankrupt absolutely. They could go bankrupt. I mean I still pay the loans back. Even if they bankrupt. Yeah they'll pay them back or most of them back after the insane administrative expenses of a bankruptcy but the fact is the CEO is going to absolutely rely on the protection of bankruptcy laws. He knows that Those lenders are going to lend based on that kind of protection. And that's the same thing with just a little guy the lenders not GonNa give you money. If he doesn't think you'RE GONNA get it back to them especially now right yes but you have just said that your opinion is let you should take money and then basically plan not to pay back that. I've really glad to hear that. No I didn't say that I said that if you that what you should do right now is if you think. There's a chance you can go to you. You're going to be disrupted in your revenue. Let's put it like that. You're going to have serious disruption that the wise thing do be dude copy the CEO of Boeing and many other major companies and load up on cash as quickly as you can and fact Warren Buffett basically said this is a very good time to borrow money we the loans that are out there are four. Yeah Yeah I think he did. You just agree with me. So if Boeing's doing it in order to protect themselves from damage down the road. They're willing to get you know much worse bank looking a much worse balance sheet in order to have have avenues to escape the problem. And that's the problem of not having much revenue as they had in the past. That's the same problem some a you're gonNA have. You can have as much revenue as you had in the past. Get cash now to cover you to bridge over to win. You can figure this out and when the economy starts to return and when you can get a better job and and then and then if you have to as you said you know you can't back with a hundred thousand dollars in the bank agreed but if you have to use the money to get finally down to that place where you are going to make it back into a job you might burn down the whole hundred thousand and you'll be thanking the good. Lord you have it. And that's why Boeing took that money in. It may need it to get to that point where the airline industry recovers. I mean. That's why southwest borrowing as much money as they can right now and they don't know for sure that there will be a recovery. Nobody knows for sure and therefore it is entirely possible that two or three airlines would go bankrupt in the next four or five years. I think they think they're very confident that they're going to recover. I think the question is how long is it GonNa take and be specific? They're very comfortable that they're going to recover because the federal government is limiting them a huge amount of money huge and that totally and I think that they are on and and the reason they're doing that is because the federal government thinks they're critical industry. Nobody thinks your critical industry. Hate to tell ya but nobody's coming to your rescue except you. You better start rescuing yourself ahead of when you need it. The worst thing about banks. They will only lend you money when you donate it. So if you don't need right now go get a pile of it if you need it right now. I'm sorry but you probably not gonna be able to get it too late. So we're the wise. Follow the the examples of the best CEOS in America who are in trouble right now and they are all loading their balance sheet with debt as fast as they can get it as much as they can get it so he should do the same thing I think I mean. That's just an opinion. I'm just saying it's just an opinion. Just an applied do not see why that is any less ethical than what Boeing's doing so let's get back to me buffet and Berkshire Hathaway. I won that one. Tonight you're taught me. What did you think about Greg? Evil sitting next above it and making comments well. I think that's an obvious indication of WHO's GonNa take over of Warren. Get sick this year dies. I think absolutely he's pointing to Greg. Able I don't I don't and Greg is younger than than a Jane. And that's probably why as she'd isn't up there Vowed genius in buffets been raving about him for years. But you gotta you gotTa get a new guy in there. You Probably WanNa get a guy who's not seventy you know it's like it's like Charlie Munger. Charlie Mongers Board Meeting Daily Journal. Like we've just brought in a new director who's seventy five which dropped the average age of the board by ten years or something? That was funny. It was really funny so I think that's a big part of you've got to to really superstars there and I think he picked the one. I mean it's not a final pick but I think that's an indication who's going to be running Berkshire obviously. It's a very strong indication of confidence. Yeah A to that question of who runs yeah. I don't know but I found that he was he was all right like I didn't really feel like he added that much he didn't. He definitely lacks the sort of interesting talk that the buffet gives and the Banter in the stories. And the you know ways of explaining things that make profits so interesting and and obviously hardly anybody is like buffet. He's one of a kind but it was very much like if this is the future. I don't know how much how much longer people are. GonNa get excited about it. But who knows it's an interesting question about Berkshire itself I mean. Buffet was pretty clear that At in previous to the meeting that prior to the meeting that he wouldn't think berkshires massively undervalued. Right now He basically that you were to sell off Berkshire in pieces and pay the taxes And the liabilities. Pay All that off By the time you cleared all the tax bill Which would be enormous. You would have a break even more or less and that might have been a little sobering for Berkshire investors because the stock went down ten percent. This already well not just that he also answering the question about why they didn't buy stock back in March. It wasn't just that they want to conserve money. Although I think personally I think that's the main reason but and why would you spend money buying Berkshire stock unless he had nothing else to do? But also because he said the intrinsic value of Berkshire went down last month burst of all he lost was it. Six billion on the airline investment and then Many of their businesses have been really adversely affected by the Down he said Berkshires intrinsic value has changed and so he didn't really think that actually the price change showed a massive discount the way it would have seemed and I thought that was really interesting so I don't. I wasn't real surprised by that the fact that he didn't buy a lot of Berkshire buying a little. I mean a little few billion dollars worth of March or April now but over the last year. Oh yeah when they bought exactly but they didn't buy a lot and so to me. It's been he's been saying right along more. I think what I'm hearing from buffet as more. We're going to see a time when we can by Berkshire I really cheap. Yeah hit it. I think it's that it's that plus we would rather buy some massive awesome business at eight seventy five percent discount because we're the only ones who can cause we're the only ones with a hundred billion dollars to spare and still leave forty billion on the balance sheet to cover all of our expenses and random obligations that come up so. I think that's what he's hoping for and he doesn't WanNa Penny Ante little purchases here and they're not these being for that he doesn't want the US to crash. But I think he he sees it as a possibility and I think we should too. I do too. I think I mean. I think we're GONNA wrap up here but my prescription for me is going to be sit tight be patient. Charlie said we make money when we wait. That's what I'm planning on doing. We've certainly picked up a couple of companies without. We're we're pretty nicely priced in. And they've gone down from where we bought them and we WANNA buy more But we're sitting in a lot in cash and I think that that's I'm very very comfortable without right. Now that this market will look a lot worse. I think there's a very good chance. This market will look a lot worse in a year that it looks right now and we'll see we'll see if that's true. Yeah we'll see. He didn't answer becky too quick. Didn't ask my question which I was bummed about my question. Was My question was considering that we're in a recession. So many small and medium businesses are going bankrupt and not gonNA come back. People are losing their jobs. Unemployment is at a massive high. Do you think that Wall Street is completely divorced from the plate of Main Street? Ooh That's very sophisticated question. What do you think the answer is? I think it is divorced and I think we're going to look back and go these. What's the vote was that occupy Wall Street thing? We're going to look back and go these like fat cat. Rich people were sending stocks way up with no justification except for a few of them are doing well legitimately have good earnings but the rest of them don't and yet for some reason. Wall Street has suddenly gone. Long-term mysteriously and companies with no earnings going but in a year. They'll be fine doesn't me to any sense at the same time. People are losing their jobs and it's not just jobs it's small and medium businesses are many of them are not gonna come back and they weren't able to get the loans from the government because the US government screwed up the process and that's a whole other story but it's really discouraging and I just don't see these these two. I don't know it's like these two opposing forces but they're not really opposing the kind of Har- and they just don't make sense together. I really wanted to hear from him about that. Like this market is is almost back at its high like why considering all the data why nobody asked him that I can tell you why why and I think I'm very likely to be right. And that is that the market meaning. The vast majority of our money in the market is run by professional fund managers who have learned over the last decade that you should never fight the Fed. It's a it's a fact of life and it's a. It's like a headline. Don't fight the Fed and anybody that's fought the Fed meeting if the Fed reserve raising interest rates. You think the market is gonNA go up and you buy stocks and it goes down like a brick because you fought. The Fed raise interest rates market. Goes DOWN THEY DROP? Interest rates market. Goes up these guys have learned that over and over and over and over again and they're fundamentally traders even though the so called long-term investors dot hold socks more than about three months and they're judged on their three-month performer sector judged on a one month performance. A years forever. You know years like you know light years away so you. You may not have a job in a year. You'd better perform now. And so they can't sit there and wait while their peer group jumps in as the Federal Reserve cuts rates to zero and promises with the federal government to put in six trillion dollars. They can't wait if they wait. They're gonNA look so stupid in three weeks which they did anybody. That waited look like an idiot. The market jumped back boom. And so guess what they. They've made it more volatile there jumping in just out of pure momentum guessing nothing to do with mainstream nothing to do with what's going to happen a year absolutely blind to it out of necessity to protect their jobs. That's why it went Jack and backup all right there right again. Do Not Take Silence. Ask Agreement. Well proportioned give my love the Nuno and stay healthy and you all stay healthy out there to you guys and we'll be talking to you next week. Thanks guys next week. We're going to have an interview With Dan Heath great book called upstream. So check that out. And then we'll be back talking about companies because we've promised you guys good companies that we like and that's what's coming could good depression companies to get onto that list to go. Thanks everybody hi guys. Thanks for listening to invested if you enjoyed this episode and you want more information including show notes and more episodes visit us at invested. Podcasts DOT COM. There's a special offer waiting for podcast listeners to attend my three day investing workshop absolutely free so just head to invested PODCAST DOT COM. Everything discussed on his podcast. It's either my opinion or Danielle's person and is not to be taken his investing advice. Because I am not your investment advisor nor have I considered your personal situation as your fight. Do -ciary this. Podcast is for your entertainment and educational only and I hope you enjoy it.

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Berkshire Hathaway: Collaboration and the Post-Buffett Era

WSJ Your Money Briefing

07:48 min | 2 years ago

Berkshire Hathaway: Collaboration and the Post-Buffett Era

"This podcast is brought to you by game which game bridge offers annuities designed for the digital age. Simplified products with guaranteed returns that you can buy online. Learn more at Gabriel dot life slash W. S J not available in all states. Here's your money briefing. Im JR Waylon at the Wall Street Journal in New York, we're getting a peek at what berkshire-hathaway might look like in the post Warren Buffett era over reveal the details in a moment. I these money and market stories. You should know a report from the PR RG. Consumer watchdog group says the college students nationwide paid more than twenty four point six million dollars in fees related to their campus. Debit credit accounts in the most recently available data that schools reported the education department, and the group says that banks that pay colleges for the opportunity to market directly to their students often have higher fees associated with their campus debit card accounts now going inside the numbers of its students at schools with a paid marketing agreement with a financial account provider paid two point three times as much and fees as students at schools without a paid marketing agreements. The average annual fee paid by students at schools with paid marketing agreements and whether a more than two hundred and fifty student accounts was thirty four dollars and thirty four cents while the average fees across schools without such partnerships was fifteen dollars an eleven cents and the Wall Street Journal real estate bureau reports that rapper fifty cents also known as fifty cent to some has finally sold. His fifty thousand square foot a state in Farmington, Connecticut for two point nine million dollars at that doesn't sound like a lot of money for an estate that size. It's come down in price a few times since it was first put on the market in two thousand seven now fifty cent whose real name is Curtis. James jackson. The third bought the property from former boxer Mike Tyson for four point one million dollars in two thousand and three the fifty two room. Compound features a basketball court along with game rooms a recording studio, a home theater, an indoor pool and a conference center. This episode is supported by game bridge high rate low FOSS annuities annuities get a bad rap. Some think they're too conservative too complex or only for retirees. But when you strip away the bells and whistles annuities can be a Smart Choice for steady growth. Cambridge aims to change the game by offering simplified annuities in sleek digital experience replacing fine print and phone tag with clear conditions and a direct low fee model by online at gamers dot life slash W. S J not available in all states. The question of who will succeed berkshire-hathaway CEO, Warren Buffett or what the company will look like in the post buffet era is one of the ongoing parlor games on Wall Street, or you may now be getting hints of how the company will operate in the post buffet era. Nicole Freedman covers berkshire-hathaway for the Wall Street Journal, and she's here Woodson details. So Nicole, we're seeing senior leaders across berkshires numerous companies collaborating, and while that may seem like a standard business practice. It really hasn't been the case at Berkshire up to now. Right. Berkshire is famously decentralized in so it owns more than sixty distinct businesses, including gyco Duracell fruit of the loom Dairy Queen and historically each of Berkshire's businesses is allowed to run totally independently each manager of the business sets their own strategy reports directly to headquarters, but historically, there's not been a lot of communication collaboration among the business units. And we are seeing. In the past couple of years. More of that going on more of the business units talking to each other and sharing best practices clever. Ration- here means more than just meeting in a room or on the phone. It can mean also sharing suppliers. Yes. So we are seeing some of the units joining in purchasing groups, which they're kind of taking advantage of their shared scale to get better deals on maybe raw materials or travel costs things that that were they would share a common supplier. And none of this is mandated it's up to every single. Berkshire subsidiary weather wants to collaborate whether it wants to join a purchasing group whether it wants its managers to be in touch with other managers. So none of it is coming from the top. It's really kind of grassroots the units finding ways to benefit from each other's expertise. Another significant step you write about in your story is that the CEO's of Berkshire's companies now report of buffets, top lieutenants and not to Warren Buffett directly. Right. So this started in early. Twenty eighteen when two of Warren Buffett's, lieutenants, Jeet, Jane, and Greg able were promoted to vice chairman, and they now oversee most of the day to day operations at the subsidiaries. And so the business units in the insurance industry report to g Jane and the business units in the non insurance industry's report to Greg able and so the many Berkshire CEOs now report to either Jane or Greg able and those two lieutenants also set the pay for all of the CEO's, which historically was something that Warren Buffett did. And in terms of the business practice over the decades. Warren Buffett has been known for buying companies and sort of leaving them alone and giving them autonomy. Right. And that's still the case that Berkshire doesn't look to kind of find synergies among its units that doesn't buy a company with the expectation that oh by bringing this company into the conglomerate we can lower the costs and make it more efficient at buys the company because. Likes the way the company is run. And then it lets it continue to run the way it has. And so some of these units are finding ways to collaborate with each other. But that's still, you know, their own decision from the top down. There's no requirement that they work together is another interesting note in your story in that some of Berkshire's companies actually compete with each other for customers. Yes. So there are definitely companies that overlap in common industries, for example, there's four different Berkshire companies that sell furniture. There's multiple jewelry companies. There's a lot of companies that are somehow involved in construction housing the building industries, and so sometimes they buy or sell to or from each other. They're each other suppliers or customers and sometimes they're actually competing for the same customers. And that's all part of the vision that each company kind of runs itself independently and has its own strategy. And so if they if they end up competing, you know, may the best company win one berkshires high profile joint ventures could actually impact healthcare. Forward. Yes. So Berkshire Hathaway has teamed up with J P Morgan and Amazon to start a company called haven, which is in. It's very very early stages. We don't totally know what he's going to do yet. But the plan is that will help lower healthcare costs for the employees of the three companies, including berkshires employees, which there are almost three hundred ninety thousand of them around the world. And so that could be a change at Berkshire. Because right now each of the subsidiaries as part of the independence that they all get they all have their own healthcare plans, and there's no centralization of healthcare at Berkshire. But depending on what haven does and what healthcare at Berkshire looks like going forward that could be a change in the future. All right. That's Wall Street Journal reporter, Nicole Freedman, bringing her berkshire-hathaway expertise and knowledge to our studio. Nicole thanks for coming on the show. Thank you for having me. And that's your money briefing, im JR Whalen in New York for the Wall Street Journal.

Berkshire Warren Buffett Wall Street Journal Nicole Freedman Berkshire Berkshire Hathaway New York Berkshire CEO Gabriel dot Mike Tyson James jackson Farmington Greg able Connecticut Curtis Cambridge JR Whalen
May 2, 2020: Remdesivir authorized for emergency coronavirus treatments

5 Things

08:04 min | 1 year ago

May 2, 2020: Remdesivir authorized for emergency coronavirus treatments

"Good morning. I'm Taylor Wilson and this is five things you need to know the weekend of May Second. Twenty twenty here are some of the top headlines more than sixteen thousand nursing home residents and staff have died from Cova nineteen in the US about a quarter of the nation's deaths. Congress is investigating the large number of outbreaks on Carnival cruise ships. The House is requiring that carnival turnover all internal documents on Cova nineteen from January first until now carnival loans at least nine ships that experienced outbreaks and according to the toy review site. Tt PM puzzle. Sales are up about three hundred percent during the pandemic thanks for writing on twitter at USA Today. Podcast and shout out to recent followers Zoe. Diana and Sarah Greenberg. If you're not already be sure to hit that follow about it and to keep up with lots of great shows including all things five things that's at USA Today. Podcast on twitter now onto the show. Even as some states begin slowly reopening. The Corona virus pandemic is far from over a new report on Thursday found that the pandemic could last another two years and won't be halted until sixty to seventy percent of the population becomes immune. That's according to the University of Minnesota's Center for Infectious Disease Research and Policy. Researchers also made it clear that it appears cove in nineteen spreads more easily than the flu because it has a longer incubation period spreads while people are ACM dramatic and has a higher average number of new infections that result from one infected per cent. Both there is increased optimism when it comes to treating the virus the FDA has approved the antiviral drug disappear after encouraging trial results president. Donald Trump announced authorization of the Gilead Sciences drug on Friday. I'm pleased to announce Gilead now has an easy way from the FDA FOR REMEDIES. Aveer and you know what that is because that's been the hot things also in the papers and the media for the last little while and important treatment for hospitalized corona virus patients and it's something I spoke with Dr Khan and Dr Fao G. I spoke with Deborah about it. And it's it's really a very promising situation we've been doing work with the teams that the FDA NIH and Gilead spearheading this public private partnership to make this happen very quickly. Meanwhile all eyes are on one of the worst outbreaks in the country in New Mexico governor. Michelle Luhan Grisham has invoked the state's riot control. Act TO SEAL off all roads to non-essential traffic in Gallup the town of seventy thousand borders the Navajo nation where a surging outbreak has led to a number of restrictions. She also required businesses in Gallup to close from five pm to eight am and the Navajo nation has imposed. Its own evening and weekend curfews. There have now been more than sixty five thousand deaths in the US FROM COVA. Nineteen and two hundred thirty nine thousand around the world. Pet owners around the country are increasingly worried about their pets. During the corona virus pandemic some animals can contract the virus and there are questions about whether or not they can transfer covert nineteen to humans USA. Today's Grace Hawk joined Corona virus conversations. This week on facebook live with host Ralphie Aversa to fill us in hand. Cats transfer the virus to humans. Grace what do we know about this? So we've been getting a lot of questions about pets Kennedy set. Can they transfer the virus from what we know now in this continues to evolve as we learn more about the virus hats? Don's ten not first to you but you can transfer it to them and they may be able to transfer into each other so We had reports that two cats recently. In New York state were actually symptomatic. We're having respiratory issues tested positive for the virus. One was living at home where other members of that family had already tested. Positive one was no one else. They're tested positive. Which seems to suggest. The cat may have picked it up. Elsewhere hadn't been able to transfer it to that family but that could change We had a story out today. Actually about how a pug with a family in North Carolina was also symptomatic tested positive and members of that family also sick so yes it is possible for you to transfer it to them but CDC FDA other health experts at this time there was no evidence yet. Your pets give it to you. Grace prefaced the the start of this show by saying we're going to answer these questions with what we know. Now what we know now about this is different from what we were hearing in the past about this from the CDC right great so at the end of February reported on a story out of Hong Kong that a couple of pets tested positive week. Pas a terminology they were using at the time for the virus in health officials in Hong Hall. Were saying that. They suspected there was some sort of environmental contamination. That's not pat somehow picked up some sort of substance or surface had the virus on it. And that's why they were testing positive. Not because they actually contracted the virus but now new evidence seems to cast doubt on that claim because some animals are actually being Symptomatic for this in. It's not just as environmental contamination that we suspect the pet has rubbed up against the virus in some way and so at the time in February W was saying we don't think can have this virus. There's no evidence now walks back. You can tune into corona virus conversations every Tuesday at twelve thirty PM eastern time on USA. Today's facebook page. Warren Buffett will host Berkshire Hathaway's annual shareholders meeting on Saturday but no shareholders will be prison amid the corona virus pandemic and. It'll all be online earlier this week. Buffet said that he and Berkshire vice-chairmen Greg. Able who oversees the holding companies non insurance businesses will answer questions from a reporter during the meeting but all other events surrounding the meeting have been cancelled. Normally some forty thousand people attend in Omaha. You can watch live on Yahoo Finance at four. Pm Eastern time the Kentucky Derby is going virtual the first weekend in May is typically dedicated to the horse race but this isn't a typical year and the vast majority of the world's sports are on hold so NBC. Sports will instead fill the time slot with a computer generated fantasy horserace. It'll feature the thirteen horses. That have won the triple Crown Secretary. One thousand nine hundred seventy three triple. Crown winner is a seven to two favorite. You can tune in at five forty five PM eastern time on Saturday followed by a re air of the twenty fifteen actual race with coverage starting at three PM. Happy Birthday Princess. Charlotte William and Duchess cates. Only daughter. Man. The only princess among Queen Elizabeth's great-grandchildren turns five on Saturday she'll celebrate privately in quarantine with her family at their Norfolk country retreat. Her family released new photos of her taken by her mother. And April as the family helped to pack up and deliver food packages for isolated pensioners in the local area. Thanks for listening to five things. A reminder you can subscribe for free and rate US and review on Apple podcasts. You can also catch US wherever you get your audio thank says always declare Thornton for her work on the show. Five things is part of the USA. Today podcast network.

FDA USA Today Grace Hawk twitter US Cova facebook Gilead Taylor Wilson Congress Twenty twenty Gilead Sciences USA. Today flu Zoe Donald Trump New Mexico Ralphie Aversa CDC Michelle Luhan Grisham
Berkshire Investors Seek Clues on Next Purchase

WSJ What's News

08:36 min | 2 years ago

Berkshire Investors Seek Clues on Next Purchase

"Discover Milan Italy with WSJ magazine and into Garay. Join WSJ magazine editors for behind the scenes access in Milan. As you meet the city's most influential taste makers dine at top restaurants. Visit the private villas of lake coamo and much more book. This once in a lifetime trip at integrate dot com slash WSJ magazine or call six four six seven eight zero eight three eight three. With what's news from the Wall Street Journal. I'm Anne Marie for totally in New York. Berkshire-hathaway investors are looking for clues on how the company will spend its money Warren Buffett the CEO of Berkshire Hathaway his mantra is kind of be fearful when others are greedy and be greedy. When others are fearful. And so it's a real pattern with his investing style. The Wall Street Journal's Nicole Freedman has more details on the company's annual letter to shareholders coming up. But first here are some other top stories. We're following a federal judge has imposed a gag order on longtime. Trump adviser Roger stone's saying his inflammatory posts on social media. Pose a real risk of inciting violence stone had posted a photo of judge. Amy Berman Jackson on Instagram that appeared to show crosshairs next to her head. He apologized and called the move a stupid lapse of judgement. The judge ordered stone to avoid further comments about his. Pending criminal trial on charges of lying and witness tampering. Chinese telecom giant hallway is gaining fans in India and other emerging tech markets for the low prices of its equipment despite warnings from the United States that the company is a quick moment. Could be used to spy for Beijing. The Wall Street Journal's Dustin volts explains for India to decide that they actually might want to stick with. Wow. A and not ban them or not trying to push them out of their commercial market. That's a huge win for China. If you put those two countries together that's virtually half of the world's population right there and would be a serious blow to western efforts to limit the Chinese telecommunications firms reach while way has long denied allegations that it's equipment could be used to spy for China. Online image. Search company Pinterest has confidentially filed paperwork for an initial public. Offering the Wall Street Journal reports that Pinterest is seeking a listing in late June, and is expected to seek evaluation of at least twelve billion dollars Pinterest joins a number of high profile tech, startups, working on IPO preparations this year AT and T plans to stop serving devices that use third generation or three g wireless technology and early twenty twenty two rival Verizon has already made a pledge to stop serving three g cell phones at the end of the year as telecom companies move toward new wireless technology T mobile and sprint which the former is seeking approval to acquire having announced hard deadlines to wind down their three g service still to come. We'll talk more about. Berkshire Hathaway's annual letter to shareholders which investors will be parsing for clues on how the company plans to spend its money. I sure Hathaway investors are hoping the company's annual letter to shareholders will offer clues on the company's next. Big purchase. It's been about three years since billionaire Warren Buffett made a large acquisition or elephant joining us now with more details is Wall Street Journal reporter, Nicole Freedman, Nicole. Berkshire Hathaway's last acquisition of aerospace manufacturer precision cast parts was back in twenty sixteen. But as you note in your piece, this isn't the first time, the company is held back on big investments and come out ahead because of it. Yes. So Warren Buffett the CEO of Berkshire Hathaway his mantra is kind of be fearful when others are greedy and be greedy. When others are fearful. And so it's a real pattern with his investing style that when the market is rising and valuations are getting higher Warren Buffett off in kind of sits back, and doesn't doesn't buy much doesn't make big investments. And then when there's a crisis or some sort of a downturn in the market. That's when he comes in with. A big hunk of cash to really spend it on on the opportunities that present themselves. And so this looks like another one of those situations where we're ten years into a bull market almost ten years and buffet has really been holding back saying prices are too high for his comfort level right now. But they're just amassing cash, and I'll shareholders are hoping they're waiting for another opportunity. If there is a market downturn to make some lucrative investments. Let's talk about the market conditions. Now, we are expecting that annual letter to shareholders and berkshires latest earnings results on Saturday. How is the company's stock been performing recently as compared to previous years, historically? Berkshire Hathaway has outperformed the general broader markets since Warren Buffett took over as CEO in the nineteen sixties, but in the last decade or so it really has not notably outperformed the S and P five hundred. And so again, investors really point to the fact that this is a bull market. These are not the investing conditions in which Warren Buffett thrives and really where he really distinguishes himself is. During downturns. And so they're hoping that not hoping for a downturn. But they're hoping that when the next downturn arrives at Berkshire will be well positioned and able to take advantage and then outperform the market again. What do we know about the role buffets lieutenants are playing in scouting out investment opportunities? He has been handing more daily operations over to them. Yes. So about a year ago. Berkshire promoted to executives Greg able and a g Jane to vice chairman, and those two men are really running a lot of the day to day operations of Berkshire's companies now and one of them is expected to eventually take over a CEO once Warren Buffett is no longer in charge. And then they're also to investing lieutenants per folio managers Ted Weschler and Todd combs that help Warren Buffett managed, the stock investments and all four of those men kind of are able to bring deals to Berkshire two buffets attention, if they if they find opportunities and they've really. Able to kind of broaden berkshires investing beyond the the typical industries that Warren Buffett knows really well, so for example, last year, Todd combs, one of the portfolio managers made to fintech investments financial technology, which is really outside of Warren Buffett's typical wheelhouse. These aren't companies that he would say he has expertise in. But this is something that Todd combs is more of an expert in and decided to make these investments on berkshires behalf because of Warren Buffett stature at the annual letter could also have implications for the broader market as well. And actually the difficulty of finding good deals is something that buffet brought up himself last year in the letter. Yes, it's something that buffets been complaining about for awhile now, and he's saying basically prices are too high. There's too much money sloshing around out there looking for deals, and so it's not it's not good for us. We like to buy things at reasonable prices. And so he probably will complain about that again this year and. Certainly the competition is fiercer than ever. There's more than two trillion dollars of private capital out there from private equity funds private debt infrastructure. Investors all looking to do deals and make acquisitions and those investors are under a lot of pressure to spend money quickly. And so they're often willing to pay higher prices, which could make it more difficult for Berkshire to find opportunities at the prices that it likes to pay Nicole any final thoughts on what we might expect on Saturday. What do the experts you spoke with say about the possibilities here? Well, one thing that investors are really looking for is what Warren Buffett says about buybacks, if he's planning to take some of Berkshire's cash, it has more than one hundred billion dollars in cash, and if it's going to return more of that money to shareholders, a lot of investors are hoping so and beyond that everyone's always interested in what Warren Buffett has to say about the broader economy, if he sees any sort of concerns or signals on the horizon, and then also if he weighs in. In at all about politics, and what he sees in the in the world right now. That's Wall Street Journal reporter, Nicole Freedman joining us in our studio to talk about berkshire-hathaway head of the company's upcoming earnings report, Nicole, thanks so much for joining us. Thanks for having me. And that's what's news. I'm Anne Marie for totally in New York for the Wall Street Journal.

Warren Buffett The Wall Street Journal Berkshire Hathaway Nicole Freedman Berkshire CEO Anne Marie Todd combs Roger stone New York India Pinterest lake coamo Milan Hathaway Amy Berman Jackson China Milan Italy reporter Berkshire
Warren Buffett: Nothing can stop America

Squawk Pod

37:34 min | 1 year ago

Warren Buffett: Nothing can stop America

"The Edge podcast is sponsored by INVESCO Q. Q. Q. Supporting the innovators changing the world. Invesco Distributors Inc. This is squawk pod. I'm CICI Katie Kramer. Today on our podcast Warren Buffett in his own words. Nothing to stop America when you get right down to it. Never Bet against America. The Oracle of Omaha conducts his first virtual Berkshire Hathaway shareholders. Meeting Corona virus turning capitalism's biggest party into digital only event. America's most famous investor selling his stake in airlines futures. Much less clear to me. Amata doesn't turn out through absolutely no fault. Lines themselves and weighing in on the future of the US markets. We haven't seen anything attractive. And frankly wasn't predicated on this but the Federal Reserve did the right thing and it entered very promptly which they should had. I salute them for plus Becky quick thoughts on an annual meeting. Unlike any other that you'll hear only on this podcast it's Monday. May the fourth be with you. Spot begins right now since one thousand eight. Warren Buffett one of America's richest citizens and the head of the Berkshire Hathaway conglomerate of companies has held an annual meeting for investors that offers three days of shopping networking and an all out celebration of capitalism. This year. That didn't happen. I caught up with Becky. Quick for more becky. Tell me what you're usually doing on the first weekend in. May I usually? I'm an Omaha. And usually I am running around the giants auditorium where the Berkshire hathaway meetings held and usually sprinting There's somewhere between forty and forty plus thousand shareholders. Descend on Omaha. The whole place takes on this sort of carnival atmosphere people standing in line starting at about four o'clock in the morning to try and line up and get a seat inside the centurylink center in trying to line up in front of the number of difference. microphones where you can go and ask the question. This year was pretty different story so well. It was a virtual meeting this year and it was Warren Buffett sitting on the stage at the CENTURYLINK center. It was next to him on. The stage was vice chairman. Greg able that was there was nobody in the Prophet's daughter. Was There Susie Debbie Bassani? Was There Mark Hambourg? Was there the CFO? But I don't think there was anybody else there. I got some pictures of people sent to me that Susie sent to me since he buffet of an Empty Auditorium And that's now that doesn't mean the message didn't get out. Lots and lots of people were listening. I haven't seen the numbers yet but when we were asking for questions he put our email address on on the screen. More than five thousand questions. Came streaming insanely slow. It was so much box I was having trouble getting through seeing any of these things that came out that people were listening in writing questions and they were writing in questions that will better get Mr. Buffet talks for. I think it was about an hour and forty five minutes at the top just to explain his viewpoints on where we are right now and how to put that in a historical perspective. His message was never bet against American. Actually put that very slogan up on the screen to emphasize his point and he talked through. How the nation's got through such situations as the civil war and depression and how he said he would always on America. Warren Buffett has been doing the annual shareholders meeting for decades. It's the woodstock of capitalism. Will that come back to you? Thank you or have we seen the end of it. Now I think so In fact even at the end of the meeting you know this this year Charlie. Munger was not their his vice chairman and his partner. And this the the guy who's only sat next stage interested make sense to try and have Charlie come from California where he lives but at the end of the meeting Buffett said. We'll be back here next year. Charlie will be here and he hopes to see everybody back then. Now look a lot can happen now and then but I think he's planning open. They'll be for the next year so certainly a different Berkshire hathaway annual meeting in Twenty Twenty Becky Joe Kernan and Andrew. Ross SORKIN DISGUST. News-making highlights from the virtual event today on Squawk box. And here's what that sounded like. Let's get right to our big story of the morning and that is of course the Berkshire hathaway meeting that was held over the weekend. Warren Buffett. They're speaking out about the global pandemic and his recent investment moves at a virtual edition of his annual shareholder meeting now. This was a little different this year. No crowds usually. There's forty thousand people there this time it was just buffet and Berkshire Hathaway vice-chairman Greg. Able on stage but his message was still received loud and clear but made the case that you should never bet against America but he also admitted that he doesn't know how all of this economic ripples will play out from this pandemic and that he has readjusted his own thinking about what will work dropped. A bit of a bombshell on the market said that he sold the huge stakes that he bought and the four major airlines those were ten percent stakes that he held an American Airlines Delta United Southwest. Here's his explanation as to why. I just decided that I'd made a mistake. In an understandable mistake so probability weighted decision. When we bought that we were getting unattractive amount for our money when investing across the airline's business. So we bought roughly ten percent of the four largest airlines and we felt for that we were getting a billion dollars. Roughly earnings now wasn't weren't getting a billion dollars but we've felt our share of the underlying. Earnings was a billion dollars and we felt that that number was more likely to go up and down over a period of time that it would be cyclical. Obviously but but it was. It was as if we bought the whole company. But we bought it through The New York Stock Exchange and and we can only actively by ten percent roughly of the four and We treated mentally exactly as if we were buying a business and and it turned out. I was wrong about that business because of something. That was not in any way. The fall of for excellent. Ceo's believe me no joining C. over airline but the companies we bought or well-managed that a lot of things right. It's very very very difficult business. Because you're dealing with millions of people every day and if something goes wrong for one percent of them are very unhappy so i. I don't envy anybody the job of being. Ceo of an airline. But I particularly don't enjoy him being an period like this where essentially nobody people have been told not to the airline business and I I may be wrong and I hope I'm wrong but I think it changed in a very major way. And it's obviously changed in the fact that there for companies are each going to borrow on perhaps an average of at least ten or twelve billion each way you have to pay that back out of earnings over some period. I'm a mere ten or twelve billion dollars off if that happens. And of course the in some cases they're having to sell stock or so the right to buy stock prices And that takes away from them. The upside down an and I don't know whether it's two or three years from now that as many people will fly as many passenger miles as they did last year they may and they may not but the future is much less clear to me. Amata how the doesn't turn out through absolutely no fault of their lines themselves about made a big point of trying to explain. This was again. No fault the airlines themselves and no fault of the. Ceo's he said all four of the CEOS who run those companies are excellent. Ceo's he said that those are all well managed companies. He just said the equation has changed and he has been concerns about what happens from here. A guys in terms of what he's been doing his cash pile built up over the first quarter. It went from one hundred twenty seven billion dollars that he had at the end of the year to one hundred and thirty seven billion dollars so instead of deploying that capital when the markets went down so significantly in February and March. He was continuing to build up. He did say that he spent about one point. Eight billion dollars on stocks in the first quarter. That's paltry amount when you consider how much the cash word he got. He spent one point seven billion dollars on buying back Berkshire shares again. That was for the first quarter. He also talked about what he's been doing in April and the and the pattern has not changed in April. I think he spent four hundred twenty seven million dollars on equities in the month of April. And that tells you a little bit about his broader concerns. His huge thing is wanting to make sure that he's managing for for any crisis. Who KNOWS HOW POSITION DEFENSIVE? I mean he could have see there today thinking. Maybe I'll do something today now that I've said I haven't done anything yet. I mean in the next quarter. Do you expect him. He said that if there if there was a big deal that came along a right deal that came along that he'd be more than willing to deploy that Tash said that you know they spend a big chunk of it if they got the right opportunity talked a little bit about how they haven't stepped into the market like they did back in two thousand and eight when their two thousand nine. When things were in real problems there had been eight companies that they stepped into finance during the great recession. They haven't done that this time. And he's a part of the reason really. Is that the Fed and the Treasury did the right thing that they went out of their way to stabilize markets as a result these companies he said got better deals in the open marketplace and from the Fed and treasury than they would have gotten for Berkshire hathaway there are too many. I thought this was the most. This was the most cautious I'd ever seen worn and and and I I wrote about it. Actually yesterday. The idea that he did walk. Actually one point said. I don't want to walk through the worst case scenarios and then and then proceeded in certain cases to sort of walk through some of them talked about one hundred thirty seven billion dollars and said you know in a worst case scenario that that actually isn't a huge amount of money and it was it was. It was a sobering comment. Because you look at where we are and I think there's a lot of people that are very hopeful and optimistic that we put this either behind. So we're we're about to move forward. And he clearly talked about his company as wanting to be Fort Knox in a way. That's very different as Becky said than the way I think he was thinking. Back in two thousand eight or even by the way in two thousand sixteen when he wrote in his annual letter about the need of the once a decade opportunities that come when it looks like there are dark clouds. And you run outside with with the WASHTUB rather than the teaspoon to collect as much gold as humanly Ken. So he's not doing that. I think there are a lot of people watching those comments. And he's not doing it. Well that's something. We don't be doing it this morning. That's why what do we know about the next quarter and I'm not saying that he would be trying to hide his intentions but he does things when when you went. But with the great like flagship properties right now that are thirty percent less than they were and him still not using one hundred and thirty seven billion to to try to as you say. Collect those things. That's probably that's probably notable but he. He's like the rest of us he doesn't know about whether vaccines possible. At the end of the year he doesn't know whether a therapeutic is going to work he doesn't know whether her I feel extraordinarily good about being able to listen to after she who I'd never heard of a year ago but I think were very very fortunate as a country to have somebody at seventy nine years of age. You appears to be able to work twenty four hours a day and keep humor about him and communicate in a in a very very straightforward matter about fairly complex subjects. Until you when he knows something and when he doesn't know something so I I'm not going to talk about any political figures at all or or politics generally This afternoon but I do feel that I owe a huge D- data gratitude the Doctor. Varsity for educating and informing me Actually along with my friend Bill Gates to As to what's going on and I know I got I got it from a straight shooter when I get it from either one of those. So thank you Dr Phil. She is not no Stra dom went out of his way. He went out of his way to say that he doesn't know anything else on the medical front about what's happening that he's been listening to Dr Phil. She and Bill Gates and that's where he gets his information from but he doesn't know anything else on that front. He said he didn't want to answer questions on that. Because he's not an expert in something like that Again he did say he would be there to take big deals if the terms were right. I don't think he thinks the terms are right and I think in. Some instances is entire view of industries has changed as evidenced by selling out of this. I don't think this is all that different. Necessarily than what he was doing during the great recession because he wasn't talking all the time people keep sending in these questions. How come he's been so silent? Well it's been six weeks since his last interview. He wasn't talking all that much during two thousand and eight in two thousand and nine either. He would come on every once in a while but it was months in between each time that he came on. I think he's looking to see how this plays out in the market and and just to see and like you said the Fed. The Treasury did the right thing and these businesses have gotten better deals in the marketplace than they would get from reporter. What he did back then was he'd get a ten or eleven percent convertible from a company where he knew that they were going to pay the ten or eleven percent. And it didn't you know it wasn't nearly as as important about the whether he got the convert to work out properly. He was going to get ten or eleven percent weight. And do you know if you're going to get ten or eleven percent when nobody's business? No one no customers. Look what a Royal Caribbean Princess? Chris is one of those one of the the cruise lines. Got a huge amount of money at way lower than you would have anticipated given what's been happening. There's been more people who have been willing to wait into the market on this again because the markets were stabilized by the actions. That government took minivan cleaner sorkin. I mean they've given away now the cars and the only thing I would say is I think yes. The big opportunities were missed or didn't exist because the Fed came in but because the Fed came in as you said there are other people coming in now thinking. This is still a good opportunity at least my perspective. Just listening to him was that he was still planning to wait that when he talked about the airlines. It wasn't simply a call straight up on the airlines. It was a call that there may be less passengers on these planes two and three years from now in the knock on effect the economic demonstrable economic effects of that. And so to me that was that was just. It was just so boring to hear it from somebody who's had so much certainty over the years at least that's that's how I felt about it and and by the way I thought it was humbling. I thought it was human and admired all of it but I it definitely made me sit down Becky I people writing in saying see Buffet. Age By that because it's like shut up any. Let's tell people about that. Because another one of the huge headlines that came out also spoke about a corporate practice that has become controversial and that is stock buybacks. He defended the practice that so many especially in Washington are attacking right now. We've distributed some of the capital that we don't need for growth now whether the company should buy it depends on a couple of things one is they ought to retain the money they need for intelligent growth prospects that's fine and secondly and this is a point that's never mentioned. It should be buying back below what they think it's worth now. They'll make mistakes in that but you make mistakes and a lot of businesses but over. That should be the guiding principle and my knowledge J. P. Morgan. Jamie diamond settled once. We've Sat Burgas Times retain them we we. We will repurchase shares when it's to the advantage of the continuing shareholder that do sell. But you read about all these by back problems we're GONNA spend five billion buying it back or ten billion. Let's like saying I'm going to go out and buy some businesses here for five billion without knowing what you're going to get for the money. It should be price sensitive. Obviously it should be needs sensitive. Obviously but when the conditions are right it should also be obvious to repurchase shares and there shouldn't be the slightest taint to it any more than there is two people sort of taken up cries about how terrible it was the company back star. Well you can say. It was terrible for them to pay dividends to. They'd have more money now but they were doing what was intelligent at the time and I hope they continue to do what intelligence I go forth and this is a practice. He's defended in the past but he did it more vigorously done because that practices more under attack his point all along if you've been listening to him for years about this has been that look if a partner wants out of the business and the other partners in Business WanNa buy that partner out. That should happen. You should have a way out. Companies when they do by backstairs just increase the percentage of the business that the existing shareholders have therefore making every share more valuable. If you buy stuff I mean Boeing when you're buying things at four hundred hundred. Obviously it just looks like you're an idiot and Eastman Kodak General Electric I mean over the years. We've seen it where it made absolutely no sense. But that's what he's saying just mindless when when does remember the financial crisis. Don't give them cash. Give them performance based compensation so what they can shrink the float then they get higher earnings per share and just so the mindless robot buying back stock is probably not great. Because look what happened. Where did we discuss? Where does that money go again when when you buy at three hundred and a stock goes to one hundred where is it? It's it's not in heaven it's money heaven. Heaven could've been better specimen but sometimes if you're apple and you don't know what else to buy in you think your your shares are remember how undervalued apple was that that would have been a good move to buy that back right that point so it. It's you can't just painted with the same brush. Where are you sort of? I mean I don't know where you are at any given day. You take these crises that I can tell you exactly where I am. I wish all the stuff. I'm exactly where Warren is. I'm exactly where warring which is. There's nothing immoral at all about buyback shares. But there's something very wrong about the system with which we have today for the most part which is that as you said. A lot of these share buyback programs are relatively mindless meeting. Robots doing them they make these grand proclamations and announcements and then they'd do them and they are done in certain cases you know probably immorally which is to say to help prop up the stock price. Push-up executive compensation. So the question is not to eliminate buybacks. But how do you tailor it? In a way where people are are more mindful of how they're approached and then doing them opportunistically and look people are going to get them wrong. They're always going to get them wrong. And we will look back. And Look at Boeing. And you'll say off that what a mistake that was but I think the question is. How do you get the system to a place where it's not? The default is not to approach it in the mindless way. That much of corporate. America's doing it today. I think that that's where I land all right guys. Let me tell you about one more headline coming out of the meeting. There were a lot of them but will jump through this one too. There was a shareholder question. A lot of shareholder questions about berkshires performance versus the S. and P. Five Hundred Berkshire has underperformed the broader market for the year today for the last five years and for the last ten years again that was a question brought by several shareholders. And here's the response. I got a number variations on this next question. Some more polite than others. This one's right down the middle. This is from Mark Blakely who writes in from Tulsa Oklahoma and he says like many. I'm a proud Berkshire. Hathaway shareholder however and comparing the performance of Berkshire with the S. and P. Five hundred of the last five ten or fifteen years. I've been disappointed in BERKSHIRES UNDERPERFORMANCE. Even today Berkshires trailing the S. and P. Five hundred by eight percent to what would you attribute Berkshires underperformance while? I can't imagine ever selling my Berkshire stock at some point. Money as well I. I agree with everything I forget his name. But said I mean the The truth is that that's I recommend the S. and P. Five hundred. Two people and I happen to believe that Berkshire Is about O- sound is any single? Investment can be In in terms of Earning reasonable returns over time. But I would not want to bet my life on whether we think the S. and P. Five hundred over the next ten years. I think there's a reasonable chance of doing it. And bad periods. I don't know how many out of the fifty fifty five years we've been doing it or I don't know how many we've beaten or not. I mentioned earlier. That nineteen fifty. Four was my best year but I was working with absolutely peanuts. Unfortunately and and I think if you work with small sums of money I think there is some chances. Some chance of a few people really do bring something to the game. But I think it's very very hard for anybody to identify them. When they worked with large funds it gets tougher and It certainly got tougher with for us with larger funds and I will make no promise to anybody that we will do. Better than the S. and P. Five hundred. But I what I will promise him is that I've got ninety nine percent of my money in Berkshire Mulch members of my family are not be quite that extreme. But they're close to it and I do care about what happens to Berkshire over the long period about as much as anybody could care about it. But you know carrying doesn't guarantee results. It does guarantee attention. It's harder and harder for a big pile of money to outperform like that and that's the point. He's made frequently. I think a lot of people have questions because really they've invested in Berkshire because they think it will outperform downtimes now. That has not been the case here today. I wonder what happens over the next year. Two years three years. And that's going to play out. But there were some shareholders who were definitely pushing back about that more Warren Buffett next on squawk pot his take on the extraordinary measures taken to boost the US economy in the face of Corona virus. We're doing things that we don't know the ultimate outcome and in general right but I don't think there without consequences and Ali Aliens Chief Economic Advisor Mohammed Alario on the markets reckoning head When we we said which we will we will. We said differently. What investors had to figure out is ten percent is not coming back. We'll be right back if you WANNA learn more about one of the fastest growing trends in investing. We've got the PODCAST for you. It's ETF edge. I'm Bob was on each join me as I'm joined by hot market participants help you build your best portfolio at the end of each episode stick around for our markets one o two segment where we round out the conversation to help you better understand. Etf's listen now and subscribe for exclusive content. Not Bird on television. You want even more tweet us at. Etf EDGE CNBC this is squawk pod from CNBC cures becky. Quick Warren Buffett speaking to shareholders over the weekend at a virtual Berkshire hathaway annual meeting nobody. They're not the forty thousand people who are usually there but the message still got out. He shared his thoughts on the wide range of economic possibilities that could result from the corona virus pandemic but says he remains convinced that nothing can stop America. Buffet warned investors not to get into a position where market disruptions affect them citing many historical examples. Everything from the civil war the Great Depression he spoke about America's willingness to stand up to adversity. We found that Nothing to stop America when you get right down to it and it's been true all along. It may have been interrupted the scariest of scenarios when you had a war with one group of states fighting another group of states and it may have been tested again and the Great Depression and it may be tested now to some degree but in the end the answer is never bet against America now love. It didn't say whether he thought the stock market would improve over the next month the next year the next two years but he did say over the long haul he knows that America will come back and be very strong in terms of his own cash pile. He is building that amount up. He has one hundred thirty seven billion dollars in cash. That's one hundred twenty seven billion dollars at the end of the year but that is because they run an insurance company. They want to make sure that they never have to ask anybody else for help. And that they are always able to withstand anything. Buffet also talked about the Fed's response to the pandemic. And why he said he didn't see anything attractive to buy when the market was well off the ties we haven't seen it attractive and frankly wasn't predicated on this but the Federal Reserve did the right thing and they didn't bury promptly which they should have and I salute them for but that means that a lot of companies that needed money and probably should have done their financing a little earlier but they're perfectly decent companies. Got The chance to finance in huge ways in the last five weeks or thereabouts. I mean it's set records. Some companies have come back twice a number very big companies that bothered to extend out there. Borrowings came a couple times Berkshire actually raise some more money. We don't we don't need a but will I think it's still a good idea over time and And then there are some pretty marginal companies also had access to money so there is no shortage of funds at Race which we will not invest that so we have not. We have not done anything because we don't see anything that attractive to do. That could change very quickly or may not change But in two thousand and eight nine the truth we weren't we weren't buying those things to make a statement to the world. They may have made a statement to the world to some extent and I'm glad that they did if they did but but but we made them because they seemed intelligent things to do and markets were such that. We didn't really have much competition now. The Fed has promised to use a full range of tools to try and prop up the economy during this pandemic. Buffet says he doesn't know the consequences of the Fed's balance sheet expansion but he knows the consequences of doing nothing. I'd love to be Secretary of Treasury if I knew I could keep raising money. Negative interest rates. That makes pretty simple. We're doing things that we really don't know the ultimate outcome. Do I think I think in general the right things but I don't think there without consequences and I think they could be kind of extreme consequences pushed far enough but there would be kind of extreme consequences if we didn't do it as well. So if somebody balance those those those questions again. That's Warren Buffett the chairman and CEO Berkshire hathaway joining us right now to talk more about all of this and the market implications is Mohamed El Area. He is the chief economic adviser at all. Liens in Muhammed. It's great to see you this morning. Thank you becky and thank you for Great Q. And A. With Warren Buffett. Just on Saturday. Thanks but I know that you were watching to see what he had to say about the markets. What did you think about his assertion? About what the. Fed's been doing right now with the potential consequences. Are you know Becky? He put perfectly this debate. And it's not an either all but as a question of balance and it's a question for the marketplace. Would you rather have the blanket support of the Fed as we did this time around? Would you rather have Warren Buffett's rescue financing as we did in two thousand and eight people will argue either side of this? He pointed out that on the one hand. You get the Fed normalizing markets quickly but on the other hand you get people who shouldn't be borrowing raising money and that's the issue of capitalism. You know what's better my own sense is. The Fed went too far going to high yield market. But I understand why they did. It and time will tell what the consequences all. This time is a little different than two thousand and eight back then. It was some bad actions and bad behaviors that lead to the financial crisis. It was activity at the banks and other places consumers kind of jumping in on all these things warranted different as we all know it. This was. Nobody's fault that none of these companies did anything wrong they just got slapped. I by the pandemic and then by the shutdown of the economy. Saying we're not going to let people go out so in a situation like that. Should the government be more responsive like this because again we're not talking about moral risks? We're not talking about moral hazard or anything that anybody did wrong. It's a pandemic and it's a government response to that pandemic. Just shut the economy down so I it should be. Which part of government should he be the Fed with should it be the treasury second? What rules should govern day? Should they be certain terms in terms of behaviors of what you expect these companies to do and finally I think Warren Buffett put into really clearly you Andrew and Joel had pointed out. He was more cautious. It was a vase sobering tone because he kept on saying. We don't know what's ahead. He kept on talking about a whole scenarios of possibilities not at baseline which is different from two thousand eight nine. He talked about tail risk on and on again he talked about balance sheet strength. This notion of we don't know what's ahead. And he warned us. Not Older. Problems emerge on the first day. So there's also an issue of how. How quickly should step in with these blankets support from the Fed? If you talk about the treasury and there were principle governing bailouts. I would be with you. But but the Fed opened up the high yield market for almost everybody and that raises the specter of Zombie companies. And we've got to be careful about this because that eats away at what makes America special and desktop reason why we don't ever bet against America because of its dynamism Mamad. Buffet also said that there are scenarios worst-case scenarios. He can imagine that he didn't WanNa talk about because he didn't want to make it more likely to happen. Worst-case scenarios and that's what he wants to make sure that Berkshire Hathaway is prepared for this fortress Defense about when you start thinking about some of those things not that they're likely but what. What would be a potential worst case scenario in terms of how the economy reacts so you gave us examples? I think airlines on example where he said you know what behavior has changed. This is a completely different sector. Coming out of the crisis it will not be at full capacity. He took all those planes. He also spoke about some of his companies. Having a permanent loss in sales he gave the example of Easter foresees candy and he spoke about other companies that were weak and are not coming back. And that's within his empire so this notion is coming out and I think it's a rank notion that when we we set which we will we. Will we set differently? The economists called it the ninety percent global economy. There's going to be ten percent of the global economy in their view. That's going to be missing. And what investors have to figure out is which ten percent is not coming back thank you it is great to see you again and we will talk to you very sound. Muhammad L. Area. Thank you becky coming up words of hope during a pandemic apple CEO. Tim Cook delivers a virtual. Commencement address to Ohio state graduates better futures. The one you thought was certain and in a fearful time Paula. Once again to hope squawk pod. We'll be back after this. You're listening disqualified apple CEO. Tim Cook delivered a virtual commencement address over the weekend to Ohio. State's twenty twenty graduates stock. He struck an optimistic tone. It can be difficult to see the whole picture when you're still inside the frame but I hope you wear these uncommon circumstances as a badge of honor those who need times of historical challenge with their eyes and hearts open forever restless and forever striving are also those who lead the greatest impact on the lives of others. You were promised This Day. Many of you had to fight hard to earn it now. It's yours. Think a new act a new build. A Better Future didn't want you thought was certain and in a fearful time. Call us once again to hope. Congratulations to you all be great be well. Thank you very much guys. I teared up a little bit reading his speech over the weekend. Just because you start thinking about the thirteen thousand graduates from Ohio state. Who have been waiting for this day and while it might be a small thing and In terms of everything else that we've lost during all of this you see the economy shutting down. You see people who aren't able to working to go to any of these things but it just added to the list of things that we have lost because of this pandemic and because of the shutdown but I thought Tim's message was the right one kind of inspiring these kids teaching them. It's okay and times of adversity. You stand up to it but I thought he did a great job at that. Commencement College kids. I can tell you in in you know with with my daughter. I said. Just be glad. You're you know a sophomore. I can't imagine being a senior right now where it's sick you know you didn't see any of your friends since three months ago. You're not going to see him. You're not going to have a graduation. It's unprecedented it. But then I always try to. There's always someone who's doing so much worse than what's happening with with your own life. And that's what you got to remember. And we're we're you know we probably. It reminds me of the one percenter complaints right. It's working where we your echo in your. Get rid of that echo in your four marble. You nothing to complain about it. Compared to a lot of people right now I did see up in a complaint about someone sent me a cartoon of they got Mardi MC fly and. I don't know if you've seen this doc and they're sitting in the delorean right and the dials. Their mark doctors definitely do not set it to twenty twenty. Just definitely not. That's the podcast for today. Thank you for listening. Squawk boxes hosted by Joe Kernan Becky. Quick Andrew Ross Sorkin together in spirit if practicing social distancing who cut your hair sorkin. I'm coming out to your house. You have someone that knows what they're doing out there right here. I W- I did it myself. A floaty no witnesses. Or I'm GonNa you know what we've got a lot of emails and I've gotten a lot of emails and tweets about this. Next time I do it I will it for a couple of minutes on the show. I'll show you how to do. I've learned myself literally. Take up doing this like this with my sense that just send this to you. Can you cut it and send it back tune into slots weekday mornings on CNBC at six am eastern and subscribe to Squawk Pot available for free wherever you listen? We'll meet you back here tomorrow. Invesco Q. Q. Q. Believes new innovations create new opportunities. Here's to greater possibilities together. Learn more at INVESCO DOT com slash Q. Q. Q. INVESCO DISTRIBUTORS INC?

Warren Buffett Federal Reserve America Joe Kernan Becky Berkshire hathaway Mr. Buffet Treasury Berkshire Ceo Andrew Ross Sorkin Omaha US Berkshire vice chairman Greg Tim Cook Ohio Twenty Twenty Mark Hambourg
GE's Danaher Deal Doesn't Solve Its Problem With Growth

P&L With Pimm Fox and Lisa Abramowicz

29:01 min | 2 years ago

GE's Danaher Deal Doesn't Solve Its Problem With Growth

"This portion of PNL is brought to you by pimco for investors who demand more than the markets deliver. All investments contain risk and may lose value. Consult your investment professional before investing. Welcome to the Bloomberg PNL podcast. I'm Paul Sweeney along with my co-host these Abramowicz each day, we bring you the most noteworthy and useful interviews for you and your money whether at the grocery store or the trading floor. Find a Bloomberg PL podcast on apple podcasts or wherever you listen to podcasts as well. As at Bloomberg dot com. Well, it is merger Monday. General Electric stock is up nine percent after green to sell its bio pharma business to Donna her Don hers, actually, eight percent for total consideration of twenty one point four billion dollars, providing a major boost for the trouble conglomerates, turn around to help us kind of dig into the details of this transaction motivations on both sides, Brooke subtle and brook is a deals and industrial calmness for Bloomberg opinion to join us here in our Bloomberg interactive brokers studio, so Brooke is this just part of GE's plan to just trimmed down and focus on that balance sheet. It really is. I mean, this deal is all about the balance sheet. I mean, I think Larry copay into first sentence of his quote in the statement was about you know, how this would allow the company to reduce leverage twenty one billion dollars coming in the door in cash and then about four hundred million of pensions being transferred with this asset, which is a big deal. Given GE has a very significant unfunded pension balance, you know, but what I think is interesting. About this is sort of the counterbalance with what John Flannery promised to do when he was running the company so his plan for the healthcare business was to spinoff eighty percent to shareholders and sell twenty percent via an IPO. And the reason why he did that. And why he did a lot of the things that he did is he was trying to balance the need to pay down debt with a desire to sort of give something to equity holders, give them a chance to participate in the upside opportunities for some of these GE businesses, and I think what you've seen Larry cope do time and time again, say forget all of that we need all the cash we can get and we're going to structure these deals in a way that optimizes the amount of cash coming in the door. The incredible irony of that is that the shares are rallying the most since two thousand nine so shareholders are liking what they see regardless of any longer term better potential from keeping the business on hint. Right. Well, so I think that for the time being the interest of bondholders and shareholders. Are aligned because obviously the balance sheet is the biggest overhang on the stock right now. It's the biggest factor driving the stock. And so to be able to mitigate that in this life sciences deal goes a very long way to doing that is a huge step forward. But I would point out the shares are rallying, but they're back to about where they were in October. So yes, your interests are aligned at a certain point. But that only lasts for so long and you start thinking about what is the GE of the future. Look like, so they're keeping the core healthcare business in the fold right now, they say they're gonna look at other options for that. They're not going to do the IPO right away. I think part of that is the fact that they need the cash flow from that healthcare business to offset the challenges that they have in the power unit and GE capital healthcare is one of the best cash generating assets g has an especially as you look at the possibility of a recession in twenty twenty one that's gonna hit the aviation business, really hard. So I think just given all of this factors that makes sense to keep healthcare in the fold. But eventually. All signs are pointing to that eventually being separate. And clearly this is a company with a lot of challenges. And I just you know, as you sort of take a step back and say where do we go from here? Once you play this card new bring the cash in the door that sort of solved your balance sheet issues in the near term, but you still have to figure out, you know, how does this company grow? How do we deal with all of the problems that we have? So for Don her the stock is up eight or nine percent today, which is unusual for an acquirer particular cash acquirer. So what's going on here? Did they get a great deal or they're huge synergies? What's driving upside for Donner? Right. I mean, this is a great deal for Danaher. I think you know, this is a business that they know. Well, they've been increasingly pivoting into life sciences. I think it's, you know, a more attractive multiple than what they've paid for some of their past deals, which have been on the pricier side. Obviously in the healthcare space is they sort of transition away from their industrial past. Yeah. I mean, I just think this is a really slam dunk deal for Danaher and what the company is really known for his buying businesses bringing them in. And then applying the Danaher business system to those businesses and really improving their profitability. I think clearly what we've discovered through this whole GE processes that. Some of these assets are not always managed to their greatest potential, and you have to wonder, you know, some of these life sciences business at a time when you have so many cash calls at the company where they investing to the extent that they needed to. I think there's just a lot of opportunity for Danaher to do more with this business. Brooke Sutherland are GE correspondent joining us here in our eleven three oh series. Berlin is really Bloomberg opinion columnist and she covers industrial companies among many other things here at Bloomberg. We thank you for being with us really interesting day for General Electric. Well, today, President Donald Trump raised the prospect that he could sign a new trade deal with Chinese counterpart is Eugene ping as both sides. Express optimism that substantial progress is being made toward ending the trade war between the world's two biggest economies. Help us dig into that. We bring on Leland Melvin Leland CEO of the China. Beijing enough to I'm sorry legal in Miller. He's with us in our Bloomberg interactive brokers studio here in New York, so leave and thanks for being with us of what is your sense as to what will actually get done between China, and the US will it be anything material in your opinion. Not think that we were set up from the very beginning to have a very limited deal. It was very clear that the president wanted movement on the trade deficit he wanted to announce a lot of big imports, maybe some long term contracts. So that it sounded good to to the farming base. And he wanted to to push on intellectual property, so theft and coercion. And I think that we'll get we'll get stuff on that. We'll get a little bit of stuff on market access in general. This is not something that is a broad deal. It's not what they originally sold it to be. And it's there's gonna be no structural reform whatsoever is China and a better negotiating position right now. Given the fact that they're allowing leverage to creep back up and potentially juice their economy. You know, I think the problem is that people haven't been able to get a good reading on the Chinese economy for a few months. The Chinese economy is not not not in great shape right now. So I don't think that they've materially improved in the last month or two in terms of just letting the credit flow. Now overall, they want to get this trade stuff out of the way. So they can Batten down the hatches and really focus on improving their domestic economy. I don't think that the pushed out of the way so that they can get down to business domestically. So Lena, why is it so hard to really get some of these big issues on the table and to start knocking them off one by one maybe seem such as the Trump administration, but we've seen through history. What is what? A really tough things in wise China playing so such such hard ball because these are not preferences. So we talk about structure reform and talk about preferences that the leadership has we're talking about the absolute foundation of the way the Chinese economy runs. So when you're talking about favouring state companies stayed on enterprises when you're talking about subsidies and repressing households in order to boost the state and you're talking about non-tariff barriers. This is the way that the Chinese economy is able to run it's a very different than a market economy. It's not a commercial financial system. This is the way the Chinese economy is running the one of the ways that the Chinese communist party is able to maintain control of the country. So the idea that they're simply going to say, okay. Well, you know, it's it's about time that we got with the program it became a market economy. And we ran our economy the same way the US that was never going to happen. And it certainly was never going to happen after a ninety eight negotiation where very little pain was threatened. All right. Just taking a step back. You nailed it. When you just said back last year, there's going to be a deal. President Trump wants a deal. It's going to be a narrowly crafted deal. This is not going to deal with thornier issues. Both sides can declare some sort of victory and move on. Nothing really will change lighthizer. However wants something different. And he in President Trump are increasingly or at least appear to be a increasingly pitted against each other. How will that tension factor into these negotiations? First and foremost, Robert lighthizer is is a good soldier. So he is he knows he's not the president. He's doing what the president wants at the same time. He introduced ministration to get something done. And that was he saw an inequity in the relationship. And he wanted to be one of the guys who helped make it right? And I think this is a very frustrating for him. And quite frankly, a lot of people in this administration who who thought that they were on the verge of summoning up leverage that no one had been wanting to do for many many years ever truly and to push something on China that would. Really make a difference to to to change the basically the ground floor of the relationship. And then as we get to a deadline, everyone sort of loses their nerve. So this has to be extremely frustrating for lighthizer. So I'm just trying to understand this. Because if if they were thinking that there was more on the table than say something having to the trade deficit. Was President Trump ever trying to do that? I mean is that could that be back on the table? I don't think it was ever on the table. When we when we spoke to to ministration officials of this. It was very clear that there were there were priorities. Most of them were political priorities involving the trade deficit intellectual property to their credit was a major issue that they wanted to to make progress on theft and coercion of intellectual properties a major issue. And I think that we will see some some major announcements on that. Now, the key, of course, is not whether the Chinese make announcements on on IP theft, and then create a regime to protect intellectual property, it's whether they're actually enforce it. And this is something that lighthizer himself has been saying over and over if the Chinese can simply flip a switch the next time that there's a problem in the relationship and all this beautiful enforcement, all this desire p laws and IP courts. And everything else that they've promised to do just suddenly go away. Then what has this entire process been? And that's why there's been so much of a push by some people for structural reform because the opposite of structural form is. Transitory reform, which will just go away as soon as the relationship changes. And I think that's what people are fearing were walking into. So is that fear crystallized in the sense that maybe we just have one bite at the apple here. And if we lose this opportunity now, or if we do pass on the big structural issues that we may not be able to revisit them for some period of time. Yeah. I mean, that's the fear. So so we don't know how many bites the apple will get, but we do know that an enormous amount of leverage was summoned in order to push the Chinese into this to go. And is that leveraged the tariffs per se. It was the tariffs. It was threatening some of the things, but yeah. Principally the tariffs, and you can agree or not. But but this summon leverage it's very hard to summit, and the Chinese aren't going to be as open to doing this year from now or three years from now. So maybe this is the last by the apple, but either way every year that goes by the Chinese getting criminally stronger and more able to push back on this at are. Now, more knowledgeable more wreck in recognition of the fact that this unequal trade relationship has caused the US to have more leverage. And so they're doing things. Alter the relationship as well. Meanwhile, a lot of people are wagering that China will succeed at keeping up its economy and keeping its growth rate high by engaging in more stimulus which already begun to do. Do you think that the market is mistaken with their optimism around that in terms of medium and long-term? I think they are at an and there's this, you know, we we have flash data coming out this week. So we're going to have a new reading of the economy later this week and the first one in two thousand nineteen that actually shows what's happening. But I think if you look at the horizon line, then there's something that people aren't paying enough attention to and that is the Chinese economy is going to slow no matter what happens best-case scenario worst-case scenario, the Chinese economy because of slowing returns on investment in debt accumulations gonna slowed quite dramatically with the coming years. So the Chinese have to build this another narrative why is there a Konami slowing down? Well, they just have beautiful excuse now. Donald Trump launched a trade war. For the world is being mean, so president she and and and the rule is in Beijing are able to look at this and say, you know, we have an excuse now for why our economy slowing they buy run with this. So you may be looking at a different paradigm than you've looked in different years. They may be willing to accept slower growth because they can blame it on somebody else at this point. That's fascinating from a political standpoint China may allow its economy to slow even more, especially if President Trump continues to ramp up pressure. Leland Miller, thank you so much for being with us. Leland Miller is chief executive officer of China beige book international in New York twinning us here in our Bloomberg interactive proper studios. Today fixed income demands more than a fixed approach pit means. Staying ahead of ever changing markets making the most of traditional strategies, but also looking beyond them, not just finding opportunities for investors. But creating them we didn't invent fixed and calm, but we reinvent it. Every day pimco all investments contain risk in may lose value. Investing in the bond market is subject to risks. Consult your investment professional prior to making an investment decision. Right now, we are looking at oil prices are sharply lower. So they're taking a cue from President Trump's Twitter feed with the biggest Klein in WTI that is traded on the NYMEX in number of months joining us down to talk about this is John Kilduff. Actually, I'll give you exact date since December joining us now, John Kilda founding partner at again at capital, John. I was actually really surprised that the oil markets responded so much to President Trump's tweet because honestly has an OPEC lost a lot of the control over this. Heard the way you read the tweet just now would be I think we'd be off more. Lisa just just for the record. Thank you. Brought to that if the emotion you brought to that was terrific. Now, the I mean, the the the initial reaction to it was actually fairly muted, but it really started to pick up steam. I think when when you sort of thought it through from a market perspective in that age the Saudis have a track record of placating, President Trump and responding to him when he makes these demands that's what got the market into trouble. At the latter part of last year to the downside in a big way. And to there had been some speculation about what the state of affairs will be surrounding the waivers that had been granted to various countries and companies to continue to buy Iranian oil, you know, late last year as well. Which is also part of that that sell off that Buynaksk you have to believe that those waivers are probably going to get renewed too. Great degree, given President Trump's concern about where oil prices are presently. So as you sort of got over the shock value. You of him weighing in yet again on the oil market, it it was, you know, a pretty bearish tweet. So so John prior to today's market action the oil been grinding higher every day up about thirty percent off its December, low on wax tests. A west Texas intermediate crude what was the the bull case for driving oil higher. Well, couple of things I mean, there's obviously a lot of irritants in the market. I mean that Venezuela tragic men as Waylon situation, we'd elections over the weekend in Jiri that could have could have devolved again and not some of their oil offline we that still may happen, and we're watching it Libya too. But really the the Saudis have really put their shoulder to the wheel in terms of cutting their output, cutting their exports, and they also had a problem with one of their large offshore fields of power cable got cut somehow and that had knocked good deal of their production offline so a lot of things were adding up here to tighten the market. You know, particularly as it relates to the type of crude oil at the Ben as Walea has pretty much ceased putting on the market, so and and really the the renewed prospects for for for the the US China trade talks that have, you know, got the stock market to where it is also fed into the to the oil story. So right now, I'm looking at WTI at fifty five. Dollars and thirty six cents a barrel. Looking at Brent sixty four dollars ninety cents. What's the sweet spot for a US shale producers to continue to produce be profitable? And yet still have demand where it is right now. Closer to closer to sixty dollars a barrel. Plus is is is really ideal. Let's WTI with Brent. Oh, yes. I'm sorry for WTI that would be a Brent price of about seventy dollars. I mean, President Trump certainly that the US oil industry. No favours this morning with that tweet. And you know, it's kind of curious 'cause I know he wants us to be energy dominant. This doesn't help that. And you know, we spoken before, you know, these oil prices WTI prices, fifty and below you can talk about how they've worked. The shell players have worked break evens down to the thirty five forty dollars a barrel. But the all in costs below fifty bucks for WTI. They are feeling it. And we did see recounts come down. We did see drilling activity come down in response to the selloff again late last year that culminated in the in December low and they're only starting to come back now. So we're starting to get into the red zone already for them with praises even here at fifty five dollars. So john. Whenever we have you on. We're talking global oil. I can't help. But always raise the question of Russia. What is Russia doing in the marketplace in terms of supply right now, how disruptive are they feed vis-a-vis OPEC? You know, they the leadership talks a good game. You know, President Putin their energy minister Novak, you know, they they'll sit narrow sign everything. And and you know, hug the Saudis and say, we're with you. And then the numbers just don't pan out in terms of production because their companies don't want to be part of these production. Cutbacks. You know, they see shale is threat. They they want market share. They actually operate in much more commercially appropriate way than sort of cartel ish. So they don't particularly care for these these antics and see themselves being setup ultimately for failure as the US production. Now goes over twelve million barrels a day, they're seeing this. So they're not actually being that helpful to the Saudis and the Saudis have remarked about this. So I'm not sure how much longer the little coalition they've strung together holes, and that's going to be another negative prices. I think ultimately this the tweet from President Trump raises a question, what price of oil does he want because we're still way below where we saw it. At its peak back in two thousand fourteen what's he looking for? If I had to guess he wants to see WTI below fifty dollars a barrel down around forty five which would translate into about two dollars a gallon or so at the pump at the guests leave town. But I think he's very a sensitive to that. If he could deliver I think on that. And and he's right to because when prices get nor much north of say two fifty or to reports that three dollar a gallon. You start to see hits to consumer confidence and other, you know, measures of confidence in the economy, generally. So we're obviously on reelection watching a big way. And I think he wants to see a four handle so John if you take a look at the global supply demand out there is there a model out there that gets you to that for handle. Yeah. Pretty easy pretty easily. Actually, I was very distrustful of this of this rally. Now, I didn't see President Trump's tweet common into to be a factor. But you know, as we start to get into the the latter part of the winter early spring. There's a lot of refinery maintenance that gets done that's going to cause a. Big dent in crude oil demand. At least a while situation in China. They're Connie is really a hurting and beg is partly from the trade war. But I think it goes beyond that certain measures of of their economic manufacturing activity factory orders. Everything that goes to their sort of energy intensity usage is his turned over his role Dover, and that's a big part of the demand equation here. And I think that coupled with just a a lack of will by everyone else accepts Saudi Arabia took her tail supplies mix. The arguments for lower prices, and it's so interesting because as John talks mid forties for oil. I wonder how many shell producers go out of business with that. Yeah. Exactly. Or long your line of thinking? Exactly, right. I think they like it at that fifty five to sixty plus kind of range John Kilduff founding partner again capital on all things energy joining us on the phone from New York. The oracle of Omaha is looking for an elephant sized acquisition, one of the takeaways from this weekend's investor meeting with of course, Berkshire Hathaway's founder, we're talking, of course, Warren Buffett catch glimp- ski joining us here in our Bloomberg interactive brokers studios. She covers finance for us at Bloomberg news, so CAD a what about this big acquisition? I feel like Warren Buffett is but holding this out for a long time, given his one hundred twelve billion dollar cash pile is this your different. No. Hey, indus- it about that. You said in his letter, he was like, you know, twenty eighteen they didn't find a big deal, and that might not change in two thousand nineteen might be another year in which he just actually spends a lot more money on common stocks. So what about was anything in the letter? I know you've you've read these letters before or anything in this letter that was new or different or interesting or what were some of your key takeaways. Well, one key takeaways kind of a wonky Berkshire thing, but they removed the use of book value as kind of a measuring of intrinsic value. And it's a it's a really wonky type of kind of Berkshire like. But it's good because it really shows. How buffet has taken this company from an investment that was normally just mostly full of common stocks to accompany that now spans like NSF Dairy Queen gyco. It's kind of all over the range. And that's crucially important. Well, is this why they posted a twenty five billion dollar loss. That was because of the stock investments that's gonna still still an important as he mentioned in the Berkshire force. It's still an important grove for them. They post posted that partially because of craft Hines and partially because of this accounting change that requires them to post unrealized gains and losses in their net. Income he says to look through that a bit because he's long term investor. He'll stick with the stocks for a while. So even if it a quarter, they're down a lot. He's probably going to hold on until it's a little more positive. We'll how about apple stock. That's the the largest shareholding holding berkshire-hathaway that the apple stock is up ten percent. This year any sense of what he wants to do with that position. He's still favorable with it. So they trimmed it a bit in the fourth quarter. But he clarified today that was not. Him that was an investing deputy. He didn't name which one. And I think that's really important to give a sort of sign of faith that he still likes the company. He said he would buy more of it. But frankly, it's a little too expensive right now. I thought it was interesting. Some of his comments this morning on CNBC about craft Hines basically saying that he's not selling considering a very big investor. But basically that they product was overvalued at bit purchase. And that he wouldn't buy a shares. If he didn't have such a big holding not great shares of Kraft Heinz down nine tenths of one percent. Yeah. I don't think it was a positive take on the company. I mean he did to fair. He did say there still value in the brands they, you know, of course, he wouldn't key owns so much of it. He doesn't have to be positive to an extent, of course. But I do think it took a bit of a negative turn. I mean, the fact that he won't consider buying the rest of the company even though their stock hit a record low Friday. I think sort of says. A sign that like it's really hard to bet on these consumer companies when the good Sumer preferences are changing just as fast as they are these days. So I think Warren Buffett's eighty eight is that right? Correct. Okay. So in the letter was or anything about successor, potentially. So if you're looking for explicit sort of directives. No, he did praise Greg able and he praised as you Jane. But the important parts, I think that in touch with a succession, he spent a chunk of the letter describing Berkshire as a forest and the different groves that make up it. And he said, you know, Berkshire is better together rather than some of its parts, and I think that was actually really crucial because he's there's probably going to be calls to break up. Berkshire once he leaves because it's kind of a weird mix of businesses. But in an essence him saying don't break, it up makes it easier for his successor to say, hey, look buffet himself said it's better together cat is the oracle of Omaha kind of out of new ideas and tired out. The reason why I ask is because I was looking at the list. Of high points from everything that was said yesterday or just over the weekend in general on Saturday. It was the same stuff said last year. The cash position is about the same relative to book. What's your take? I think he's struggling and and he's sort of clarifies this too, right? So one of the more interesting things he said this morning was he got into oracle in the third quarter. And then he completely got out of it in the fourth quarter. And that's just very odd for Berkshire to do they like to hold it for a long time for so for him to get out and get in and get out is a strange and he clarified. It was because he thought he knew more about the business. But he realized he didn't actually understand it. And I think that's sort of the problem. These days is that he's really trying to sort of adjust to the whether it's the new consumer environment or the new investing landscape, but it's changing a lot. And I think that's why he's relying on his investing deputies Todd combs and Ted Wessler as well. And I think why he's as Jane and Greg able are running some of the operating businesses. I think it's to sort of build up sort of this breadth of people who can also look at different ideas. He mentioned. Combs and Ted Weschler. Help him with acquisitions, which I think is also incredibly important, you know, in this kind of dearth of emanate. So if if new ideas, exciting ideas that hit his screen are fewer and farther between is pressure building from shareholders to redeploy the hundred billion dollars for cash start by back stock. I think it's it's nuance because you know, you so he bought back one point three billion dollars in shares last year, and that was a change. I mean, he normally sort of doesn't favor capital return. He'd rather by businesses rather spend it on common stocks. So I think there is sort of a change at I do agree that I think a lot of investors would love to see him by back more stock. But then again, you know, as many investors point out to me buffet made his money and made his name in times of market turmoil. So some people are saying, hey, buddy, one hundred twelve billion not too bad sit on it, wait on it. When the market turns then swooping interesting. So the company repeat reported earnings this weekend, very disappointing numbers. The annual letter came out really not a lot of new stuff in the annual letter. And the shares are up and the shares are up as. Okay. So I think you know, I think the market is still according Warren buffet and Berkshire Hathaway the benefit of the doubt. Here it seems like. Whether it's returning cash or looking for the next big whale or just editing or trading around existing positions. I think the market seems to be giving Warren Buffett a pass here. So in fairness given his track record of returns. I kind of understand it and operating earnings were up to their exactly right. Thanks so much. Could you think ski US financed? Reporter from Bloomberg news. Thank you. Thanks for listening to the Bloomberg PNL podcast. You can subscribe. And listen to interviews at apple podcasts, or whatever podcast platform, you prefer on Paul Sweeney. I'm on Twitter at PT Sweeney and Lisa Abramowicz. I'm on Twitter at Lisa Abramowicz. One before the podcast. You can always catch us worldwide on Bloomberg radio. This portion of PNL is brought to you by pimco for investors who demand more than the markets deliver. All investments contain risk and may lose value. Consult your investment professional before investing.

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The Aftermath of Berkshires Meeting

MarketFoolery

20:52 min | 1 year ago

The Aftermath of Berkshires Meeting

"This episode of Margaret Fuller is brought to you by TD Ameritrade. Everything's customizable these days. You're trading platform can be too with think or swim. You can customize screeners charting and stopped forecasts so the market is always tailored to you. You can get started at td AMERITRADE DOT com slash. Think or swim. It's Monday forth. Welcomed the market flory. I'm Chris Sale with me Mr Andy. Cross to see you risk happy Monday to you. Happy Monday Happy Star Wars Day for all the nerds out there. Happy Star Wars Day fantastic. You know maybe the fourth be with. You is also the Monday after the Berkshire hathaway meeting and we're going to get into retail in a little bit. We're we'RE WE'RE GONNA WE'RE GONNA start with the annual meeting and the headline. There are few things we're going to get to but the headline is airlines that United American Southwest Delta. He sold them all. Cut them all. We knew he was selling some and at the meeting. We learned they're all gone. Yeah in the actually in the in the q one which is the quarterly annual filing. He he had they had he had talked about and he listed that they sold six and a half billion equity sales in April in so the assumption was. That's a lot of the airlines right so We knew who was selling them. We knew that he was concerned about them. And clearly. This was a sign that he has A. He lost faith in the any key. Talked a little bit about the watcher Chris. He talked about how he admitted a few times. It was mistaken. It was his mistake and they. They paid seven to eight billion. Four those four Significant stakes obviously in in what he thought was a billion dollars in equity earnings and felt that number was likely to grow over time and now considering what has happened in the airline industry of the last few months that that that the clearly the environment is shifted he'd recognized that and just had soured on the prospects of that investment considering all of the the Help the airlines need billions and billions of dollars from the federal government to help them sustained through this time. And not just through this time. It'll probably be for for a couple of years. Maybe until we seem some sign of normalcy. But who knows what that even looks like Chris so I think he saw that and you could see any just. He does not Warren Buffett through Berkshire. Hathaway has not made a lot of investing mistakes. I you might say mistakes lost money. Some certainly haven't done as well as he is. Expected clearly kept Kraft Heinz for example and others but even his first go with. Us Era Back in the nineties which after that experience He talked about having that one eight hundred number that he can call when he has a has an airline idea wants to buy another airline than low behold later in a by four of them as an airliner. Hollick as he called himself That that I think that. Us Air Investment still made money. This was a loss. And now it's it's a real loss because they sold airlines and they they run up that loss and I think that just weighed on Warren because he does not like to lose money for shareholders and you can see that some of his demeanor I think throughout the meeting and this is a made twice like it's it's it's one thing to make a mistake in investing and learn from it and you know the jokes about the one eight hundred in that sort of them but the fact of the matter is he. Actually you know whether it was Ted and Todd. Orb people on his team but she actually said to himself. You know what I'm GonNa take another crack at this and I think that that has to make this sting even more if it was some like if it was Burlington northern that just you know took a bath or something like that. I don't think it would sting as much. I think that's right. Chris He he he clearly took the brunt of this as he should. I mean this was his investing decision. He mentioned that Repeatedly in in never talked about ten high when it comes to the airlines So I think he is feeling that sting more so than ever The airline business is much different than than today's much to sorry the airline industry before the Cova pandemic. Chris was in much better shape. Obviously just not from a structural perspective but they are operating much better. They had finally found religion about how to operate near Lyon and And run it. I think more properly I think that was one of the encouragements of last few years for him to invest in the airlines and he started this a few years ago. This just wasn't last year so he had been building up these positions And so the airline industry was in better shape. And this I think obviously and he's Warren Buffett is a as a thinker improbabilities that you can his mind thinks improbabilities knee runs a probability numbers in his mind and he looked at the airline industry and said Hey. This is seventy dollars Cheryl a capital. I can put to work and get a good nice healthy return. Would he dealing with very large significant sums of money and he has to be very careful how you put out to work to get some kind of return so he saw as a high profile or a higher probability event we looked at across the other investment opportunities and clearly with the Cova pandemic the shutdown? That just is no longer the case right now and like you said he doesn't really nibble around the edges Leonard or goes all out in. This one isn't go out category. Did it surprise you that? He's basically not buying anything that that the other headline is he still sitting on this massive pile of cash Chris. That was a surprise for me. Now as they disclosed in ten Q. The activity was in the first quarter they bought about four billion in equity purchases. One point seven billion in Berkshire Stock and then two point two billion or so inequity sales but if you look at the actual purchases of those over time and look through the quarter and how. They bought those. That's which really enlightening because in January. They're buying they bought five hundred eighty two thousand of Class B shares and in between that period of February twenty twenty fourth and February twenty eighth when the market. I took its real big hit From the Kobe pandemic when the news really started to break they they bought four point. Five million worth of Berkshire be an average price of two hundred and fourteen dollars a share but then in March between the second and the tenth you only bought three hundred twenty thousand or so Berkshire be two hundred fourteen. But then. Here's the real surprise Chris when the market really took that die of on the twenty third of March and during that period he didn't buy it all and then he hasn't bought it all on April so that was a real surprise when the when the market took that real dip in March that I think he was not more active and buying back his share and wasn't really in buying back any stock and he still hasn't been if you look at his is is able purchases. He's bought no Berkshire Stock and they've only bought it about four hundred foreign twenty six million in equities and when asked about that the meeting Chris Berkshire was I. I'm sorry warned said I. I'm not sure what that was. That was kind of small potatoes for us. It may have been a little bit of Todd and Ted he was very nonchalant about those ties so clearly. He has not been as active in the market. And that's that I think that goes back to my opinions. This goes back to how he is feeling about dealing with the airline situation that loss for shareholders. Maybe the stock didn't get quite as cheap as as he thought. Even though it got down to one point two five times tangible book value. I know he likes to see that. At what below one point two times tangible book but the key for me is two things Chris Berkshire the Berkshire buys is one is that he is looking at the future and he is uncertain for the maybe the first time in over sure hatheway considering the Kovic pandemic of what that means for the next year or two of earnings power for Berkshire so not sure really of the the the intrinsic value considering the actually kind of said that hinted at that at the during the annual meeting of the any kind of was like listen the intrinsic value has been hit. Because of what I did with the airline industry that berkshires worth less now than it was before so I think there's some internal mind games. He's playing with intrinsic value and second of all is capital and cash and he just values cash so much in this situation more so than ever that he thinks I think he'd rather hold onto than buy back stock or make other equity purchases well and their two in these two headlines. Right so the signal for the airlines and not surprisingly the four airlines that Berkshire hathaway owned United American Southwest Delta. All four of those are down today. All four of them are at or near five year lows. And so that's a clear signal for everyone out there who's asking is time to buy the airlines because they're cheap that's a resounding no and then the larger thing to me is just buffet. One of the greatest investors ever if not degrades investor ever is looking at the market and saying now. I'm not interested not at these prices. And you may be right about may be the the ripple effect of what happened with his experience with the airlines the second time around but just as somewhat put aside the airlines the fact that buffet's not buying anything is a little disconcerting to. I honestly was hoping for a little bit. More encouragement out of uncle warn yet. Chris Oh was I I was. It was the The the tone of the meeting Whitney tells Senate near the end that it was it was conservative. It wasn't like Dour. He at the very beginning Berkshire of of the meeting Warn gave a little bit of a history lesson talking about the the bet. Don't bet against America by America. He talked about the long tenure of time when stocks had really not done anything after he was born gave a kind of fun lesson about that during the period of twenty nine to fifty one when stocks really have been flat and what they went through and then obviously what they have done since then the wealth accumulation American just the value of Vesey America over long periods of time. So so it wasn't. It wasn't dour per se but he was a conservative. It was that kind of thinking through like okay. The there's this different market than he has ever seen. He talks a little bit about that reference. About the the fact that this pandemics are are almost not term he used. I don't think about a block black swan event but you can see it playing into his mind and uncertainty about what this means for equity prices the near term he continued to to to be bullish on investing in America and on stocks. General's said that repeatedly but there was this A little bit of a right hand and left hand feeling to the meeting where it was like. You're not buying now but you're kind of saying don't bet against America and you could see it just playing in his mind and think shareholders in the same question about it has is. Did I expecting him to put some of that cash more aggressively to to use and and he didn't so there's a little little bit of of that cautious behavior that we see him taking That I think is catching the market off Catching investors off guard and you seat in the stock price in Berkshire today last thing. And then we'll move on and you're absolutely right about his tone. He I think he was trying to strike as clear eyed and optimistic tone as possible and yet I was struck by the fact that he just he for the first time he looked old. He didn't like he didn't look old a year ago. Because a year ago he was eighty eight and you see him at the meeting and I just remember thinking last year man. He doesn't look eight years old. He looks eighty nine now. And maybe that's just this. He loves this event. He missed it. He wasn't able to have it. I hope that was it but that was that was part of what struck me was. I was like Oh man he just WanNa give him a a socially safe distant hug to pick him up because just the man just looks down. Yeah he could probably use so ninety nine percent of his wealth and is tied into Berkshire his whole life is tied into Berkshire hathaway. The essentially. He created the business He missed his partner. I think Charlie Munger nothing against Greg able another vice chairman works on the operating side and I think did an admirable job on on Speaking when he felt he had something to say. And and then let me warn. Take the stage But he mischa. I think he missed Charlie Munger his his partner of of you know last a decade since they really took over Berkshire hathaway and so I think. Wait on him. He just loves event man like it brings thousands and thousands of Berkshire shareholders to Omaha. He mentioned by the way he mentioned the concern of what not having this. This event is going how that will impact the economy of Omaha. I think that weighs on him because he knows the importance that those businesses have not just his own businesses like Like the jewelry store and the furniture marts but but every small business hotel round whatever it might be is going to be impacted by not having the event. I think that weighed on him but I think he loves getting people together. Talk About Berkshire celebrate the success. Toss newspapers have dilly bars Play Ping Pong all those Uncle Warren Events and activities. We were used to seeing. He loves that more than anybody and nine years old the fact that he can still go you know three four hours taking questions and trying to answer them as best you can in a situation that is very foreign to him He view you slides. Chris. He's. He had mentioned that he had never used the. He hasn't really ever use slides over his decades of teaching investment advice and having all the meetings and he put together some slides for the first time ever and you could see them. They're very simple slides no Berkshire framing around them So that was kind of fun to see him. Try to use those but It was just a different tone and I think that that just you can see that in his demeanor You know he's eighty nine years old so I don't know how many more Berkshire meeting she has left. I hope he has many more but Clear at that age he he wants to have as many as he can like he wants to have them in. This one was not like that quick shot. Td Ameritrade in these unprecedented times. Having access to the right information can help. You make better informed investing decisions for today and tomorrow. Td AMERITRADE is committed to providing you with a range of relevant educational content like timely articles informative webcasts and even access to daily live market news. You can stay on the path to becoming a smarter investor to learn more about their breadth of resources go to TD AMERITRADE DOT com slash mark hub td Ameritrade where smart investors get smarter. J. Crew has filed for bankruptcy a five hundred stores. Just shy of five hundred stores closed and This was news at the end of last week. We sort of got hint that this was coming and I said to you right before we started recording today. This is the first but this is not going to be the last that we see in two thousand twenty. It's it's unfortunate but It's not a surprise to me that stocks like J. Crew is a private company. But it's not a surprise to me that stocks like American Eagle Abercrombie and Fitch Tapestry VHF Corp which is the parent company of North Face. They're all down today. Chris more evidence that the the Kovic pandemic and the quarantines lockdowns that we're all facing is impacting the the the retail and by the way the commercial real estate space as well and and Warren Buffett had talked about both those in the in the annual meeting So J. Crew Yeah they. They've had filed for bankruptcy. I think the real Maybe nail in the coffin at US. Perhaps maybe a bad metaphor but a metaphor nonetheless was the fact that the IPO market really shut down and they couldn't take their made well business of and an IPO that to to help get a little bit of juice and some funding and some capital into the business and when that Beasley. They couldn't do that. That was that was a troubling science. Like you said they have. You know hundreds of Jay Bruce Jars hundreds of our stores one hundred seventy outlet stores one hundred fifty. Maybe made well stores around the country and no one's going in those very few now. They do have a little bit of an ECOMMERCE business. But on the margin it just can't make up for what is going on in the loss of revenues and then cash flow. And when you have you know one point seven billion dollars debt on the balance she. Mets is a very tricky situation to be in. I will know from the public side that it's interesting that they in two thousand ten two thousand eleven. Tv G Leonard Green Took J. crew private at about a three billion dollar market valuation. And I I can't imagine near it's worth that anywhere near that even before this because the retail environment has been so challenging and competitive vantage just are very fate in the retail space. And so like you said. A lot of them are struggling right now and J. Crew filed Chapter Eleven. And now all the financing that they had to arrange basically just to be able to keep some of the lights. Open some of the lights on in some of the stores open. It's going to be interesting to see if some of these particularly in the apparel retail space. If some of them start to get proactive and look for buyout opportunities because J. J. crew has brand equity like you know there is a universe in which crew continues? Maybe it's part of a larger parent company. Maybe a major retailer like target or someone like that comes in and says all right you know at this price. American Eagle will will be the exclusive retail location for you and and take out some of your costs and that sort of thing but I wouldn't surprise me if some of them started to pick up the phone and hunt around for a buyer J. Chris. The they've struggled it's been it's been the last few years. I mean John Singer who is the. Ceo comes over from she. I think she was president of Sp. Anxious experience at night Victoria secret machines vast experience. Mickey Drexler was there The famed retail executive for many many years. And then he was. He was out then they had another. Ceo Come in after Mickey Drexler for sixteen months before he laugh than John. Sayer joined a very talented people. Obviously lots of insights and it just a very tough environment Even before this the retail environment. And we know what's happening with the likes of Amazon The likes of others to take stitch fix for example. Just the competitive pressure. They are under his more fierce than ever before. And that's not going to change. That is just going to pass the pandemic past the quarantine is that is just going to continue to to elevate and evolve and become more pronounced and so the retail space. You know maybe it's acquisition maybe as mergers maybe at some kind of lifeline But it's I don't know how many private equity firm to spend capital and cross. Thanks for being here man. Hey thanks be for man as always people on the program interested in stocks they talk about in the Motley fool may have formal recommendations for or against Saddam. Buy or sell stocks. So then what? You're here that's going to do it for this edition of market for. The show is mixed by Dan boy. I'm Chris Health. Thanks for listening.

Berkshire J. Chris Chris He Berkshire hathaway Warren Buffett TD Ameritrade Chris Berkshire Berkshire US Berkshire Stock United American Southwest Delt America Chris Sale Leonard Green Ted Todd Margaret Fuller
242: Should You Let Warren Buffett Manage Your Money?

Money For the Rest of Us

29:44 min | 2 years ago

242: Should You Let Warren Buffett Manage Your Money?

"Walk in the money for the rest of us. This is the personal finance show on money. How it works? How to invest it and how to live without worrying about it? I'm your host, David Stein. Today's episode to forty two it's title, should you let Warren Buffett manage your money. Mass month. I got an Email from listener hairy. He wrote why not just by Berkshire Hathaway stock and let Warren Buffett manage your money. I admit I had never really looked at or a valuated berkshire-hathaway as a money manager for seventeen years. I worked as an institutional investment advisor. One of the things that I did is I evaluated investment managers. I would go on site. I would meet with them when I first joined our company we had what were known as the three Ps when evaluating particular manager, we look at their people the process and their performance laters. I spent years analyzing managers, I put it more in terms of attributes with my investment firm continues to us we look at conviction consistency pragmatism investment culture, risk control and active return. But really those three Ps are very good foundation. So this episode we're going to look at Berkshire Hathaway as an investment manager that we can hire by buying their stock. They have A-Shares which are really expensive three hundred and three thousand dollars per share or b B-shares which sell for two hundred dollars a share. So you could hire berkshire-hathaway for two hundred dollars to manage your money. First. Let's focus on people when you are researching and money manager you want to know who the team is selecting the securities. What's the experience, how do they work? Well, together, what's their investment culture? You go to the twenty eighteen annual report of Berkshire Hathaway, they list out their senior executives Warren Buffett. He's eight years old. He's the chairman and chief executive officer, Ben. There in that former role since one thousand nine hundred seventy next is Charles t Munger he's ninety five vice chairman since nineteen seventy eight. Then there's two new roles that, but it was really excited about in his annual letter he wrote before moving on and went to give you some good news. Really good news that is not reflected in our financial statements. It concerns the management changes we made in early twenty eighteen when I Jane was put in charge of all insurance activities and Greg able was given a thorny over all other operations. These moves were overdue. Berkshire is now far better managed than went. I alone was supervising operations Jeet and Greg have rare talents and Berkshire blood flows through their veins. They've had an adjustment in terms of their team with the addition, or at least the more formal roles of able and Jane when we met with and did conducted. Due diligence on investment managers that we ultimately would recommend to their clients. One of the sensitive issues was as the founding partners got older is what's succession plan. How will the next generation calm and continue the investment process? Buffet hasn't really outlined a true succession plan when he or Munger retire. He wrote in the annual letter for fifty four years, Charlie and I have loved our jobs daily. We do what we find interesting working with people we like and trust. And now our new management structure has made her life even more enjoyable with the whole and samba that is with a Gede and Greg running operations, a great collection of businesses, a Nagra castration, it cadre of talented managers and a rock, solid culture. Your company is in good shape for whatever the future brings throughout that letter. They talk about how Buffett and Munger evaluate companies evaluate stocks to purchase, and what becomes pretty clear if we're looking at Berkshire Hathaway as a money manager that able Jane are responsible for the operation in the operating companies that Berkshire. Owns. But in terms of new acquisitions, particularly new stock acquisitions that will talk about in terms of the process, it's very much Buffett and Munger doing the analysis which in terms of evaluating money manager that that that level concentration would cause us some concern in terms of people the lack of succession plan, and the fact that the senior team that is evaluating and making those investment decisions is what they're stoled. They're very good at what they do. They've been doing it for a very long time. But at some point they're not going to be there. And if you're hiring money manager, like Berkshire Hathaway you want that team to be there in that process to continue. Let's take a look at Berkshire Hathaway's investment process. What we're trying to identify here is in. Terms of how a money manager is researching securities do they have some type of informational edge a competitive advantage that allows them to identify mispricing price occurs that are selling for less than their intrinsic value. So that the manager can outperform a passive index fund. Are you paying your hiring money manager? You're paying a fee for them to to make good security selections that can outperform the market. So we wanna know how what's the process? How do they go about doing that? In the two thousand eighteen annual letter buffet wrote let me remind you of our prime goal in the development of your capital, the twenty I like about buffet he recognizes he's a steward of his shareholders capital. He talks about here's what you own. Here's what we're doing in deploying your capital. So it goes on and says the prime goal is to by Abeille manage businesses in whole or part that possess favorable and durable economic characteristics. We also need to make these purchases at sensible prices. Sometimes we can buy control of companies that meet our test far more often we find the attributes we seek in publicly traded businesses in which we normally acquire a five to ten percent interest. Sometimes they can buy the whole thing. They're buying businesses with. Favorable endurable economic characteristics. And they buy them at sensible prices buffet points out in the annual letter that Berkshire has more from a company who that was primarily invested in marketable stocks to one that owns operating businesses. And he says he expects the company to continue that reshaping in an irregular manner. Because he's he's finding a challenge the ability to purchase entire company's hits the prices are too high. And so they're finding more opportunity in buying individual stocks, but he really likes to buy businesses. He wrote even at our ages of eight and ninety five I'm the young one that prospect, a buying entire business is what causes my heart and Charlie's to beat faster. Just writing about the possibility of a huge purchase. Has caused my pulse rate to soar, unfortunately, they're just not been able to define that. They have a lot of money the cash there's over a hundred billion dollars in cash that Berkshire owns now not all that they some of its working capital, but they have the ability to to purchase shoot stakes if they can find that. But he says the immediate prospects for that are not good prices are sky high for businesses possessing decent long-term prospect that disappointing reality means that twenty nineteen we'll likely see again, expanding our holdings of marketable equities. We continue nevertheless to hope for an elephant sized acquisition. One of the challenges with with Berkshire Hathaway in looking at them as a money manager. Is it have a lot of capital if billions of dollars they have to put the work, which means it's harder to find those opportunities is not as small cap equity manager that's managing less than a billion dollars. This is a company was seven hundred billion dollars in assets and a hundred billion dollars in cash trying to deploy it they have to deployed at scale. So makes a difference. And they're having trouble finding those private businesses. So they're buying more marketable securities because they can put that capital to work. So how did they go about evaluating these companies in the twenty thirteen annual letter buffer wrote when Charlie I buy stocks, which we think of as small portions of businesses are analysis is very similar to that which we use in buying entire businesses. We I have to decide whether we can sensibly estimate an earnings range for five years out or more. If the answer's yes, we will buy the stock or business if it sells at a reasonable price in relation to the bottom boundary of our estimate. If however we lack the ability to estimate future earnings, which is usually the case, we simply move onto other prospects so buffet among other analyzing stocks, and they're coming up with earnings estimates. And deciding if the current valuation is justified by this earnings fact, is it cheaper is the intrinsic valued less. Expensive than what would be indicated by their ex patient expectations of earnings, very simple process hard to do which is why they're extremely talented at it. But that's what they're doing. One of Berkshire Hathaway's competitive advantage is this two prong approach to allocating capita. They can buy entire businesses or they can evaluate stocks and by five to ten percent of a business. That's the process when I was evaluating money managers. I would often ask to give me examples of investments that worked out with their gladly able to share. But more importantly, give these provide some examples of mistakes that you made and what you learn from them. And there's a very large mistake that Berkshire Hathaway has made in the last few years it involves craft Hines a food and beverage company in the twenty thirteen letter buffet wrote we've completed two large acquisitions spending almost eighteen billion dollars to purchase all of envy energy and a major interest in h j Heinz this purchase of h j Heinz was the largest acquisition. Berkshire Hathaway had made since two thousand ten when they purchased. Burlington Northern Santa. Affair railroads. Buffet continue both companies fit as well. And we'll be prospering based century from now with the Hines purchase. More of a we created a partnership template that may be used by Berkshire in future acquisitions of size. Here we teamed up with investors at three g capital, a firm led by my friend or hey Paulo. Lemon in this case then in order to because of the need to define these elephants sized transaction. They partnered with a private equity firm to purchase a controlling stake in a company. But the points out that that this Hines acquisition was similar to private equity transaction, but there was a crucial difference. He wrote. Berkshire never intend to sell a share the company what we like rather is to buy more and that could happen. Then in two thousand fifteen base j Hines merged with Kraft Foods to become the fifth largest, food and beverage company. That was in two thousand fifteen last week Kraft Heinz stock shares fell thirty percent. After they announced that fifteen billion dollar writedown, they cut their dividend payment and disclosed that they were subject to a pro by the security and Exchange Commission in regards to their accounting policies. Now that combined companies Kraft Heinz is worth half of what it was worth. When it started trading. Berkshire owns twenty six point seven percent of craft Hines. They took a three billion dollars impairment charge on their investment. And it was one of the largest quarterly losses in Berkshire's history. On CNBC buffet said flat out we overpaid for craft and we were wrong in a couple ways on crafts Heinz. He said we both missed judged the retail versus brand fight as to who would be gaining ground on the other. He mentioned that that Hines had been craft hundreds of years plus advertising. That are built into people's habits. And now they're seeing pressure from Costco's Kirkland brand buffet mentioned that Kirk Lynn or Costco, has seven hundred and fifty outlets, but they're Kirk limp. Brand Brandis fifty percent more business then crafts Hines, but he minute they overpaid. He said anything almost anything at a price can be good. But everything at a certain price can be bad. If you pay too much, you pay too much, and that doesn't change the business does not earn more because you pay more for it. So we bench they pay too much. And what are they going to do? Now, he says we don't pull the plug. They're going to stay invested in craft Hines. But this is important to recognize that that buffet among they're not infallible. They make mistakes, all and vestment. Managers skilled investment managers makes mistakes and the best manageable. Admit when they have made a mistake. The question is will they make better investments going forward to the ability to do that? And how well have they done in the past? What's the performance in? What is the proof that they are successful investment manager? And before we look at that proof. Let's pause and share some words from this week sponsors. When you're selling online getting orders out the door quickly can be tough. That's why you need ship station dot com. It's the fast and easy way to manage ship. Your orders with ship station, you bring all your orders into one simple interface makes them really easy to manage from any device. Even from your cell phone. This ship station. You create shipping labels for all the top carriers, including UPS FedEx US PS annual ship. More in less time with the best available rates. No wonder ship station is the number one choice of online sellers right now. Try ship station free for thirty days and get an additional month free only if you use my promo code money. Don't wait go to ship station dot com before you do anything else. Click on the microphone at the top of the homepage and type in money that's ship station dot com. Enter money ship station, make ship happen. When it comes to planning for the future, the best investment, we can make ourselves. That's why I'm a big fan of the great courses. Plus, this streaming service offers unlimited access to thousands of in-depth lectures on so many different topics economics investing, how the stock market works and much more. The great courses pluses that fantastic course, that I've been enjoying it's called money management skills by Dr Michael Fink of Texas Tech university there he leads the doctoral program one of the premier academic programs, financial planning. The course covers principles of estate planning economics of home ownership essential tax principles and much more. There's so much to learn from the great courses plus, and you can get started today with his special limited time offer for my listeners a full month of unlimited access to their entire library for free. But to get this fantastic. Offer you need to sign up through my special URL start your free month. Now, go to the great courses plus dot com slash David. That's the great courses plus dot com slash David. Dig start your free month. Now. Beginning of every annual report for Berkshire Hathaway, there's a table that shows the annual performance of Berkshire Hathaway stock relative to the SP five hundred as a measure of large company stocks. It's a US stocks. It's an it's a good comparison buffet writes just look at the fifty four year history laid out on page, two overtime. Berkshire stock price will provide the best measure of business performance, and it's done credible. The overall gain since nineteen sixty four is over two point four million percent Quaid's to twenty point five percent. Annualized return? Compared to nine point seven percent who the S and P five hundred. So it's a double that in two if that could continue that be wonderful, but we have to look at performance during a period when Berkshire Hathaway is much larger has billions of dollars of capital that it needs to invest, and so I use that same table to calculate returns over five ten fifteen and twenty years twenty year annualized berkshires stock has returned seven point six percent. Versus five point six percent for the annualized for this five hundred on an annualized basis. So not double. It's it's done. Two percentage points better on the fifteen year period to return nine percent annualized versus seven point eight percent for the S P five hundred for the ten year. It's underperformed it returned twelve point two percent vs. Thirteen point one percent for the S and P five hundred index, but it's outperformed of the most recent five year period Levin point four percent versus eight point five percent for the SP five hundred as an investor your option. You can't really invest in the five hundred you would invest in something like the vanguard total stock market index ETF VDI over that ten year period that did thirteen point three percent versus thirteen point one percent per this five hundred and then again, Berkshire to twelve point two percent. But that was through year end given this situation with Kraft Heinz. And the right down. And that Berkshire owns twenty six percent of the company and it fell thirty percent. If we look at performance through last Friday so February actually through yesterday, I'm recording this on Tuesday, February twenty six th through Monday, February twenty fifth and twenty nine thousand nine the fifteen year annualized return for Berkshire stock is eight point one percent versus the vanguard total stock market index fund has returned eight point seven. So it's it's trailed over the past fifteen years now when we we do that calculation through year end berkshires outperformed and that that's another evidence of of how n periods sensitive performance measure men is and so you need to look at it over different timeframes. But the reality is berkshires it's harder to outperform their a bigger company. And we see this with investment managers all the time as they become successful. They attract more assets, and it becomes more difficult to replicate that performance. So it it will be challenging going forward for Berkshire to outperform to the level that they did certainly not double what the S and P five hundred index is done, but the fast last five years, they've certainly they've outperformed by three percentage points, and that's excellent. Would I invest with Berkshire Hathaway if they were if this was a money manager, and I was meeting with them at their offices kicking the tires trying to understand the people the process the performance. Actually wouldn't. The big red flags would be the lack of a succession plan that this senior investment professionals are eighty eight and ninety five they're still in the trenches. They're the ones making the decisions doing the analysis of purchasing individual stocks. They have other senior professionals that are running the operating businesses, but at least from the annual letters. It's not clear that there's somebody else making those decisions. The second red flag is there's just too much money under management. That they've too much capital to deploy in that will lead to lower performance in the future now will outperform hopefully, credibly, well, but just objectively looking at them as a money manager. I wouldn't hire them to do that. But typically if buffet is not there anymore. Or among I'm gonna at some point. They just won't be fit says. But what would he do? Twenty thirteen. He says my money. I should add is where my mouth is what I advise here is essentially identical to certain instructions, I've laid out in my will my advice to the trustee could not be more simple. Put ten percent of the cash in short term government bonds and ninety percent and very low cost S and P five hundred index fund. I suggest Vanguards I believe that trust long-term results from this policy will be superior to those attained by most investors, whether pension funds institutions or individuals who employ hi fi managers. So even buffet didn't recommend his own stock upon his passing. He recommended an index fund. Which is interesting because Buffett is says diversification is a protection against ignorance, it makes very little sense for those who know what they're doing buffet among a class of their own brilliant, investors. Most of us are not. Buffett says the goal of the non-professional should not be depict winners. Neither he nor his helpers can do that. But should rather be own a cross section of businesses that in aggregate are bound to do. Well, a low cost S and P five hundred index fund will achieve this goal in closing buffet shared some other fundamentals of investing in his twenty thirteen annual letter you said you don't need to be an expert in order to achieve satisfactory investment returns. But if you aren't you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don't swing for the fences. When promise quick profits respond with a quick. No. And that's why I invest I don't try to invest like buffet I invest in diversified ETS. Sometimes I'll use active managers if I believe they have an informational edge. I continue to look at them. But the bulk of my assets are diversified index funds because I'm not an expert in estimating the earnings of individual companies and determining that they're selling for less than their intrinsic value. The also points out the importance of fact, figuring out the earnings, and what is the cash flow and basing our investment decision on those earnings estimates as opposed to focusing on just the price of the asset will go up for whatever reason he wrote if you instead focus on the perspective price change of a contemplative purchase, your speculating. There's nothing improper about that. I know whoever that I am unable to speculate successfully. And I am skeptical of those who claim to sustain success that doing so half of all coin flippers will win their first tossed. None of those winners has an expectation of profit. If he continues to play the game. And the fact that he'd given acid has appreciated in the past is never a reason to buy it. So we should never buy anything. Just because we think it'll go up in price and that for for certain assets. That's all we have crypto currency gold antiques. Art, it simply because there's no income no effective way to estimate its shoot your cash flow and earnings then it, that's what makes it a speculation. It's simply assuming somebody will pay more in the future. And it's not bad. It's just that should not be the bulk of our portfolio. Most of it should be investments that have earnings and cash flow that then is upset to forty two shooed you have Warren Buffett manage your money. I'd say no despite how good they have done. Are you want to two hundred dollars? You could use the Robin Hood app and buy a few shares of Berkshire be tried out. See how it goes? But not for the large percent of your portfolio. I wouldn't do that. Show notes for this sort of money for the rest of us dot com. Why are there we sign up for my free insider's guide, and I'll Email those links to you each week after I released episode along with an essay other variable content. I provide just for insiders guides members those that are on this free Email lists or sunup please money for the rest of us dot com. Everything I've shared with you in this episode episode's been for general education and not considered your specific risk situation. Not provided investment advice, simply Geno education on money. Investing in the economy have a great week.

Berkshire Hathaway Berkshire investment manager Warren Buffett Buffet j Hines Berkshire Berkshire Charlie Kraft Heinz security and Exchange Commissi Berkshire stock chairman and chief executive o Berkshire David Stein advisor Charles t Munger
Hour 4: Joe Rexrode

The Paul Finebaum Show

32:37 min | 2 months ago

Hour 4: Joe Rexrode

"Cried passion and patrick three of college. Football leaves keer the paul finebaum. Show our four podcast and the final hour on this thursday. The late afternoon early evening has arrived. We'll talk to joe rexrode in a few minutes He has penned a piece for the athletic on the new culture developing at the university of tennessee. That coming up shortly right now. Carol is up next in florida. Hey carol carol you there hello yeah go. Right ahead carol. You're on the air our to tell you about kentucky basketball. They lost their they. lost cows. Help are down there is. What's the matter with them. So you think that's the only thing. York roy pat thank. That was the whole thing. Canny pain well. He was every good coach. Has to have a right hand. Man you may be absolutely right That's an interesting That's an interesting perspective. Well thank you. Carol for or for sharing that appreciate it very much and i jake who is up next. Hey jay go right ahead Hey paul i listen You had a couple of comments. Today about jimmy pruitt and And i started coaching. Some about the same time the state alabama. And always you know get to know. I'm here and there through the coaching ranks. You know he was never gonna win. a popularity contest or get an eight plus and speech class like that. He was just not that type of guy. But i always found him to be a good football coach. I still think he is. But you know you got some insights that us lay people. Don't and that's why. I'm calling them curious to find out what you may or may not know but you you actually said in passing a little bit that he was worse coaching. Sec history. you know he's incompetent. I'm thanking you weren't necessarily referring to his ability to coach the game of football. There's another things that went all we're not privy to that that would know First of all i. If i said i didn't mean it He is not the worst coach. Se history. sure sure there are plenty of people Even at tennessee might rival that. I i always liked him as a coach and have known him since his days at hoover and i thought he was a good evaluator to i think he he was too stubborn. And you know better than i do. Maybe and that got in the way now. What happened off-the-field. I don't know jake. Exactly all all the circumstances of of where he went wrong or how much involvement he had he obviously had enough involvement according to the university for them to Unload him and and nine other people but to this day now three or four weeks into it. i mean. i've heard speculation. But i don't know i don't know exactly what happened. Okay what what. What are you have heard for. Sea farces is Ability to to land a job And i if i read correctly today He's talking to joe judge who you may know they served together on nick sabin staff Sure how the head coach of the giants. I suspect you'll end up there. And when the final if the nc double a. issue had not been so prevalent and he had just been fired because they didn't think he was a good coach. As a. i think. Nick sabin would have hired him in ten seconds. Yeah i agree. That was my next thought. But that that's the first i've heard of the nfl. That's interesting. yeah. I think it looks like i know. Talk to the jets. But i think the giants is where he's likely to end up and There's somebody else on that staff. I can't remember The linebacker coach maybe had worked for jeremy pruitt last year at tennessee his name. But let me make it clear Yeah sometimes i can overdo it. But i know way do i. I don't think jeremy a bad coach at all. I think as defensive coordinator. He's as good as you can get it in passing. And i didn't think i that's what i thought you're being working you correctly on those lines. Well i'm sure. Yeah there's no question. I probably overdid it. I mean i'm. I'm i'm fairly a lot of people. Would jeremy pruitt I believed in him a couple of years ago and i thought he could get it done Now in fairness we don't know all the we don't know the whole story. I i haven't talked to jeremy pruitt since all this went down and Maybe one day we can talk to him but He he's got a long road back before he can come back to college. Football though until this is Adjudicated not coming back and he better hope that there's not a show cause that prevents him from coaching. There could be. We'll take a we'll take some more calls here and kerry is up next. Hey kerry you're on the air. Yeah how first. First-time caller But longtime listener used to listen to you. in birmingham old w. e. r. c. Oh my am stations. Sure that sixty at thing. Anyway what i really wanted to talk about. Was i think tennessee fans. I'm an alabama. But tennessee fans are probably the most impatient in the in the scc And make my point. One tennessee beat alabama of course in eighty two coach. Bribes last year of knoxville and johnny matrix was tennessee coach. And then the next year Tennessee beat alabama in birmingham. The next year tennessee beat alabama in knoxville. Again and then the next year to the seat beat alabama in birmingham alabama and eighty six went up to knoxville then whipped him pretty good six to twenty one. I think it was right. But after the but after the gay everybody was ready to fire johnny majors after he had beaten alabama four years in a row. And i've been around those folks At other times where. They're they're impatient to the point of being ridiculous in my opinion well. They've been through a ridiculously bad period of time carey and everything that i'm hearing today about. We need to get behind the new coach. I heard three years ago seven years ago nine years ago ten years ago. So it's it's the most vicious cycle i've ever heard and that's why it is so frustrating right now. Sure i understand that But you know phillip beaubourg. He had really too bad years. was Seven eight right. We're his bad years Other than that. He was very successful tennessee. But here's the guy that won a national championship at one the sec. What three times while he was there. But but then after two unsuccessful seasons i know i was up there and eight and You know even before the game They were ready to run him off to carry If if you could rewrite history that turned out to be a mistake now if they let him come back former claims he could've turned it around. I don't have any idea but it turned everything that happened. After that was was a complete and total disaster in lane kiffin. Who wasn't a bad coach. Just did not fit in well and then when he got the usc job when pete carroll left it was over and that that really is that is the period when it literally all came to part and tennessee fans burning. Whatever i can't remember what they burn down that night. That kiffin left israel. It really started off on this path. Anyway we'll take a break. We'll continue talking about the tennessee situation. so you know. I mentioned jeremy pruitt a minute ago. Probably a good chance. That Nick sabin had a hand in helping him get the giants job. Sabin would. i don't think there's any question saving would've brought him back But he can't do that right now. So he's essentially sending him off. We will be back. We'll talk more about tennessee right after this. You're listening to the paul finebaum. Show podcast if not at once app. S then once white was last run in with elite. Qb's wrestled at the kenneth on clutch. Td's across nova step behind ain't no need to watch the clock because you know what i'm saying at thirty thirty two finger. Push us bruce lee showing no mercy got the crew on deck. Bono's no one knows goes deeper. That's a fact. Once one step is the espn download now could be back. And joe. Rexroad is a longtime columnist in nashville. He is also a talk show host air but now he works for the athletic as well and he has done a column under the heading. No tennessee it's not on the fans to be excited about josh hypo. Clearly talking about some of the comments made last week in this week by dany wide. The new athletic director joe. It's great to have you on good afternoon. I can imagine what it's been like doing. A talk show in tennessee. The last couple of weeks so good afternoon. It's great to be with your paul and yeah my. My voice sounds a little horse. That's probably a good indication of what it's been like especially You know A couple days ago when reports were emerging that it might be able. That was that was quite a lively show. Of course now we've moved into the We've moved into the months-long process of everyone talking themselves into this being a good higher but Certainly the initial reaction was not great. I wanna talk about the the danny white part of it but let let's get to the the initial reaction from your audience. You're in middle tennessee. Nashville obviously is one of the the cities in the country. Right now fans have a lot to choose from from the reds to the titans Major league baseball team so you can't afford to turn off the college football audience so what what has been the overall reaction to this higher. Well yeah i mean. It hasn't been i. It certainly hasn't been overwhelmingly positive. I mean look. I think i think most tennessee fans are realistic. That yes you call a james franklin you call a luke fickle point with what has happened with this program. Those get long shots on a long right. So i mean most people understand that it was. It was probably going to be either another. You know successful power five coordinator. Maybe tony elliott or a group of five coach. I think the thing with hype. Obviously danny white gets hired a week ago. Paul and it is. I mean you think about the rollercoaster. You know you've got people wondering what's going on with jerry improvement for weeks and then okay. He is fired that you you you see him. Going out to try to lure henry toto back the bari. Wait a minute. So is he to keep his job through this. He's fire and then boom they go get danny white. And that's a big statement. I mean that's a big higher. And i still think it is. I mean i still think you know for a long time. Danny white should be the ad at tennessee and that's a big ad higher but was anyone at that time. Say oh good now. He can bring hypo with them. No i mean i think hypo was essentially ruled out by fans and college football media as a candidate other than as a last resort to failsafe move. And i think that's one of the things. Paul about this hires. It feels a little early like. Did you ask everybody else. Because you know you can get josh hypol- and it just feels You know the guy has been on the job for a week and of course you know anyway comes out and says he was number one so this is the only offers and we know the eighties. Do this. at these press conferences. All the time and anyone who follows this stuff knows how it works. I mean you. You're trying to gauge interest from people. And you only end up offering it to one person so no one bought that. I just think there were. You know we will never know paul all the conversations exactly how it went with the search but to me it feels like there are some some conversations left on the table. That would have been worth having before going to this. Let's let's talk about dany. Wide and ad conversations are usually not very interesting to the audience but but he came in with with a resume and with mostly universal praise but he has said a couple of curious things talking about social media the other day. He opened his press conference. Actually it was supposed to be hyposcricy conference but at times. It seemed like danny white. He opened talking about two leaks Both in the last week As as he was he was admonishing the media for attempting to do the job and then the comment that has been bounced around. And you wrote about was how some people i assume. He's talking about fans. Are failing at this positivity trank and you pick up on that for the audience who is not as into it as we are. Yeah i mean i just. I don't understand why you why you would go there. As as daily won't learn quickly one leaks and things like that That's a part of the job at this level. You know. I mean he came in in his introductory press conference and kinda was having fun with the idea. You know i run these sensors. They're locked down. And i'm paraphrasing here. But i mean we. I pulled surprise not people before. But but paul how many people were How many people were tracking flights for the buffalo at ucf searches you know. Danny white is at a different level. Now and i mean he's got to know that but yeah. The fan thing to me was unnecessary. He was asked. You know he was asked directly a question about like what would be your message to the fans. But you can't you. You can't say that ever you have to understand like you gotta understand the gotta read the room you got to understand your audience ball twitter. Paul i mean i don't know how much you You know engage with all twitter But it is to me possibly the most powerful force you know on twitter and certainly you're talking well into a second decade now of the of these fans being fed you know bad choice after bad choice more and more bad football You cannot ask these people to get excited now when you bring in cyprus so i think that was just a big misplaced on his part. You know he'll he'll get over it but certainly when that comment came out my eyebrows and i said hey look it's only been a week and you've already made this massive higher. This can have a lot to do with your legacy as a but now you need to spend some time understanding what these fans have been through. And joe i mean he. He is not a neil fight. His father Has been the ad at notre dame and duke is got another brother. That's an ad is another brother. That's coach at florida. But he has a history of this a couple of years ago. I mean he got into a war with a lot of us In in the media whether regional or national who who found his constant grandstanding for ucf to to be juvenile and over the top. And it's one thing it's one thing to promote. But i think he even addressed that again the other day which is a direct shot at one of your member institutions alabama who happened to win the national championship that year against georgia in a rather legitimate Matchup as opposed to ucf. Yeah he can't and that's you know that's the thing i mean. I think when he did that. You know tennessee fans. I saw a lot of right. I like it tweak alabama you know now the problem is when's the next time you're gonna beat alabama now. You're you're in that league without you know not to mention I it is very fair for anyone to say okay. Let's get some One for one home in homes gone with memphis right and and some of these other programs based on you know what anyway did it. Ucf i think like i think anyway. And yes he graded on people of that and he got into some. He wasn't afraid to get in battles with with media people i think there's a swagger That is appealing and it was appealing when he was higher To tennessee fans. But now you've got to back it up. I mean one of the things about anyway that On his resume what people say about him. He's a tremendous fundraiser. That would be big for tennessee to having modern ad after the former was a stop gap and we all knew that john currie clearly. Just you know had issues beyond the coach shirts can you. Can you stabilize that office. Raise funds And you know have good leadership. The i still think that there's a great chance of that But the big thing. When danny way came in was of course. This guy's incredible at bindi coaches at identifying someone who all nato who's that analysis and we all know nato these he's done some tremendous hires and so then what that's your number one thing that's Some the selling point for the guy and then a week later. This goes with the you know josh. We worked with then. I'll sudden it's like the sad trombone som- talking to joe rexrode and by the way i'm not trying to pile on here on danny. Why because i've already been flagged by the officials but he got into it was was scott stricklin over Home at home when struck offered a two for one and he said no you know. We're ucf We we we do for ones down here. Yeah i would think he'd be getting some calls. Rupa five programs right. I mean so. He's already. He's already tweaked to sec school. But then again that doesn't you know considering their alabama and florida that may be a good thing for the university of tennessee. Eight let's talk. Let's talk about the future because the future depends heavily. Joe on where the nc double is. That is impossible to predict. Nobody knows for sure. But what's sense of how difficult this ride is going to be at least short-term won't be and like you said we don't know exactly what's going to come down i i. I think there's a good chance to see you know does themselves sanctioning and and hopes for A little bit lighter hands on the ncaa based on You know how. Tennessee has investigated itself. Here i mean just me speculating. Thank you know a bowl ban scholarship reductions and maybe some limitations on you know recruiting movement from coaches pay. Be a part of this i. I'd be surprised if it's a massive Sanctions but there are. I mean there's going to be some interesting details to come out on this investigation. So we'll see and then of course you just have so many good players who involuntarily Jumped in that portal. I mean oklahoma's just loading up on tennessee players right now so Can you get some of those guys who are not come back like a a a guy like henry hotel for one year and your first year. How big would it be to have him back on the field back in orange You know you can you know darn outright decided the other day come back. That's that's so you gotta try to recruit some people and then you have personnel right away to play your offense. I mean i. That's a big question you know. I mean the way that josh hypo that offense is certainly going to be. It's going to be a different kind of player in some cases Who he's recruiting. And and can you find a quarterback that's going to be the biggest thing. It's the biggest thing that hurt pruitt. And that's probably the biggest source of optimism ball is. That josh has developed quarterbacks he's had highly productive passing offenses. And if you have a great quarterback obviously that can make a lot of things. So there's a cadence alter coming in a hand in hooker coming in a harrison bailey. Can can he find something. Well beyond what they've had at that position in recent years. That would at least make this team fun to watch. It was just such a hard team to watch this year and way too much offensive talent for it to be that stagnant of offense but It's gonna be a long road. And i do think paul that again. I think tennessee fans are largely realistic. That it's about getting through these sanctions and getting yourself to respect ability and then and then seeing if you can build toward what tennessee. Football should be and hasn't been for a long time a couple of seconds left. Joe you clearly. It's going to be hard to to maintain fan interest. But you know this is a proud program. But how big of a challenge. Is this considering this this. This higher didn't really well anybody. It might not be a bad higher. But it's not like a hugh freeze higher would have been or or someone else. Yeah it's a great question. But i i still go back to a little bit too. Last year jeremy pruitt loses georgia state. Everyone is is You know how upset and angry and wondering like what. What kind of coaches this next week. I'm on that sideline neil stadium for that terrible loss to byu but just an incredible atmosphere. You know after all these years and with just on the week before. I don't think it takes a lot to get him back even though certainly we've seen some signs of apathy and there's not excitement now but you know we'll get into august. Start about this offense. At one of those quarterbacks it'll be looking good in practice and You know there. There's such a big passionate fan base. I i don't think it's going to take a lot to get them engaged. Goodstuff fantastic column in the athletic from joe rexroad. You can hear them in nashville joe. Thanks appreciate your time. Come back all the best okay. Sounds good thanks very conversation and we will get your reaction to that when we come back right after this. You're listening to the paul finebaum show podcast. Final twenty five minutes. We welcome you back to our program and brian Excuse me Sam is up next in memphis Sam welcome to the show. Great to have you on paul. Talk to you again You're you're caller. Just a minute ago was Was saying he thinks everybody's again. I get on board with high school You know kind of like the byu game. I have to say. I really disagree with that. We lost that game. And i the the coaching this coaching search was two weeks. It was not extensive is enough. I mean i. I just don't understand. The i mean i. I'm sure you've been hearing this all day but I just why can't we find a coach that is going to Give him you know. University give them five or six year contract and let and You know we'll get we'll go. Eight wins will know maybe in an all in an odd year we'd be or in georgia and You know go from there well. I understood the urgency of getting a coach in. I don't think it had to be done yesterday I think he needed to be done relatively soon. But i frankly don't think danny whitehead any other options. I think he got turned down by tony elliott and franklin and who knows how many others and i think he started to realize I'm if i'm gonna bring in a group of five coach. I'm gonna i'm gonna bring in a guy i know versus jamey chadwell Someone i really don't know and don't know very much about. He had a big year. But maybe maybe he saw something in his past and he didn't like i don't know it was a convenient higher. It's not an inspiring higher doesn't mean it can't be successful but the problem is now with this fan. Base says rex road was talking about has been disenfranchised and you can only tell people the same thing so many times i ve all eli. I just I guess. I'm just on the board on the train of discipline that like everybody else. I one of the i wanted to be a positive thing and i i just. I wanted to be like the coaching search Just seems like and we ended up with With before we ended up with pruitt it seems like it with several weeks out. Maybe even months and you know there were there were there were about it was it was a thanks for the call. I mean it was really only about eight nine day coaching search. It wasn't even that long White wasn't hired until last week last friday. He did it efficiently. But i think he he knew he couldn't He knew that very few people want the job. And when you get to that point you say okay. I know this guy's clean. I know he's not to get me in trouble so Let's let's see how it works out. It may not matter in. let's hope it does. Thanks for the call. Appreciate it very very much Greg is in mississippi. You're on the air. Hey greg greg able could hearing. Yes sir. Ken thank you. Welcome to the well. Look i apologize. I was all about an hour ago and and got bumped off. Because i was stupidly. Trying to answer but look I have some advice or to the fans. And i'm probably the last will if not the last i on the face of earth one of them to give him a university of alabama fan and grad and a venera grad. So i realize. I'm probably probably down their list. But look tennessee fan. You don't you don't have enough sense to know who's the coach and the agricultural since those coach i mean look paul hours will no one's back in nineteen eighty eight nine nine. Who wrote i think bob back with the time right That we should stick with off because we need levy constitu it. You know. i've been our sincere about it and obviously you certainly agree. I was away out to lunch on that one. Okay but and also nineteen ninety five. I'm mostly newark yankees fan. And they hired joe torry. I said what i mean. This is a guy that's You know nationally bozo. What's he space. So since he was a great player but and of course i was all out to lunch on that and then You know. I remember when kentucky howard tubby smith from georgia and i said what what do they do it. You know crazy and you know how that turned out. So i have come to a certain humility that you know as a casual fan. I don't know anything and And that's the truth. I says jess tennessee. People will either and Semi job is alloway vendor again Fan to Encourage see but i mean really guys You don't know yet. Got trust your eighty goes. That's just way yes. No you never do And by the way. I've done this long enough to understand. Fans need optimism and they need hope they don't need to be told they have to the they need to. They should be smart enough to to do that on their own. Hey thank you for the call. Brian is up next in georgia. Hey brian questions you kind of touched on the first one What other option tennessee have besides going to. What coach really wants to go to tennessee. My second question was hired because shana fell through and the cfo so they brought that flew on to save the day. Now food being let go because he hired through of because he gave pruitt that extension. I do not believe phillip fulmer was let go because he hired pruitt. I think it has more to do with the extension if there may be more to it than that. We don't know yet because they showed him the door very rather quickly. But i felt like filmer did all could three years ago he was dealt. A terrible hand and tennessee was down to eighth choice and he narrowed it down to three reasonably good candidates and he made it. He made a quick decision. I don't think anyone could have predicted. The jeremy pruitt would be it would have been is ill equipped to handle the stage as he was i think he was equipped to handle the football but the rest of it. He was He was he was extremely bad at. Because i remember a lot of people think of when they got fluid rabbit out of the hat they were able to get. I frankly it's already had myself. So i'm not gonna act like I was not part of that. Posse anyway georgia's fan. So i got no pity for tennessee. But it's interesting. And i listened to your long enough to know when you tell us it's bad it's worse than what you're telling us because you know you'll tell us well. Thank you for the call. I think is pretty bad and i know people are saying well. You need to be more positive. I mean my job is is to have a relationship with the audience not to work for the public relations. Department at tennessee. Doesn't matter where i went to school doesn't matter who pulled for none of those things are relevant to to a healthy authentic conversation about college football. We will take a break if you want to get in. We will try to squeeze you in the final few minutes of the show. The phone number is eight five five two four two seven two eight five. We are officially out of time for this program. We appreciate all of you for being a part of it Some really interesting guests today will See you right here tomorrow. Thank you for listening to the paul finebaum. Show podcast the paul finebaum. Show airs weekdays on the sec network beginning at three eastern.

tennessee danny white jeremy pruitt alabama paul finebaum Nick sabin joe rexrode football knoxville josh hypo ucf joe giants carol carol York roy pat birmingham jimmy pruitt nick sabin tony elliott johnny matrix
Moms Deserve a Little Financial Self Care

Motley Fool Answers

35:18 min | 1 year ago

Moms Deserve a Little Financial Self Care

"This episode of answers is brought to you by td Ameritrade you have an investing style. Td AMERITRADE has a mobile APP to match it checkout td Ameritrade mobile and think or swim mobile to find the one. That's right for you. Is Molly Lancers? I'm Elson Southwick. Joint is always by Robert Douger. Great broke camp. I wrote joining us. This week is Chelsea Prenton. She's founder of the Blogs Smart Money Mamas and pro is going to give us some highlights from the Berkshire hathaway meeting all that and more on this week's episode of Molly Lancers Subroto. What's up well? We often begin by talking about what happened in the previous week. But since we just closed out April that's review what happened over the entire month and sweet cheese. It's what might it was really one for the record books both for good and for ill so each week. We all know we learned of millions. More Americans filing for unemployment benefits. Total tally now. Surpassing thirty million and that is most definitely an understatement and given the difficulty many people have had with filing for benefits April fifteenth the Federal Reserve announced that. Us manufacturing output contracted in March by the most in any month since nineteen forty seven and April. Twenty ninth we learned that first quarter. Gdp experienced its biggest decline since two thousand eight and the biggest drop services and consumer spending on record and most certainly second quarter GDP will be much worse. But you wouldn't know all that looking at the stock market the S&P five hundred returned twelve point eight percent in April its best monthly returns since nineteen eighty seven and the third best month for us large-cap stocks since World War Two so for the year which includes last Friday may first which was a slightly down day. The S&P five hundred is down twelve percent since one thousand nine hundred fifty. They've only been eleven times when the S&P five hundred returned more than ten percent in a single month according to Ryan Dietrick of LTL financial. What happened over the subsequent twelve months? Dietrich found that the index was higher in nine of those eleven times so that's encouraging for the next year. Smaller stocks did even better in April returning more than fourteen percent in fact starting on April. Twenty second the Russell. Two thousand index of small cap stocks went on a six-day streak of returning more than one percent in a single day in that has happened just in one other time in the index is history happened back in January of two thousand according to the bespoke investment group that said despite an excellent April small-cap stocks are still down more than twenty percent for the year as our international stocks. So that's what happened in April may kicked off with one of the biggest events of the investment calendar the Berkshire Hathaway annual meeting. Hey hurrah but instead of forty thousand people flocking to Omaha. Warren Buffett sat at a table in a near Empty Auditorium. Under did either of you watch it at all. It was kind of the surreal experience. Now I saw two seconds of it. I haven't gotten around to it but it is always. It still blows my mind. That forty thousand people go to Omaha just to maybe get a chance to see Warren Buffett. That's crazy and it's crazy that he can sit up there for that long and answer question after question after question now usually also joined by Charlie. Munger this year he was not instead he was joined by Greg able able. Who is the vice chairman in charge of all operate operate instead of Insurance? But it still went on for more than four hours. Wow I more than an hour was a presentation that he gave so I listened to the entire meeting. Impasse episodes I would. I've said that sort of my personal investing philosophy is be a short-term pessimist at a long-term optimist and that sorta seems to me was the message of the whole meeting so on the pessimistic side. They're clearly not doing anything you know. They've still kept most of their one hundred thirty billion in cash. He did not use the downturn as an opportunity to go on a buying spree. He essentially he likened previous downturns to train. That is slowing down. This time. He said we took the economic train off the tracks. And I don't know of any historical parallel in the range of possibilities on the economic side are still extraordinarily wide in other words. They're still sitting pat on what they're going to do. He also said quote. We have not done anything because we don't see anything that attractive to do. Heels actually spent a good deal of time talking about some of the past challenges and failings America's history so for example. He pointed out that. Despite the fact that we have a declaration of independence that claims that all men are created equal. When you look at the three point nine million people living in the original thirteen states and seven thousand nine hundred fifteen percent were slaves pointed out that during the civil war six percent of the male population between the ages of eighteen and sixty died. The twenty twenty equivalent of that would be four million deaths according to Warren Buffett and then it took one hundred thirty one years for women to have the right to vote at another sixty one years until a woman was appointed to the Supreme Court so we often talks about the long term success of America. He did spend a good bit of time talking about some of the things that we have not done so well. He spent a particular amount of time on going over the Great Depression I think partially because he was born in the middle of the Great Depression so he pointed out. It's September nine hundred twenty nine. The Dow was at three eighty one. Five hundred didn't exist back then so he just using the Dow and then in a little more than two months it was down forty nine percent to one ninety eight. You Move Ahead to August twenty ninth nineteen thirty. Which is the day before he was born. It was backed up to two forty so and it rebounded twenty percent. People have found that like okay. Stocks went down but there. They've gone back up back then. People were thinking that they were on the verge of the Great Depression. You go ahead less than two years to July thirty two. The Dow is down to forty one so from the peak went from three eighty one to forty one a decline of eighty nine percent and the Dow did not get back to its nineteen twenty nine peak until nineteen fifty four. Wow he did point out that people got dividends at back then. Dividends were higher but still price percentage the market was down for more than twenty years so buffet called the Great Depression a testing period. That caused some people that lose faith in America. I don't know if he was playing out to say like times ahead could be tougher than we think or just pointing out that America has seen worse times but regardless he says that anyone's going to lose faith in America that's a big mistake which brings us to his persistent message of being a long-term optimistic pointed out that despite all these challenges from seventeen eighty nine until today the wealth of the of the United States has grown five thousand percent and that's adjusted for inflation. He also pointed out that since the year he graduated from college in Nineteen Forty nine at the age of nineteen one dollar in the Dow has grown to one hundred dollars. So how do people benefit from what he calls the American miracle? Well as he often does and I think it's always interesting that he does this during the Berkshire hathaway annual meeting because it's an annual meeting of people who own individual stocks. He thinks the vast majority of people should just by an S. and P. Five Hundred Index Fund and. He mentioned that's what he does. That's what he has directed his will when he passes away swimming. He predeceased. His wife. Ninety percent of that wealth will go into an SAP hundred index fund. In fact one question asked about Berkshires underperformance as a stock. It's underperformed this year as well as the last decade a something. I know personally because I've owned Berkshire for more than a decade and he was basically said. I agree that that's an issue. He said that the truth is that I recommended. Sap Five Hundred Index Fund. To most people. And I happen to believe that Berkshire is about a solid is any single investment can be in terms of earning over time. But I would bet my life on whether we beat the sap five hundred over the next ten years so as always with buffet. It comes down to betting on America for the long term. But it's clearly means the long term to be like very long-term it mentioned the timeframe twenty to thirty years a couple of times the only truly positive thing he said about shorter timeframe at least that I can remember was in response to a question about whether Berkshire expect significant significant layoffs among its workforce which at this point. It employs almost four hundred thousand people in response. He said that some businesses will have to make adjustments. See's candies closed down. Nebraska Furniture Mart. Some of their factories may have issues. It's the funniest list of companies. I'm sorry Oh it's like it's very clean seas it's like what. Why Energy facturing? Yeah it's it's everything it's all these companies that you like. Yeah I think I've I think I've heard of Kim or have it at all. It's quite amazing. But well while he expects it some there will be have to be some layoffs. He doesn't expect them to be significant in that five years from now he expects Berkshire we'll be employing considerably more people so that to me says he expects five years from now. Things will fully recover and I think that's a reasonable timeframe. I certainly expected in five years. This time period will feel like somewhat of a distant memory. I certainly hope so But it's certainly possible that over the next year or two things could turn out to be pretty rocky and that is what's up this episode of Motley Fool. Answers is brought to you by. Td Ameritrade you know that feeling when you actually wake up early to hit the gym get the same sense of satisfaction when you roll over your old 401k with td. Ameritrade THEIR TEAM. A rollover specialists help handle the hassle even call your old provider. Get up to six hundred dollars when you roll over your old 401k into an IRA visit td. Ameritrade DOT COM slash rollover to learn about retirement plan alternatives and offer conditions and restrictions. Mother's Day is just around the corner and we're so excited to be joined today by Chelsea Brennan. She's the founder of Smart Money Mama's she's GonNa talk about how moms or anyone really can change how they think about money and turn it into an act of self care. Chelsea thanks for joining us. Alison thanks so much for having me. I'm excited to be here. Well we're excited to have you and I'd love to hear more though about you and your journey because you actually got you start on Wall Street before founding your blogs SMART MONEY. Mama's right I did so right out of college. I started as an equity analyst on Wall Street actually focusing on metals and mining companies of all random things and then after a few years there I transitioned to a hedge fund where I was for. Several years ended up taking out over my own portfolio. But this was always a first act career for me. I knew I wouldn't want to do forever. I wanted work with more purpose so right before my second child was born left to start smart money mamas and really connect more with the teaching that I love to do and helping parents feel more confident with their money because they feel like money is such a huge stress item for show many people. Yeah we know the stats. We've talked about before on the show but you know what let's talk about him again. We know that women tend to live longer than men. Meaning that they need more money saved for retirement. And then there's the wage gap and the fact that women tend to take time off work from work to raise kids and then all of these compounds resulting in women being less prepared for retirement having less savings According to a Transamerica Center for retirement studies Survey the median household retirement. Savings for women is just twenty. Three thousand compared to seventy six thousand among men both could improve that that women are falling farther behind men. Almost one third of women say they have saved less than ten thousand for retirement or nothing at all. Don't our moms deserve better? Oh my goodness absolutely and that same transamerica study talks about the fact that women think they need about half what men say they need for retirement so they bring that number down and whether that's to keep it realistic because they know they don't have the savings to begin with or they're just not appreciating the cost in the length of retirement and what it's GonNa take this is? This is a huge gap. And it's something that especially with divorce rates and the fact that most women outlive their spouses which has to know ramifications. One they need more money and two. They need to know how to manage their investments because they're ultimately going to have to do it on their own. Yeah your purpose statement at the top of your site says Mama's handling your money is a radical act of self care when I think of self care. The first thing that comes to mind is instagram hashtags for photos of wine. Glasses and cake and Silkair is important. But it's almost lost. Its meaning and kind of become a joke. To let stressed-out MOMS indulge in binging that legs or shopping or eating or drinking things we feel guilty about and I'm not judging because Injin is very important in my life especially right now. But what do you mean? When you're talking about money ending your money as a radical active self-care. Okay so most of our perspective on self care these days. At least what's put in you know the media Instagram Post. You're talking about their. Bandaids right there to take their to feel better in the moment when we're not taking care of ourselves in general and so when we talk about money self care we're saying if self care is really about reducing stress and anxiety bringing more joy into your life handling your money is going to take away one of the biggest items of stress on your list. It's GonNa let you afford more of the things that you want more those like instagram. Self-care things right. You can go over a massage without stressing out. You're putting it on your credit card and how you'RE GONNA pay for it down the road this is really about preparing for the future and Long-term Self-care. You say it's not black and white dollars and cents so aside from the fact that women make less than men and they live longer which is already setting us back here. Where do you see the real struggle? When it comes to women managing their money. I think the thing is that we think we can avoid the topic of money. We don't want to talk about it. It's stressful and we think okay we'll just pushed to the side but the fact of the matter is money touches every single area of our lives. We can't make a big life decision without in some way making a financial decision it impacts work. Go to school where they go to daycare. Where we live the jobs we take. Money is inherent in everything that we do and so much as we want to think about it as just math right if I could just figure out the math I could just figure out how to budget. It's more than that. There's an emotion there that is it ties into our sense of security and our sense of safety and so it's we have to look at it in a more holistic way. How money impacts our lives and our emotional relationship with money to be able to get where we WANNA go. Where do you see that moms? Need the most help when it comes from unendorse understanding their money. Is it our our most women just looking for help budgeting or are they looking for help with that mindset shift? Where are you seeing? The most help needed so I think the first thing is that mindset shift is where we see most often people need help but the first thing is understanding that there is a mindset problem right so exactly what we just a few minutes ago of that we want to put the band aid on it. We want it to be dollars. Incense is people come to us and they say like well. I just need to spend less on groceries. And it's like okay. You know that and you've tried to cut your grocery budget six different times. What's holding you back? Why do you keep going over? Wise is not important enough for you to stick to it and then we can connect them to like okay. There's habits involved here. There's mindset involved here you have moments in the past where food wasn't readily available right if your parents struggled when you're younger and so you keep over buying food because you just want to have more food in the cabinet right so we do the mindset thing first and then the second thing that we really find that women need help with is identifying and solidifying their goals and what they want their money to do for them and like getting out of that. Rut of the day-to-day monotony of what's going on patching the problems that are right in front of our faces and thinking about okay. What do we want retirements to look like? Where do we want to be in ten years? And once were clear on those things and we can set goals that excite us. It's a lot easier to think long term when you're just stuck in the moment changing those habits is really really hard. I have no idea what my goals are ten years or beyond and it's not just like our current trying times here but I think it is so easy for mom because we are. We have to be in the moment. We have to be a kid's pulling on US asking for snacks lovey. Hannah but you're always asking for snacks. you know. They're they're they're jumping off of couches and trying to hurt themselves there. I mean you. You have to be You have to. There's so many moments actually pulling you in every different direction. I think that's becoming more equal across men and women. It's definitely improved. But I think for for a lot of women it's still not an equally shared burden. Yeah and we don't like generalizing across genders as much but we have found just from our readers. Is that husbands. Seem to have an even harder time doing that dreaming and setting for the future even if you make time for it right because so much of their self worth in their mental state is around providing and when we feel like we have those conversations women come and say like Hey I have this big dream for ten years from now. It's one more stress item right even in cases where the woman is the breadwinner in the house. There's this stress in this tension around like okay. How do we get even more money? How do we afford even more things So those conversations we're big advocates of make it a moment of self care even in the traditional way like decide that okay Friday nights. We're going to put the kids to bed. We're going to light a couple candles. We're GONNA sit in the basement with our favorite drink and we're GONNA have this conversation right and we're GonNa talk about the dreaming we're GonNa talk about what went well this week. Not just where we slipped back and as you build that habit of like okay. This is actually a fun relaxing conversation and not a were bickering and arguing. Then it all gets easier. You talk about the importance of learning beyond budgeting and the importance of growing your wealth. Women are traditionally seen as savers not investors. Do you see this is true? Yeah I think that dollars in the bank is Unreal Comfort For Women and whether that's not being educated around investing in the first place or just knowing all the things that come up in life right like knowing that your kids are GonNa go out. Grow out of their clothes or MOM's going to need some help coming down the road. There is more concerned about having enough cash so going back to the TRANSAMERICA STUDY. Just fourteen percent of women frequently discussed saving investing in planning for retirement with friends and family and thirty two percent report. Never talking about money which is funny to me because women tend to connect to connect to each with each other and learn from each other. And so it's funny how I've like I think about the conversations that I've had with my girlfriend so to speak. We've talked about everything and everything but we've never talked about money like we never talk about What we're investing in or how we learned about something or refinance isn't that great and wonderful And so it is fascinating how the way that women tend to like to learn together by talking to each other and yet we're not talking about money with each at all. Why do you think We don't why is that? Why is that still do? It is really funny. There's some of those statistics that like women are far more comfortable talking about sex with their friends than they are talking about the money and so I think a lot of that is both a lack of self confidence in the subject right. We don't WanNa look like we don't know what we're doing and it's a sensitive subject. It's worrying about the pushback. Someone not wanting to talk about it and that when those conversations do happen there so often negative right. It's like I'm stuck. I can't afford this thing. I had another money fight with my spouse or whatever it is it's it's negative and so we want to avoid the topic completely what we've found in our community. Is that a lot of MOMS. WanNa talk about money. They just don't have the outlet and when you give them that safe space like hey. This is a bunch of women that we might not have it figured out right now but we are trying really hard and you can come here and you can complain. We will get. We have thousands of women that want to come. Have this conversations really quickly? What are the kind of conversations that they're having together so a lot of the conversations are around the slip backs in the journey right so once you sat like debt free or consumer debt free in two years or we want to save enough for our kids to go to college and then dealing with the blips right the well. We thought we'd planned for the month. And then we blew a tire. We needed some major maintenance on the house and now we're set backwards and I don't know how to keep going or you know I had this big idea and this big goal and I've been reading all about budgeting and investing and I'm excited to get started and I went and sat down with my spouse. He completely shut out. I think he was like I don't want to talk about this and so it's a lot of the struggles in getting that support. And then the other side the flip side of that is the big wins right. It's like I just paid off forty thousand dollars in debt in if I say that any of my friends one that's uncomfortable because it's a big amount of money and we don't WanNa feel like we're shaming our friends that are on this journey with us yet so it's having a place to be able to come and be lifted up in the positive moments since starting your site. What do you think has been the biggest change in your thinking when it comes to moms and money? I think the biggest change in my thinking since we started talking about this topic is how we think about goals and dreaming and what. We're willing to accept what we want and that we find a lot of women don't want to say they want to be wealthy or they say I want a million dollars so I can give to this charity right. There's no there's not that confidence in I want money because it makes me feel good and I can do fun things and sew embracing that that that can limit us to write that we we give more to charity before. We're even on our own feet because we feel like we have to be helpers and servers and some of that is is a upbringing and training right So we trade more about the if you can thrive. That's the best example. You can set for your kids right if they see a mom who has a career that she loves and she's succeeding and she's doing things that make her happy that gives them permission to go out and chase what they want So that's our biggest thing is making sure we're always encouraging people to think big beyond budgeting and living within your means making enough money. Seeing your money grow What about people who don't have a real love or interest in their money like is that that's okay. That's okay but they have a lover interest in something. There's something they want in life and likely it costs money and so. I don't care if you don't love crunching numbers in spreadsheets. It's not everybody's favorite thing to do most of. It's not but there is something that you really want that you can get excited about and figure out how to handle your money to deal with related to that when people heard those stats from the survey. I suppose many of us thought of women in our lives that maybe might be in trouble. Maybe don't have that interest and finance. Maybe are behind in some way. Maybe our our mothers our sisters. Our daughters friends. What would you say is a good way to help those people to to sort of get them a little bit more interested in maybe give them a helping hand to get them on that road? Yes so there's two strategies both of which work in this is going to depend on the women in Your Life. And how will you know them? Some of it is uplifting right. So there's there's an instagram post. We did a six months ago. That was like you're the only one who can give your child a thriving. Happy mom and that sparked like completely viral of people being like. Oh I've never thought about it that way before. I don't prioritize myself what example my setting so taking it that way of like. Hey I know you've talked about in the past that you really want to live on a lake someday. Like have you ever thought about what it's GonNa take you to do that. And and start from the positive perspective the other way that we actually have a lot of moms come into our system is not understanding. What happens if they don't plan so when we say that women are eighty percent more likely to live in poverty in retirement than men? That sometimes shock people into it. We come at it often from emergency planning perspective like. Hey if something happened to you what would happen to your kids like do you have. Do you have guardianship? Set up Do you have assets for them to pass on and and really get them into the planning and once they've done the basic planning than it's easier to transfer the next step because they've had to look at they've had to take a close look at what's actually set aside in their accounts for retirement and things like that But those are the two strategies and it really depends personality. Have to ask and see worked on Wall Street. And in a hedge fund he worked in the belly of the beast. What's your take at investing? Especially since you mentioned working with. I think you said mining companies that make you an investor in gold. Do you think that's something people should be doing of investing advice? Do you give so. We do a lot of investing advice. We stick very much to index fund investing and not stock picking. We've seen we've seen all the stats on how hard it is successfully stock. Pick right and that most women and most mahomes are busy. We don't WanNA spend time hours a week. Researching companies making sure picking the right thing rebalancing your portfolio and so for us. It's let's take the path of least resistance. Let's keep fees low. Let's make it so that you can automate this as much as possible in. Frankly that's what I do in my own life to. Gold is a whole thing for me like it has no intrinsic value so it's almost impossible to forecast the price of gold right. There's your interest rate forecasts and foreign exchange forecast in like it's so volatile so I don't. I don't invest in gold. I know that there's people that are high level investors do but we don't we don't really talk about like precious metal investing with our audience at all we stick very much like let's get you started. Let's make sure you're consistently investing and if you WANNA do more than that as people I can point you do so Chelsea on your website. You actually have workbooks financial wellness bundle since very action oriented curious on. What's your take in terms of getting people to do those things we've tried those things the motley fool a sort of like going to the gym right people sign up. Think I'm going to finally get in shape but then they don't often take advantage of it so I'm curious your your experience so far in getting people to sit down and do the nitty gritty of taking care of their finances. Yes so our biggest undertaking in in the financial wellness bundle. Is Our family emergency binder which is really laying out everything someone we need to know if you were incapacitated or gone right and so we talk about the fact that Oh will and a life insurance policy will Kendall some things. But they won't tell. Your spouse had to pay the Cable Bill. So that's a huge undertaking. That is a long document. And we'd have people when you buy it. It's broken down into chapters and tell people like we're going to email you one week 'til I sit down for an hour and do this thing and for that. It's really more of emotional. Poll of people being worried of what if I don't have this and there's actually an email in that sequence after we after we sell it says. Okay it's really good that you bought this but if someone in your if you pass away and someone in your family and it's blank they're gonNA lose their minds so you need to fill it out now that you bought it so some of it's that but everything else we keep it super bite size so even our courses are videos are five to ten minutes we break it down to small pieces and say like set aside ten minutes a day and like set a time on your own and no matter how busy you are. You've got ten minutes a day right like you can say you like. We're GONNA do it before you turn on Netflix. After the kids go to bed so we just try to keep things small because we do these big undertakings. We have the same experience. It's just too hard to fit in. I know two guys who went through the process of getting life insurance never finished. It didn't send in that side application. And they passed away. One was in his thirty s one was in his forties leaving their families at a significant financial disadvantage so and and one of the widows particular is pretty bitter about it because it would have changed their whole trajectory if he had just sent in the paperwork. That's the hardest thing is that that's your last your family's last memory of you. Whatever you set up or didn't set up and that can make it in credit. We have a neighbor that had the same experience except it was there will and so she was a single parent. She done her well. She just never had an executed. She passed away two year old daughter and it created so much chaos for them right of like who going to get guardianship and going through all those court. Thanks so definitely important to get it done. Well what do you do for self care other than managing your money? Do a few things for self care. I make sure I wake up every morning and meditate and go for a long walk on my own or with the boys if they happen to wake up early I just throw them in the stroller with a blanket. And I'll go for a walk Other thing is I love to draw doodle so I make some time every evening usually ten to fifteen minutes to do some kind of doodle and Kinda shut my brain down before bedtime bro. How about you what do you do for self care? Walk Walk Walk. I'm walking one to two hours a day. I don't know how I could survive this pandemic without the walking so I totally second to walking recommendation. Yeah Rick How about you? Don't have time for self care. I'm carrying too many others right now. That's right yeah all right. Chelsea I'm going to put you on the spot and have you close us with an inspiring message to all of our moms out there. My message for all moms become into mother's Day is that you have an incredible opportunity to create generational habits with money and all the stress. You felt as you came into adulthood of figuring this all out and feeling like no one ever taught you you. Don't you get to do it over with your kids? You can show them the things you didn't learn. You can speak to them about money in more positive ways. So they're not overcoming negative language. You have a ton of opportunity and so even if you feel like you're not the best with money now's the time to start learning even start learning with your kids and telling them. I don't know it right now but I'm GONNA FIGURE IT OUT. It'll instill that growth mindset and really leave them in a place that when they enter adulthood there in a stronger place. Uh Samantha. Website is smart. Money MAMA'S DOT COM Chelsea. Thank you so much for joining us. Thanks so much for having me all right before we go. How about a weekly recommendation for our listeners? I will go first. My recommendation is birdhouses week. Seoul okay so several years ago a couple years ago my husband and my daughter I said what did he want for Mother's Day or maybe it was my mother's Day and I said I want a bird house and so they got a birdhouse and they painted it. They did a lovely paint job. And it was a very special birdhouse. That was only big enough for Rennes and it took years and years and years but finally finally right this second there is a ren right outside my window building a nest in our birdhouse and I could not be more. Thrilled is so great that the birds keep getting little sticks. And I think it's maybe it's the same bird there are a couple. I don't know and they're they keep trying to keep flying with sticks and putting the sticks and the Bird House and now I don't know it's just really great. I'm losing my mind. Art No not at all because a bird had. Burt built a bird nest in-between a window and a window like a storm window in our house. The birds hatched mom kept feeding. The mom went away all but one of the baby. Birds escaped except one got trapped between the window and the storm were no and it kept. Slapping Leans. Couldn't get out so we're trying to figure out. How can we lift up the window and get it into a pillowcase? Wait right this second is flapping now. This is a this is yesterday because I was like. What are you doing? What are you doing right now? Go Save Bird. No go say bird. We're trying to get the window and get it without a flying into the house because then who knows our brave daughter Zoe put on a glove went in and actually grabbed it. Put it into pillowcase. Brought it out and set it free and it was. It was like the highlight of the day. I'm pro bird for sure. I'm pro bird to Yeah so we we think it's a house wren anyway. Just cute little brown bird so birdhouses check. Check them out cool. All kids are crazy about of needs. Days what's your recommendation right. So several episodes ago I said that instead of just listening to whatever podcast shows up on your podcast time line or whatever they call that search for something you want to learn about well now. My recommendation is searched for someone. You WanNa hear from so could be historical figure celebrity. Sports figure I am a World War. Two buff so I just searched on speeches by Winston Churchill and sure enough there are whole podcast devoted to great speeches in history. We are recording this on Star Wars Day may the fourth. I looked up. Can I find interviews with Carrie Fisher Mark Hamill Harrison Ford? They're all out there. So if you're just going to go for a walk looking for diverse take a long drive to the mountains. Every Saturday morning I take my two hour drive into the mountains. Choose a podcast. I think all right. Who would I like to hear from could be a great investor? God there's gotTa be many. Podcasts were Warren Buffett or Charlie Munger giving their wisdom. So that's one way to find a podcast that you'll be interested in well since everybody's been practicing their Ukulele and now writing songs. It's probably time to write a song in a different language. So the duo lingo APP and learn a new language. You just do a little bit every day. And before you know you'll be speaking Francais. I guess yeah actually. I did not use the APP to myself. I've used it. I use it to to do Spanish. And it's great like you. Do you just do a little bit every day. And so they do bits. Bits where it's like flash cards and you have to learn but then they also parts where you have to get back into the phone so that your phones like okay. Yeah you're pronunciation is okay or you got it. It's a great. It's a great APP. I really enjoyed it. Kids are using it. My niece used. She's an adult. She used it to learn Spanish. And now she's going to be tutoring my kids great now. I'll plus one. That recommendation of dueling go all right. Well that's the show. It is edited monolingual by engdahl word. Not Email is that full dot com for rubber broke camp. I'm also Southwick stafel everyone.

Warren Buffett America United States Chelsea Charlie Munger Berkshire founder Omaha Mama Berkshire Hathaway Federal Reserve Berkshire hathaway Chelsea Prenton Molly Lancers Elson Southwick Robert Douger
263- Investing and Amazon

Invested: The Rule #1 Podcast

41:58 min | 1 year ago

263- Investing and Amazon

"Everybody was just billtown and Dana Town. Walk into the invested. Podcast here in Corona Ville are Corentin away out here in Zurich Daniels in Zurich. I'm in Georgia and we're doing good. We're quarantining from each other we have. We've shifted our our workshops have gone online. And everything's going well. Everything's doing good. And we're still teaching how to manage your portfolio if you're going to be an investor and by we you mean you. I'm not teaching how to manage a portfolio. Okay true but I am writing about my investing practice on my newsletter and actually this month. I'm putting it out free for everybody because of all the craziness so if you want it you can go to Danielle town dot Com and it's super important to be studying the best investors in the world right now and you're looking at honestly. I really truly believe this. You guys and you can call me on it two years from now if I'm wrong but I believe the next twenty four months we'll be the investment opportunity of your lifetime. Okay hot see a better one now. We're GONNA talk about Amazon. I promise tell me why you think the next twenty four months are going to be the best opportunity because a lot of people think the opportunity has come and gone. Well they may be right. I don't have a crystal ball but I'll tell you what I'm seeing is that We have unemployment pushing almost twenty percent in America we have enormous change in GDP downward and the impact on service companies around the country is enormous. And you know that this economy our GDP is seventy percent consumerism. We don't have a huge industrial base anymore and Nobody's buying cars. Nobody's well. I shouldn't say that maybe people are buying cars but not nearly at the level of nothing's being sold at the level of anything else except groceries and step you by Amazon. We're GONNA talk about Amazon but other than that. There's a well Ray Dolly O. Calls it. We're that we're in depression. It just isn't recognized as such by the cheerleaders who are running the government. And you can't fault them. They're supposed to do that right. But radio is just trae truth. You know the truth and nothing. Tell the truth guys. Yeah but if you're if well maybe it's the best thing in the world for politicians. To tell the truth you think of Winston Churchill in World War Two saying I have nothing but blood and tears and you know Blah Blah. That was a great speech and people were like. Yeah get him. Andrew Cuomo has gone from being like pretty much totally hated to like the hero that we need these days. Don't know miracle do the same thing was and now her approval ratings. Germany are eighty percent. Yeah she's politician. That's insane and she got on there and said get ready for some real serious problems are going to be tough. Yeah Yeah and you know. We got the opposite going on in the country every other day. Trump is the map without getting into politics. You think the next two years. Roughly are basically what you're saying you don't think the market has reflected. I think situation. I think we're in for a really tough time. And I think should buckle your seatbelt and as an investor. What you should be doing is reading reading reading reading reading so that you pick a few companies. Put Him on your list. You not want to diversify your portfolio in an environment like this year. You're going to get hammered. You want to be thinking. This is nine hundred thirty two thousand nine hundred thirty. We're on our way down. We're not down. We'RE ON OUR WAY DOWN. And both in terms of the economic condition of the country and the stock market And this this isn't my view on my own. This is Ray Dahlia's view after studying. And if you don't know Ray we've talked about him a lot and he's the best macaroni investor in the world. I think if you're GONNA listen to somebody about what's going to happen out there. You might as well be him. And so he's basically saying buckle your seatbelt and get ready to buy some gold. You know it's GonNa be it's GonNa be rough out there so I think am and basically what that means is that you're looking at an opportunity to buy the best companies in the world massively on sale here coming up over the next two years as investors start to realize. Oh we've had the peak it's over. The growth rate in my stock portfolio is no longer. I'm not looking anymore. At dividends of four percent and and growth rate of five percent and and in a lot better than my zero percent bonds people are going to wake up and go holy smokes the stock market's GONNA deliver a negative return over the next five years. It appears it's certainly not going to go up. My dividends had been cut in all these companies. I'm not getting dividends anymore. My money's not safe inflation's on the horizon so sitting here doing nothing isn't going to work either and I need to do something else. And what people need to do is to learn to be an investor. You're going to have to start taking responsibility for your money instead of just hoping you can put it out there across a thousand things and everything's GonNa work out fine. Those days are behind us. It's not likely to work out fine right now. Because Schiller indicates it's actually like in the likely to work out to very low single digits to negative rates of return over the next twenty years and the S. and P. Five hundred. So I you know. We're looking for an entire reset of the stock market guys. I mean I'm thinking you know the thing that is sometimes called the buffet. Indicator is the Wilshire. Gdp ratio put out by the Federal Reserve in Saint Louis which one hundred seventy five percent last you know. Two months ago And its historical average is about eighty percent in other words. The stock market is typically priced about eighty percent of GDP. We've been at double that more than double that and so if the only thing that happened is that. Gdp state exactly where it is right now. Didn't move which isn't going to happen if GDP state good the stock market realistically should drop by fifty percent if it wasn't just emotionally driven and and driven by cheap entered by low interest rates. But we're not gonNA have GDP stay where it was going down. Yeah it is already. Yeah and I think you're going to get a triple whammy Danielle. I think you're GONNA see the stock market reset the ratio of the price of the stock market to GDP back to historical norms. Which means cut the price in half of GDP stays where it is. The Dow goes from fifteen to thirty thousand fifteen thousand. Gdp stays where it is. But that's not going to happen. Gdp is going to be down. Let's say it's down twenty percent. Well you just knocked the stock market down another three thousand points to twelve thousand right and then third you've got. An enormous percentage of the stock market is in index funds which don't even try to discover price which means that as they start going down. They have to sell those companies. Even the good ones are going to get sold off. There's no price discovery indexes. And all these people who have indexes are going to freak as those things start coming down and they're gonNA sell orders are gonNA come flying in. I mean this is once doesn't have to be the only scenario but it is a likely scenario and if you don't know what to do right now with the stock market creeping back up toward its previous monster ridiculous highs you might want to seriously consider getting cash and learning to be an investor because you guys if you pick a few companies and you pick good ones ten years from now instead of having a zero percent return inflation chewing you up from there which is entirely possible you would have potentially a thousand percent return from great companies. This is exactly when Ben. Graham who founded this style of investing started investing. This is when he wrote the book about it security analysis. So let's talk about. Why just quickly again I? Yeah exactly and it's it's I I love it half of loves it. Half of me wants to avoid the lake. No not at all. I don't like to just kidding. Half of me wants find out why you think this is different. I mean everything you said could have been said four months ago and frankly was being said four months ago. And there's no like I don't you just sort of announced that like the market will go back to norms. It may not what what if what I don't know. Why do you think that just? Because he's going to go down going around the world so is the reason is the is what you're saying is because GDP is going to go down. The market has to reflect that at some point. So you're saying Oh yeah it has to at some point right at some point and or it's GonNa continue to levitated right. It's going to continue to violate all the laws of nature but one of the laws of nature of the stock market is it's very emotional and it can violate the laws it can. It can be ridiculously priced in both directions. The market overall seems to be thinking that this like businesses will come back. Say three to six months after we get a restart and a lot of people think that we're going to get this restart coming up really and like probably. Choon is going to be almost normal ish and then there's this fear that it'll come back in the fall but the market doesn't seem to be thinking too much about that but you're saying no we're not going to be back to normal in three to six months right. We're not going to be back to normal. In three to six months the impact on on millions and millions and millions of people is very severe And the impact on so many businesses is so severe that they may not even exist anymore so In spite of the federal government wanting to get money in the hands of these businesses you gotTa Remember. They were a business gets money that it has to pay back. It doesn't necessarily mean it'll be successful. That's in fact. The definition of bankruptcy is a business. That can't pay back. Its loans. So if if you're looking at southwest airlines for example right now and think it's going to be business as normal first off you have an enormous backlog of costs in that business that are stacking up and are being paid for by loans from the federal government. Second or fair cash if their business. It has cash around. But they're being paid for somehow. Yeah Yeah but southwest might not get back to its old revenue stream for years and meanwhile it's got this extra debt stacked up on top of it. I mean some of those airlines may fail so as you start to realize the impact on thing is going to be a rolling impact Where I really strongly would urge you to be seriously considering preparing to buy great companies on sale. I wouldn't be in a hurry right now. All right always this bump on a market that's crashing. There's always a this. They call it a dead even have a name for it. It happens so often. It's called a dead cat bounce traffic and it's still but it's you know it bounced when it hit. Oh what yeah. It's terrible Rafic okay. But that doesn't indicate that the cat's okay no right right so right so you end up investing in this dead cat and that's a bad idea so we don't want to jump the gun here Just prepare yourself by studying how to do really good investing I mean. That's you know read. Warren Buffett's letters read Guy Spear's book The the education of value investor read manage provis book Dondo Investing Reid rule number one read invested. Probably the best book ever written about how to do this. And and get yourself educated. You guys because you have a little time here while this thing starts to sort itself out in the impact of very interesting to see if what you're saying is is how. I think there's been one humongous change in the way the world works you know how many companies in the stock market are are global companies. Right I mean coca. Cola makes two thirds of its money overseas. Well the idea of globalism. Which is this wonderful ideal. That was promoted by Henry Kissinger Richard Nixon back in the early seventies by doing this reproach with China and trying to get everybody together. Was that if you can make trading partners all around the world you reduce the chance of war. People don't want to go to war with somebody that's their trading partner and that ideal has been pushed forward for all of these years since then with no regard in the United States for what that means for our workers and particularly what that means for critical industries. And so what? We just found out. Is that these ideals of globalism altruistic. Let's help our neighbor. Kind of thing just comes unglued at the seams. The moment you have a major crisis then it's every country for itself and that's exactly what we saw in China and what we're seeing all around the world. I mean you can't get masks that were made oversees back into the United States. Even if it's the United States company that made them they the countries over there won't ship them. Singapore put a restriction on sending those massed out of Singapore to the United States. Even though they were owned by an American company that wanted a lot of confusion between countries right. Now Yeah and so supply. Chains that are that are worldwide are going to be cut flint all these critical industries and that means a lot higher prices at home as at manufacturing comes home higher prices lower incomes lower earnings lower stock market. That's what we're GONNA SEE. So let's talk about a company that's American homegrown but is massively worldwide to your point and and has sellers and ship soon. Customers ships like as an shippers everywhere absolutely everywhere and that is Amazon. Right the JUGGERNAUT. That is my love Amazon. Ironically I live in a country with no Amazon. It's like an island of Amazon free. Life has been an adjustment. Guys it has been an adjustment so I think you're Ireland's going to expand actually I think that As the United States companies start pulling out of China. The Chinese are not going to be pleased by that. American companies are going to be ostracized. You're going to see Chinese lean on Alibaba and JD. They're gonNA Ostracize Amazon. You're going to see that impact of the reversal of globalism. And it's GonNa hit Amazon. It's GonNa hit Amazon now. That doesn't make Amazon a bad company. That still Amazon. Is this magnificent company. Run by one of the best executives in the world so the question is wind. Should you buy? It is really the my only question. Is it going to be a fabulous country company right through a depression right through a recession? That's GONNA be coming out the other side probably larger than it is today but should you buy it and should you buy it now? What do you think yeah? I'm well let's talk about it so Amazon. Just recently came out with their Twenty nineteen numbers and they're indoor report and they have done incredibly well as usual so maybe we should start at the beginning for the twelve people in the world. Who Don't know much about Amazon Amazon. That was on his run by Jeff Aitzaz. He's one of shown himself to be one of the best entrepreneurs founders and also able to be the CEO of a massive public company which is a really unusual skillset. Most people who start companies. Don't end up running them once. They're enormous because the skills that you need to get. Something going are very different from the skills you need to run a public company with Public Company reporting and all of that kind of stuff but he has shown himself to be really really good at it and been a real leader. I love his shareholder letters obsessively there so Perth. Fun to read an interesting and This shareholder letter. This year is all and you could see what he meant it to be and then that they edited it and changed a later. 'cause they wrote it as the virus was coming out so a bunch of it is about their response to Cova Which I think they've done a good job with their With her supply warehouses and they're shipping methods but most of the letter is about treating employees. Well and all the things that Amazon has done to do better at that. They've really taken the criticism and responded to it so he gave a whole bunch of stats in the letter. Like they've in we've heard some of these like they've increased Their minimum wage by two dollars per hour. They've doubled the overtime wage they've added they've created one hundred thousand jobs in the US which are apparently all filled. I think already. They've just done a lot of stuff so he really wanted to highlight that in his letter. I think in response to the criticism that he's gotten in the past and and they've just they've done extremely well they've got. My numbers are gone away. But you know something like twenty five percent growth. Basically they have huge growth. They really do six spectacular. Anna spectacularly well run company and their stock has gone through this amazing ride crazy going back into two thousand eighteen peaked at about two thousand and dropped down to fourteen hundred and then went back to two thousand last July and then and then the Krahn virus when that hit it dropped down to sixteen hundred and then has climbed up to twenty four hundred now. So it's gone through this massive wild ride and and so you know I've wanted to buy this company for a long long time and I've looked at. It's you know the valuations on the different ways that we look at valuations. So you want to hear about those shirts street to valuation. Sure I mean we can walk through all the critical things I mean. Are you capable of understanding the business? It's like kind of understanding your local market effectively. They're selling a lot of stuff and you don't have to understand every every jar of peanut butter out there. You just gotTa understand how the business works. Yeah I think the important part for me regarding understanding is understanding the really big buckets in which they work. So they've got the way they describe it as that. They have three segments North America international and Amazon Web Services. I really don't find that very helpful. The Way I think about it is they've got sellers and buyers. They're like typical like book selling and then selling everything else that they developed into. They've got all the sellers who sell their third party stuff on Amazon as a platform. Then they have kind of like their entertainment section which is Amazon Prime Publishing And some of the stuff that they create their and they have their Amazon web services. So that's how I think about. It not just helps me understand it. And then as far as figuring out like what's going to happen to it. I think Amazon web services and then all the stuff they sell are kind of different buckets in my mind. I think you're right. I think they intentionally by by dividing themselves geographically. They're obvious skating their number. So you don't know what's really going on but just look at the whole picture and of course we if we look at the whole situation. What's the Moat for this company? Yeah it's an intriguing one right on. I thought it doesn't really have one. I mean they're huge so that's one but I went through them and I was thinking about it. I think I think actually they've really strong one. But it's not what I initially thought I think it's a switching boat. I think once you have an account with them. It's so easy to buy anything on there that I mean probably most of us have done this. I certainly have. I'll pay an extra buck or two on Amazon instead of so that. I don't have to create an account on some other website. That takes me ten minutes to go through and put in my credit card number and all that stuff on Amazon. I can do it with one. Click and I think that's a that's a full switching moat and then actually. I think it's the exact same moat for Amazon Web Services Switching. Once you're part of it it's a good service. It's easy to stay on with. And they have so much market share. That is just easy so I think in both cases it's a really strong switching mode. I agree I if you think. The switching modes rough to get off of Amazon to go to some other retailer. Aws Oh my God yeah. It's a big deal. So yeah. Huge switching moats and of course they have a brand mode which is fed by that switching especially thought actually that it would be brand but then I thought about it and I was like do they really have that much of a friend. I don't know if you think. In terms of starting to think in terms of an entire category in the name of the company that's brand moat. Right so we think about xeroxing some some papers back in the day right copying and giving Harvard Amazon just Amazon. It's a it's a title of something then or zooming just because zoom shut down on me and I don't know why so. I think the line cheese a little on overload kidding but that's and then of course we've already said the management team. There is just amazing. So you've got a huge motes. Which mode is one of the best mode you could ever have? And you've got a fabulous management team so if you're able to understand the business this is something for you to think about buying and that's the question of okay. What should I pay for this? Now go for it okay. So the problem with figuring out the value of something is that we really shouldn't reference prices are any more than you should figure out the value of chunk of gold by referencing. The prices in jewelry store on Miami Beach wouldn't wouldn't be the place to figure out what the gold is worth by looking at the prices. And and how? They cut the prices to give you this super discount. That doesn't help you at all. Know what the value is so just had this really funny picture of my head for some reason of you on Miami beach looking at gold chains and was like with like a Hawaiian shirt on joining the geriatrics. Down there. Knobby knees my bowlegs. Black socks some sort of awful. Jesus Sandal going. Oh look at that shaney cheese. What do you what for it? Oh my God that's a terrible image but it's possible so yeah figuring out the value of Amazon is is really a couple of things that are really important number one. What what. What rate of return are we willing to get to own a great company and and my answer to that for a long long time has been? I want fifteen percent justify being in the business. Yeah it's a bit arbitrary You could argue that with interest rates at zero. It'd be reasonable that lower that but it's an absolute return. It's not relative to interest rates per se. It just is a number. I'm comfortable with so I'm going to base everything on getting fifteen percent return in terms of what its value is and then. I'm going think in terms of can I understand? Well what the growth rate would be of this company. Do I know enough about this to be able to figure the growth rate? Well enough right. Can I look back at the history of Amazon where I can see the growth rate over a long period of time over on our toolbox? You can see real easy but you could figure it out on lots of places what how fast the critical numbers are growing in. That would be a fester sales growing earnings cash and not free cash flow as well. So you're looking at at a small handful of numbers that you Kinda just WanNa get an idea on so he got sales cash earnings and really should know the book value growth rate so with Amazon. These are all gigantic. Twenty twenty percent to seventy percent per year compounded from overall the last ten years there. Those are all averaging right at a very beautiful twenty-eight percent twenty nine percent per year which is just insanely high right so the question is will they continue to grow that fast and probably not. There's no companies that have ever grown that fast for long periods of time with a handful of exceptions have done it for twenty years like a Walmart and places like that so Amazon is going to be the exception but they might have been around a long time and they probably are getting to a point where you know you gotta ask. How huge can you get when you're growing at twenty six percent per year? You're doubling your size of your company. Every three years so in ten years Amazon would have to double three times that that is just enormous right. I mean he just did the size of this company at this point. Yeah we'd be idea of Amazon. Doubling is kind of insane. Yeah I mean they're making two hundred eighty billion dollars a year in revenue right now. Let's call it three hundred billion in double it three times. That's six hundred billion in three years. Then one point two trillion in three more years and then two point four trillion dollars in three more years after that that. Which number is that three? That's that's the sales so this is sale. Okay so let's say. Three hundred six hundred to one point two trillion to two point four trillion so ten years from now. Theoretically to twenty six percent growth rate these guys would be doing two point six trillion in other words about ten percent of GDP for the entire country with Amazon. Yeah just Amazon. So that's starting to think. Wow that's a lot I'm not gonNA say that's not possible. This business has turned into created areas. Nobody ever in a million years thought that they would go into. I won't say it's impossible either. Just say that sometimes when you get that big you start to run into limits to growth include legislative limits to growth is the biggest risk. Yes right so when we try to figure out the value of the business you gotta you gotta come up with a number that would reflect some reasonable level of pessimism as opposed to wild optimism But when we do what? We're calling the margin safety analysis. We do like to stay pretty much on the optimistic side of things and if we if we ask okay well what are the analysts saying about the growth rate over the next five years or so? They're all looking at twenty three percent average. And if you run the numbers based on that the the sticker price of the company what it's worth if you WANNA fifteen percent return is about twenty two hundred dollars per share right now and it selling for twenty four hundred. So it's blazingly accurately priced for what the analysts think the value of the businesses which is amazing. And if you said well let's look at it like I want my money back in some reasonable period of time from free cash flow which we call the payback time. That case you're looking at about twelve hundred dollars a share or about half of what it's selling right now and less than I got down to when it dropped like a brick during the corona virus. Drop so if you're looking at payback time. You wouldn't have been able to buy it 'cause you're looking at twelve hundred bucks. And if he wanted to do the ten cap which we love and we really highlighted in the book and invested then you would be running the owner earnings numbers and just doing a quick winded number on those a minute ago before we started this. I come out with a value per share of about four hundred and forty dollars at the ten cap so massively lower than it is right now. So let me just repeat those so you are saying that your sticker price on the margin of safety analysis. The Bull Sticker using twenty percent using twenty three percent growth is about twenty two hundred. The ten calf analysis using owner earnings is four hundred forty dollars and the payback time. On what like ten year payback time? It was an eight year payback time. Eight year payback time. Twelve hundred dollars so ten years. You know a little higher. Yeah that's quite a range. Well the margin of safety is at at eleven hundred bucks. Let's be clear about that. That was the price that at her two hundred. And we don't have that huge of a range. The ten cap is substantially lower But both Arjun Safety and the payback time right around the same number around eleven twelve hundred per share and in fact. I was trying to figure out if I could buy this thing. I was hoping it would get down to seven hundred. I was going to jump on it so I was gonNA take a number. There was an average of all that and jump in there at seven hundred seven hundred dollars. You think Amazon's GonNa drop to seven hundred dollars. Well no I don't have get whether it will. I'm just saying if I want to buy it with a large margin of safety given the the fact that it can't grow at these rates forever and and that you know the world could cut back on Amazon. There could be other kinds of competition. There could be legislative problems. You know if I want to buy with the margin of safety as Charlie says given the vicissitudes of life than you know seven hundred bucks a thousand bucks at the Mo- Eleven hundred maybe twelve hundred at the most and I would be in a fairly comfortable place. Okay okay but good luck buying it at that price. This economy melts down and everybody just gets out of the stock market and even then we might not see it there so then the question becomes should we dead anyway. Should we just go buy it anyway and accept a rate of return? I feel like we've had this conversation like seventeen hundred times and every time I every time I look back and I go well if I just thought about it back then where would I be. I'd be rolling in it. Don't do that because you have not been an investor with a really serious market crash yet. No I haven't and when you get that t-shirt you're going to think a lot differently about oh I should have bought it you. Yeah Yeah no. I mean even not the dip in March that. It's been a real experience for me this whole thing and it's a very very good way like I'm learning a ton and I'm taking notes on my reactions and how to deal with them better. It's it's really really educational so I'm trying to make it educational without losing money. That's the trick I. I'm thinking that a couple of things will really help you and let's go into next. Let's let's answer the question first so if you start to think like oh well maybe. I should just by Amazon. Then what then? You just stopped being a rule one investor and Strathcona gambler. Going to gamble when you're buying an air at two thousand four hundred a share you're gonNA gamble that no bad things ever happen. Because it's priced to perfection. His price for a growth rate that is I mean arguably unsustainable and in order to be valued at twenty four hundred a share at a fifteen percent discount. It's going to have to be grown at twenty three percent into the future past ten years or you're not going to get that as a that big pe ratio. So I I think that the critical three words of investing margin of safety are being thrown out the window here in an attempt to guess. And that's not something you can do. You can't guess with your retirement money or another way to put it. I think is. We're not really guessing right like we're using all of this information and as you pointed out it's up a sticker price basically if it were a little bit lower than it is today so if if it keeps growing at what did you say twenty three percent was the number you used and a lot of people think that that's possible if everything goes well in the world and it keeps growing at twenty three percent. Then you're going to be a fine. You'RE GONNA YOU'RE GONNA make money you'll make fifteen percent of your. Yeah so that's why people look at it. So the the variable in there is the. If it's if things don't go well then what happens? Well then you don't have any margin of safety. So that's when you're GONNA lose money so that's why it's not the it's not. The People Are Idiots are just guessing. There's a there's a method to and it makes sense but people on there are people who are not guessing actually and they're not necessarily that optimistic but they're still buying it at two thousand four hundred and that group of people professional investors managing funds are content to make fifteen percent a year. That'd be fantastic. I hope it does it but it doesn't do it if it does half of that and I make eight. That'd be fantastic. In a zero percent interest rate environment and in fact if it doesn't quarter of that and make four. That's better than I do by buying a bond so hey and if it does half of that at two. I still haven't lost money. So there's the thinking that's going on with institutional managers because it's not their money. They're not trying to get wealthy by being successful investors. They're trying to get wealthy by hanging onto your money and charging you a fee so there's an entirely different game going on. If we want to get wealthier stay wealthy from say. Get wealthy right staying. What his whole different ball of wax but to wealthy then you have to be iron disciplined and mostly do nothing and pick your opportunities very carefully and be extremely patient and I'll go back to what we started. This whole podcast with is the next two years a more likely than not going to be very bumpy and the stock market is not going to be going up. It's going to be going down and when that happens it could take even Amazon down with it. So that's what we're waiting for to step in not hoping for the market to be terrible. I'm just saying that I'm ready to step in with cash. If in when that happens and I think there's a good chance that it will and I thought it up on that and then talk about maybe how to invest in this market. How would you actually take a position in a company? That's on sale. Let's talk about that next time. How to take a position in a company that's on sale? We're not gonNA talk about that next time. Because next time talk about the Berkshire Meeting. There may not be much to talk about. In which case we will talk about how to take a position in this market but you guys just reminder our the Berkshire hathaway meeting is the Saturday may second. It's entirely online. Fortunately they announced today. It's not going to feature Charlie Munger our favorite. Because he's not in Omaha so it's going to be buffet and Greg Able and will be very different from the way it usually is in and maybe super interesting so check it out. All the INFO IS ON BERKSHIRE-HATHAWAY DOT COM. And there's a link to the Yahoo Finance site that's going to broadcast it out. Buffet blinked when it came to WHO's era parent by bringing April in. That's fascinating. Yeah he's been very very very sort of careful about not leading toward able or edge it Jane and which one's going to take over you know there's there's a thought that maybe wexler or somebody but now he's bringing up there then that means he's the guy with the the future maybe or maybe he's the guy who's an Obama because she lives in New York Todd one of them lives in Omaha and the other one does and so and he doesn't like to put them up so much and Munger lives in La. So yeah that's my guess I can just zoom in. There's right there's no way. Check that out and then the other thing we promised the other thing we promised to say today is what that name is for Chinese companies. That people wanted to buy. But the don't have eight ers in the US to remember what I'm talking about because I cannot v. I. E. and you said You would tell us what that stood for. Yeah okay wait a second. I forgot I gotTA GO. Look it up but but just trust me. Vi would be the the key name for these things and it is variable interest entity variable interest entity which essentially boil it down for you essentially has a theoretical right to the earnings of these companies. That's what it all boils down to and I think they're all sitting in some island Kit Cayman Islands. I think that ought to tell you something right so we just wanted to say what we promise that we went and the choice between Alibaba. Vi Amazon. Guess what you should do if you're forced to buy one of those things last announce it is. We're going to do a fun. Little Pre Berkshire exciting live thing on Instagram on my instagram. Danielle town so lookout for Info on that. And if you're on my email list Then you'll get info that instagram in order to get on this and lesson. Do I have to sign up for instagram? I'm going to show you what to do. Don't work okay. I guess all right thanks guys. Thanks for listening to invest it if you enjoyed this episode and you want more information including show notes and more episodes visit us at invested. Podcast DOT COM. There's a special offer waiting for podcast listeners to attend my three day investing workshop absolutely free so just head to invested PODCAST DOT COM. Everything discussed on his podcast. Either my opinion or Danielle's opinion and is not to be taken as investing advice. Because I am not your investment advisor nor have I considered your personal situation as your fight. Do -ciary this. Podcast is for your entertainment and educational only and I hope enjoyed it.

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Warren Buffetts Bid; Black Friday Deals

Squawk Pod

37:21 min | 1 year ago

Warren Buffetts Bid; Black Friday Deals

"This is Gary Shatskikh. I'm a fee only financial adviser and we'll share my thoughts later in the podcast on minimizing risk in the current market more to come soon bringing in show musically. This is squawk fat. The daily podcast brought to you by the team behind squawk box control to CNBC's diseases central morning show every day. Get the best stories. Debate and analysis from the biggest names in business and politics are doing that today on Squawk Pot and it's black Friday. We have all the details on the big retailers and the small ones doing business this weekend and all the tech gadgets. He should have in your car wherever you choose to shop shop. The retail story plus a peek into Warren Buffett's plans for all of his cash. Some breaking news from becky about where buffet wants to put his money and why this particular effort. It didn't quite work out. I'm seeing the producer. Cameron Kosta it's Friday November. Twenty nine squad begins right now that you buy in three good morning everybody. Welcome to Squawk box here on. CNBC we are live from the Nasdaq market site in Times Square. I'm becky quick along with Andrew. Ross Sorkin JOE is out today. It is indeed a black Friday the biggest shopping day of the year. But that doesn't mean other business news stops before we get to all the retail details around Becky Quick Brooks News this morning about Warren Buffett. Here she is with the scoop some breaking news this morning. CNBC has learned exclusive details about about a deal in which Warren Buffett's Berkshire hathaway was outbid late. Wednesday Tech Data Corporation said that it had agreed to be bought by private equity firm Apollo global for one hundred and forty five dollars has a share that values the company at about five point one four billion dollars excluding debt and that deal was sweetened from Apollo's previous bid of one hundred and thirty dollars a share after an unnamed suitor. Talk the original offer that suitor was none other than berkshire-hathaway. Buffet told me that one week ago he bit one hundred and forty dollars a share or just over five billion dollars excluding debt. Apollo Apollo's offer. It was accepted by data as the better offer that sweetened deal that they came back with one hundred and forty five dollars and buffet says he does not intend to make a higher offer. Tech data is a global distributor of technology products and services. Its supply small companies with technology software and hardware. That's made by bigger technology companies BERKSHIRES. Catchword has been growing topping. One hundred twenty eight billion dollars according to the latest. SEC filing a lot of people wondering what he was going to be doing with that money this move is an interesting pivot for buffet. He rarely goes up. It gets private but equity companies and he does not like getting into bidding wars but it does show how he's going further afield in terms of trying to look for places to deploy large stash of cash. They move very quickly on this a steel They found out about it on Tuesday when Bank of America brought it to their attention because of a go shop provision by Wednesday. Buffet said that he had actually looked at it and thought it was. Maybe worth one hundred and forty forty dollars by Saturday. They'd made a formal offer for that. Just taking the original contract that Apollo had written up and changing just a few deal details to make it a little sweeter for the tech data side of things Anyway it just shows he's moving very quickly trying to look for places to deploy capital and also speaks a little bit Two two prices in this market valuations is at this point. Let's get reaction to the news right now from Peter Book Far. He is chief investment officer at bleakly advisory group he's also a CNBC contributor and Peter. What really strikes strikes me with this is back in May buffeted told us that he thought market prices for stocks were fair? That still beat anything you saw in terms of looking at the Treasury's injuries or anything else but when it came to actual companies to buying full companies outright. He thought those prices had gotten bid up. Because there's just so much cash that's out there floating around right so buff if it is obviously more price sensitive than a private equity firm that wants to deploy the capital because then they start making fees on it but it's also interesting is that for Warren Buffett. Data was a way of playing technology by being technology agnostic. They have over one hundred thousand different customers over one hundred thousand different products where. Ibm He sort of chose. Who's WHO's going to win and Technology Apple? He considered a more consumer products company Tech Data. It doesn't matter who loses in terms of software and hardware it's as long as companies are using technology tech data benefits tick data just a little more information about it because I didn't know that much about it until I started digging into it They ah there middleman essentially good tech bellwether to see who's doing what when and where right now I think they're biggest product that they sell apple makes up sixteen percent of the products. Roddick's they sell eleven percent comes from Hewlett Packard enterprises. Another eleven percent comes from Cisco here are some of the big part writers that they team up with on those but it is a good way of kind of seeing what's happening in the industry and seeing what changes. I looked up an article that said five years ago I think or maybe four years ago back in two thousand and fifteen analysts were concerned. That apple was becoming a bigger player. It was making up to something like thirty percent of the sales at that point of people thought it was going to be too hot. But it kind of shows you The fortunes of some of these companies these other big tech players. That are out there. I I think that it has over. A thousand different vendors that they're selling product for it so whoever's up and down it won't matter. How much do you want to own the company to see? What's it's going on from its perspective? You could make the argument. He owns so many other companies that have to use so many other services already that he he should be able to have decent visibility into the world of technology to begin with. But this gives you the direct SORTA line. Yeah and if you're going to sort of play that way without having to pick and choose choose who's got the better product which is what what Buffett acknowledges. That's not what he's good at. This is just an easier way of capturing growth in the technology space without without having to figure out who's going to be a good product and when the lines just we were talking about impart you understand right. You actually actually see what's going on in terms of WHO's winning who's losing and then basically and this is one of the things people don't talk about sort of insight into into some people say actually not too good of an inside but this is something that's happened by the way down the private equity space little. Oh no question and I'm sure with Todd. Combs helping out in in sort of broadening ending buffets horizon in terms of the type of things he invest in. This'll be a huge help if they were to buy it and bring it in house is actually the one who got the call from Bank of America. buffet. Took a look at it after that and then brought greg able into it to actually go down and do the negotiations with the company Private Equity There's a company called CVC capital Private Equity Company the bought one of the competitors tech data back in January for one point eight billion dollars that company was converge one holding so it is an interesting area for private equity to kind of get involved right now. The big said did that's secondary issue. We well but it's a little complicated. Nobody really raises it but we should raise it. So you have some private equity companies that are not buying buying businesses that have great access to Sales Market Dana stuff that now a lot of product we come as it used to just by other the private companies also have a public trading arm right so and there's not a Chinese wall so they're able to say look. This is really release. Selling we see this. And then they're able to buy the stock of the other companies and then you have to decide whether you think that this is good bad fair in different. I I don't know it's one of the reasons that I like having private equity guests on the first thing they can tell us if they've got sixty or seventy or eighty different companies. Give me a broad swath of what you see an economy. And they've probably I've got a pretty good. You're no no no. I'm raising different quite different issue. Which is privately telling other people? What what what really constitutes inside information whether we? I think there's a fair playing field in the marketplace whether we think that my mother or father actually has the same access to information as an investor. Do you have the access to to to research analysts. But in this case gave access to actual sales data rates actual access to sales data. Is that different. Should you be limited in terms of your ability to actually by into public stocks that are on the other end of these things and that is a whole world that has not been explored now. The private equity is attached themselves effectively to some people. Call it the casino but the stock market so Buffett owns a lot of apple stock and apple is tech that biggest customers. Basically what you're saying aginst buffet. But but I'm just from insight the insight issue and you have to decide whether what that it how great that incite is or we're not by the way you could argue it. Just one slice in terms of the inside meeting. You're not getting you know. One retailers inside is different than somebody else's insight and that's one one of the arguments why you probably could tech. I wouldn't be surprised if this would have been a platform for something. Bigger checked out a huge revenues tight margins very low margin business. You need scale. You need size business to succeed. Peter one thank you for being here. It's going to be next ready. Set shop all the retail details. You Need America's biggest shopping day of the year pod will be right back. A message from her sponsor gained bridge. This is Gary Shatskikh Financial Advisor Challenging Time Right now is an investor with precipitous interest rate drops in increased risk perception in the markets. This suggests taking in a fresh look at your current portfolio investment options. You might consider to ensure you obtain the growth you need at a risk level you understand and can tolerate ways to minimize risk or not new diversification low fees low volatility but the current environment cast CDs bond funds and lower volatility stocks in a new light fixed annuities are also a straightforward option to consider offering a fixed rate of return and maturity date and in most cases a high level of safety the advent avenue ity providers selling online might provide more competition and higher returns before making any investment decision about if a fixed annuities a fit for you evaluate valuate the rate of return risk time horizon potential penalties and tax implications. It's Kwok Fahd. We're back now for the other big story of this black Friday retail. Here's Andrew kicking off what we in news this call a reporter went. That's around up of stories from reporters in various locations in this case retail locations. We go happy Thanksgiving every everybody America's eight their Turkey yesterday then shopped online in record numbers couldn't early data from Adobe online retail. Sales on Thanksgiving Day will now reach a record. Four point four billion dollars that's an increase of nineteen percent from last year's online sales of three point seven billion adobe expecting black Friday sales to reach seven point. Five billion dollars dollars this year. That would be a gain of more than twenty percent from last year. We've got full coverage of black Friday's hobble holiday shopping today. But let's start with Gordy Reagan. She's covering the mall. Traffic in Woodbridge. New Jersey coordinate. Good Morning Andrew. So of course. The cadence has changed a little bit of black Friday with a lot of these things happening earlier on Thanksgiving Day with the sale some retailers doing early black Friday sales even still today is expected to be the busiest day of the year for retail. So when you're looking looking at the five day stretch between Thanksgiving and Monday one hundred sixty five million. Americans are expected to shop in store online or a combination. One hundred and fifteen million today. Four hundred million were estimated to have hit the stores yesterday and the Internet according to the National Retail Federation now many retailers of course offerings some early black Friday deals deals Walmart. Starting those in October this year Amazon started. It's black Friday deals last week this weekend. Though still very critical for the sector so according adding to ten ten data last year black Friday generated six to seven percent of total quarterly sales for lots of retailers including American Eagle and best. Buy that that compares to normal Dave about one percent so black Friday zoo equivalent of an entire week of sales at the average household is expected to spend about four hundred fifteen bucks this weekend and according to Deloitte mentioned some of those numbers from adobe four point four billion dollars expected to have been spent online yesterday seven and a half billion today again this five day stretch will make up twenty percent of the total holiday seasons online sales. So what are shoppers looking for. So far we'll according to adobe some of the top sellers for toys choice Rosen to ll surprise pop patrol and gaming you've got madden NFL. Two K twenty nintendo switch in electronics Amazon fire TV Google Chrome cast and also air. fryers I guess that's this year's INSTA- pot but speaking of Amazon my colleague Deirdre Boas in San Francisco. She's got more on that retailers holiday they strategy out to you we were just commenting on those air friars I- anyways Amazon holiday strategy has always been cheapest and fastest But as Walmart target and others up there ECOMMERCE Games Amazon may actually be losing. Its edge so I looked at two items on Becky and Andrews List and during the market for a color printer with wireless capability. We looked at the Canon picks a model g forty two ten. It is pretty much the same price across the major ager ecommerce shops but Amazon. What they slight ninety nine cent advantage that we went to delivery times Amazon comes first with one day shipping? Andrew would get that printer on Monday if you order today but not necessarily the clear winner because remember you have to have that prime membership that costs one hundred nineteen dollars a year so if your way today Walmart Walmart will actually get that to you on Tuesday. No membership required best. Buy on Wednesday now becky. Your item was far more straightforward a counter. Kate Pacman Gaming Gaming Unit the best deal by far the sites. We checked what had to be at Kohl's for one hundred and forty nine ninety nine cents on Amazon it was actually only available eligible from third party sellers only at starting at double the price. So guys this isn't exactly a comprehensive luck but it does suggest that the ECOMMERCE holiday battle continues to heat up especially Ashley Without one day shipping. Also one of the reasons why we continue to see growth at Amazon's core retail business. Slow back to you so hold on selfishly. I can only get ninety nine cents. Aw basically the printer that's all that's available so saying yeah. I mean it's a pretty competitive product so there was just that ninety nine percent discount. And if you have the prime membership just go to Amazon but if you don't do okay I'm just going to ask our audience because we have a lot of clever people out there because I need to get a printer for the family. So if you think there's there's a better printer and a lower price send me a tweet. No I WANNA know I wanNA deal. I WANNA deal so. We need a printer for the family. Family the kids need a printer that does glossy pictures but also can be done for homework and things like that color. Let me know I WANNA know Jessica. Can I just say that you are saving me with this because I often think of Amazon is my first and only shopping. Stop that I'm going to do if I'm shipping something from online because I am a prime membership but what you're talking about is going to save me a whole lot of money if I look around for something not often the case. That's a big deal. They just don't have this. I have a question for you becky. Where did the counter kate idea come from because to me? It didn't seem like a super popular option. And maybe that's why Amazon doesn't have it but it was really interesting so much cheaper. It was first story that I did for on the money money. We had a woman who came in. WHO's a great toy expert? Who looks at all of these things? It was one of the four toys that she saved would probably be a hot seller. This this holidays so I took took it off from that. I'm like yeah I I do want this. But maybe it's a great gift of where a Walmart or a target or a Kohl's or one of these other guys actually gets a better exclusive deal deal when you lock up exclusive deals. You're not gonNA find it on Amazon. Yeah that's right and again only third party sellers so when you get tips shipping and everything that's also a lot so so you're paying more. You're waiting longer. It was surprising to me as well to see that goals and other retailers had a much better deal. Can I ask one more question force. What the heck is an Air Fryer? We've been talking talking about that the entire time. What is this will coordinate? Probably in a better position type but from my understanding because I don't use it yet but I have. I've heard lots of buzz around it basically. It's like deep frying food healthier so you put it in some kind of machine air fries but it tastes like deep deep fried. That's that's my understanding like air burning which I'm okay with that better better quality for it anyway. Thank you for doing all this work in advance for us. We really appreciate it thanks Kate. Rogers joins US FROM A target store in Jersey City. What's happening? Hey enter the store. And the retailers really heading into this holiday season with an advantage having just reported stronger than expected quarterly earnings especially compared to some of its retail competitors like JC Penney. And Kohl's as we mentioned two thousand eighteen marked its strongest holiday season in more than a decade a lot of focus has been on digital those digital sales increased thirty one percents in the most recent earnings report targets also focusing on the in store experience. It's made investments to spruce up at stores. It's also introduced some smaller format matt stores in certain locations and launch some new in house brands for both clothing and grocery companies working with Disney to open up many Disney shops in some locations and has teamed up with true kids. That's the parent company of Toys R.. US to help relaunch that brands e commerce operation another big area focus of course is delivery. Target has teamed up with shipped shipped for same day. Shipman options it also has same day pickup in stores. The company has doubled. The number of its team members dedicated to fulfillment. So you can get those orders. Even faster like many retailers it started. It's black Friday. Deals early online for its red card holders on for discount on things like beats headphones roku smart TVs ipads pads and more we all know. The holiday season is a bit shorter this year by six days. So it's really important to get customers those options back over to you. Okay thank you very much. We've got a dynamic duo this morning to cover the retail world Intel's CEO and Chief Research Officer at the Chelsea Advisory Group already out in stores right exactly and Jeniffer is also here. CEO of J.. Rogers and if and if of course a CNBC contributor. We're just a minute. I'm going to give him a little a bit of store credit to do you guys did not see each other at the same stories. This different stores different stores. Who knows if that's true? So what was the gut. What's your gut reaction action here? I mean black. Friday isn't what it used to be. It's still a really big day but when you have promotions. That are beginning on Halloween right around. There consumers have a lot of choice of what to buy and when to buy so the deals are special. It's a huge weekend. But it's not what it used to be when everyone was rushing out of four and five in the morning stores close by a good thing. It's a healthy thing. Is this better. I think basically it gives you certainly a little bit more time. Consumers always have a fixed budget and they decide when they're going to spend it's in the control troll of consumer consumer but I'm asking is it better for the retailer. Retailers have more to make up in a shorter period of time always have and it is more promotional than it ever felt before. You're so John Would you see travels. Walmart started on the twenty ninth of October for Christmas. Sales realize oh yeah really and target Argonne started shortly thereafter. So if that's true too now it's just a race to raise to July fourth. What are we talking about here? It's a race to January. I mean yes. It is and and we'll see plenty of sales after Christmas of course because this is the best it's ever been after Christmas for the last few years but yeah so the whole thing has changed. I mean this is my fifty fifth year of either or being in a store working out looking at a store on black Friday. I've never missed one and it's changed dramatically but when we started not when she started she's is younger but when we started the stores really did open at ten o'clock and close at ten o'clock like they did every other day and then they went to eight o'clock to ten o'clock and they went to eight o'clock midnight and so- judging the store got more and more difficult the Internet's on the same thing. We're out in stores. We don't really know what's going on. Because twenty percent of the sales with twenty five percent of a lot of these stores horse coming online so it's really hard to tell by looking at the store what sales are doing but if sales were up nineteen percent yesterday online. which is what we believe? We're going GONNA be fine for the Christmas selling season. Data's just said something very interesting though she said it's more promotional than ever. And that's good news in terms of getting the traffic in the stores but it could mean that there are deep discounts. Cancer coming with that. Are these profitable sales yes. They are their plan. Motion for most of these guys are the margins margin obviously gets right. Well I asu losers trying to break razors and blades situation products. That are you get to in the store. But I don't know if that works the same way online right. We started out two thousand nineteen. It was all about margin flow through and look where we're ending two thousand nine thousand nine hundred. What the margin flow through and I think when you think about the holiday season of nineteen nineteen? It's about the letter B. Binary holiday season and its value inconvenience between the haves and the have nots. It's basically about big box Walmart and target and it's about brands. So if you've got binary branching big body give me something unexpected. Tell me about the retailer that you think is actually going to win. That everybody thinks is GONNA lose. Is there anybody Out there. That's not Walmart target or Amazon. Yeah I think is going to be a real. Here's to retailers are going to win that other people. Don't think you're going to win. Because people think the high end slowing down the top ten percent of the economy is not spending and caring which is Gucci to most people and Prada which is a turnaround are both going to do well. Despite the fact that people are trying to tell me the high end consumers not strong not gonNA affect their sales going to be strong. LV major is going to do fine too but they're already trading a number that people find hard by by but they're going to do well two but carrying doesn't trade it. Those kind of numbers surprised. Why win those work and yet obviously we we hear about You know nordstroms and Neiman's and everybody else in that high end space. Who's just been clobbered mall? That's not brands. I know they're in other words selling the brands but are doing fine. All across the spectrum brands are selling through. But there's something through what channel that's working for them. They're selling through their own. Stores are selling online online. They're selling in places like Nordstrom's and Neiman's but they're changing their mix enough that they're they're harvesting the Brent. The strong brands are winning third party sellers of strong brand rand. Losing when you think about your parents are going more director consumer and yeah terrible question for you because we were watching. macy's this is day parade yesterday way you we all were and it's a one. It's one of the great things in in the world and I love macy's how is macy's GonNa do and I'll tell. Oh you were came up at our dinner last night. Somebody said I'm not going to say who said what happens. If macy's goes away one day what happens to the parade that that was literally the conversation Fourth of July and the fourth of July and part of the reason why those parades those fireworks doing memories create experiences assists and when you think about what all retail wants to be right now. It's the experience you mentioned pop up before who would have ever thought that. LVMH should be doing pop ups now doing one hundred pop ups this year. You'll find a new way to create memories when you think about content. Only macy's is going to be here in twenty years may be here in a different form. It may not be here in the same number of stores that they have today and it may not sell all the different categories that they sell today. We're going to have a different retail environment than twenty years. Look at rent. The runway look consignment look at subscription. We're GONNA new name to talk about and we need that with the evolution however Nordstrom's macy's and Kohl's are going to still be here all the rest of those people that fall into those categories may not be here but those three are going to be with us. They're not highly levered their restructuring. Their business. The returns may not be what they've been. Dana may not be telling people to buy them because of that. However they're not going away he said I said Nordstrom's macy's and Kohl's okay? We'll still still be with so macy's still with us. They will still be well because we were not going to chase parade parade parade. macy's Pana Ten ten percent dividend macy's by buying back their debt load. They're doing all the things you have to stay with us. The question is what's the return turn on investment going to be but they're going to be here and so we're Nordstrom and Kohl's you've just made a lot of people happy will be next coming coming up you know. I love this stuff. I'm like a total geek. I Live for our team has listed tech gadgets that you definitely make it to your own wishlist. This holiday Swat Thud will be right back. Welcome back to Scott. Here's Becky Becky. Kicking off another holiday shopping conversation. David Kelsey Jen Nathan. You met them a few minutes ago are still onset so what tech products should be on your wishlist. This black Friday joining us right now to bring us the best of the tax todd Hazelton. He's technology product editor for CNBC digital and Andrew. This is you. I'm sorry it's okay but tell the you know I love this stuff. I'm like a total geek. What I live for you got the headphones here? Yes aeronautical out of order all right. I've reviewed dozens of stuff the holidays. These are my favorites. That I've played with air pods pro already. I mean I told you guys. When when they launched they sound great? They have noise canceling. They are two hundred fifty dollars. Though and last week we learn easier to drop their bodies by apple care. It's twenty nine bucks for air pods is worth it because if you need to replace them You can do that. Play similar lose even if you use them. Yeah Really Twenty Nine Bucks January twenty nine bucks a year. Well Apple Care plus I should say. I don't know about the Wednesday delivery those so yeah that's a good question. Last week. We learned apple has pushed it back to December thirtieth thirtieth earliest. If it'd be a little but Amazon has them on sale to go back to Amazon for fifty dollars off and you can get them before Christmas. So that's actually the better place you got it now. There was a report last week. That appleseed such high demand that they may be increasing production asking production partners to increase production from one million to two million a week anymore. Anytime you have to get these now you can still buy the regular air pods and get those before Christmas but these are the ones you want. How do the real quick? How do these on an airplane? Great so I I used to use the big bows. Qc you see thirty five on an airplane. has these do not as well but pretty close and the the fact that this is a lot smaller road the warriors you need to get a Don goal though you want to connect to the inflight stuff I just want the in flight. The inside matters about the dangle you put the stick the little thing and yeah yeah yeah okay but I just use my earphones. You could buy from Apple Belkin all these other companies. So what else you got the specs of speaking the kind of like the Apple. It looks a lot like at home. But it's not. This is Amazon's Echo Studio. It's the best eco I've ever heard. It sounds really good better than a home pot I think and it has this crazy. Three D audio effect. And that's using Dobie most. But here's here's the kicker this Amazon very good at getting you subscribe to things you have to subscribe to Amazon. HD MUSIC MUSIC HD to actually get those better sounding music tracks but we don't spotify it doesn't sound just it doesn't do that three d audio which is really cool and there's only one hundred or a couple hundred songs right now but they're coming otherwise it's still sounds one so I think it sounds better than US almost one. I also have that I it. Just it's it's awesome. It's worth it's worth considering and it. Does everything else that an echo can do. So you can ask the weather all that kind of stuff which I know. Some sonos products have fin better. If you have other echo so you can play music and all your rooms and stuff like that. This is two hundred bucky. What's that things that library going to be? Hundreds not much right so it's expanding to thousands of tracks but now there are millions of songs. You can listen to you. Obviously you can use spotify tune in radio Pandora Indoor Amazon music. But if you wanted that extra three d audio you have to pay a little bit more with Amazon music. Hd so that really got me. Now this is the Google will nest home hub. Max and it looks just like a digital photo frame. But it's a lot more than that. It's got a camera front you video chat but also doubles as a security camera when you leave your. How's it can? It can recognize me so right now is going to say Good Morning Todd and then and then it would tell me how long my traffic commute. It is in the morning so when I go into the kitchen I walked past this. It says forty five minutes to work an hour to work depending on traffic and then it brings up my pictures and specifically pictures from previous years at this time so it was in my kitchen showing Thanksgiving photos from last year six years ago which was really fun and also speaker so often I echo. What's that we reached the point of good morning? Dave is there since the morning. Todd my wife out. She won't register her face one. Yeah Google says they store it locally so your faces in everywhere but my wife yet right. My wife is listening everything and it's videoing everything. Just turn it off. It's just there's A. There's a switch on the back that disconnects the camera and the microphone. Okay so you can turn it off if I leave that but then you don't get those things like when you walk can't recognize you so I like it right. Yeah it's a kitchen gadget. You can also do recipes. Bring up recipes bringing news stories. I like in the morning joining recognizes me videos. I watch those kinds of things and then so we talked about the air pods pro. And then I just had stocking stuffer. That's fun a wireless charger. Yeah They work with the new airport. So you just drop them on. They start charging and of course it works with most new iphones most new Samsung phones. The most cases it's great. They're like fifteen bucks on Amazon. You don't have to buy a brand name you can. This belkin apple sells but it doesn't charge fast. It does the best that is true. That's a big product is. It's true. How much like that thing costs the thing twenty nine but on sale black Friday for two hundred bucks sooner by and this is two hundred dollars but and it's not on sale because I think they know it's popular dealer but you can still get it before Christmas and so yes everything here except for the air pods? I go for the kitchen. You know. It's actually a lot of fun people you you want that for the bedroom watching bet you there are some some some anyway. I'm not going to say I think I've seen those by four. I've seen the most popular. Everybody seems to be wanting these everybody I've talked to. That didn't buy them already. Says there on the top of their wishlist for Christmas. And where can you get it. Before Christmas Amazon. It was on but also target. I checked out him in stock. Best buy has them in stock. Still so you buy them from retailers but apple seems to have run out of those which this thing or the airport airplanes that thing this in your bedroom period very divisive isis kind of. What was that leads? Divisive Divisive There was a Russian Roulette Service people would go is. It was not chat roulette. I think it was chat roulette. It was not is not family friendly. He's not family friendly. Todd thank you. Thank you giving up your Thanksgiving Andrew. Thank you are less story before the weekend. A timely one tomorrow is small business Saturday. A day created by American Express in twenty ten last year sales at independent retailers restaurants. Hit a record. Seventeen point eight billion dollars on this day alone which means Americans supported thirty million small small businesses across the country this year while mostly as you mentioned earlier Joseph today but we plan to head earlier this week. Joe had a conversation with the acting administrator traitor for the small business association. Here's that interview. Our next guest is focused on supporting independently owned businesses across the US. Let's welcome Chris. co-captain the Small Business Associations Acting Administrator the tenth annual small business. Saturday is coming up on November thirtieth. This week Chris thanks for joining us. How's how's how's the state of small business in the United States right now it must? It must be a positive story for you to tell. Oh it's a very positive sort of story and thanks for having me small business. Saturday is really a celebration with small businesses. Do all year long as you mentioned it started ten years ago in two thousand ten and since that time consumers have spent a hundred billion dollars on small business Saturday and just last year in two thousand eighteen over. A hundred million Americans participated the best part about it is at sixty seven cents of every dollar that folks spend locally goes to stay in that that community and support initiatives like education and public safety and small businesses are at the forefront of it. What in recent years has either Am Not just talking about this Saturday. But small business in general interest rates help blowers do more access to capital looser credits. Here's here's what is it that that can. It's such an important engine for the overall economy. Sure sure so what still needs were sure so one of the things that's very key and it's been demonstrated the recent surveys is that small business. Optimism has never been higher and that's a byproduct I think of the great economy of historically stoically low unemployment rates As well as the job opportunities we see millions of jobs across the country and with those jobs that are available. We need workforce I training associated with it and so the SBA has been working closely with the administration our partners the Department of Labor and Department of Education to try to find those workers workers and skill and reskill workers in fact the SBA recently did a maker space competition where we awarded job training dollars the two different maker spaces that were training folks in various areas across the country and more importantly to the specific jobs that were available in those areas so we need more training. Does that mean that that there is a shortage of workers for for small business ventures at this point or or or the right eight workers with the right skills so one of the great things that I get to do in. This job is travel around the country and whether it's meeting with a fifth generation Ohio fire truck manufacturer or going to Albuquerque New Mexico and meeting a veteran owned small business that makes custom plastic toys for Lions and tigers and bears across zoos. All across the world there is a sense that folks want to continue to find those people that have the skills and so what we're doing the SBA as I mentioned is working really closely with Labor to figure out ways where we can get that training to folks six and I think most importantly MCA is one of these opportunities. That small businesses are looking forward to and they're excited that this president is pushing in forward. Just not on the economy but on opportunities for exports as well in the US in the US MCA. There's actually for the first time in history. A A small business chapter dedicated to small businesses I P protections and cutting red tape the small businesses are here domestically but they're exporting. Also okay this Saturday small business Go into your community and buy some stuff from a small business that's good. SBA DOT GOV and shopsmall. Thanks so much I appreciate it. Chris Thank you. We appreciate Shit. Good luck that's the show for today. Happy shopping watching whatever's on your schedule this weekend enjoy in the spirit of the holiday. We'd like to thank you our listeners for downloading rating and subscribing to squawk pod. Whichever way you listen? We're grateful that Scott is hosted by Joe Kernan Becky quick and Andrew Ross Sorkin tune-in Weekday Mornings on CNBC at six am eastern to get the smartest takes an analysis from our TV. Show right into your ears. Subscribe to Squawk pod wherever you get your parking. We're back on Monday. Have a great weekend Clear thanks guys Marcus. I'm here to fix this business now. Though prophet with you wherever you go question other percent charge this is where so many American dreams are saved will even your company. Yes prove it to me and this is what it takes to bring a business back to life Saturday. You stomping. You're feeding getting getting your way you'd have to the process. I'm Markus kemalist. Let's get to work Now get the prophet as a podcast. Subscribe today where ever you listen.

Amazon apple Andrew Ross Sorkin Walmart todd Hazelton US Warren Buffett macy Target CNBC CNBC Peter Gary Shatskikh Becky Becky Nordstrom Buffet Tech Data Corporation
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30:17 min | 1 year ago

GeoQuant Model Predicts Trump Wins In Bernie Matchup

"The Bloomberg PNL PODCAST is brought to you by interactive brokers interactive brokers margin loan. Start at three point. Zero six percent decrease for larger loan values rates subject to change learn more at K. R. dot com slash. Compare welcome to the Bloomberg podcast. I'm Paul Sweeney along with my co-host this Abramowicz each day. We bring you the most noteworthy and useful interviews for you and your money whether at the grocery store or the trading floor find a Bloomberg pl podcast on apple podcasts. Or wherever you listen to podcasts. As well as at Bloomberg Dot Com just to give you a picture of what's going on in the bond world you see the thirty year yield reaching new all-time lows one point eight nine percent on thirty year treasuries see the dollar having it's worse off versus its peers of twenty twenty gold shooting. Hire a big question of what's driving this. Is it just the fear that the corona virus is spread is bleeding into the services and industries in the United States Previously thought to be a little more immune or is this something larger joining us. Now is Mark Rosenberg founder and chief executive officer of Gio Quad Which is a based in San Francisco and looks at the geopolitical risk generally and the global picture? He's also an adjunct Professor at Columbia University. Mark can you give us a landscape? Here we talk a lot about the corona virus and what the potential bleed through could be an industries. But then economists say well. There's going to be v-shaped recovery but on the political front is there something that's going to be equally potentially difficult for markets to digest on the political sphere? Sure I think I think with with a health. Risk like the corona virus you WanNa look at the implications for social instability in the countries affected and then and then turn the stability of the government. Those generally have more layton effect on on markets. But I think when it comes to a large economy like China If there were indications that this That this virus was Disrupting kind of social stability in the country or if there was news as there has been of late that maybe weakening the government Then I think you can get some concern around the potential of the government to respond to shock like like like a health Like a disease outbreak like Like the corona virus so mark. We obviously are getting into the heat of the election cycle here. We kind of know where president trump stands on a number of issues that are important to markets and investors. Have you talked to clients how you framing up the democratic side of the field for us? It's really about the strength of the Democratic Party and kind of more generically the opposition to the incumbent versus You know the the the the trump administration the current incumbent and according to our models that's probably the primary driver of trump's likely reelection right now is is in fact. The weakness the relative weakness of the Democratic Party as an opposition party as demonstrated by some of those dysfunction in the primary process by the Still unclear field the growing likelihood that a more kind of Divisive extreme candidate like Bernie Sanders will be the the nominee. Those are the factors driving. You know what we call. Kind of institutional risk institutional support risk for the administration. That risk is down as the Democratic Party. looks weaker and weaker. So let's talk a little bit about the Democratic Party. It seems like after this week's debate. I it was the first that Michael Bloomberg who is founder and majority owner of Bloomberg L P and this radio station was a participant Bernie. Sanders appeared to consolidate a lot of his support. People thought that he emerged winner. They also thought though that president trump consolidated his win given the fact that there is a lot of cross a circular firing squad type of activity. How significantly do you think the Democrats were set back? I'm not sure. The debate itself was any kind of critical juncture in setting back. The Democrats I think it was more a symptom of know what we saw in the previous debates and improve and then the primaries and caucus so far which is You know a field that's that's heavily divided And and a group of candidates that All extensively agree on the goal of defeating Donald Trump and uniting to do so But are now just inherently engage in a process the primary process Where they're they're in some ways making that less likely because they are fighting against each other as opposed to the common you know quote unquote enemy. So Mark Bernie. Sanders is leading in the polls right now. Can he be president trump in in in according to our models and again You know the these are kind of generic come in survival mobile no in that Bernie Sanders Will be a candidate. That would have trouble uniting the Democratic Party and as such would weaken the strength Of the opposition vis-a-vis incumbent and so the incumbent will be more likely to win. I'm in so I'm in the scenarios we're running with our models of Sanders candidacy makes a trump reelection. More likely what about Pete Buttigieg? What about Michael Bloomberg Whose performance was pretty significantly by almost coverage following the debate again. Generically a more moderate candidate a candidate More capable of winning winning winning swing voters of winning suburban white voters in key swing states that are in many cases. The the the key to the election Is Likely to be trump right and more and certainly makes trump's reelection less likely so in our models. It's a relatively simple trade off between A candidate that is more likely to win. You know what political scientists call the median voter And which in the case of key states is really a swing voter Or One less likely to win. Those voters and in our model sanders is less likely whereas the more moderate candidates more likely so mark. Is there any indication that if Bernie Sanders gets the nomination that he or Democratic Party could move him more to the center maybe appeal to some of those swing voters? You kind of put any of those odds and your model. We don't model that directly That does make kind of common political sense and is generally the way party candid. It's run in the general election. They generally pivot More to the center In order to capture a larger swath at the electorate sanders has made a career Of Not doing that. And so I'm just anecdotally Suggests that that kind of dynamic is maybe less likely this time around But but to be sure you know in a in a more With a more generic candidates. That's exactly what you would expect to happen and given again that all Democratic candidates are at least vocally saying their priority is beating trump. That would be the right strategy. It's just not clear that that is what actually happen. Mark just quickly here. I'm wondering based on history. How soon does the Democratic field half to shrink or consolidate support behind one or two candidates in order to have a better chance going forward if defeating president trump? So there isn't really a clear historical pattern I think You know the the the the the primary calendar in terms of opposition beating incumbents You know the primary counters relatively set in the United States And so there isn't really a kind of date by which the Democrats need to You know coalesce or form a coalition by which they make Their success in the election. More likely I think the general rule in this case is the sooner the better Mark Rosenberg. Thanks so much for joining us. We appreciate your thoughts Marc Rosenberg founder and CEO of Gio quant also an adjunct Professor at Columbia University. He is based in San Francisco. Some interesting commentary about the election. And kind of what? Their models are showing and appears to be Mark's comments you know pretty predisposed towards president trump getting re elected Unless maybe the field somehow coalesce around a candidate and maybe can put up a stronger fight. Yeah then they'll be. The question of whether any candidate on the democratic side could get something done without the both Sides of Congress. Meanwhile just mentioned that right now. Fed Funds Futures are pricing in a full half. A percentage point rate cut through the end of twenty twenty so really shifting their rate cut expectations forward. This morning everyone was watching thirty year. Treasury yields which were hovering on the precipice of an all time new record and it reached it after the data that came out this morning from market. Us business activity shrank this month for the first time since twenty thirteen with the services section of the index seeing a particularly big drop off. The question here is. What is the message being sent by bonds which are reaching a new all-time lows? In how incoherently the incoherent is it with equities reaching or hovering near all time highs joining us now ben. Managing Director Global Strategy at Medley Global Advisors joining us here in our interactive brokers studio. So let's start there. What is the message? Being sent by thirty year yields at all time lows so no one handley shirts a technical message. Parent's positioning going on with hedge funds going short and Ezra managers going long on US probably very much driven by different views about where the economy beheading as well as hedging against the downside risk of this virus on the other hand. It's it's two fundamental picture. I think the inflation picture is going to see a significant moderation this year if the collapse in China's as we speak happening in terms of production data then inflation data general. We'll go down quite a bit and that will really transcend downs globally. And I think this is not a reason why bond yields are lower in the united. Do you what do you think the Fed is going to respond to what appears to be a growing problem? It doesn't appear like we've seen the peak of the Corner. Virus risk so oldies central banks are monitoring us they say and we know that they don't have to precise tools to combat any of this but they've they do know as we know now is that companies are responding quite dramatically to this outbreak. No shutting off production. Shut Down Air. Traffic showed it will be something of a message. Dare to tell to two companies. Valves you know well this is really something. That's going to drag down global growth just because it's a virus outbreak that we've had in civil cases before and by far not a severe a normal influenza. At same time central banks will likely standby would liquidity as we saw from the BBC and the fetzer ongoing that other central banks would have to. I think that's liquidity operation. Pretty effective at. If you think about the shock to which is went through it could be much more severe if we do not have liquidity injections by the BBC and ongoing by the Fares. So we'll do. It should be an abuser J. Follow with something like that. Not Not unlike. If if we're getting more downdraft and data I want to go back to something you were talking about. The sort technical factor with hedge funds going short treasuries and insurance companies. Pensions going long particularly on the long end. And I'm wondering if this is short squeeze that were observing which is really responsible for the rally that we're seeing in treasuries then is it potentially not that negative or even positive for equities because it keeps borrowing costs so low that it continues to support the relative Valuation Cau- Case for equities. I think you're right about that. Because if if bonds work well as in total return as a hedge against downside risk was in lo long asha manager would do a few in addition that you say low borrowing costs which affect positively for corporations and housing and zoom spending. Then yes this is typically by the way the case when you have fight to safety leave or not to actually stimulus to the economy very often happened that way we saw it in August of two and subsequent data recovers low interest of falling long-term interest rates. Tend to do so. I think this is another phase of like shorts crease. Fight to safety leads to ultimate symbol economy and that could be positive for some of the Consensus trades that we heard coming into twenty twenty. Was maybe this time we're international markets will outperform the. Us does this growing concern about the global economy featuring China's call that trade into into play maybe into question. I'm actually on the side. Poll that actually makes it even more compelling than before and he here's why so if you think about the data that's coming out now say to be made in Japan overnight or the expert orders Taiwan and so forth pretty big drop Shin that data right and that's what you would expect if you have a production shutdown in China extraordinary to to go to that at the moment but the more that data drops the encouraging the V-SHAPE as we call recovery would become more on that camp which makes actually the relative value difference between us and four Marcus even more compelling and yes. The evaluation of Asian markets is at a twenty percent discount relative to US markets and if the US markets have benefited much from a flight to safety with stock. Values are bunk. Mcvay up in the dollar up it becomes a case at some point that's anticipating v-shape that four and ashes of more attractive so I remain on that trade. It's just a little bit knocked out of bounds for your score. It will come back in the second. I think when is bad news? Bad News again. Well that's another good point of course because we have a little bit markets today is about is worth. Pan-demic is becoming epidemic in Asia and then spills to the rest of the globe but he also had to put in perspective. Our previous viruses have worked. They tend to do spread around and it really comes down to think about the infrastructure in countries how to deal with an outbreak of a you know to most worrying would be in south. Africa are African nations. Right will do not have any infrastructure nasty. Who Worn for but fully developed. Marcus a different story and because Marcus react now because a virus outbreak links to you know production shutdown delay of any kind of activity because people stay home. That's still a lot of work around. I think too that to computer preparing to say you know despite cheerful shift will happen anyway. I'm going to prepared if need. Continue my production because you had here to stockholders show by and large I think pandemic is to fear factor markets but ultimately. I think it's still going to be a recovery from here. Not Not a recession okay. Benjamin's thanks so much for joining us. We appreciate chatting with you as we do periodically managing director global macro strategy for global partners. Joining us here in our Bloomberg Interactive Brokers Studio really interesting to hear how the decline in yields could end up being a positive for stocks. Even though people usually right at the flight to safety as being a negative message for equities sort of the modern conundrum of markets. Absolutely so we had the S&P down here twenty five off the lows. The Dow down two hundred three points. That's twenty nine thousand. Oh Nineteen on the Dow Jones industrials. This is Bloomberg I B. K. R. Is it professionals gateway to the world's markets? I Care Offers Commission starting at zero dollars for US listed stocks and ATS Enhanced Price Execution via IB smart routing and access to their powerful trader workstation web mobile and API trading platforms joined clients from two hundred countries to invest globally in stocks options futures forex bonds and funds from a single integrated account at the lowest cost at I b. k. r. dot com check in with Bloomberg opinion. We're joined by opinion. Calmness terror La Chapelle. She covers all things industrial for Bloomberg opinion and for those worn buffet watchers tomorrow and very important day. That's when Berkshire hathaway releases its annual letter. We get a sense of kind of how Warren is viewing. The world helps preview that we have our good friend. Tara Tara again. Warren Buffett watchers. Tomorrow's a big day. What's the expectation here? Because they'd been Kinda quiet on the acquisition front. I think what people are really hoping for. Is that Warren? Buffet is going to talk a little bit. More about what he's GonNa do with all that cash Berkshire Hathaway's cash was one hundred. Twenty eight billion dollars in the latest quarter that they reported so we'll find out tomorrow when his letter comes out. We'll have The fourth quarter earnings report with it. And we'll see if that cash moved at all he didn't make any significant acquisitions during the period as we know and last week we got their thirteen. Fbi filing saw that they didn't really Make any tremendous purchases in the stock market. Either he bought a stake in Kroger small stake in biogen but nothing really big and we don't think that they've done a lot of Berkshire by backseat. Even though he's talked about doing matt so hopefully he. Can you know get people excited about what's going to happen? And maybe he'll be able to find his big elephant the sheer the big acquisition. He's been trying to do. He turns ninety in August. So one would think that know. Time is of the essence. And he'd want to do something. Yeah although throwing some cold water on that Berkshire Vice Chair saying an interview with Bloomberg. We're gradually getting more pessimistic about using our money. It's been a long time since we bought anything. This is Charlie monger and I have to say again. Warren Buffett problems. The idea that you just have so much money. You don't know what to do with it but you raise a really good question. Tara which is why don't they buy back more? Shares or just give massive dividends to their investors. We're not sure. And we know Buffett and Munger are really opposed to the idea of a dividend. And he's kind of started to mention that more often the last couple years it used to be kind of unheard of that. They would even do something like that. So the fact that he's brought it up. I don't think they're at the point of being willing to pay a one time special dividends. I think maybe that's something. His successor would wanna be able to have the opportunity to do. Should they need it But I think buffet his goals still fighting a deal and monger always tends to be more pessimistic one of the two buffet and his letter every year. You know he always gives up pep talk about America. And how great? America's prospects are you know. Kids born today are better off than he was and so on and so forth and. I don't think that'll change in this letter. But I think you will see that growing frustration with the markets that he just hasn't been able to find anything to put this money to work on. It's interesting a Terry mentioned succession. Where what's the status of that? They just kick. This can down the road and down the road. We haven't even greater clarity. I know there's some new hires pre senior positions. But what's the latest? I think if anything. It's gotten more uncertain because so a couple years ago they did promote Greg able to run to be vice chairman of everything that didn't have to do with their insurance business and had sheet Shane. Who came from the insurance side? They put him in charge of their huge insurance operations. And so that kind of set the two up to be the next in line to become successor as a little bit older and it seems like rag is kind of the favorite for the job. Greg also got to speak at last year's annual meeting for the first time publicly which was kind of unusual and I think really symbolic but then todd combs who came from the investing side of the business was promoted to run GEICO and I think that got a lot of people thinking that is todd and other person that he's looking out or maybe they will be sort of a split role. When his successor's takeover someone doing capital allocation and other person running the operational side of the business? We just don't know so. Hopefully he addresses that though knowing buffet. He probably won't say very much. Although in two thousand nineteen just to put this into perspective of how much pressure they're under They missed deals and their shares row at a slower. Pay Rose at a slower pace than sap five hundred it was their worst underperformance since two thousand and nine there's a question is their strategy one that fit with another time in history of the stock markets. That is no longer and that. They're really coming to that realization at a time when they aren't sure how to deploy their cash. It's true I mean the true. Buffet stands they. Don't really worry much about the stock price and the fact that it's lagging which is kind of funny. It's very unusual trait that Berkshire has still. But I think after going to last year's meeting and seeing that the investor base really reflected what we see at Berkshire itself where it's skews older. These are people that have a lot of respect for buffet. But I don't know how they get that younger generation interested in a stock that's lagging so much so I think this is going to become a bigger question when his successor is in charge. You know does this strategy worked as being a big conglomerate with all this cash. It's very difficult to put. Your work is is that the best way to run this or do they need to change strategy and and. I don't think that'll ever happen under buffet. But I think those questions start to arise when you think about when he's not there any longer so you're working tomorrow Tara honestly. Why do they do it on Saturday? I think you know. He's he has said who knows if this is the case but he has said that he doesn't want the stock overreacting to things when they released stirring closer to mark at times and especially now that the way they have to report their stock holdings and how that changes their earnings. But I think he just likes Saturday because nobody else is gonNA compete. Say Sterilize Chapelle Bloomberg opinion. Thank you so much as always for your insights here really amazing one hundred twenty eight billion dollars of Hash. They own two hundred and fifty million shares of Apple. Yeah they've actually more than doubled the shareholdings since two thousand sixteen when they started getting in their own seventy nine billion dollars of the shares but Warren Buffett said this is not a tech story for him it's one of share buybacks and dividends as well as the consumer story which is really interesting. That's what he understands more than the tech side economic data this morning that showed. Us Business. Activity shrank in February for the first time since two thousand thirteen as a corona virus hit supply chains and made firms hesitant to place orders to get a sense of what's going on. We welcome our good friend. Tom Or Alexa chief economist. For Bloomberg Economics spent lived and worked many years in Beijing has a real feel for what's going on in China. He joins us from our Bloomberg Ninety. Nine one studio in Washington DC. Tom Thanks so much for joining us. So the data that came out of the market today really brought home for many in the market that this corona virus is going to be an economic event. It appears where do you see the biggest risk from what's going on in China right now? I'm I'm I'm a bit surprised to see this hitting the US services sector so early Certainly this is going to be a big blow for China in the first quarter. Certainly there's going to be supply chain smell ups which are going to mean the impact ripples around Asia and around the world the US though seems a little way away suddenly the US services sector is not very integrated into what's going on in China and in some ways the trade will Was By president trump trying to get more access for the US services sector to the Chinese economy Say the fact that we're seeing the US numbers coming off So much in so quickly I think rings in the Lumbao The the global ripples from this virus could be bigger and other pay more quickly than anyone anticipated. Tom Is also an implication that perhaps there was more weakness underneath that was building regardless of the krona virus. Yeah I mean that is also Something to think by Lisa People were coming into Twenty twenty with a certain amount of optimism We had some easing from the fats. We had easing from the People's Bank of China. Ecb did what they could to spur European growth. Of course the trade truce Men there was some optimism about what was going to have to exports over the course of the year The Corona virus has completely changed the narrative At a minimum. It means any kind of recovery is going to be delayed until the second quarter It could mean that we're in for another year of very bumpy growth and elevated risks of a diner so Tom Baseman. Ya The work you've done the contacts you have in China. What's your best. Guess as to how the economy's really being impacted how much our people back to work. How many how much you know. What percentage are staying are still at home? What percentage of the economy is really back versus off line? I guess I mean is fourteen. Trillion dollar question will and we've been trying to answer it through a variety of different means We've been looking at high frequency dates on passenger travel We've been looking at fx trading volume which is a proxy for what's going on with imports and exports. We've been reading the Cooper Nine Smith speaking to all contacts across China Our best estimate is around. Fifty percents of China is back to work I'm sustained over. The course of a month would mean that China's GDP in the first quarter doesn't grow tool. I am potentially contracts or the sequential basis. This is this is important especially what you were saying earlier about. How in the entire world there seems to be a faster bleed through of the effect of the corona virus and an efforts to contain it. I'm wondering whether you think that this calls into question the v-shaped recovery that so many economists are talking about when we think about China One of the reasons why. I'm not succumbing to extreme pessimism right now is because China's government is really effective at closing things dying. We see that right now. Hundreds of millions of people effectively under lockdown under quarantine but China's government is going to be really effective Opening things up again as well We've just had some announcements from the polit bureau the top level of China leadership and they indicate that the balance of concern in China. Well certainly. That's still very concerned by the I break public health and and minimizing risks but that also increasingly concerned by growth and getting people back to work And I think one possibility in the next week or two If the government thinks that the public health risks can be contained is that we see an accelerated. Move to get trained. His work is back into the factories back in the offices which point the v-shaped recovery which a lot of people kind of implicitly pencilling in We'll start to look like more of a real possibility a timer you. I know in your work. You look kind of a corporation say do. Are You surprised as pests? Earning season we haven't had more companies. Call out the corona virus as a risk to either their supply chain or their demand. I mean I know. Apple did a pretty high profile way. But I'm surprised at like even dear today didn't really mention that much at corona virus being risk right so so on this pool. I I WANNA give a brief shy tyke to our colleagues in Bloomberg intelligence who had just comprehensively on top of the Industrial Story and the company story and and certainly suggest that people go and take a look at what they're saying to get all the details on the industry level Impact what we've done is trying track corporate announcements To give us a a kind of view on the supply chain risks I'm one of the things which struck US reading through around a hundred and eighty corporate transcripts. is that the degree of concern. That we're hearing from the multinational boardroom. Doesn't really match up with the bleak reality on the ground in China. Yes there are certainly more boardrooms. More corporations Ni- token if the risks and giving some detailing some color on how they see. It impacting company. But there's an awful lot saying yeah we're going to wait and see or yeah. We see some risks. But we've got some in Ventura said we're going to manage through And to us. That doesn't seem to be sufficiently taking a kind of the the way in which China has really closed dine knife for several weeks. Ten more like thank you so much for being with us. For a dose of reality of wire. Not totally jumping on the pessimism. Bandwagon just yet But still have some concerns. What's going on? Yeah I think his his estimate coming on Bloomberg economics about maybe forty to fifty percent of the economy is still kind of off. Line is a nets up. That's a big number and it just kind of calls into question. The duration is Thomas suggesting if it goes on for the longer could have imperial impact on Q. On GDP yeah. Tom MARLA chief economist for Bloomberg Economics. There's also the question of the spread. Throughout Asia Japan and South Korea in particular in the forefront with Japan seeing its cases double overnight South Korea also seeing an increase Japan in the population is older. There is a culture and take a sick day So people coming in and there are a number of cases that have been popping up in different parts of the government can't really track a lot of pressure on that government given the fact already that there seemed to be a slowdown in the works in. This seems to be affecting the yen which is very much been in the focus and weakening although today cut a stable thanks for listening to the Bloomberg Piano. Podcast you can subscribe and listened to interviews at Apple podcasts or whatever podcast platform you prefer on Paul Sweeney. I'm on twitter at PT. Sweeney and Lisa Abramowicz on twitter at Lisa Abramowicz. One before the podcast. You can always catch US worldwide. I'm Bloomberg radio.

United States China Bloomberg Michael Bloomberg president Bernie Sanders trump Warren Buffett Democratic Party Buffet Mark Apple Tara Tara Bloomberg Economics Donald Trump Asia Bloomberg Dot Com Mark Rosenberg San Francisco
Hour 3: 4/3/19

The Paul Finebaum Show

00:00 sec | 2 years ago

Hour 3: 4/3/19

"The Paul finebaum show podcast is brought to you by the new Capital One saver card. Earn four percent cashback on dining and entertainment two percent on grocery stores and one percent on all other purchases. What's in your wallet? The cried passion, then patterns re of college football leaves here. This is the Paul finebaum show. Our three podcast. We're made to the second half of the show. Glad you're with us. A lot of buzz about buzz Williams, new coach at Texas. Am the press conference is tomorrow on a conversation about Cal? That announcement was yesterday and more of your phone calls at eight five five to four to seven to eight five Bruce Pearl, certainly the man of the moment we've talked to him yesterday. And we'll certainly talk a lot more about him later today. Greg is up next in Athens, Alabama. Hello Greg able thanks for taking my call. Thank you very much. Yeah. An article this morning that said buzz Williams was going to hire. Or what's in the process of hiring Benford, the interim coach down at LSU we hear that. Yeah. So that's going to cause some consternation amongst the LSU faithful because you know, they're going to get rid of weight eventually and the longer they drag their. Feet on that the longer they're going to miss out on getting any Greg. I don't know what they're doing down there. I mean, I understood what they were doing before. While LSU was playing in the tournament. You don't wanna mess up? But I mean that that that was oh that's been over since Friday night. What is Joe Aleve doing in relation to the future of LSU basketball, other than watch it burn? He's pulling the Niro on us. He's fiddling, and we're trying to assess this from a logical standpoint, but we're applying logic to an illogical process going on down there and LSU right now because there's a sizable group of fans and local media who want to keep him. And there's there's no reason to do that. You're just creating more problems down the road for your program that can affect more than just the basketball part of your left leg department. Exactly couldn't have said it. Well, you did say a better. But so I I don't know. I mean, the only thing I could think of is that they're waiting for this his deposition parents Greg Bork. You can't wait. I mean, what what what are the what are they going to learn then other than how much worse things are the than the than the media. And the public really knows they're they're not they're not gonna learn anything more. And that's not a logical response. But I was just trying to answer your question. That's why they're waiting in. Well, I don't think I think they are out there trying to figure out can they find a suitable head coach. I mean, you have Alabama that's already chimed in with a good hire you have buzz Williams AM chiming in with a great hire. You have Arkansas out there, you have Vanderbilt out there. And and like you said I mean, they're trying to figure out what do we do Benford who was not an option? He's now leaving. It's inconceivable that we'll wait keeps his job. If he does. Then whatever his lawyers name is I want to hire him. Exactly, I just think, you know, the one of the problems is that they they are not a destination, and they consider themselves to be one their landing spot. And it's just not going to work out for them the longer they drag this out. I think the problem. Greg does this. You can't really be out there to publicly looking for another coach while your team is in the Sweet Sixteen, but and listen, Joe alita is not your quintessential athletic director who goes along with the crowd. He does things his own way. We watched that with the doors Ronhaar turned out to be okay. The will wait higher looked like the best thing. He's done in Baton Rouge. And it may well not going to be considered the best thing. It's over may end up going down is the worst. And that's going to impact directly on livas job either ability, and he's going to have to answer to, you know, those border regions, whatever they have down there to LSU, and it just you know, you can be your own man and do your things your own way. But if you don't pull the trigger when you need to pull the trigger then you're gonna lose your opportunity, and it's going to impact you worse off than you are right now at this moment. So I I just think they need to do some soul searching and do this. He had to have some idea Paul of some candidates to hire before got through the tournament. Here's what I think. I think he's out there trying to find another job now other coach and he's doing it quietly. And when he's close to that situation, he'll announce that we'll wait it's gone and the new coaches coming in, well, let's hope so because you know to see other programs trending upwards in their hires. You don't need. Not this is not the first thing that Aleve has bungled down there. Let me direct you to the attempted higher of JIMBO Fisher. When that bro face. Yes. So he is least being consistent and hope hope hopefully, he can learn something from that day. Paul. You got great to hear you and Jimmy is up next in Chicago. Hey, Paul will what's made this LSU situation. Uglier is that a leave a should have been aware of the fact that it was going to be very difficult to hire an upper level coach because you have no idea how this FBI situation going to turn out. And if you got an elite coach and want to years in he walks into stiff probation, and he's called what on earth was I thinking, so yeah, that's made it very difficult. But you know, as far as a buzz coming in Emma's concerned Woodward really didn't have to go through many people because buzz does not have an agent any has negotiated every contract that he is signed as a head coach. And he is a very smart guy. He is very good at it. So we were didn't have to go through all that which was great for him. But they 'em fans are absolutely going. I love him because he holds a champ every year for special needs kids, and he's done it ever since he became a head coach at Marquette and had the financial resources to do it. And he invites every kid that's ever come every year. He'll bring all his former players like Jimmy Butler, and he'll I'm sure bring his top players from Virginia Tech that he's had in the past. And I it's impossible not to why Cam and on top of that. He's a great basketball coach, and I'm excited form because this is the first time that he's at a real power five program that has all the resources and all the intangibles you need to make deep runs into the tournament every year on honestly, Paul just like football. I think A N is the sleeping giant in basketball. I think it's just a great opportunity of for them. But I wanted. To ask you this of following all the talk about Calipari and the lifetime contract and how the timing of would kind of weird. And you know, you're like me, you know, you you have been aware of Kentucky's teams all these decades. And I was just curious if you sense that there's kind of split among the fan base as much as they love the program that history and heritage of the school, but twain, maybe that the fan base that's thirty years and younger to just sees this one and done philosophy as just normal procedure and the older fans, and maybe I'll go a little higher. Maybe fifty years older who has such a love and reverence for the program and a lot of them just I think, maybe they stifle some anger. Because. And this one and done age. It's very hard for them to develop a connection with the players when they're only there one year as opposed to seeing them develop from their friends from freshman year, all through maybe their senior year decent. I think there's something there. I I think there's even more than that. There's a disconnect somewhere up there, and I don't want. I don't take anything from Cal. But I don't know if you heard him this morning on on. Yes. I did. And I I'm I'm let you give me your impression of that. I found that whole conversation with my Greenberg to be bizarre. And I thought Greenberg was very sharp in in the way, he very delicately pointed out that cow is being defensive which he was being a Chow was totally on the defensive. I think they would have been a lot better off the university administrators had they waited another week. Week or so to make this announcement. But you're right. It just came across as strange and in a way is kind of hard to describe. It's just something that you wouldn't expect from just a program of that caliber when you've had that much success, and you have coach it's been that successful. But just can nounce it when they did it just didn't seem right now. It didn't seem right Jimmy because it wasn't right. And you know, remember how we learned about the it came from the athletic by Seth Davis who said that UCLA was wooing him, which I don't really believe to be true based on with cale said, and based on my knowledge of that understanding, and you know, the situation it just it was it was manufactured as a as a lot of stories are in the media. And then Cal try if cow there was there's no way you can be happy. Two or three days after you lose to an inst-. Incontinence rival that you beat by twenty seven points on your on your home court, and that's why didn't sound real. We were up against a break. Come back coming back with more and your phone calls and number of guesses. Well, listening to Paul finebaum show podcast back really excited to welcome in Damion fish back who is an SEC network analyst who also played some pretty serious basketball for Auburn university. When they were really good in many expected them to accomplish. Then what they have accomplished now Damian joining us Daming first of all good afternoon and great to have you. And I'm I'm sure it's great to be an Auburn tiger today as well. Good afternoon to you. Call did play what you would. Call Paul finebaum type basketball. You said series. You seem a lot. So I'm doing great. How about you? We are doing right. So what when when you saw the Tigers punched the ticket to the final four as a. Former tiger. What did what did you think about what went through your mind? Well, a couple of thing actually one of the stack that basketball in the SEC has transformed. Now, remember when I was talking to coach Ben Hal, and when he first got into the league, and he was talking to me about how the pendulum has flown and you did at that time. But the fact that you have all and Kentucky India Lee at LSU right there. Just Michigan state right state went out a little bit early. But when you look at all the teams that did so well, it's not a shock to me that all day. Now shocking. All you came out of Kentucky, Mr. basketball there. And you went to Auburn at a time when they really did have it going, but I'm interested even then to to head to Auburn which had had bites of the apple, but not too many go back in time and talk about your experience there, and especially how close you guys came as well. Well, it was just like it was yesterday, Paul. Actually was a long time ago. Right. I feel like I'm getting older every day. You know, it was different then because there has been such a huge drought from when coach cliff Ellis. I got there, you know, between the job that study did and Charles Barkley and in that great group. So the fans we're even more excited they were even more hungry and it happened at a time. When when football wasn't edits, Ben that that's what we initially got started. And I think that's what unique about this situation. Now, right all the people are behind the Gus bus of Alban, but they have been yearning for national championship. And the fact that they have the opportunity to do this now in basketball foul four, I think has helped coach Bruce Pearl dip into the football base. And I think it has the AD talking about we can be more than just the ball baseball swimming school. We can do it all. Damion as we get closer to Minneapolis. Help us understand where Auburn is we we had Bruce on yesterday. And certainly this is not the same team that it was all season with Chuma being out. But they were able to make up for it against Kentucky. What about Virginia? Well, I really liked the Virginia team. And you mentioned the job that all done. What you think about coach, Bruce Pearl in the fact that he has just done. Oh, right. He he's done it everywhere. These thin skinned we'll CD records where everything gotta talk ten crew class. We know the role that they taking but coach Bruce Pearl is going to be up for a huge matchup in coach. Tony Benn coach, Tony Bennett is an awesome guy. Everybody knows about his dad. He took Wisconsin to the final four twenty plus years ago. Virginia is an outstanding basketball team of the guard play is much quicker than it looks to be. But but but I would put auburn's guard play up against anybody. I think that Bryce Harper as well as Bryce of rice Brown along with Jay Harper. Both those guys play with what you call a control ship on this show. So they play angry they play emotional. They play like they have something to prove. The always under control. Well, we're Julia. Does that as well? The fact that they bounce back from losing in the first round against teams, and they answer coach, Tony Bennett and Virginia was getting to the final four has absolutely impressive to me. So as you matches came up. Where are the advantages? So when you look at Virginia, I think the advantage very similar because the Tipo and cows are stowed citing com come on. I need you to really think about what we're going to see matter of fact, I describe it I want you to tell me what you think would be a similar different than styles than in football. Because in basketball coach Andy Kennedy mentioned the three fifty three schools for genius three hundred and fifty spectators in pace of play all the mount of points. They put up to speed and transition that they play with is something that I don't know if you can compare to any other team in the in the country right now win they're shooting the basketball. So well, I think it's called versus chaos is half court and no turnovers of Virginia versus full court in all been trying to turn you over. It's fifty five point two games. At Georgia wants to have the score of Albany, eighty points a game that they wanna have you got mighty mouse matchup of Harper. And and Clark Virginia. I think they're both going to be great games. But I don't think you'll find a better game than Auburn in Virginia where we saw it a little bit of in the national football semi final with Alabama and Oklahoma Alabama is a great defensive school. Although the offense this year was in record territory and and collar Murray they shut Tyler Murray down in the first half. But he went absolutely insane. In the. No, you're right. That you analysts thought I like that. No, it's it's so intriguing to me because I I made a confessional. So the of the day, and I said that I told individuals that when I spoke to a huge group at Auburn had beginning of the year. I said that I thought that all of them could be a potential fourteen now said that about four of the schools. I said that LSU is to be state in Kentucky. Now as you as well, it didn't get there. But the reason I said that was because I asked the question is Jared Harper. A federal four point guard is Bryce Brown a final four shooting guard, and I is coach Bruce Pearl a final four coach. Now he had been to the elite eight before. But I knew coach Bruce Pearl was doing was something special because he wasn't just give me one recruiting class success in college basketball outside of top quality, blue bloods, who we get a one and done in every year. Most of the time call if multiple recruiting class, it's chew mo- KiKi. Along with rice Brown, Angie at Harper. NFL Makomo and veteran like horse Spencer. That's what is allowing schools to be successful. And that's the type of coaches that I feel like the SEC has now. And they they got a new one today. What what impact and what effect is buzz Williams going to have on the SEC? Now that he is landed in college station, he's built for he really. And I had a tremendous relationship with coach Billy Kennedy, a friend and fantastic coach. But you cannot argue with the highest and sexy him buzz Williams from for Marquette to Virginia Tech has done is everywhere these being, and I think what separates him is very similar to two coach, Bruce Pearl in all he has what I call it a William Wallace mind, right? He comes out, and he is a physical intent enthusiastic hardworking ton of efforts. Officiant type of coach. And that's exactly what you need to have in the SEC. I think that they knocked the ball on the car. They mean fish back. Joining us talking about the buzz Williams higher as well as this weekend. Thank you Damian. We will see us in. Thank you so much call. Thanks, man. You got more to come. As we roll on your phone calls or next couple more analysts, including Andy Katz and Dana O'Neil in the final hour. We've talked a lot about buzz Williams at am some criticism of cows at possible, and Bruce Pearl, of course, more to come. You're listening to the Paul finebaum show podcast. Welcome back. Glad you're with us here on the program and Big Sky is up next. We say got, hey, I do miss the fad bomb. We are doing great. Thank you. So good to be looking at you on TV today. You look mighty nice and thank you. So I just phoned to call in. I got a voice my opinion about a couple of things if it's with you. I'm Alabama fan. We'll good. But I've listened to you for weeks. I listen to you for years, but I'm so sick and tired of these people calling in about coach Bruce Pearl Alabama fan. But this is sick. This is a sickening thing for people to be called in about this, man. Who's paid the price this man who is a excellent excellent coach and has come around. And to be excellent excellent, man. And I'm so sick and tired of people low rape and down him. And I'm tired of here. They need to reasons they are doing that is because they'll losing because they are losers. His reasons they down in somebody that's a winner. And he's a winner. And he needs to be patted on the back and say, hey, you done a good job this year. And one of those thing is is I hear these people call in about coach cow. Hey, let me tell you something folks that are listed coach tau may not be perfect. But he's a winner. And you can't stand. That's the reason you calling into this show because he goes in all the areas where people here people listening. It's time for you. Shut up let these people do the job. And I think that's all. I gotta say mystifying fine. Thank you. You you left nothing on the table. Ben is up next in Tennessee. Hello, ben. Hello, Paul, man. I've been on the phone for a while. I've got several things Pau. I was with Calipari. I won't talk about Cal from their order by said I was here when he came to Memphis for the nine years. He won the NIT we grow we grew to love him. He was a Yankee in Memphis. All right. He recruited players like one Wagner, Derrick rose, John Walsh, Marcus cousins, then come here. Because of we remind me beats came in my opinion, because because cowed knew how to you know, probably the next step. Okay. Well, right now, Memphis is in a position these one and done. I'm here about all day. We have a one and done coming up. All we got James Wiseman. I'm sure you've heard of I was from east. Exactly now, we got Penny Hardaway. So we're in that is pictured where locally in. Our local talk radio's people I go. Well, you know. Should we be disappointed? Everybody's predicting that shows I think is kind of ridiculous. You know, we have the top ten recruiting class. So I guess where I'm going with this is that what do you do? I mean, you get excited because you got to a player like Wiseman coming in. Or, you know, how do you how do you temperate speculations? Well, listen, you can't and Memphis fans are really great basketball fans. I know because I grew up on. And I it's it's a tradition. That's been carried on for a very long time program was never better than it was under Cal. And you you have to grab the players that you can you can't sit there and go wishes guy wasn't always got was penny. Hardaway was hired to get players like the one he did and to get more because the previous coach is couldn't do it W Smith, right, right? And the thing with cow is like look if you were super. Attendant of a golf course. And you you had a chance to work at Augusta. I mean, and they wanna sign you forever. Why would you want to? I I remember that very well dragged on for days. And I remember thinking that Cal. In some ways didn't wanna leave. I mean, he he owned that city, and he Memphis. Yeah. And it was a tough. And. Thanks, bro. It well, but it wasn't about money about opportunity. And and I don't want to like, I I haven't been there before and on a much more minute level. But I had a job that that genuinely loved, and I didn't really want to leave it. But I did because you know, right? All the Kentucky fans saying this y'all should be thankful that he wants to stay there in my question me. What is it that Cal is dying staying Kentucky? I mean if that other programs before him they've won national championships. I mean, he does he love the the countryside. Does he love? I I it's it's a state of mind where he he there isn't a better job for him in college basketball. And the only thing that I've always dealt with interest in was an ideal situation, the NBA we've probably they're they're made. There's no such thing. The NBA has become the most micro analysed sporting league that's ever been. I mean, I I mean I remember being sportscenter this year on a Sunday morning when the Lakers played their first exhibition game, and it was the lead story on Sunday morning ahead of the college basketball the college football slate. So I mean Cal goes to the Lakers cow goes wherever and. It will be on unrelenting the criticism. And he he'll also have to deal with guys that are making fifty million dollars a year. You think that's easy? And listen, he's not in there for the money. We know that and I wanna make let me towards real quick. I was looking Paul the top four teams are in the final four Virginia, Texas Tech, Auburn and miss it. Missy the new had do they have anybody that at the end the years one and done? I don't think. So I don't think they do either. Did they know? So this one and done thing even though we're getting the kid next year. Memphis, yet, it's exciting. But, you know, paintings just because we got it. I think over the last three years at least or at least since Duke one. I don't think the the one in donors had done all that. Well, but listen, they're they you know, the college basketball season is more than the final game. It is a it's it's an exercise and the Duke fans had quite a ride this year. And so did the Kentucky fans they didn't make it to where they weren't. Go Vernon is up next income in Kentucky. Gerrad ahead Vernon. Hey, hey, all you doing. I apologize for last week. The call I made last week. I was real. Unprofessional when my call. We'll well don't worry about it. It's over. Yeah. That's as far as the contract thing with Cal. I think I think what they did was got got in front of a store new story because every year there's reports he's going somewhere and a lot of his opposing the posing coaches us unit against him on recruiting. And they and he that's a that's a big thing that he's complained about over the years, and I think the ministration there, then that the squash squash excuse to tell you the truth. Right. And and as far as and and as far as Bruce Pearl, they'll get off his back it. He's got a great team. And I wouldn't be surprised. They don't beat for Jinya because they beat ever they beat ever other bud in the field. You know, I'm saying they have. Virginia's really happy for Bruce Pearl and everybody up here. Just you know, you you can't you can help the be fan to that guy. You know what I'm saying? I concur. Hey, thank you very against the break. A lot more to do in the final hour twenty minutes. A lot of buzz about buzz Cal Pearl. You can change the subject at your own risk. We're coming right back to listening to Paul finebaum show podcast. Welcome back. Glad you are here. And we got plenty of time to take your phone calls and Dalton is in Spartanburg. How are you? How are how are you doing? Good. How are you both? We're doing great. Thank you. I just got a quick question for you today. Going back to the topic. You had earlier about the or if you think that's happening at other universities or Beth being swept under the road. Well, listen, I mean, the last two I think we're both for marijuana. I think you could probably go in any college dorm in America and haul out half the students. Don't you? Yeah. Definitely. That's kind of the point. Is it unlucky? Or is it just poor judgment. I don't know. I mean, I'm certainly not going to judge somebody. But I mean, if you're a football player, you have to think be careful. Yeah. Yeah. Definitely there's a lot. There's a lot of scrutiny college football player. I just wonder like is it a Athens PD thing? Do you think is willfully down there or I know personally, I live pretty close to Columbia. But I've been there quite a few times had some friends that it's in the university. I know how some of the player at and I mean, I say this don't take me literally. But I'd make sure the police departments were taken care of when when it comes to Notre Dame tickets. Yeah. Yeah. Yeah. Definitely. I remember going back about eleven or twelve years of Nick saban's first year at Alabama. He had a bunch of players arrested in and suddenly the police chief changed. That's a great point. You got there. I didn't know that. But that's crazy to think about the rest arrest went down dramatically. That's a great point. I didn't even know that. But curving might need to take care of author down there little better by by the way, we should always treat our police officers with great respect. But I'm not suggesting that I promise you. I would never personally give as a head coach. I would never personally give police officer tickets to a game. I would just have John. Well, thanks for taking the call. Great to have you on. Let's check in with. I'm an I'm an is currently driving to the final four. And where are you right now? About three steps away from my recliner, and my Dinh. Okay. You know, politics Friday, I'd call you Monday, Tuesday, y-, you know, I found myself really not knowing what to say him kinda numb at this point. I've been watching the tournaments since pet you and was a freshman at Georgetown. And you know, I've always at this time of the year. I'm I'm a fan of another team Cinderella team or somebody like that in the tournament because we've never been here. And in this kind of rare side of maybe Kentucky Arkansas during all those years. And but I'm quietly, you know, I'm kind of stunned if the odds of Auburn, bathing North Carolina, we're probably slim to none. And everybody's mind. I thought odds of beating North Carolina and Kentucky in overtime got to be way through the roof. None. The odds of may survive in not having a heart attack by Monday got to be even higher, and you know, I just find. I don't know how to talk smack in the sport. I'm just sitting back you noticed being optimistic of akin, and this is kind of this kind of new ground. I mean, just kind of taking it in. And just there's listen here your school is on the map, and you have you have to embrace it. And and I would think that they are Cinderella of the tournament. And I would think that maybe a lot of the people around the country embracing them because they're relentless. And can they do it again, this this, you know, Friday night against Virginia? I don't know. I I'm thinking they got forty minutes. I'm sure they're gonna play the ask off. And and I think they've got as good shot to win the game Virginia does the pin. If they do win. We really uncharted waters. There's different getting with Saturday and getting the Monday night. Yeah. And and you know, I'm just sitting near term taking it in just kind of. I'm gonna listen, you, you just be careful and take take it, easy and relax a great egg on Davidson, Indiana. Hey, dave. Hey, all our we are doing great. Thank you. Do things one any idea why he chose a lifetime contract rather than a ten or twelve year of getting idea how this thing string. Well, you don't until until I won it. I I like to know how the contract is written. I'm sure it has an extended period time with automatic renewals because it's not it's not physically or is that it's not fiscally responsible just to award someone a contract without without an end. But I I would think it's probably Sixers six year contract automatically renews. Every year something like that. And Cal is sixty years old, and he's made it very clear he doesn't want to coach to an old age. Right. That that was one question. The second second thing is one name that of course, being from Indiana Wiki, you know, tabs on Steve Alford any scuttle out there about any landing spots for out. I mean, you talk about a guy that was a wonder kind and he is just taking a hard hard hard hit. I I always thought he was a good coach. He was an Iowa. Then he went to UCLA. Did. He was he somewhere between I'm trying to remember Mexican. Okay. Yeah. Okay. I think it was a bad decision to go to UCLA. Just like I think it's a bad decision for Jamie Dixon to go. There. Just like it's a bad decision for anyone to go to UCLA. It's it's it's a school that just can't get out of its own shadow. Hey, thank you very much for the call. Nick is up next. What do you say, Nick? Well on the mouse that are south. What'd you do today? Nick just trying to make a living not easy now. I know that right. What all these caller. You had Nancy nasty. She got on you bad hall. Yeah. Showed me. Yeah. I've been listening to show. Hey, john. Hey, big, Dan. John kubiak don't about Alabama. 'cause I'm and get him. Could you got anything to say your man Nick about Alabama football comeback? Oh, go ahead. Go ahead. Hey, mark. How are we doing you? I'm doing great. How about your you make making John we're talking about? Alabama college not colony yellow north Galway and get caught this good. Question or something. How much time with? I mean Nicky's basically calling you out for being somewhat of a loser. Automate a load. Eight I in my call Joe. Yup. I'm giving you a question Paul. I'm I'm still searching for what it is. I wonder what cuff what an a quarterback. Oh now. Mama rocks. Iraq. Now, can they name? We'll give him the test in a minute. Here apparently keeps in MAC John's minus two points.

Paul finebaum Bruce Pearl basketball football Cal LSU Kentucky Alabama Virginia buzz Williams Greg Bork Memphis SEC UCLA Nick saban Jimmy Butler Auburn Athens Ben Hal
306- Berkshire Hathaway Annual Letter Recap

Invested: The Rule #1 Podcast

42:58 min | Last month

306- Berkshire Hathaway Annual Letter Recap

"Everybody this is billtown and daniel town. Welcome to the podcast where we are deep into understanding. Warren buffett charlie munger the best investors in the world who basically are trying to In the most reliable possible way produce high returns with low risk. Yeah pretty cool is real real interesting. How this goes. I mean everybody knows stocks outperform every other asset that there is by you know exponentially and and yet the problem with stocks is that they you just buy and hold particularly in times like this where the market just keeps going up and up and up and up and it feels like a helium balloon waiting for a pen. You you you run. The risk of being in a portfolio that drops fifty percent. Just when you most desperately don't want it to and And might not recover for ten years or even as long as the twenty six years which has happened once matz terrifying prospect. That is a long time to break. Even isn't it. I mean think about the people that are putting their money in a a thirty year. T bill at in some parts of the world. They're putting their money into a one hundred year. T bill at a one percent interest rate or zero percent interest rate. What so i just like. You wanna have a reliable way of of doing well with your capital but you want to be able to do well in your lifetime right. Not two hundred rangers right. So this is the way every bit of research. I've been able to do the best investors in the world do this and this is the only way that i've ever seen. This is the only way this being a replicable results. By this i mean investing by bein. Something that has value That you know you you know within a range. You understand what it's worth and you pay substantially less than that for it. Yeah i mean we're going to talk today about The daily journal meeting that charlie monger just lead and one thing that he actually answered in that meeting was basically like what is value investing. And he said it's buying something for less than it's value like period whether that's a crazy growth stock and it was in the context of like. Is it possible to even be a value investor in in this market right now and and so he meant you know even if it's a crazy growth stock even if it's something that you're paying more than like a typical valuation might tell you as long as you think your pain lasts than what its actual value is that's value investing. That was really interesting. And then i think warren goes farther and says that there is no other kind of investing then value investing. That's it yeah. Yeah okay so let's back up a little and talk about what we're talking about here so there were two big sort of value investing guru events in the last few days which almost never happens. It was kind of a crazy week. So we had charlie munger talking at the daily journal annual shareholder meeting on wednesday last week if i have daily journalist. Charlie's charlie's company. It's a public company. But he he owns it. He's the chairman. And i don't think he really like runs it. I don't think he's really. Oh no i think he says multiple times like i don't really have anything to do with this business and interestingly enough i also really don't know what people do so if you if you're somebody who who missed that you can go watch the video. Yahoo finance streamed it so if you just look on online or on youtube or whatever for Yahu finance daily journal meeting. Twenty twenty one. It'll come up. It's about two hours and it's It's well worth the time. And then the other thing that my dad's referring to is that the berkshire hathaway shareholder letter came out recently. That warren buffett writes every year. And charlie munger and warren buffett are investing partners. Have been most of their lives and Charlie munger is the vice chairman of berkshire hathaway so and the the berkshire letters annual event. That's much awaited by all the fans and it All these letters are posted on the berkshire hathaway website. You just go to google berkshire hathaway. You can't miss it. It's like right there in front of you. Chairman letters barebones website and it makes me loved them so much has nothing expend money on that website. Handful of links you click on the link and then there you are with a pile of links store and and you click on the year you want to read and those letters. I'm sure we've referred to these many times here over the five years but they are just an education of their own if you want to get really good education and rule one style investing in what we call rule one investing. That's the place to go. And by the way the reason we call it. Rule offense style investing. I do go read buffets letters through your learning about buffet. Van one investing is what i call it and the i do is because they don't really want to call it value investing. Although that's the most common thing everybody calls it because value. Investing connotes a different kind of investing. That goes back to buffets mentor. Ben graham who in the depression and world war two was able to by many many companies Four less than the cash that they have on their books net the debt right subtract the debt and you have cash and you're paying less than that for the business and he would buy one hundred of them two hundred of them at a time that he called kind of cigar but investing picking up stuff. That's nearly free. And it goes along with a fundamental of good rule when investing which is. Don't lose money. The fundamental rule of investors. Don't lose money. Don't don't worry or focus on making money. Don't try to make money. Where does this come from. Oh that's warren buffett. Yeah right there to locate fair enough buffets to rules of investing rule number one. Don't lose money rule number two. Don't forget rule number one and what we find is it. Most people. don't take that seriously. They actually are out there trying to make money and it's really hard actually to try not to try to make money. I mean come on. We all please and we are and that's a mistake. That's a fundamental error. That is corrected by remembering that rule. Number one is the only rule of investing. Don't lose money and if that's true then why would you consider anything at all about trying to make money when the whole rule is don't lose it and if you think about that another way menashe bryce says oh we just want free lottery tickets. Same idea that's all there is. We don't know where it's going to go. We might win big. But we won't lose anything or we won't lose much and that idea is got to permeate your consciousness. It's gotta be something you just. your whole. Investing world is colored by those colored. Glasses that you're looking through and when that happens you become a much much better investor. You stop making mistakes. That's the key thing and when you start making mistakes than the stuff that you get right and it might be four out of twenty but you don't lose on those sixteen those four we'll make you rich yeah Again at the daily journal meeting that reminds me that charlie was asked about sequoia which is a venture capital firm and he. I don't even remember what the question was exactly. But it was basically like you. Recently said sequoia was the best investment firm in the world is a mutual fund sa- quiz venture capital fund sa- quiz a mutual fund. Okay then he's talking about something completely different because his answer was all about the venture capital fund. Really pretty sure. Okay now eighty percent. Sure okay because what happened. Back in the sixties is that buffet shut off he had twelve limited partnerships that he used to build his wealth with right he would create a partnership up initially friends and family and then He added another one and another one as his reputation grew and he managed this money and and this is and he made a fortune because he took twenty five percent of the prophets. Yeah out of the partnership. And he just didn't charge charge any fees right no fees by the way i mean. This is a worldwide podcast. So everybody be sure and check with your security people's because it's different everywhere but in the united states back when buffet did this was one thousand nine hundred fifty fifties. When i did something similar to that was in one thousand nine hundred eighty s and it was still okay to do it. You can have a small number of unsophisticated investors. Buffet actually makes that point in his letter. This time that these were unsophisticated. Investors that he started with and this very big no no as far as the. Sec is concerned is it. Oh my god. You wouldn't want to have unsophisticated. Investors by the way they consider unsophisticated investor. All of. You doesn't matter how much you've studied doesn't matter how many how much knowledge you have about investing what matters is. How much money do you have. That's how the sec decides you're sophisticated. He and the reason they do that is because they assume that. If you've got two million dollars which is the minimum degree of sophistication required for hedge hedge fund. The call it a qualified investor. They assume that you've got the money to hire someone who actually is sophisticated and can make a decision for you. okay. I get it on the other hand. They have foreclosed this avenue for both the person that's investing with warren buffett and the new warren buffett. Himself and how does this come to sequoia what was sequoia. Oh relating to the early stage stock there. i'll get. They're trying to get there. But i just wanna make this point. I want you all to go right. Your your local state. If you're in the united states right or call your the Cover the call this the the securities people at your state. Just look it up in the state dot gov website and they'll be securities and get an email to him get a letter to them and tell them that they've tightened up regulations too much and now you can only have for example six unaccredited investors in georgia. Before you have to get licensed and the moment you get licensed you can't have any thing but qualified investors unless you register public offering and it just ridiculous and it has gotten so tight that you can't do what warren buffett did. And you can't do what i did anymore. Which is to go out to people who are unsophisticated. Investors get a small number of them. Put it in a small amount of capital with you and start to build your reputation and gradually get more and more capital so any case that everybody listening to this. Podcast is learning how to invest on their own right right. But i see this as a such a wonderful way to get wealthy. Okay onward Warren buffett has twelve partnerships. Ish i think he wrote and he combined them all into one by united sixty two or three and by the late sixties he was. I think a bit fed up with managing people's money who kept insisting that he keep doing thirty six percent a year every year in and out when he preferred to sit in cash and so he decided to go out after a really good year and he closed the buffet partnerships All our colors the buffet partnership and he recommended people want to one of three things number one. They could f off which was actually. He didn't set like that but that was one choice. Do whatever you want with your money. Choice number to put it into this little company. That buffett was loading everything he owned in two called. Berkshire hathaway at six hundred dollars share. It's now three hundred and fifty thousand a share something Or number three put it into the new fund being started up by his friend the sequoia fund this is a mutual fund. That ran for man. i don't know thirty years that thirty. It's still going that i'm trying to remember. His name is famous really sheamus about it multiple times over. I wonder if sequoia really was the name of that fund. I assume so because they did about eighteen thousand a year for thirty years totally could be. Yeah we we should google that. But i just looked up the question that i was thinking of from the meeting. It's one hundred percent about sequoia capital which is a venture capital company in in menlo park. Oh so the whole answers about venture capital definitely. It's about early stage investing so there were a couple of questions about where he brought it up and the first one was asking whether it's better to invest early in a company and this is a question that we actually contemplate constantly On this podcast is to invest early in a company or wait until a company is a clear winner of a mature industry. And what he says is that just. He and warren are way better at vine mature industries than attacking at like finding startups. And he says like sequoia is good at finding startups. He says the probably the best. Vc operation they're really good early stage investing And he says for some spokes early stage. Investing is best for other folks. What i've done in my life is best and then the follow up question was that he said you've said recently sequoias the greatest investing firm. Do you think this time in the market. I'm completely paraphrasing away Do you think this time in. The market is different and conventional conventional valuation is dead or is this like ninety nine and it's all going to crash and what he says is i don't try and compete with sequoia He says you can argue that. I got close to sequoia when li liu and monger got into b. y. d. when it was very small and he says it was not a startup but it was so small and thinly traded. We were buying into a venture capital type investment but in the public market. So he says with that one exception. I've stayed out of sequoias business. Because there's so much better at it than i would be and i don't know how to do it the way they do it. I just like over and over. Every answer i think the reason. He so venerated at ninety seven is he just constantly says what he doesn't know he's not somebody who's trying to put himself forward as an expert like probably the world's foremost expert on value investing. And he's not trying to put himself forward as an expert he saying. I don't know how an early stage investor does this so well like i wouldn't be able to do it. I stick to what i'm good at. He straight up. He doesn't try to pretend like. Oh if i went into early stage. I'd be able to figure it out. He's like i'd suck at it. Basically i just love that. He so attentive to never saying that he thinks he could do. Some truth is so attended the truth and argue. It denies one of the best value investors in the world. No no no. I think he believes that of himself to catch up. You're right sequoia completely forgotten sequoias. Menlo probably sandhill road venture capital company. That got early stage. And i don't know how early stage in different things but they they got into google. That's for sure there's valentine they've been last time. I don't know if you caught that. Sorry i didn't. What did you say even listening to me. Yeah yeah so. Don valentinus the founder of it and he died last year so hard to say. They'll go right from here. A huge run operation. Yeah it is it is but i. I guess valentine really hasn't had control of it for twenty years or something so it's rocking and rolling and that is different than sequoia mutual fund. Which is what. I thought charlie was talking about should so that one is called sequoia the other one the mutual fund the mutual fund. You are thinking of the came out of the early berkshires an berkshire the early buffet. Partnership ruin seal ruin. It is phenomenal. So there's two sequoias and they. They're very different. Businesses bright. so the the sequoia mutual fund. Charlie munger warned of it. They're in the business that i'm in. I'm in the business of of what we call rule on investing or value investing and again just real quickly the reason we call it rule one investing not valley mostly is because there's this connotation that value investors have to buy companies when they're like at a single digit pe ratio or something right and we. Don't we own google. We've own apple You know it's just. We're looking for things that value what we can buy. That's cheaper than than what it's worth it's it's monger it's okay. Don't call a real one just because i rule one fair enough so what made me think of that question or his answer to that question was that you said you look to not lose money and in the way that you think of that is if you own. Twenty companies and sixteen of them. Don't do much. But they don't go down and the other four big winners. That's a really early stage investor type of structure that's a really venture capital type of structure. It really is. They buy a small number of companies. This fact they tend to buy a small number of companies in a fund if one or two hit it big that is everything they ask for and then if them while this is different than the if eight of them fail they don't care when now we think okay that is that is different to be fair but the point is the other one to two k for all the rest part is similar venture capital back. Really right now you about you were about four years older so so it was doing some venture capital and the the key to it was That when you win you win gigantically huge. It's like when you know. Eighty percent per year compounded for a decade win right of huge and that makes up for the losers but the average venture capital the not average the successful venture capitalist in silicon valley. i read once. I don't know how true this is. But i iran once they're hitting around twenty eight to thirty percent compound over time which is phenomenal. I mean for for v c. That's like what they need to be hitting for the amount of risk that amount registers take. That's what that's what. An investor generally would expect from russia capital fund. And by the way if you wanted to know if you were going to go out and be an entrepreneur and you wanted to go raise money from venture capitalists from an angel investor who is essentially a single office venture capitalist willing to Willing to put their own money into deals and an offer some substantial help on the board. If you going to do that you would want probably understand why they're going after such high chunks of your business right. I mean why why. Why do they demand sixty three percent of your company or thirty seven percent of your company. How do they come up with that number. And this is this is the answer is that they're trying to figure out how much of that they need to take. In order to get the kinds of returns they gotta get one at wins is essentially how it boils down. Did you ever do any stuff where they are any of your legal work where you did venture capital and they were trying to figure out how much to to own of this business. I mean as a low level associate. No i never got to chat on them with their valuation structures. But i did a lot of deals where we were buying chunks of companies selling companies. Now before it gets to the lawyers. Usually the entrepreneurs always feel like they're getting screwed are often feel that way back in the days. When i was doing it because there wasn't anywhere near the kind of understanding about venture capital that there is today now. It's is phenomenal. i think if there's one thing that makes america great in the world and will keep us great in the world. It's that we have the largest private venture capital available for entrepreneurs by orders of magnitude anyone else in the world and the only china china obviously has is government run capitalism. If you will. I mean sort of which is classic definition of fascism if you if you get up right. I mean they're communist quote communism. They run a fascist country and They essentially could be venture capital arm of these new ventures. But they're not they they bank them. They put banking money out there. But they sort of left the entrepreneurs to to put venture money out and eventually they'll catch up with us in that regard him. I'm quite sure they've got so many. You know wealthy people that have been gotten while they were the last three decades that money then turns around and becomes venture capital money. And that's just how it works in in a capitalistic system. Is that your risk. Capital comes from people who've gotten rich so you know hopefully we'll have more and more of those because that's where jobs come from. That's i put more more sustainably. That's where real wealth comes from. A government can go create jobs. Here dig this ditch. Here charged trees down and make a trail in the forest. That's a job that the government can create what the government doesn't do it all is create wealth. Then right right right. So you create wealth when you invest in apple computer and secondly you have cut out every secretarial job in the country and every executive is doing their own secretarial work or you chopped out all of this design stuff that used to be done on paper or you're a pixar and all of a sudden you. You can build a movie studio. I mean it's just goes on and on what what Entrepreneurs have done in this country to create wealth and that makes us so strong and so competitive and we should never forget that it is a gigantic advantage in the world. I lately a thousand percent agree with that. We never want to have a structure that penalizes. That well and charlie got a question. I don't remember the something like you know like. How can we really trust our money. Being in chinese companies like you have a lot of money in chinese companies. How do you trust that. that's not going to be. Oh it was related to jack ma. Bean disappeared for a while and and they were asking like do you worry about. Byu seize assets be nationalized. The company itself be nationalized. And what he said basically was he's the chinese are very smart and they have created a system in which people have become extremely wealthy in a communist country. That is run like a capitalist country. Which as you said is is fascism by the definition. He didn't say that part and and because they clearly have this plan to create millionaires and billionaires and for the wealth even to be passed down. He pointed out that they don't have a wealth tax in a communist country. They don't for wealth tax that he thinks that their goal is to not nationalize companies. They want to make sure that people are incentivized to continue to create wealth in the way that you just described. I mean. I still think like there is a danger just because you never know but i i get his point and i think just because if you own. I don't know how charlie owns. Byu he may own it directly through lou via hong kong or something like yeah and it might be legitimate stock. I mean by that i mean. They actually own the stock of the company b. y. d. But when you own in ten cent and jd and alibaba you don't own the stock that is the company. What many people don't they don't realize we've talked about that here. The v. i. e. that sitting in the cayman islands which has a right to their earnings and it's illegal in china so they could they pull the cork on all these investor. Interesting question asked. Charlie about maybe. We should admit that one next year. I think what you'd say is what he says guy. Why would they kill jews. That's true the second you're right. The second they do that every non chinese investor never invest in a chinese company. Exactly again gun until the outside capital disappears. Yeah yeah that's true that's true. They're very practical. I think is what he was trying to say. Yes very very logical and practical. So what else charlie say. That did that struck you. Because we've watched charlie for a million years and don't really expect anything magnum amazingly new out of what he's talking about. Yeah i don't think he said a lot of amazingly new stuff. I think it was short answers. I noticed he really didn't go on anything. Support for this podcast comes from goldman sachs what do goldman sachs. Experts and leading thinkers have to say about trends shaping markets industries and the global economy. Stay informed with the latest insights from goldman sachs on the economic and market implications of covid nineteen available on our podcasts at gs dot com slash covid nineteen or any of your favorite podcast platforms. And he he finished it right at the hour and fifty minute mark and then gave a little closing talk and I don't think he really said that much. That was like really extraordinary that we hadn't been said before what stuck out to me was just because something i care about. He answered a few questions about culture of a company about management and he said multiple times how important the culture of a company is how important. The management is He mentioned that costco's culture is really what propelled it to be. The incredible company. Let it is today said that. Jeff bezos is in his opinion either the or one of the greatest businessmen that has ever been around so he you know i i notice when people talk about that stuff. Because that's what i look foreign companies so that was really interesting to me to hear somebody who so Like not he's not somebody who's out there like chatting about es g and mission and purpose lead companies and all that kind of stuff so when he talks about company culture what he means is accompany as he said straight in the beginning a company that sells things to people that that are good products that make their lives better. And that's it a couple of points. Here that i picked one is that charlie im- very clear that we're that the stock market the united states is in in a major bubble. And nobody knows how long it's gonna last and that's the two things is like yes. It's a bubble. It's looking for a pen. And nobody knows where that penn is number one and the second thing that came out of buffets letter which we haven't talked much here but that's really worth worth checking out is how reticent buffet was to To say anything really about who's gonna follow him if he dies just important that's why he's not paying dividends. The people on at barons were like you should be paying dividends and drive the stock price and all this and you know honestly there was a there was a pretty good gift together with guys spear following that meeting and one of the things that came out of it was Over on clubhouse was that warren. Warren is talking his book. I mean warren wants to warn watson good companies to buy and they're not bible at this market number one so why pump up the market. Why would you if you want to buy hamburger. Why would you pump up the price of hamburger. You wouldn't and the second thing is in lieu of buying other companies. He'll by his own and he bought a nice chunk of last year he dead. Why would you pump up the company. Why would you pay dividends and get people pumped up the stock price if what you wanna do is buy the stock if it's going to drop you in other words. Buffet never plays down berkshire but he doesn't play it up either an he wasn't playing it up in this letter in the least and that's interesting. I felt the opposite. Really thought he was pumping berkshire. Yeah up and i thought the latter not the stock price. no no. He never does that. At least that i maybe a long time ago. I know my my impression. Was that i. It was a lot of kind of and maybe this is to your point that it was more about just talking up the company. I don't know but to me what struck me is. It felt like it was a letter about legacy because he talked a lot about the companies that berkshire has not only just owned but the way berkshire has really shaped the major companies. That they own sometimes. He talks about the smaller companies in his letter. And this time he didn't do that. He talked about the big companies. You talked about the railroads. He talked about the insurance very briefly. The insurance because he's he's had other letters where he really got into it and he really talked about berkshire hathaway energy and the A huge investment that company has put into greener energy literal investment billions and. I just thought. I got the theme was the mid the middle part of america massively contributing to the wealth of america. It's not all about the coasts and And he just pointed one company after another that has produced enormous wealth for people and they're built by wonderful people in their built by nebraskan and they're built by right was matt totally soto deep on it. I thought that was awesome. Barons comes out. After that letter he goes. Everything was missing from this was important. You know what succession and under poor you know. Why did you talk about the underperformance of your shares. This where i was thinking. It's like why would he if he wants to buy the stock back you know and also it occurred to me. That burns has talking about the last five. Ten years how his stock has done against the s. and p. five hundred and it's lagged it and guess what it buffet for ever going back. Sixty years has been saying that when the stock market is on fire we are going to lag performance. Berkshire will not be able to compete with a bull market stock market and and the reason for that is because what we try to do. And we're buying companies as we try to buy. Companies that are on sale into the stock market is running at two percent earnings. Yield at eight on sale very hard to buy stuff and very hard To do anything but performed and it's been like that for a decade. Now so why would he. I don't know. I don't know i just can't think of a time where he talked up. The price of i guess occasionally. He's he's said. oh you know. It's a good book value. I don't know. I think he just kind of stayed away from it. This time was saying like this is just too much of a trip down memory lane. I thought he was basically pointing out. Why we do what we do. Yeah that's i took it that way. Exactly why we do what we do that. we've done. Good things with our companies that we continue to do good things with our companies that we employ people that we've done the right thing He pointed out that A new ceo of is it be h. ere's it the railroad. I can't remember is a woman. Katie farmer I mean i. I i really felt like it was a legacy kind of letter. Look at what i've done and it would. He would never say that like that or think of it like that. I don't think. I don't think it's about him but that's i mean it is about him for all of us who follow him. She is burlington northern but burned beyond that. Look at look at how he i. I think this is why. I think he was playing it down. He made a thing out of losing out of writing down. Ten billion dollars on precision cast parts. Which is this purchase that he made it goes into really quite a lot of mea culpa about having paid too much. It's nobody's fault but mine. But i pay too much for you. Know in terms of blah blah blah. And really the company just got crushed because why they're making parts for airplanes. They thought what he's line so it'll come back what he didn't say was. We made a bazillion dollars on apple. Oh he did say that. Well really didn't really come out and just go. Hey we bought we bought. So what was it like five point. Two percent of the company and apple bought some of their shares back. Then we've got some of their shares back and boom. You guys made an extra billion dollars without doing anything in the context of the buybacks but not in the context of we bought it at a hundred and it went to five hundred right right. He didn't say that he didn't say that. This is by far. Our largest investment in massively overshadows the losses that we took a precision cast parts. Most everybody including me would do exactly that. And he doesn't and the reason honest to god the reason he doesn't is because he wants his stuff to go down. I really believe it. He's not pumping his book at all also the way he writes every letter ever. This is not but so when you say like. There's a reason that he's not pumping things. He doesn't pump things so i'm a bit confused. Thank things there's there's a reason. And he said it so many times you want if you're a net purchaser of hamburgers you don't want to pump them up and he is a net purchaser of businesses. Last thing buffet wants to do is see a market like this like a massive huge bubble and he doesn't want to see that in his own stock. Either for more reasons. Than just i buy my own stock. It's also that it's just. He just feels. It's not fair like when people are buying the stock at too high. a price a feels that that's unwarranted. And they shouldn't do it and he's come out times in the past and cities too expensive you know and then of course it turns out he should have bought the hell out of there right there but that's buffet and that's munger and that's why we love them so much is that they're so different than everybody else in the world when it comes to this stuff and they're shrugging off underperformance. It's like hey you know ten years so what you know maybe yeah you should have bought the if you if you knew where we were gonna go. You should about the spx on the other hand. There's massive untapped value in berkshire hathaway no question in my mind. Yes so by the way you should look at it. I mean i'm not recommending anything or advice or whatever but this is a business you should look into and try to understand. It's not a simple business. He owns like sixty or seventy private companies and a whole bunch of public ones. The accounting is labyrinth than hard to understand Because he's got generally accepted accounting. They just gotta do in. What amounts to a fund the beginning of the letter where he basically like shows how annoyed he is generally accepted accounting forcing him to include. All these writedowns all the writedowns and include the market change in the stock city owns as part of earnings earnings and realized realized horseshoe. So i think. That's that's i think we had a couple of guys s cup. Tell us some things that we need to hear over and over again. And i hope they live another twenty years each at least you. Oh yes please please. I mean i want to say that i have heard from a few people like oh kind of a boring letter this year. I really enjoyed reading it. I felt like it was a really like nice boost to my value. Investing practice to my rule one investing practice. it was really nice to read a defense of capitalism. Doing really good things. It was really nice to as you pointed out. Read about the middle of america getting a nice shout out and how much people are do and it. Just it just gave me the warm and fuzzies. And i think for people. Doing this kind of practice. Read the letter. it's worth it. It's not gonna around but that doesn't it's it doesn't have to pri crowned valuable and then listen. Listen to charlie. it's well worth it. I mean he says pithy little things like you know jack. Mosh should tweet. The nose of. I'm paraphrasing here. Shouldn't have tweaked the nose of the chinese government. He understands what kind of system there in in other words and charlies like and what they're proving in china's that you don't have to be a democracy to have a very successful economic system if you will allow capitalism to be there right i mean so i think it's kind of a bit strange. Just say that you know. Jack got what he deserved if he's willing to do what he did. In a in the chinese government system. Just don't do that. So i i liked charlie because he's so straightforward. That's pretty politically incorrect. Right there he's old man. He's fun to watch for sure. The transcript doesn't convey it s. I go go watch. He's worth it. You'll get a good. Oh and last announcement in the berkshire letter. They announced that the annual meeting will be virtual this year again which is not a surprise. But it's on may first. And i thought it was so cute because warren says we all miss charlie so much last year that the meetings going to be in los angeles which means that he's gonna he and the the two henchmen or greg able probably agit jane jane They'll all go to la. 'cause charlie probably can't travel and And be there with him and they'll be broadcasting from there for all of us so it was just so sweet like clearly he was. He really missed charlie last year and it was very sweet that he's gonna go do that. Feeding has after all the indefensible which you can fly their airplane defensive he does. I didn't know that guy that picks pennies elevators these. Oh he's got his exact change for his. Mcdonald's breakfast got is indefensible airplane dependent. All right guys we gotta go enjoy reading and watching those all right thanks guys. Thanks for listening to invested if you enjoyed this episode. Do you want more information or listen to additional episodes. Visit our website at invested podcasts dot com and sign up for my virtual workshop. Right there spots are definitely limited for this event. I'm not kidding there really are. They sell out very quickly. Everything discuss on this podcast by the way is either my opinion or it's daniels opinion and a really important. It's not to be taken as investment advice. Because i am not your financial advisor nor have i considered your personal situation as your fight. Do -ciary sir remember that you're on your own here. This podcast is for your entertainment and education. Only and i really hope you enjoyed it.

Warren buffett sequoia Charlie munger berkshire hathaway charlie daily journal billtown berkshire charlie monger Yahu finance daily journal warren menashe bryce quiz venture capital fund sa united states google
#728 Songs About the Radio & Opinions on Michael Kiwanuka

Sound Opinions

57:45 min | 1 year ago

#728 Songs About the Radio & Opinions on Michael Kiwanuka

"Sound opinions is supported by Goose Island pairing beer and music. Since nineteen eighty-eight Goose Island Beer Company Chicago Illinois listen critically enjoy responsibly. Early while bobbling mom Lumbao from WBZ Chicago and PR X.. This is sound opinions. I'm Jim dear goddess and. I'm greg cut this week. Jim Women I revisit our celebration of Radio we're GONNA share how the medium has shaped our musical tastes and share some of our favorite radio theme tracks plus we'll review a new music from English soul artist. Michael Key A and we'll hear how a gang of four song got the coat hanger. Singer hooked on Sonic's that's all coming up on sound opinions. You're listening to own opinions. I'm greg cut here with my partner. Jim De regattas and this week we're going to share some of our favorite tracks about the power of radio. That's that's later in the show but first we've got some new music to review probably don't need to play myself on. I am all saw. The news feels that is you. Ain't the problem from the third studio album from the artist named Michael Kiwanuka. Michael Michael Kiwanuka a British singer. Songwriter of Ugandan heritage is two thousand twelve. Debut album got immediately. Noticed as here's an up and comer home again was record. When gold in the United Kingdom Got A lot of accolades as kind of a a new take on folk soul. Some people were even comparing him to seventies artist. It is like Terry Collier and in some ways. He did pave the way for artists like Leeann bridges to have success with that record. Two Thousand Sixteen. You talk talk about. It wasn't exactly a left. Turn him but love and hate really just blew. Open the borders of how we perceive Q.. And OHKA and his career initially in this sort of retro pocket. This collaboration with Brian Danger Mouse Burton took them out of that. Retro Pack and into a way more expensive sound debuted at number one Back in the U K Eh. Still isn't as widely known in this country. But that could change with this new record SELF-TITLED MANUKA WE'RE GONNA play a track from it first before we review it. It's it's called rolling from the new Michael Kyuko album unsound of the wean off the three in class. Yeah and that was rolling by Michael Key Manuka from third album of his career titled simply he went Ohka. He's back Greg with danger mouse. Brian Burton as well as the London. Hip Hop producers inflow and this record again as the second album. Was this expansion from the early early soulful folk. This record goes somewhere else completely different. It is an ambitious song cycle a dense musical pastiche US teach on thinking like Curtis Mayfield backing up Kendrick. Lamar maybe you know it. It is a truly extraordinary psychedelic soul record the through line since key when it has been growing throughout his entire career. Musically has been this self doubt you know he never fit in. He felt as a resident of Great Britain. Having come from Uganda and he doesn't fit in this modern world and he's always asking himself as has he does in that track living in denial. Are you really giving up Are you really going to stop right. Now it doesn't stop and this album takes us through this evolution. And he's looking at the political situation. I think that DRAC Iraq hero which is really sort of multi part suite in a mere three minutes and change about Fred Hampton the Black Panthers leader in Chicago murdered in his bed by police and the connections the key Manuka seeing between that and the black lives matter moment Right now the shoot down. I love it's all. I guess they do but always returning to look back in on himself south. Do I have anything to say. Does anyone want to listen. And he keeps calling this record in interviews. A reaction against this throwaway machine led had world and it is this is so full this is this is human. This is one of the best albums of the year. It's just blowing me away. Yeah it's great from the first moment on the trek sort of melt into each other and I like the way that works is sort of this cohesive whole and yet the songs each have their own identity. And it's not like a mood mood album. I think that would be sort of underselling it because each of these songs do have a strong hook a melody in as well as sort of working together as a whole all queue and Nokia plays most of the guitars in this record in addition to the base that funk Bass is core to many of these songs they go. Who is the Bass player in this record? Well it's and then he's got those acid rock guitar guitar. Solos Very Pink Floyd in in some of the Hendrix. Ernie is Lee at the PSYCHEDELIC. Eisley brothers best absolutely combining these influences from across generations. And then you know they're breaking ground on some of these tracks as well I mean there's there's a hip hop influence that I hadn't heard previously and attract final days. Kind of yeah. Working with that skittering during `electronic rhythm Spanning generations of black music in particular the whole notion of time healing pain the whole idea of overcoming self doubt. You're absolutely right about that. Track hero being so central to the the album. Seems I won't change my name. No matter what they call me That's a huge statement from this guy 'cause even love and hate was suffused in this in this self-doubt I don't fit in now. This time. He does he realize I don't fit in but I'm going to rise above it. I'm going to you know nonetheless assert myself and if you read his biography in the early days of his career. They we're all saying you did. This is too strange right. You've got to change your name if you heard. Everybody should know this guy's name now. Jim Michael Key when you said she was just by there was nothing at all he puts on radio. There was nothing. Go ahead on. and she puts she started singing Music say that is the velvet underground the rock and Roll Greg. One of the best songs in rock history one of the best songs ever about radio this notion of this girl and Long Island. You know stuck doc in suburban doldrums turns on the radio. And here's these magical sounds from New York City and her life is changed forever. That was my story yet. GROWING GROWING UP IN JERSEY CITY New Jersey turning on the New York radio station and my life would save by rock and roll. got that little transistor Radio Tucked under your pillow. So your parents wouldn't hear you listening to the radio at a two. AM everybody's got that story. We thought it would be good to pay tribute to this medium that we're on which you know must be said we're really lucky. We play whatever we want what we're excited about. And what what. We think people shouldn't be listening. I'm you know I. It's a rare in radio these days when it's such a constricted format obviously we love this medium. But it's not just us we're going to go through some of our choices of the best rock songs ever about radio paying homage to this magical magical thing on the Airwaves Greg. Kat you get to go first. You're talking about the magical allure of this medium. Jim and I can't think of any more magical thing than a a great radio station. A great DJ blasting out into the night all over America that imagery that we got from American graffiti for example with Wolfman Jack Act Broadcasting to what it seemed like an entire city was tuned in right at border radio station. The Wolfman Jack was broadcasting from and he was literally orchestrating the night with the songs that he was playing people think Internet invented the virtual community But all these people all over this town driving listening at home where a community because they were tied in with radio and there was a lot of truth to to the imagery in that movie because Wolfman Jack Wasn't fact broadcasting from a station in Mexico in the sixties and the reason he was able to be I heard not only in California where American graffiti was situated. But all over the United States was because of the powerful broadcasting singles that were emanating from those Mexican stations there were no restrictions on the wattage on those stations in the United States. Fifty thousand watts was the top of the line that you could go in terms of station in power in Mexico. You had stations with five six seven eight times that wattage and they could be heard all over the fifty states I mean it was a remarkable situation where they were stationed in Mexico could be heard more clearly say in Houston or in Atlanta or or Kansas City or Chicago than some of the local stations because of the power of the signal and in addition it was not just the power of the single but what was being transmitted on that signal. You had these disc jockeys like Wolfman Jack were basically able to play any thing. They wanted without restriction. So you heard everything from Mariuchi reactive bands to ground soul music to the wildest Rockabilly to Gospel preachers on these airwaves. And it was a truly magical time. Mm for radio transformative. Time and that time is celebrated by Z. Z.. Top three guys. Who Know Their radio who knew the border radio? Three Texas guys who understood the power power of those transmissions from Mexico and how they influenced their musical taste and they did in a song called heard it on the x all. Those Mexican stations had call letters that began with the letter X. Enhanced the song heard it on the X. They heard all this amazing music that they couldn't hear on domestic radio from these Mexican stations and Wolfman Jack in particular. Here's a celebration of that era. Heard it on the extra Z.. Top unsound opinions in nineteen sixty six. Okay yeah in. Yeah thanks Bill Yeah They put it on the extra Z.. Z. Top in mid seventies vintage form unsound opinions and one of the great songs about radio. CEO Jim what do you got for us. Well Greg you know. Listeners may wonder sometimes if we compare notes when we do shows like this you know I gotta stack CDs. I WANNA play. You have a stack we usually don't we like to surprise each other and it's just coincidence that we both decided to start in exactly the same place which is Mexico a different banned from a different era wall do and their hit single. They're only big hit single Mexican radio. But it's about the same thing. Stan Ridgway was a child of the punk movement. Came up with new wave his his band wall of Voodoo but remember being a kid and listening to those Mexican. AM radio stations. X. E. R. E. and XY G and X E. R. B. and hearing hiring people like the Inevitable Wolfman Jack Aka Robert Weston Smith. What a character I mean I remember being a kid in New York? He ended his career. Wolfman Jack as a disc Jockey Jackie in New York and you know he's playing stuff that had nothing to do with with me listening in the late seventies and early eighties. He's playing oldies by that time. But that would advise Out of Jack he would how it was incredible. It was so magical to listen to that. I think Stan Ridgway appreciated. I've always is loved that. What an odd idea to combine synthesizer pop and Mexican Mariachi music and any Oh Moriconi Western soundtracks wchs and this percussion that sounded as if it was a collection of stuff from the junkyard which he was putting that together with with digital synthesizers? Wouldn't pod idea and and the voice Park Johnny Cash Park Carnival Barker hard alien space. Do you know who is anyway. Same idea love and the Mexican radio by wall of the on sounded sold it in fact the long way in the third and how it is in the west and play shirt. I understand just a little friend. Day saw talk radio radio. Oh on radio In Tijuana Bar who requests on the telephone on on a day off from south border the Pakistan. What does he say on out? Radio back subdued old radio that is Mexican radio by wall of Voodoo one of Jim dear goddess picks for a song about the radio very good good one in. I love that song when we come back more songs about the power of radio. That's in a minute unsound opinions from WBZ Chicago and PR sound. Opinions is supported by goose. Island the brewers of next coast. Ip a three one two urban wheat Ale and Bourbon County Stout pairing beer and music since nineteen eighty eight. They believe it's always best to listen critically and enjoy responsibly. Goose Island Beer Company Chicago Illinois. They want more from your podcast APP. Graduate to pocket. Cath your one. Stop Shop for PODCASTS. Listening Search and discovery the beautifully designed APP gives humour control. And makes it easier to discover and Organiz podcast with powerful tools to customize listening. Here all your favorite shows and podcasts dot com or find us in the apple APP or Google play stores. I'll be on Caserta our him back out. Welcome back to sound opinions. I'm Greg Kat here with Jim dear goddess and this week. We're running down some of our favorite songs about the medium. We both love radio next up for me Jim. is a song that came out in the mid eighties. A celebration of a couple of things first of all. It's a love song to a far off woman inaccessible in a lot of ways voices heard only on the radio. It's also a love song to that medium to the radio that plays her music. The only place you could hear really cool obscure underground. Rock bands in the eighties was left of the dial small community stations. Those small college radio stations. That were all over. America barely had any band with you know five watts. Ten Watt some of them only broadcasting a few blocks but those deejays had no restrictions on what they were playing commercial. Radio is becoming more corporatized. playlists were becoming more beholden to the interests of a few major record companies. You saw all this freedom at these Samal or stations Left of the dial as the song says. It's the replacements of course from Nineteen eighty-five Paul Westerberg writing about this elusive woman. Writing about the stations is that played her music and Sang Sung. What side are you on? You know it was kind of like a line in the sand. I think a lot of people heard that song and it was. You know you're either with us or against us because the Twain shall never meet these small groups like the replacements really didn't get their shot on those bigger stations. They had to be heard left of the dial. Were they weren't going to be hurt at all. It's the replacements with left of the dial from Nineteen eighty-five Unsound Opinions Doc In town left of the dial from the the replacements and sound opinions. What my favorite songs about radio? Jim What are you got next Greg. I'm going to stay in the same era again absolutely wonderful choice left of the dial by the replacements placements. There was a feeling of revolution in the one thousand. Nine hundred eighty s as college. Radio played this music that seemed like the greatest music in the world and they were the only ones championing at I did some college radio Down at WPRO in Princeton. I didn't go to Princeton but I used to the radio station because they had friends there and to be able to play the minute men and who's do and the replacements when no one else was playing them it was a feeling of empowerment. Was a feeling of celebration and the song that I think. Encapsulated is is that best is of course Radio Free Europe by REM now. It has often been said. Michael Stipe was purely babbling through these lyrics there are several discernible words. The jump out of the mix and of course there's the title to give us a clue. These were the days. This was their debut album murmur. which which many critics called mumble you know was stipe? Actually saying anything. Was it the weird way that he sang in the baritone and the southern accent or was he just kind not a moment. Right you don't know. This is not really a song about the American funded overseas radio station. Radio Free Europe. I think it's a song about college radio uh-huh and the power of radio and how they do. It is more about the sound of the song than anything else. It's really just this mysterious force and at that yeah point. They were such an enigmatic ban that they captured it. Perfectly the INTRO. The song they're shouting through a megaphone to get that idea of where we're going to tell you something important you know. Spread it out. I'm GonNa play the original version the HIB tone single which to this day This was the self financed debut single by REM. They claim was superior version to the one that they later recorded with. Mitch Easter that appeared on Murmur. I say you know if the House is on fire one of the three or four things I'm going to grab is my copy. Uh of the Rem hip tone six hundred and fifty pressed on the first time. Here's Radio Free Europe by REM on sound opinions uh-huh uh-huh Eh. Yeah and it Ah Radio Free Europe by REM man. I love that Song Mr Cot. What do you have for us next Jim? There's a a long tradition in rock and roll of You know turning on that radio and having a song or a DJ in particular that transforms your life. Think back to see Chuck Berry's Roller Derby. Tobin we played the velvet underground's rock and roll. Her life was saved by rock and roll the modern lovers roadrunners in that tradition joy. Division's transmission. This song enjoins that tradition and is one of the best I think in that area. It's called last night. A DJ saved my life. Oh yeah it is a great one off song. By a group recalled in deep it was later covered Not so well. I might add decades later by Mariah Carey and many other artists as well but the original I think is still a definitive version. That great rolling baseline and the duet vocals by a couple named Reggie and Rose Marie. Ramsey Rosemary is driving around at night. And she's lamenting this boyfriend. That is dumping her and then a song comes on the radio and it changes her world. Suddenly things brightened because of that song. That's is being played at that moment when she most needed it. It's a celebration of the power of radio. The power of a song being played on the radio at a particular moment in your life in a hi. You'll never forget that moment because of that song at that moment being played by that. Dj is last night at DJ. Saved my life like Indie unsound opinions. They gotta get up. GotTa get off and we got an college. They were less probable uh-huh Aw uh-huh all Talk Radio Doc. Washburn oh boo the last night a DJ save my life by indeed on sound opinions. Nice one greg. We are talking about the great rock songs about Radio Radio. You know you can argue that a little bit self serving to write a song about radio if you are a rock band that wants to get played on the radio but I think the great ones succeed as much more than than mere gimmickry. You were talking about the message of Indian Song hearing that voice in the night when you're all alone and really connecting the moment. I always connect with the song. I'm about about the play. has nothing to do stylistically Vince. Gals up was this legendary. Dj on Wfan Wfan in New York. And he happened to be helming. The Rock station that at night when John Lennon was shot and much like Walter cronkite breaking down in tears when he had to announce the news of president. Kennedy's death Vince. Gill's a WHO who was so moved by this horrible experience. It's that he he later dropped OUTTA radio for ten years. He's back on in New York. Now you know hearing that news from a friend and like he's telling you personally and he's in tears and then you're in tears and you're bonded over this moment. What does that have to do with Donna summer? I don't know I've always associated Donna summer song on the radio with a moment like that people don't think about the depth of her work sometimes but this song begins with these striking words. Someone found a letter. You wrote me on the radio letter later on the radio. What is she talking about right? It must've fallen out of a hole in your your overcoat. They never said your name but I knew just who they meant. That feeling of this music is being played on this radio station and they have nothing to do with me. But they're talking directly to me. This is about me. How can that be right? I love this song. Giorgio moroder produced. It was just Donna on summer in Marotta in the studio and incredible wonderful example of Cynth- Bob and the disco beat here. It is Donna. Summer's on the radio on sound opinions In Law than now the name just It I used to. Ah Aw aw Yeah that was under radio by Donna. Summer you can always get let me going on Donna. Summer Jim we need a whole show on her. Some point way overdue. Absolutely now we want to hear from you. Our listeners call our hotline at eight eight eight eight five five nine thousand nine hundred and leave a message sharing your favorite song about the radio and why after a short break we'll share some more of our picks that's in a minute on sound opinions from WBZ be easy Chicago N. P. R. X. Faster miles an hour job with the radio. Aw Massachusetts late at night and the neon where it's cold outside. Got The radio welcome back sound opinions. I'm Jim Viewer Goddess here with my partner great and we are talking about our favorite songs wrongs about radio man. Nothing beats driving on the Massachusetts State Turnpike late at night with the radio on that. Of course his roadrunner by the modern lovers one of the best songs ever period especially about Radio Greg Europe next. What's your next pick? Yeah Jim we've been celebrating radio primarily here and I think it's only fair that we Show the flip side of it before we turn to some other topics. There's a dark underbelly not on public radio but there is his elsewhere and I think one of the reasons that commercial radio has been in trouble. The last few years is addressed in this particular song public enemy with a song called how to kill a radio consultant sultant and You know it may sound kind of darkened dire. They're not really talking about killing someone but they are talking about a practice that in their eyes the era was killing radio. The song came out in the early nineties when a revolution was happening in the inner city in terms of the kind of music that was coming out of it. Hip Hop was exploding. It was becoming the soundtrack of two generations of listeners. And you had major bands like Nwea like public enemy artists like ice t ice cube. Who are making important ground breaking records? That weren't getting played on commercial radio. In fact commercial radio was representing the spectrum of music by playing playing artists like Vanilla ice and MC hammer and will smith in his fresh prince guys and saying this is the music of the inner city. This is about all. We're going to touch here. Public enemy is basically saying you're listening to these consultants. You're listening to these people who are telling you how to program your station rather than listening to your community which just telling you it wants to hear this music in fact public. Anyone who's proven right. When the soundscan numbers finally started coming out the official data of what people were actually Shauwie buying in record stores as opposed to the estimates that had been made in prior decades? It was proven that hip hop records were outselling. Virtually every other genre uh-huh w. a. going to number one was a major moment in the transformation of the billboard charts and in the transformation of the perception of whether or not commercial aradio is really reflecting the interests of its audience. It's all addressed in this brilliant song. Critique of where commercial radio started going wrong in the early early nineties how to kill a radio consultant by public enemy on sound opinions. Take money pick except radio. Talk Radio Getaway. I want to play what he wants to play. Got So you never the Fuck uh-huh uh-huh taking the top pick up now. I think AC- amount on that day. I in the first the suit big number one is left when the storm. Oh sweet baby this all over back pay public enemy with how to kill a Radio Consultants unsound opinions the dark side the underbelly of radio. Jim What is your final pick. I'm going to stay with the same. SORTA dark theme Greg. Radio Friendly Unit Shifter Crude from Toronto by Nirvana their final studio album. A lot of Nirvana fans. Think that Kirk cobain in this song was railing against corporate radio and the music industry As a whole you know. MTV in the corporate record companies you know the whole system that had made him a star. It's an angry song in euro is as we've said when we've discussed the album. You know a famously divided record in half beautiful pop songs and half ferocious in-your-face gnaws rock. This is one of the noisier songs I don't quite by that. It's strictly a diatribe against corporate rock radio. Modern Rock radio as it was called at the time. I think all cobaine songs are about Kurt cobain. You know the the key lines. What is what I need? What is wrong with me? What do I think I think the less interview I did with him? which was a couple of months before his suicide you know? He was incredibly conflicted. He wanted the whole the world to hear his songs. He was so proud of them. He wanted to share them with people he hated looking out however and seeing fans out there who were cheering PAALEA song about a rape he. He didn't like that. Some people like to songs who were people. He didn't like you know he was conflicted. I think this is a song about that. Radio makes us conflicted that you know when you hear or something on the radio that makes you angry. She WanNa throw your radio out the window but it can also save your life. That's the magic of the medium. I think it's a good place to end here is Nevada's radio. Radio friendly unit shifter on sound of interest home Aw in here yeah bad. mm-hmm radio friendly units shifter on sound opinions. That was Nirvana. We're lucky greg able to play a song like that on the radio and that wraps up our discussion of great rock and roll songs about radio that is a little bit of f the NRA from the coathangers six studio album the devil you know. Now it's hard not to know where the Atlanta based punk rock band stance politically if you hear that song and singer Guitarist. Julia Koogle remembers exactly when she was inspired to take that stance in her music. She told her producer. Andrew Gill she got hooked on Sonics when a DJ played a song by gang of four. My name is Julia and I played guitar. In the coathangers gang of four I found that essence swear is a song they changed my life. I just graduated high school and I moved to Atlanta and I was going to Georgia state. My mind was getting blown all over the place. With the culture and taking women's studies classes I was thinking about gender inequality classism sexism. Racism just everything. Everything was different. I grew up in the suburbs. So here was like so much culture. My mind was getting blown open by like these contracts that I had been living in and being a part of and the you know George Bush is president at that point and we had the Patriot Act and they could read. There are things and you know there was so much fire. Everything about me was about changing. I was almost angry with myself or haven't been caught up in it for for so long. It was a very powerful time. I think I was like listening to a lot of piano. Rock and roll like Classic Rock and a lot of senior songwriters stuff and pop music was sort of frivolous in my opinion was like. Oh it's not important you know and so I was at a House Party and I heard the song come on and I was like why is this. They get nothing very dancey. But then I heard like h bomb and like you know like a lot of these key words and I was like what is this and I ran up the DJ. He's a gang of four's gang far and then it was just kind of like poof. Like my mind was blown. Had these sharp guitars and this very dancey beat and then it was talking about something very political very deep as I wanna make music like that because it wasn't for us in a wasn't dance it it meant something they were thinking about. How we recreating we did the Anti Solo so they would drop out guitar dropout the base? It was also very inspirational. Way that you play guitar was very like Jari and Barry like straight pop pop up and so it was like I could do that was very accessible as I can do that. I couldn't Solo Guitar Center shredder so so it felt like something I could also do and it's really nice to hear someone do something different and say it's okay and it's actually also counts important music as we became a band called the coathanger. What's that about you know? It's like you know what it's about It's an issue. We still have to talk about today. You know we actually formed Coming back from DC from an anti Bush rally because we realize we're GONNA do them and it just felt good to be part of a movement for some reason if you're on a riser even half an inch you can be as crazy as you want but if you just on the street corner doing that they frown upon it so to be able to speak and scream human and then all of a sudden it became this political thing. Just that we were doing my most important lesson I think is the personal is political and so then he live it and it becomes political statement. I'm a huge huge fan forever. Grateful awful music specially payment. I found that essence rare by gang of four four featuring Andy Gill no relation to our Andrew. Gill Greg what do we have on the show next week. I love love. Love that song. You're a big G. O. F.. That's true true and Next week we got some more songs. We're going to love Buried treasures. We're going to unearth some records that we think you need to hear. Even though they are traveling beneath the mainstream MHM reader. You can download sound opinions wherever you get your podcast thing. He's talked to us on our facebook group a lot of great discussions there as always. The show is produced by Brandin benefactor alex claiborne on a contract and I ninety s them. Yeah like Nick Bom Bom on sound opinions. Everyone's a critic so give us a call on our hotline eight eight five nine eighteen hundred new messages Show Shawn Crispin. North Carolina. Just heard the Janna Shanna show and really really enjoyed. It reminded me of stories of my mom's fell about thinking out in Austin and Houston to see Jonathan towns play in the mid mid late sixties. So how thinking about who. She sounds like today who she influenced today? There's a is a singer here in Raleigh name. Reese mckendry that you really do need to hear. And she's got songs that Combine Janice early girl groups soul and it's just just got an amazing sound. I'd recommend her songs. Detroit off her newest Lt Wreath mckenry really really. Hey there. My name's Gale Gand. I live in river woods and when I was in fifth grade my dad took like me and my brother Gary to see Janice Joplin play at the Aragon ballroom. And I'm not sure how it happened. But somehow we ended up backstage stage and we ended up in her dressing room so I got to meet her so just crazy Janice Joplin story. It's part of my past. Thanks for the great show. Hi Jackie and I'm actually calling just to say that I'm so happy to hear and learn so much about Janice Joplin happened today and I'm happy that I'll be able to get up to check out the books. One of my favorite moments. That are always find most appealing to hear her through the song pizza my heart by the Franken sister and I've been at the grammys. I've been all over the world. Curtis thing it always stops me and my tracking. Thank you Long Term Life. Like this is what you like trying to live the life bright bright dike flights every single night single byte right. I was the only only polite lights beginning. Christ like I was remained at the tweet. Just might seek a witch lifelike. The fight for Winder Georgia absolutely. Conway's music is because of the Lord and it's absolutely fantastic fantastic. Amen how we got blessed and Neil Young's amen how we got blessed for deal because absolutely our planet it lands and God bless you all of his great radio station Chrysler new ways to due to share your opinions unsound opinions. uh-huh call eight eight eight eight five nine eighteen hundred we'll be back next week unsound opinions

Jim Gill Greg Chicago New York City Wolfman Jack Dj REM US Michael Michael Kiwanuka Stan Ridgway Radio Consultants Illinois Mexico Goose Island Greg Kat Curtis Mayfield America Donna summer partner
Chris Bloomstran  What Makes a Quality Company  - [Invest Like the Best, EP.141]

Invest Like the Best

1:17:16 hr | 1 year ago

Chris Bloomstran What Makes a Quality Company - [Invest Like the Best, EP.141]

"Oh hello and welcome everyone. I'm patrick o'shaughnessy and this is invest like the best this show is an open ended exploration ration- of markets ideas methods stories and of strategies that will help you better invest both your time and your money you can learn more and stay up-to-date at investor field guide the com- patrick o'shaughnessy if the c._e._o. Of a shaughnessy asset management all opinions expressed by patrick podcast guests are solely their own opinions and do not reflect the opinion of o'shaughnessy asset management this podcast for informational purposes only and should not be relied upon on as a basis for investment decisions clients of shaughnessy asset management may maintain positions and the securities discussed in this podcast. I guess this this week is chris. Bloom string the president and chief investment officer of semper augustus investments group he became famous in investing circles a few years ago for is incredibly detailed investigations of berkshire the hathaway but we do cover berkshire towards the end of the conversation. We spend most of our time talking about what makes for a quality business. I love some of his angles in the current landscape including our discussion of companies. He's like riche mont and disney which are actively taking distribution back in house. Please enjoy our conversation without an interesting place to start which i've roy not done before would be with your biggest mistake biggest investing mistake. We'll talk a lot about successes and interesting companies over the course of the conversation but oftentimes we learn most from our biggest screw ups and you were talking a little bit about one of those before we hit record and so let's begin there. What in your now pretty long career investing in equities has been the largest largest air well thirty years in and twenty years running semper. You do make a fair share of blunders and mistakes in this year's letter. I wrote about a handful and and probably the one that comes to mind that i would categorize the worst which was clearly an error of comission was having sold ross stores store having owned it for the prior two and a half years we owned at the outset of the firm we transitioned a very wealthy families portfolio away from kind of large blue chip businesses with very low cost basis a lot of businesses no longer earning their cost of capital prices ranging from thirty to fifty times earnings vary tax efficiently with foundation and some croats had liquidated a portfolio and at the time all of the value that we were finding was in small mid cap names so we by ross stores as an example. Maybe ten times earnings. We've followed ross for seven or eight years had never owned it terrific retailer. They probably had three hundred and fifty three hundred seventy five stores at the time we love the ramp at which they could continue to open stores unit economics terrific kinda high teens low twenty s returns on capital apple balance sheet was great they used operating leases but judiciously so we pay ten times earnings for ross and during that first fifty percent bear market market when the market fell during two thousand one and two we made on the order of two and a half times our money on ross so the stock of that point was trading kinda high teens call it twenty times earnings earnings and we figured as we did at the time that you can always sell things and buy back while the lessons of history and the great investors all say. It's really hard to buy something you hear. Mr manga talk about about it all the time. Well we sell the thing i had this notion and i still do it some level that a retail concept or a fast food restaurant type concept once they get to a certain unit size and i've always thought that number was about four hundred a lot of things tend to change distribution changes a lot of times you need new management and so we thought we could step away from ross at what we thought was a very full price. It was trading north of our appraisal a fair value. We didn't buy anything at twenty times earnings at the time and so ross looked expensive so we trimmed it in the years having sold it since the stocks more than a twenty bagger just insane so you look at the unit count profitability profitability grew gross margins expanded. If we had done a model and laid out a twenty year projection we probably could've gotten to the way ross played out but we sold for price consulted for price and made the mistake of never circling back and buying because i think we were anchored at some level and the fact that we pay ten times earnings for it and you make two and a half times dimes you circle back and pay fifteen or sixteen times well. It was clearly worth way more than ten was worth way more than twenty times and so that was just a very painfully expensive of lesson because it had grown into a good sized position. It was a good size position at the outset and we forfeited huge amount of upside on a business and a concept and a theme theme really of finding businesses that can grow units with incrementally growing returns on capital and we walked away from it. Now is a very very expensive a painful experience but you'll learn from those experiences well so it's a good excuse to talk about your kind of core investment philosophy and again before we hit record i mentioned this word quality investor astor which i've used that were too much because so many people say that word and it means a hundred different things so involving the define for us what quality means to you oh and also answer whether or not you think that is a good word to describe and very simple terms. Your investment philosophy and wolves were killed back from there. I think quality very much describes what we do think about two things we think about quality and price we think about quality way before we think about price but we like to say we employ a dual margin of safety in the process. We're trying to buy outstanding businesses run by announced any managers letting anybody in the value world talks about the same thing quality blah blah blah but i think thirty years in to doing this in through the mistakes that we've made over time you get burned enough and you get john stu where your definition equality i think evolves to the point now and i wouldn't call us timid investors at all but if you take our our collective business balance sheet to their businesses respectively unlevered and we don't go in with the notion that we're only going on businesses that are net on levered when you strip the cash out but but that's where we are today and oddly there are really outstanding businesses that can be had for good prices. Despite what we think is a very overall expensive market but you always talk about management management quality and we've owned businesses that didn't have management quality but the medically we thought were in the right place we own mylan labs a couple of different times on the notion that you had this giant patent cliff with the branded pharma hatch waxman was passed in nineteen eighty-four which gave twenty year patent life to drugs and you knew all all these big drugs coming off patent and so the generics were just in a sweet spot. The management mylan was accounting with suspect that revolving door of c._f._o.'s pay themselves gad's adds money. The accounting was terrible. If you think about trying to get drugs knocked off a patent you spend your life in the courtroom and so- bribes and it was just bad and finally and we made money with it but walked away from the business quality and so we've just kind of trended toward ideally. We're trying to own businesses for a long time in if we're going to own businesses for a long time if you're going to start the business with somebody if you and i- patrick <unk> business we better have health lottery respect for or course that's a values in our morals and so i think we've just gravitated toward trying to identify defy these businesses that are run by folks that kinda share value system and it's hard because you don't have access to management's the way we would have twenty years ago. I think through longstanding ownership of businesses managements are a lot more comfortable to talk to us because we're never interested in what quarterly earnings are going to be earnings for the year. We're trying to really get a sense of how the business works works and where the durable strengths are and where the permanence is in with the business doesn't look like tomorrow or quarter from now or a year from now ten years out in fifteen years island with the movers. Are where's the disruption so we sit here today with. I think this business of great ceos in our twenty years running for. I know that the roster of ceos is that. We have on board today or better than we've ever had a lot of times. They're founder owners or they behave that way but that's not even the outset. We're turning over rocks. We're looking at businesses and i just i think it's evolved that way. It's evolved into management quality without that being kind of front and center and so now we talk about all the different things we do research wise and process. Why one thing we've started doing recently is we're spending a lot more time in the proxy statement so every year with anything we own obviously read everything you read the case in the cues the proxy he wants a year but for looking at a business or looking at a competitor for my career. I've always tended to look at a couple three years at a time so i'll read three ks. I'll read three proxies yes but we've gone back and we've started looking at businesses and taking a series of fifteen years worth of proxy statements well that does is gives you a sense of where changes have been made so to the extent the boards of directors wanna make sure their c._e._o.'s in their c._f._o.'s and their managers get paid. They're always moving around these hurdles four four incentive comp and so if straight salary compensation is ten or fifteen or twenty percent cop the majority of how these people get paid is with bonuses and the vesting of their incentive stock options in the bonuses all have caveats to him and so we just ran one for presentation i gave zirk gave a speech on the imperative of no and spent time talking about management teams that get it and i use comes as a case in point but then i took the proxy and talked about what's happened at a company like general mills sells well if you think about the nature of branagh's zimmer goods businesses in the threats they have from private label for example. If we go back ten years ago twelve years ago these guys had in their proxy statement for bonus comp a hurdle of maybe three percent organic sales growth growth in a successive period through this last year that number had declined from three to two to one and a half one point four well number today the hurdle today is a negative one point four percent organic growth rate and at stunning. We're gonna pay you performance comp to slowly shrink the business the other overlaid of the current comp and this evolved often the case of general mills as well is. We're gonna pay you on free cash on a rolling three year. Periods have organic sales growth on a rolling three. They have free cash cash on a rolling three so i guarantee you these people lay awake at night thinking about what they have to do the business for the five years they're on watch to how they're gonna earn their incentive comp and so if one of the two metrics is free cash flow you can cut advertising spending you can cut capex. You can kill the brand of the business that you're running running but you can drive the free cash and so it's crazy so with one of their hurdles there's a fifty percent mix between the organic sales which they did not hit for a rolling three so they got zero girl but then they had one hundred and thirty two percent of the free cash metric they paid that pro rattus they split the hundred and thirty two percent so they paid sixty six six percent. They didn't get zero and honored for fifty. They actually got sixty six which is crazy so the thing that goes missing from a proxy like that which we see in too many places as coca cola's another example of it too. Many businesses. Don't have return on capital. They don't have an asset based return metric. They don't have an equity based return metric. They don't don't have a capital beast returned metric. They're paid for all kinds of nonsensical things like top line growth. So what does the general mills do in the wake of all that well. They're not hitting the portion of comp. That's tied the organic growth so you by blue buffalo. Pay something like eight billion dollars for one point two billion dollars in revenues. It might be a good deal. It might not so you don't get the calculation elation for cop in the first year. You're making acquisition but you have a business. That's clearly growing the top line and they're going to drive top line growth. Is it profitable. I don't know is that too big of a premium for that brand to be creative on a return on capital basis. It doesn't matter because that's not part of the metric on how they themselves and i think that's insane want to talk about the common attributes attributes that you look for in a business you've already kind of danced around one which is this notion of high incremental return on capital and you also alluded to this idea with some of the stores his ross stores as an example of unit by unit expansion as being a really simple example of high returns on a new store. Let's say talk about incremental return on capital kind of what that means to you what you look for and whether or not there are sort of other themes like that say store expansion that fall in that bucket that you've looked at over the years i think return on incrementally metal invested capital is probably one of my most important jobs to assess how well these management teams in these boards are keeping our portion of profits that were not receiving his dividends so i do have a great example of that so we made the big mistake with ross. We didn't know it was mistake at the time of course but a couple years after we sell ross i think maybe the two thousand and four we buy costco for the first time i was learning and i just said value investors. Don't pay twenty times for anything. We sold things at twenty times. Uh-huh earnings twenty times was nosebleed. I pay twenty times earnings for costco because with it we had a business that looked similar to harass. They were probably running three hundred pattern fifty or three hundred seventy five stores at the time but we believed costco had a very long ramp to open stores. They were just beginning to pay a small portion of their profit off at his dividends so you wondered well is this thing getting closer to maturity or not and so the business at the time was earning eleven on capitol which isn't very attractive their gross margin their average markup was probably fourteen percent but we looked at the eleven on capitola knew enough about other businesses that research but didn't own over time like home depot and walgreens. If you're building out units and you don't achieve maturity with a unit for a period of time in in costco's case a store they would open wouldn't be mature unit for six or seven years mature defined as kind of maximum sales maximum throughput of inventory fully really achieving unit profitability in the case of costco. A store wouldn't earn eleven on capitol radanovich. Their brand new stores were earning kind of mid to high single digit returns on capital but the mature the stores were earning kind of mid teens returns and so we figured eleven was the wrong number and as the installed base of costco for lack of a better term grew wrote over the number number of stores they were opening you would start to see the improvements in returns on capital and so fast forward to today the businesses grown the number of unit to probably eight hundred just under eight hundred there are maybe one hundred fifty international stores in the mix returns on capital today or twenty one twenty twenty two percent two or three points of that is probably due to the tax code change. When i look at costco today we kind of bacon kind of a high teens call it eighteen or nineteen return on capital a business and i think they'll be one of the first to compete away this newfound free cash profitability that they have but costco today has driven the gross margin from fourteen down to eleven percent and think about that usually if you're a retailer if you're a macy's or j._c. Penney sears and you see a decline in gross margin wall street's gonna kill you because it's generally a sign of something wrong will in the case of costco. They've taken the scale of the business of their purchasing power and they've passed it through to their customer. So if a net margin was one point at eight or one point nine percent it's two point one percent today but the returns on capital of the system or double what they were and so to me are ownership of costco is probably been the best teaching tool that i've had just for the good fortune of sitting there and watching it grow for as long as it had it really taught me how capital worked and it really taught me about the importance silence of reinvested capital and incrementally return and criminal returns on capital. How important is unique features of a business model to usa costco. Obviously what jumps to mind is the membership and that being i guess less unique these days more memberships and subscription models in the economy but what does a feature like that mean to you and do tend to own businesses businesses that have some unique feature like that. Maybe the market doesn't do as good a job of understanding. It's not so much something that's unique but we wanna see management's take initiatives for the good of the shareholder and the good of their customers and i've got a series of those so a dollar general for example also in the retail world. It's one of the two retailers that we own today. We own them for similar reason but we autumn for very different reasons as well. I mean if you're going to be on the retail world today. You have to ask the question how defensible as your business against online retail how defensible against amazon we think for different reasons costco and dollar general or two businesses that are uniquely positioned as has impenetrable by online commerce. Men of costco may do online commerce dollar general is running ads through their online model but dollar generals just unique animal so so we like the management team we like the way they compensate themselves the business if you recall was taken private by k. k. r. right before the financial crisis and learned all about how private equity works during that episode only until we really started following dollar general three or four years after it came back publican it came out and oh nine you you to solve the egregious things that private equity does with money and kika some examples there. Oh i mean just the leverage though dollar general was a wonderful looking business. When it was taken private they had no oh debt on the balance sheet. If you didn't capitalize the operating leases in the operating leases were conservatively done so k. R. comes in and pays very high multiple notable. I would even argue that the management team in place was incentivized with immediate vesting of their stock options to allow the deal to take place so oh in the six months prior to the deal being done for whatever reason the store count growth slowed they missed on earnings metrics and the stock got beat up a little bit so which gave k._t._a._r. Chance to come in by the stock back for below the all time high price which had been set. Maybe six months prior but management got rich. The current management team at the time got rich. The leverage that was employed was probably three or four x to the equity that was put in the debt that was put in place came from k. k._k._r. And it came from private equity and some of it came from goldman sachs it was done at coupons of twelve to thirteen. Percent dividends are paid out during the course of ownership. They don't open a lot of new stores and then when it comes back out and it gets i._p._o. To the public again they kind of re price the number of shares outstanding the ending and did what amounted to a little bit of a split to make it look like it was the same but there was about a ten percent shave on top of that and then when it goes public goldman and k are are with their own underwriting arm takes private so they get their underwriting fees they get discounts. They do all the secondary offerings we added it up and i don't remember the numbers but it was a staggering auguring amount of money that wasn't reinvested in the business in the case of dollar general or the case of a costco post the i._p._o. But it was just bled from the business right into the pockets of private equity and i guess that's a great way to make money but it wasn't for the good of the business so the business came out with a lot of debt on the balance sheet. It wouldn't have been attractive to us but produce a lot. A lot of free cash flow produced a lot of cash flow and over the next six or seven years. Pay down a lot of debt and to the point where it's more levered than it was. I think management learn and they get the guy that's the chairman actually was the guy that engineered the deal for k._k._r. Which gives us pause it also gives us comfort because he knows how to run business but they cleaned it up enough and and the stock had gotten cheap enough that we bought it oh jeez two and a half years ago paid kind of a mid teens multiple and very similar to a costco though we liked what management engine was doing. We love the unit economics in management how to plan to basically double the store count over the next. Call it ten to twelve years and i think if they're running fifteen thousand stores today at the time we did our original analysis. They talked about having twenty four twenty five thousand stores. I think they'll probably get there and so we look at what's happening in their geography. Seventy percent of dollar generals dell's business is done in rural markets which i think differentiates it from their primary dollar store competitors. I think if you're an amazon and you're trying to ship a basket of thirteen dollars worth of goods to knob nostra missouri it caused a hell of a lot more than thirteen or fourteen dollars to ship so the units don't make it easy. The economics don't make a a lot of sense we have seen the increase in amazon prime memberships even in rural go up and up and up but they're going to figure out they already know they don't make money shipping a small basket of goods so you'll see over the time i think with amazon larger basket sizes before they're willing to ship to you're not gonna be able to get a tuba toothpaste for two dollars and have it sent to the middle of nowhere and the other the thing they do and kind of the point of your question is very initiative driven so they realized that including produce and milk and soda and beer ear and bottled water made a lot of sense and so they've added cooler doors in all of their stores over about a five year period we watched the number of cooler doors go from an average of i think think eight up to seventeen walmart tried this business and i think failed added realize that the small format seventy five hundred square foot store is a totally different animal animal than running walmart and sam's distributions completely different. If a dollar general has a thousand stores. They'll have one distribution center thousand in stores. They are very actively testing larger store formats much smaller store formats. They've drilled down now. If they're typical store run seventy four hundred square feet they have drilled down now and their average stores in towns of twenty thousand or fewer they're opening stores in towns of five thousand or fewer and when we watch cannibalisation they're very closely. Management watches cannibalization very closely so they're looking at different ways. I mean they're looking at ways to trim. Shrinkage turnover of your managers gers is a big deal. It's very high in this retail world and so they've done a lot more training. They started paying their managers a lot more money at the sacrifice of net margin operating margin but they've realized a heck of a lot better off retaining our good managers than we're having to retrain somebody every two and a half three years so we think it's a management that gets an clearly. Nobody in retail's probably thinking about similar things but we've got a model that i think works. I think very few and retail do work so when way of distilling down your initiative quality might be an assessment of the runway for capital reinvestment at high rates of return. You've mentioned stores as kind of the primary examples thus far. I loved one or two other are examples that aren't just expansion of stores to sort of hit it that same principle so this could be a business or two as an example that you've known for a long time. We're one you bought more recently again. Just trying to triangulate on other ways that you deploy this quality philosophy yawn just said the more retail focused type of business one thing that's so unique and again we didn't set out to do this but i look across the portfolio and some of the businesses that we've bought in the last handful of years in common theme there on that front is very much control of distribution. We own some names that we've bought that have taken distribution back in house would be nike would be disney would be riche mont would be commons and examples samples from each if you like therefore really interesting businesses so i'd actually love to take them one by one and maybe starting with response so a collection of luxury brands talk talk about what was appealing in this idea taking distribution back in house. I think it's a really interesting themes this ownership of the customer relationship you hear about that a lot these days so why is that good important and how's it done well in the case of these businesses so i've got a couple of friends that are really kind of high end kind of watch geeks their watch collectors and when i started looking at the business i presumed so if you don't know riche mont they own very high end luxury brands rupert family had sold their south african tobacco businesses to be a._t. I'm going to guess back in the mid eighties and took the proceeds and built out this luxury brand a good business and made a series of acquisitions over the years they own cartier and vanclief in cleveland are pels and jewelry. They've got nine or ten very high end watch brands they own peter millar off shirts they on purdy shotguns so when i started looking at the business us i presume that if anybody is going to pay twenty thousand dollars for watch you're buying the precious metal content. You're buying the jewels and what i learned quickly was. It's far from that. I mean here's here's a manufacturer that does sixty five percent gross margins. You're not gonna find a lot of manufacturers. The run sixty five percent gross margins as you run up the curve to more and more or valuable or higher price point watches is an example. The gross margins can run into the ninety percent. It's not the value of the rose gold. It's not the value of the diamonds. It's the brand and so we spend a lot of time with the business and fell in love with the chairman johann rupert. He has an affinity for hating the sell side. It was loath to talk about about quarterly earnings. He really does think in terms of what can i do to develop these brands and maintain the value of this portfolio for generations not just for the five five years that i'm on watches c._e._o. So he thinks differently and we like that from the outset. The business had really grown on the backs of asian demand for very high end luxury branded goods china's very homogeneous culture and as you start to achieve wealthy like things that differentiate yourself and jewelry and watches or one of those and so during watches are big in china and throughout asia so riche mont had grown out very quickly from maybe seven billion euros and sales to eleven billion dollars almost all of that growth was on the backs of asian demand in at the point then where the chinese government cut down on graft and made it illegal to bribe a party official to get a deal done with a bottle of martell are with vacherin or with a paddock felipe very expensive watch the cut down on graft will naturally that killed sales moving that happened was was they started limiting the number of travel visas irritiated the very wealthy families who were intent on getting as much of their capital and their wealth out of china as they could and we saw the property booms throughout the pacific rim vancouver and sydney in san francisco. My wife does real estate in st louis and there were chinese buyers paying cash for homes that would never be occupied simply to get money invested in real estate out of china's the government of china crackdown on that as well. We'll naturally high in luxury and watch sales took a hit get high and cognac sales took a hit and so the stock got cheap and we watched management and their reaction to what i'd call that crisis was does not to allow typically happens in retail to transpire and that's your retailer and you've got merchandise. The doesn't move what do you do you mark down. They said we're not going to allow somebody who just paid twenty thousand dollars for a watch to see that same watch show up on the grey market for fifteen thousand dollars two months after the purchase was made aid so they physically took inventory bought it back out of the channel from their third party retail partners and made in the case of cardiac public display adam melting down portions of the watches they would take the movement out but they would meltdown the precious metal contents they very much said we're going to limit supply and i listened to mr rupert on a conference call talk about the one thing that we can do to kill the vacheron constantin brand which was founded in eighteen fifty five would be to cheapen the brand would would be to let the merchandise get cheaper so they severed ties with a lot of those retail partners and said look. We're now going to make an investment real estate. We're gonna make an investment in people we're going to permanently sacrifice our operating margin and control our distribution and even in the wake of that here in the last couple years. They've bought all of neta portray and they've bought watch finder. They're intent on controlling their distribution and four that we're willing to take a hit on the operating margin line because we think over the next decade jewelry sales going to grow at a very high clip. I think watches are different animal. I think you have things like the apple. Watch and it's probably not as rapid growing a category but it's still going to grow at four or five or six percent. Percent georgia's probably gonna grow at double that rate it's interesting but we like the culture of the people like what they've done with capital in terms of margins. The margin structure comes down now that you've gone to some internet distribution but they wanted to control distribution may they do not want to allow the product to cheapen for price. Let's go to the same theme with disney so this as a business whose history fascinates me and kind of current landscape is also really interesting with the move towards owning that customer relationship so talk about the overall business. That's why finding the tractive maybe the reinvestment story but also this notion of bringing distribution back in house well what did it for us really was when disney took their property back from net flicks and said we're going to go over the top and distribute ourselves across the business of disney with the theme park business with retail with the studio business with the movies. They call it a tent pole franchise. They have so many different ways to monetize their i._p. We looked at the economics going over. The top. Disney was in the midst. I'm trying to buy fox. The stock had been really cheap for about four or five years and the arbitrage community driven up fox they'd driven down disney and we just looked at it and said we think the economics alex of controlling your distribution will be huge. Look at the limited number of movies. That disney comes out with each year but they're all blockbusters. These people are very very good and they get it but it's still the theme theme of controlling distribution. That's really the exclusive reason the our community made it cheap forest cheap enough to get our price basis. We just liked the concept of controlling the distribution. We think now owning all of hulu they had thirty percent of hulu fox thirty percent. They've now got the whole thing running your adult content across that platform running your sports content downtown across the e._s._p._n. Apps disney came out with their investor meeting. What six months ago four months ago whenever it was with what the applic- like and the price points on the app i think net afflicts may be a long term viable competitor but i don't know you talk to kids and folks in their twenty s. I'm not sure once they've lost all this content. They can do it disney he has done the library that they own is invaluable. The intangible assets inside of disney are invaluable. How about something completely different business. You mentioned earlier which is cummins as someone doing something something unique with distribution so cummins diesel engines they make diesel engines from class eight down to class too so basically their bread and butter or selling into a car navistar. You're the big truck manufacturers so the truck manufacturers always rely on dual source so they all have their own engine manufacturing in house but then i'll wonder themselves or cummins has is really been has really been a cyclical environmental upgrade story if you go back twenty years twenty five years the amount of particulates and nitrogen oxide that have been taken out of emissions because of the environmental standards that have been put in place in the united states and europe and now even in places like china the r._n._d. And the high tech goes into improving the engine that have just been extraordinary so along comes tesla and nikola and battery technology so there's a fear that battery will replace the the diesel technology completely. You've got some cities in europe that are looking to ban diesel engine tirelessly. We think at a minimum the class eight truck market which is the big tractor trailers trailers that run over the road. We don't see that as a threat any time soon we look at the weight of a battery we look at the length of a hall as very prohibitive and if you take take a thirty three thousand pound tractor and a fifty thousand pound trailer and say we're going to run away from diesel. We're gonna go to battery great well. A battery right now weighs about ten thousand pounds. So if you take the diesel engine you take the fuel you take the transmission out. You're basically taking out. Five thousand pounds a year adding five thousand pounds. Let five thousand pounds comes immediately off the load capacity of the fifty thousand pounds. You're losing ten percent of what you can carry. Tesla says they can run a battery history. That doesn't have to be charged for five hundred miles. We think it's more like three hundred miles. Typically your diesel engine. The fuel tanks run from eighty to call it three hundred gallons typically. They're one hundred 2050 you can run a shift and a half without having to stop for fuel and it's a huge advantage. If you're over the road now that the government's come out and said you can only run so many hours per day with electronic china logging for driving to have to stop downtime and charge a battery in the middle of over the road shift. Just doesn't make any sense so the economics don't work but cummings is done a lot of things and one thing that appealed to us is on this theme of controlling distribution. They spent a fair amount of capital. Oh maybe six seven years ago buying in what i would call their distribution. They brought in independent service centers brand under the commons umbrella so now if you're running a truck if your car and your driver and you've got to <unk> maintain the vehicle. You've got to maintain the truck. Cummins has stores all over the place they have stores globally and it's a huge competitive advantage that they're not just servicing cummins engines. It was just brilliant like a conversation. I had with chuck audrey. If you weeks ago who i would also classify as much equality investor the cares about price but the quality a lot before price of reinvestment potential the business. How do you think about those two more extreme so if you're sort of down the middle with quality growth has been incredible story. You know all the businesses is that have driven that and he's been a terrible story so any thoughts on those two extremes where it seems like you payless yeah so again. I kind of go back to my evolution. As an investor where are priced me was a low p early on and you were less interested in finding businesses that could grow of kind of thought about the increments -cremento of the types of businesses that we've evolved to over twenty years of running semper my thirty years as an investor hand. I've always said that growth growth is but one component of the value equation and it is but it's a really important equation because if you wind up buying a business for price reason and you've got auto returned to power motivation with you don't have a catalyst and if you don't have growth to bill you out. You may have yourself value trap and we still do things sickly. I still owned business. I wish i could own a portfolio of twenty five compounders and we've never gotten our minds around the fangs. We haven't done them probably to our detriment. We've owned things things like microsoft over the years though i mean having written about microsoft and early two thousand predicting that shareholders would lose money for fifteen years well that was exclusively a an assessment based on price microsoft had compounded at sixty five percent a year the stock since nineteen eighty five i._p._o. Top line had grown at fifty percent percent but there you sat in january two thousand with a stock trading with a six hundred twenty billion dollar market cap on twenty billion sales and you extrapolate forward for for the next fifteen years that sixty five percent growth in share price your market cap would have been in the coderre illion dollars it just didn't make any sense and so we made that our first prediction in our prediction letter letter from january one two thousand and three or four years later when the stock had fallen seventy five percent the underlying business at continue to compound we found ourselves owning the business that we predicted shareholders israel lose money for fifteen years on and we series of trimming it when we thought it got deer adding to it when it got cheaper trimming it adding to it and finally a year and a half ago or so we sold the thing entirely okay in retrospect probably too early but it's a business that had an has in an inordinate amount of internal organic growth. It has the ability to price. It has the ability ability to grow volume. I think is a great c._e._o. I don't think bomber gets enough credit for migration to the cloud but growth is invaluable and i'm not sure sure that classical valuation techniques kinda get growth right so again because we don't have twenty five compounders we on businesses that revert to par and we've been very successful with those things over the years but we own those for a very specific purpose and for a very specific time period one of our largest holdings today as subsea seven well. That's not a business. We're going on the next thirty years. It's an oil and gas engineering construction business headquartered in norway run by great capital alligator. We love the management. We love what they do with capital. We love the assets that they own and we think long term. There's probably a play on deepwater drilling again because we think there's an underinvestment taking place and we think a lot of assets that have been taken out of production probably never come back into production but that's it's a business that we have a price in mind which we would sell the business. I think there may be a price in mind which christian siham who runs the business would sell the business but it's not a thirty year older that is not a business that we expect to make a ten bagger twenty bagger on. We just don't have that many so we're kind of forced to do other things we do things opportunistically but kind of the lens through which we start the research research processes generally. We're trying to find compounders. We've got a couple kind of retail ish concepts that we've worked on for a while here that we like a lot. I think the world's grown up a lot and it's got a lot more sophisticated in some of these things that truly are competing businesses or training for fifty or sixty times earnings today and maybe that's the right number but i'm not paying fifty or sixty times i i can only go so far as guy david fun example of one of those things a great business but it just dear oh man. I hate to give away but only because it's so wildly expensive and i don't know that we'll will ever get to it. It's kind of a funky concept five below kinda back in that dollar store thing but a totally different dollar store theme than a dollar general they sell little knickknack stuff for five dollars the kids candy and little toys and games small number units. They're going to be a way bigger concept the unit economics of that business or as good as any retail concept of ever scene but it trades for sixty times earnings so it's a long way away so we've got a whole hour without getting to the thing that i actually originally read you four which is berkshire hathaway. Maybe you can begin begin by telling us your motivation for starting to publicly publisher investor letters again for a long period of time you didn't and then you made the decision to start publishing them and they're awesome awesome. They're fascinating. They're very long very detailed and berkshire was the subject of your. I think why the distributor two thousand fifteen motor so let's talk about your take on berkshire-hathaway by the way because you've gone probably deep on that business as anyone i've ever encountered. Obviously it's a business that people are fascinated by both because of its success and because of its leadership so oh i described why he started writing again so publicly and then i'd love to begin with sort of your assessment of berkshire and we've got a good. What i think is a reasonably good track record. Our stocks stocks done something like ten and a half eleven percent for twenty years. If you net out the cash wealthy family clients have when we're running all of their money cashes probably been a drag on one hundred ninety basis points but either way our stocks are five hundred basis points ahead of the market for twenty years portfolios are probably three hundred basis points ahead but we had a period two thousand twelve thirteen fourteen fifteen where we just under perform badly we were doing eight in the market was doing twenty two percent and by the indefeasibly i was getting a lot of pressure from long standing shannon clients who had made lots of money who i think newest well understood our process but for years is four years and we're getting heaton fifteen was a tough year. If you remember the median stock was down something only like twenty percent berkshire was down twelve and a half percent is our largest holding. We were down eight or nine percent. The s. and p. was up one four or five. That was the fangs though of course but nobody wanted to hear that so i'm getting calls chris what's going on there. In saint louis are you losing it and what's gone on omaha a wise berkshire down so much twelve and a half and you know the pat answer of courses look we. We can't control stock prices for a one year period of time. I can't control stock rises for a four year period. I mr buffet can't control stock prices for one or four years. It's probably more appropriate to talk. Talk about what the underlying businesses that we are doing and even inside of berkshire is the railroad more expensive and more valuable now than it was a year ago or four years ago or the utilities more valuable title and so when you look through the economics of berkshire's holdings in the holdings across the rest of the center portfolio our businesses have created in value you over the year despite the fact stock prices around so i was going to spend two or three pages on our annual letter and i've always written a long annual letter but to that point we'd only the senate to our clients and maybe forty or fifty friends and colleagues and peers in the business. I got three pages in and thought you know we've owned berkshire so long. I think there are some aspects to the accounting within berkshire that i think we look at probably uniquely i think in some all of the adjustments that we make a gap earnings were so material that i'm not sure many many or any had gone through the same process and so i always wanted to write it up. I wanted our clients to see other than talking to omit annual updates. I want them to see how we thought about the business and all the different methods is that we use to reconcile against each other to come up with our appraisal of intrinsic value and so i spent probably forty five pages of what was i think a sixty five page letter dedicated to berkshire and senate out to our clients into our forty or fifty friends and joe koster who knows a good friend. Joe called me and said look. I don't mean any disrespect but you talk about wanting to grow. Grow your business. Institutionally you know you're an idiot and i said yeah but why now and he said look you can't write this up and not get it out into the either and i said geez joe. Oh i don't know i mean all of the guys really admire. Don't publish their letters. Lee keep men how seth clermont and tom russo as an example and joe basically said chris. Are you running as much money as armen message. Oh that's a good point so he said look let me put it on my blog. I'll link it to your website. Put it on the website. Then we'll blast or not he said go viral and i laughed and said nobody wants to read about forty five pages of the accounting insider berkshire and so we did it and true enough. It went viral that letters been downloaded something like forty thousand times. I probably had five five hundred people that first year reach out from all over the world with e mails and calls. I was stunned. I was blown away and so we've gone back to berkshire for various reasons two years ago. I wasn't going to touch it other within update our appraisal but with the tax code change i thought with all of the moving parts inside a berkshire berkshire was really a great case study for how the changes in the tax code affected the broad swath of american business and so we went back to berkshire and what was really a letter meant to be written out of self defense business preservation in what was a brutal period has now become probably a good marketing document for that. I'm kinda cursed having to write it now each year so it. Let's talk about berkshire the business so if you had to break it down you've already mentioned some key acquisitions that they made in the past but if you were to describe it as a business today to an uninitiated but smart investor investor that doesn't know berkshire well. How would you describe the business. Wow well obviously it's a holding company but unlike any other throughout time you've got a collection of businesses and a management team in place that just assembled a very durable permanent probably a terrible word but permanent business infrastructure that i think has very very adeptly pivoted at times throughout the fifty five year history that mr buffet has run the business at times to opportunity to take advantage of major major inflection points in the capital markets. I mentioned national indemnity. The purchase nineteen sixty seven so mr buffet gets control the business in nineteen sixty eighty five. Everybody knows that i'm sure all of your listeners know. Berkshire was textile business. They made liners for suit. Jackets and new england was terrible business and they realized quickly that this was not a business business that they can own for thirty years and this was not the costco of the future it was not the microsoft of the future so they bought national indemnity and effectively kind of morphed from from textiles to insurance property casualty insurance and reinsurance over the way picked up a collection of businesses with surplus capital that had been building inside the business. They bought see's see's candy early. On by the mid nineteen seventies overall stock market was cheap berkshire compound something like fifteen or sixteen percent despite the market decline in seventy three seventy four despite the textile business which they ultimately closed in nineteen eighty five being a lousy business at compound at a great great and then you kind of fast forward from that period from nineteen seventy five to nineteen ninety eight berkshire grew that insurance business and utilized the float the business to compound unbelievable kind of high twenty s return on equity for a long time the business because it had surplus capital and so much surplus capital eventually was able to run a much more fully invested equity portfolio for a long time so everybody kinda looks at berkshire hathaway kind of as the pseudo mutual fund. You're a stock portfolio. Holding will nineteen ninety eight berkshire was very much an insurance company that was very heavily invested in the stock market their stock portfolio had compounded at such such a higher rate the purchase of coca cola that they made in nineteen eighty eight and then a couple of successive buys. The stock was up thirteen. X it was was thirty five forty percent of berkshire's overall stock portfolio trading at forty five times earnings they own the washington post they own gillette. They own cap cities a._b._c. In which i think by then was disney they only a handful of businesses but stock portfolio was insanely expensive in one thousand nine hundred. If you would about berkshire at the time you would have owned basically an insurance company tony property casualty insurer reinsurer sixty five percent. I think of all of the assets of berkshire republican traded common stocks. The stock portfolio was over one hundred percent of the book value. Yeah i think it was a hundred and fifteen percent of the book was represented by the stock portfolio as i mentioned stock portfolio trading call at forty five times earnings in ninety eight and so for the second time in berkshire's history they pivot and buy jewelry insurance oddly they buy an insurance company for motivation that i believed was to pivot away away from insurance unlike berkshire which had big percentages of its investment capital within the insurance businesses invested in common stocks generally was more of a classic reinsurer that had ninety percent of its invested assets invested in bonds and so mr buffet had the quandary in nineteen ninety eight while i've got this business that's trading at three times tmz book. It's not worth that much. We believe some purpose believed that the business was worth probably half that at the time call it forty thousand dollars on the a-shares one and a half to buck and could he sell coca cola when retrospect he probably should've sold coca cola at mid forties earnings because post that point an cokes compounded pounded total return at four and a half percent year. It's been mediocre lousy businesses underperform the s. and p. five hundred by a full percentage point which in and of itself the s._n._p.'s been no lollapalooza for the last twenty ears so he buys jenry uses berkshire as currency spends two hundred seventy two thousand two hundred shares. I think with berkshire trading at three two buck picks up generous as bond portfolio and when you combine what was the result on investment portfolio the common stocks dropped from one hundred and fifteen percent of book down to sixty nine percents of book. The overall allocation of all of the assets dropped from sixty five percent in stocks down to thirty percent and stocks. It's a number that hovers at twenty five percent today any pivots away. There's a lot of debate. I've written about why this was such a similarly great transaction. I wrote about it in two thousand fifteen letter in mr buffets two thousand sixteen letter. He came out and said now was terrible deal because i spent berkshire shares. That would be worth a lot more money today. Well here we are today. The twenty two billion dollars berkshire shares that he spent which i think were at twice their underlying value. I think you bought january for eleven billion dollars twenty two billion dollars when you ratchet back the fair value of berkshire it was the allocation away from stocks that allowed him to do everything else with surplus capital for the success of twenty years so yeah in today's terms firms with those two hundred and seventy thousand shares worth eighty something billion dollars yes they would but when they did the deal jenry shareholders brought thirty eighty five percent of the assets to the party and only got seventeen percent of the underlying ownership of berkshire hathaway think about that so it's not so much that generally here twenty years post the deal for most of those twenty years hadn't grown. It's premium volume from six billion dollars. They've up streamed everything they've made to the parent company in its the upstream of that capital and also the surplus capital that already existed inside a berkshire that was then and more holy invested in bonds and cash that allowed them to by the utility in two thousand that allowed them to buy the railroad two thousand or nine had they not put put those bonds and cash on the books they could not have bought the utility they were stuck with the stock portfolio and so kind of my conclusion on the deal was if they had run the status quo oh and they had not bought jewelry and not sold common stocks and paid taxes on what was then a thirty five percent corporate tax rate. I would argue that instead of compounding the underlying book value of the business at nine percent from that point ten and a half ago back to the prior year. It's really compounded about ten which we think has been the are we for the last two decades we think they would have compounded impounded about six so the combined value today of berkshire taking its book value of thirty something billion dollars thirty five billion dollars dollars. Let's call it when they did. The deal would probably have compounded. Maybe one hundred ten billion dollars today while berkshires book values three hundred fifty billion dollars today so the eighty billion dollars that they've given up in terms of today's pro rata share berkshire is the wrong way to look at it. It's what they did with the capital so it's not a single variable assessment of whether it was a good deal or not jenny is not today worth seventeen percent of berkshire certainly not worth the thirty five percent of berkshire that it was going in when they brought the assets the party but those assets were taken out of jenry to do other things and i think most people that look at this thing. Don't look at it through that lens so back to your point. What is berkshire today. So now it's really more from what was it was almost entirely early. Insurance and reinsurance in ninety obviously picked up all of geigo along the way now. You've got a business that probably forty. Five percent of the overall value is still tethered rather to property casualty insurance reinsurance but stripping that capital away from insurance at the point where their overall stock portfolio was that expensive in the overall stock market was that expensive has has allowed him to buy all these other things so i mentioned the railroad in two thousand nine. They bought burlington northern santa fe at the time. We hadn't figured it out. We didn't understand that the whole well railroad business had changed. If you looked at the history of railroads they were crappy businesses. They didn't earn their cost of capital in here. Comes kinda in the wake of the financial crisis in the middle of the recession berkshire buys the railroad burlington northern santa fe for i think thirty four thirty seven billion dollars. I fell out of my chair and said what are they doing. I mean here's a business business that in its best year two thousand seven prior to the financial crisis earn. I'm gonna say they earned nine on capitol and he you pay two times capital for it and so that nine becomes a four and a half in if you would have adjusted for what was a very large underfunded pension plan inside the railroad. I thought berkshires here's economic term is going to be four and a half percent. What i missed was the competitive nature of change within the railroad business. The business was going to start running on more of a weighted average cost of capital basis in terms of allowed returns was going to be less regulated. The market was going to do more of the relation in terms of their ability to set at pricing so the surface transportation board was no longer as overarching as it had been prior to that moment. I think bill gates is guy at cascade figured it out i and we certainly hadn't figured without buffet figured it out and so on deal that we thought was outrageous thirty four billion dollars. You're winning that business days worth about one hundred billion dollars and they've taken the profits of the business this out of it. They've properly employed large amounts of leverage in it that leverage is not hypothecated of the parent but it's just a vastly more valuable business today than it was when he got ed's really been the history of my following berkshire-hathaway is there's always an aha moment to a lot of the deals they do whether it's johns manville shredding their as best liabilities in the tax benefit from that. There's always a nuanced what they've done. You don't quite get it at the outset but most of what they've done of made sense and so now you've got this business. That's the railroad. You've got a series of electric utilities that they own and distribution assets in canada due to an power business in the u._k. That's collectively worth probably fifty billion dollars. You've got a whole hodgepodge collection of manufacturing businesses service and retail oriented businesses that do one hundred and forty billion dollars in sales that are probably worth about one time sales about one hundred and forty billion dollars. You've got the insurance operations. You've got little leasing finance businesses businesses. Well clayton home so you've got this. Extraordinary number may be a hundred operating businesses inside the structure. That's just uniquely diversified. I mentioned the data the railroad not apothecary to the parent. The debt within the utility businesses are not hypothecated of the parent and that's really you know outside of a nominal amount the majority of where the on balance sheet debt sense. It's not an obligation of the parents obligation of the underlying subsidiaries so you've got a business. That's running with one hundred ten billion dollars in cash that offset by the debt at that sits on the railroad and the utilities. That's very liquid sauna net capital basis. The equity is the equity. I think it's absurd that we're gonna no longer consider equity equity with the the business and that's a knock. I have on a nominal pivot. It's going to be made next year in terms of disclosures. We're gonna go away from reporting changing book value per share which is insane for business that still is forty-five percent insurance for business that retains one hundred percent of its profits doesn't pay a dividend book value is a very real thing inside berkshire and say that it's not as mystifying to me. I mean if the business continues to earn town equity ten years from now sixty percent berkshire book value is going to be driven by what they've done with retain capital and those are all new investments that aren't done the best oracle cost that you guys talked about a couple of weeks ago. These are brand new assets and brand new investments done at today's dollars in non low inflationary world so thinking thinking about your ownership of berkshire prospectively and it's obvious history where a lot of its value has come from masterful capital allocation at the top. I'm curious how much you think that matters editors in the future kind of think about that buffett quote accompanied being run by an idiot because at some point it will be how protected is berkshire from things like succession and just poor management in the future future that it gives you the confidence to still have such a high average weight in your client's portfolio. Is i think a lot of that reallocation of capital. That's taking place in the last twenty years of idiot. Proof is probably the wrong way to say it but in the you think about the collection of electric utilities that they own their arguably the best set of utilities in the business is there in places within the country with higher population growth. They've already got much lower. Reliance on nuclear and coal been most of their competitors. There's they're making a lot of great. Investments tax advantaged returns. That's a business that has good management team. Great management team in place right now. That's just very durable electric series yeah i mean we hate investing electric utility. I don't like him. I don't like him because the retail investments. If you think about the way an electric utility works regulated electric utility works not wholesale but your your pricing is set by regulatory board so they let you make an allow decent return on the equity capital investment in the business and so you're allowed to make nine percent or ten percent used to be eleven or twelve when interest rates were higher but then you know say they're allowed to make nine they pay out typically a large chunk of their profits as dividends and so for that kind of attracts the investor that needs income and so these things get up to two times their book value so if it's earning nine on kind of the same math i used on berkshires railroad that nine gets driven down to a four and a half percent return iron when you pay twice book for nine percent return and the dividend winds up being a four percent yield in some four that these things traded twice while if i'm going to buy the shares today at twice book. I'm not gonna make much more than the dividend yield plus a little bit of reinvested capital because these things don't grow. There's no unit growth. There's no population growth. They're just sleepy the little things and so you're stuck it kind of four five percent returns. Let us make any sense and that's what they're doing retail wise but within a berkshire they've had the opportunity to invest capital within competitors but also they've of investor a heck of a lot more capex and growth type initiatives where they've improved the underlying assets in the markets that they're in and they're allowed to make kennedy's nine to ten to eleven percent returns on large amounts of reinvested capital while i don't see that going away anytime soon those reinvestments are made it very tax advantaged reasons they've forever had the use of accelerated depreciation which lowers the amount of cash taxes that they pay so there okay businesses but he bought them at very good prices and they've run them very well. So there's durability durability there. I think the railroad it is what it is exists within an oligopoly rational or not. I think more rational here in the last decade but it's kinda hard to scrub a railroad. It's kind of hard to believe that we're going to displace. I think it's a lot more likely to believe that a cummins diesel engine gets displaced than an entire railroad network within the united states are globally and so there's permanence to some of those businesses that they've bought one question we sure have on the succession planning front and as i've gotten to know a good number of the ceos of a number of subsidiaries and sat of berkshire one question i had of the outset was looking at all these old guys that have sold their business to berkshire and they like to to say they're independently wealthy. Now they're rich. They've got money. Why do they need to work well. It's nice to be able to pal around with warren buffett jump on his plane. I don't think they do it anymore. But fly down to augusta and play golf take him on the phone during your bridge game at the club and all i had to take this call it's from warren buffett and so they've stuck around but these were good managers. When they sold the businesses they stayed on as good managers and the question was have they developed their own benches inside of those those companies and and i'm satisfied with what i've seen in all kinds of the digging that we've done that they really have thought long and hard within each of those myriad operating subs about succession planning ashida as you know now heads the insurance operations rations greg able runs the balance of the operating businesses. There's a question as to a sheets succession. We've heard mr buffet for years. In years. Talk about how important he is to berkshire and there's no doubt he's that important to the national indemnity piece of the business but my understanding is his ability to price businesses is like no other in my presumption would be that they've developed a bench underneath as sheet as you know he spends a lot of time on the phone with mr buff and they talk about deals and warren talks about him being that much more brilliant than anybody's encountered if any happens to zt and there's no bench underneath them does that imply them. Some portion of the business of they've written needs to being run off and that we can't write that type of business some of these odd one policy they've written. I don't know that's a question. That probably should have been asked at the meeting this year. I think deserves an answer at some point in the near future. <hes> i think mr buffet at eighty eight and mr monger at ninety five is brilliant as they both are. I applaud them for bringing greg able and gedin this year to answer some of the questions. I'd like to see more involved in kind of front and center as the face of the business for the folks that are going to be running it kind of post the current executive team that runs it. They're trending in that direction. I'd like to see more of it immediately not so much be as we have to get the granular data about about how each of the operating businesses are doing inside the company but there's a reputation that goes with being warren buffett and for that there needs to be a confidence factor that the whole bench the entire bench underneath is quick to run the business. I'm convinced they are but i think just the general shareholder base probably deserves to see more of them. One of the things that i think maybe moving qantas do not as well some very well as say a fundamental analyst were unaccompanied is adjustments to income statements and balance sheets and so i'd love to close closed a section on this which is actually mentioned the paper that we have put out which got very deep into the impact that depreciation has earnings and and mentioned this is precisely why we put the stuff stuff out because very smart people like you read it and tells areas to study further so i'd love to hear your take on kind of the most important trends in adjustments you mentioned earlier that you make to new businesses when doing your initial analysis and ongoing maintenance kind of what those areas are what you suggest people focus on and we'll close with this kind of very practical hopefully if we useful section accounting is probably one place where i think we differentiate what we do among even a lot of our active competitors. We like to say we live in the financial statements of the companies as that we own we really only begin with gap an i._f._r._s. reported numbers and dig a lot deeper and i don't think anything we do is uniquely is purely a unique december but we are very rigorous about kind of looking through to sustained free cash is the wrong word but true economic profitable and the reason i say free cash can be a misnomer you take back to my costco example. When you have a growing business that can reinvest retained earnings at high incremental returns the cap ex. That's being spent masks underlying economic profitability. I mentioned the the eleven return on capital which was really a lot higher but it made sense for them to spend money as rapidly as they did in if you would've just tried to capitalize what look like free cash free cash was winter stated because they were spending caps very well to your paper and ties into one. Are those key themes of our letter this year was we asked why is it that if a shareholder that owns the broad stock market hasn't earned the underlying return on equity of the stock market or very long period of time and you guys kind of got to the same numbers that we did our always over very long periods of time have been about thirteen percent. They didn't fully adjust as they should have. During the high inflation years of the nineteen seventies there probably apperently high today in a world of very low interest rates but kinda that thirteen the number is been well that doesn't correlate to the long term returns the stock market which have been about three hundred basis points lower so we've always had a process in place of under under the hood and below the line kind of looking at write offs and writedowns that take place over time which is probably the initial biggie the we use and look at with any individual business that we're studying we wanna see the extent to which comes taken write offs and write downs of their assets and their equity over time we wanna see the extent to which a serial acquirer tells us to not include acquisition expenses in its assessment wanna see the extent to which a company like a mile in labs lives in the courtroom ignores litigation expenses because there are a lot of very real. We'll operating expenses that companies bear that we're told by management that liked to see returns inequity higher in state at equity lower. We always make those adjustments and so if you go back can take from an index standpoint from top down. If you go back to early eighties we've calculated that almost fifteen percent of annual annual prophets every year you get these numbers right off s._m._p.'s website fifteen percent of the operating net income numbers which are before right awesome writedowns have been written off. The numbers are obscenely higher during economic slowdowns. You get the kitchen. Thanks you get the big baths. They tend to be lower during boom times. I mean the last couple three years. They probably the average ten percent not the full fifteen but over a long period of time. You're losing fifteen percent of your prophets well. That's a big number and so if you're a business that does thirteen on equity and and you shave fifteen percent of that thirteen year losing almost two percent to awesome writedowns and so we're now understating equity and intern overstating overstating the r._o._i. It's interesting when you're studying an index of the macro but it's critically important when you're studying individual business because at bottom we're trying to determine when returns on equity and capital and just stayed at equity and capital aren't always as they seem. They've been monkey with over time. They've been monkey with by inflation over time in some cases for businesses that every old assets we've got to get to the right number the other big adjustment for an index that we've made over time that's less important to the businesses that we own but only four we you tend to not own. Those businesses tends to be in the area of defined benefit plans back in some of our early letters that are now on our website. We've written about all these account. Adjustment makes a defined benefit plans. If you go back twenty years there were maybe three hundred fifty companies just in the s. and p. Five hundred that had defined benefit plans today there. I think three hundred and twenty so you've shed by probably thirty you've we've had new tech businesses that have i._p._o. That don't have d._b. Plans the tend to us to find common 4._0._1._k. Plans but we've had a method for the duration of our firm. That's been blanketed on kind of back to your question about macro themes. We have found the overall stock market generally to be on the overvalued side during the history of our business s. nine hundred ninety one the market was cheap but we weren't in business in nineteen. Ninety-one clearly in oh eight ish early nine. The market was very cheap but broadly at least as as far as historical metrics go. The market's been very expensive so we have just long assumed that a business that has defined benefit plan. We've assumed its investments would on average earn a four percent rate of return. We'd make adjustments to different businesses based on different allocations and what they've owned but generally we've assumed a four percent so we'll take fair value of plan assets and run a four percent return on those assets back twenty five years ago. The typical corporate defined benefit plan on the s&p was assuming nine percent rate of return well. This is after seventeen years of bull market where stocks had done high-teens returns bonds which were coming off mid teens levels of rates this bolstered by falling interest rates increasing prices and trailing larger absolute returns nine percent was an unobtainable number in the late nineties early two thousand for a long term return. If you go back to that stock market low i talked about when stocks traded it seven times. A three percent profit margin long term interest rates are fifteen percent short term rates are twenty stocks are trading at twenty one percent of sales and the typical defined benefit plan assumed a six percent rate of return those crazy but the experience experience for the prior seventeen years had been stocks had gone down these are terrible bonds of crushes because interest rates have risen and our principal values of eroded and so that was insane but then you get the subsequent seventeen year experience of rising asset values and walla nine percent for the typical find plant so we would run that five percent differential four percent our return assumption versus what was a nine and we take that five percent difference in run it through the piano through the income statement on a pre-tax an after tax basis to the extent of plan was underfunded ended we would take the underfunded status and assume full funding over a period of time are method change to ten in years versus what had been five years a number of years ago which would be less conservative winds up being a lot more actually correct so we would advertise that on a pre-tax nafta tax base and then to the extent opab basically healthcare liabilities which tend to be not funded at all we'd also from those would be funded and run those through but kind of the biggest were the return differential and so what that's done for us is kept us out of businesses were the defined benefit plan is large compared to the business itself. It's kept us is out of the auto manufacturers. It's kept us out of some of the heavy equipment businesses where the plan is as large as the business itself. What happens with those plans is take a forward. I take any of those take a general dynamics. Some of these have been still good investments because they've had tailwinds in terms of their underlying industries but you get the one off. Call it two billion dollar. One enough we borrowed money two billion dollars in the bond market threw it into the plan and told wall street to ignore that as a one time expense but the plans in great shape today well no you should raid ably been funding adding two hundred million dollars per year over a ten year period of time and i'm not getting more the two billion dollars because that's my capital is a shareholder that just went into the pension plan and so the method is important. It's less of a drag drag today simply because return assumptions now that we're twenty years end to the s._n._p. Averaging five and a half percent and interest rates that are near zero have been near zero for the better part of the last decade return assumptions of come down to about six and a half percents there longer nine they're six and a half which is less onerous requires on using our four percent number which i still think is right. I think that that ties to the paper you guys did because our women for three to four percent. Maybe five percent for the next twenty. You guys were using ten. I use four five for the next fifteen to twenty years. I think the next fifteen years may look a lot like the last fifteen which is very modest returns the overall stock market so we've not come off our four percent return assumption but it's not as much of a charge and then there are fewer plans on the overall market too but i've got three kind of fun closing questions for you. The first is if for the next ten years or next five years you were only allowed to buy <unk> stocks within a certain industry or sector. What sector or industry would you choose while we are so sector. I know that's why math agnostic in fact until we started putting marketing initi- together. I didn't know there were four sectors s._n._p. That we didn't even have investments. Oh if you look at what we've owned overtime even stripped berkshire out this is going to be wrong long but we've had so much success owning well run property casualty insurers and reinsurers and the reason i think they work is as long as we're allowed to do. The investing investing and i don't have to just own the sector. I'm good because i think there are some outstanding insurance. People and i think there are a lot of mediocre insurance people. I mean it's a business that everybody he kind of knows is kinda produced disastrous results overtime underwriting margins that are lousy under reserving too much competition using way too much competition in the last decade but i still think because collectively at such a mediocre industry that the stocks themselves the individual components of the various sectors never tend to be expensive so you're able to invest in good businesses where you can find the good ones at very modest prices and for that if i was limited to doing that i've got one in particular are not going to talk about but my appraisal of fair value on the business twenty years ago is the same number that we're using today so we thought a business that could grow as just prove that it couldn't grow because insurance is so hard they got outside of the main state a underwrite business and and they got their heads handed to him so they reverted back inside their state line and for that though it's a good insure within their niche they make good not great underwriting results because it's a stock we almost treated as a bond the trades plus or minus thirty percent around the price so it's way more volatile over a period of time we've been able to buy it when it was cheaper than our appraisal and trim it when it was expensive but for the industry three being perpetually undervalued it's worked. What is the business. You mentioned five under before. This is sort of inspired by that. What is the business that you're most intrigued by that. You think you're unlikely to own any time soon. If it's something other than five hundred probably mastercard or visa <hes> interesting okay we've understood him and we've just never owned them for price and in the back of our minds today we kind of justify that lack of ownership really that total era era of omission to perceived regulatory threat you make the same case for in varying degrees kind of the big banks today. Some of these have been so obvious and we don't know obviously they've been on the river amir. They've been terrific but for the next ten years the regulatory threat is there but also learned. I can pay more than twenty uh-huh earnings for something and be okay with it. We're not hitch to some firm set of kind of classic value metric so we understand growth. Were willing to pay a lot more for it than we ever were but so these these businesses came up when my upset with chuck as well and obviously the notoriously incredibly high return businesses see you understand. Why do you think they're able to maintain contain. Such incredibly high returns well. They don't take a lot of capital. They live in very much an oligopoly structure and we still have an awful lot of cash deals that are done transaction wise around the globe. They're still an awful lot of market share to go get. The growth curve is acquainted to a costco. The concern would be that that model doesn't work outside the united states. Will they've got one hundred fifty fifty stores or whatever the number is that have proven places like career where the unit economics really do work so that curve is still visa mastercard absent being crushed by a regulatory tori body will be much bigger much more profitable businesses ten years out so my closing question for everybody is for the kindest thing that anyone's ever done for you. I'm only getting into podcast now and so obviously prepping for this joe even called me and said to the podcast better dig into this question so you know outside of you invited the podcast of course and parents living which i think everybody kinda take knowledge is. I have thought about this and i would say so. I played football for a long time from eight years old up through college and i had a series of men kind of molded me to be driven with work ethic. My father was very hard on me very tough and for that. I think that was one of the kinds of things he could do as well. He was an old marine. One summer add move a pile river active at the driveway. One summer i by hand with a pick axe shovel dug the foundation for addition to the house. We didn't get abaco. I was the backhoe awesome on a corner lot. We did a brick fence and we had to be twenty four inches deep and twelve inches square by the time. He got home from work every day. So i spent a whole summer where the summers in a row with pickaxes shell shell loading up the pickup truck but it was these football guys and kind of going backwards really learned the benefit of outworking everybody and kind of working being backwards with bill mccartney and at college and brian mcgregor in highschool see if i can remember all these guys i'm joe stu danka john walker bob jordan but my first coach gentleman named cac ever had me when i was eight years old and nine years old he was a terrific man. He didn't have kids that had played. I think about it now. He was probably my age and i thought he was a fossil. I was eight and he was an old old guy with gray hair and now i'm an old old guy with gray hair and i've been coaching football for the last six seven years eight years so i'm sure these these kids look at me. Through a similar lens took us at eight and saddest down in his living room the whole team twenty of us. I think asked who at that time knew the the offense and defense. I'll never forget nobody knew because we didn't have madden and we're eight. We hadn't played football. You weren't watching football on t._v. And so he explained all that and so he he was just a great mentor and a teacher and i'll never forget i was a terrible football player at the age of eight improved on that there was more interested in watching planes fly overhead during games and when i kind of figured it out is an offensive lineman that year it was easier to go. Try to block the safety than it was the big kids standing in front of me well. That's not exactly football supposed to work the by the time i got to nine for whatever reason i was a lot more highly motivated and i was very driven by the game and i was inspired by this man because he was fair. He was hard on us but he was fair and and i was so desperate to get back under his tutelage this between eight nine right. I'm still a kid so we work hard. We had a good football team and i'll never forget. We lost a game to columbine. Listen colorado jefferson county. We lost this game and i was crushed. So we had our team meeting. At the end. All the parents are standing around the kids are standing around and i was just crying bawling bawling my eyes out but i'll never forget he came over in the middle of he put his arm around me and he said some kindest things that anybody could have ever said he talked about my evolution from the prior year and the work ethic and that moment really inspired me to just be the best football player i could and for the rest of my years playing the game. Nobody outworked me in the weight room. Nobody ran more sprints than did everything i could to be a great player i attributed to him and so we had my thirtieth high school reunion a couple years ago and somebody <music> on social media put a picture of our nine year old football team out and i hadn't thought about some of these guys in years. A lot of them didn't wind up going to the high school a lot of them did there were some very good the football players on that team but i thought about co jacker for the first time in a long time. I thought jeez you know. I've got to be really great friends with my high school coach bryan mcgregor. He and i are very close us. I thought i should go try to find go jacker and i hadn't thought about how old he was. When he coached me but he had passed away i learned by digging up and i spent a week trying to find him but i found his kids. I found his three sons. Gosh even his two assistant coaches at passed away but found his kids who ultimately after those years in the late nineteen seventies also got into coaching with him and i sent him a note about what he meant to me and i wouldn't be who i am today without the nice things he said to me during the game but what what are you done for me for the two years and they intern so his wife was still away and they then passed along my note to her and they sent me a really nice note back about how made made kind of her decade post having lost them then tastic well the amount of these answers. They keep morphing changing. Some of my favorites are around mentorship and and shaping younger people when they're kind of most malleable and that's one of my all time favorite answer so thanks so much for that and just the awesome conversation patrick. Thanks this is awesome. I love the podcast and it's been a lot of fun to get you know here in the last few years awesome. Thanks everyone patrick your again to find more episodes invest like the best go to investor field guide dot com forward slash podcast. If you're a book lover you can also sign up for my book club at investor field guide dot com forward slash book club after you sign up to receive a full investor curriculum right away and then three to four suggestions of new books every month you can also follow me on twitter at patrick underscore shak s. h. A. g. if you enjoy the show please leave a quick review for us on itunes which will help more people discover invest like the best. Thanks so much for listening <music>.

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April Showers Bring Mailbag Questions

Motley Fool Answers

45:21 min | 2 years ago

April Showers Bring Mailbag Questions

"This is multiple answers. I'm south. I'm joined as always by rubber brocade, personal finance expert here at the motley fool in this week's episode. We're heading to the mailbag answer your questions about fifteen versus thirty year mortgages, investing IPO's and clarifying that twenty thirty fifty budgeting rule, you guys can't get enough of that all that. And so much more on this week's episode of motley, full answers. What? Hey, book Hartselle is here in the studio this month. Hi, alison. Hi, robert. Thanks for having me about did. You know that you and I were ships in the night at a twelve and thirteen year old volleyball tournament in Philadelphia last weekend. Did not know you're in Philadelphia. I was rooting for the Rochester, mystic go. Go. Cousin ella? Reading terminal and get some good Philadelphia food. We did we went to the reading terminal the other term it was right there at the Philly convention center, and I had never sat through a twelve and thirteen year old girls volleyball tournament, but it is surprisingly good exciting. And your ears will never be the same because it's also kind of roar. That goes over the crowd there. It's pretty loud after you've been in there about twenty hours. Yeah. Yeah. How'd you guys do? All right. We did very well qualified and got an open national bids. We are going to Indianapolis clear that we're not talking about Bach playing volleyball. His daughter. That's right. Who is a star daughter and my cousin who is. Yeah. They they did not qualified. They went pretty far, but they still are still hoping to get in some other way. I don't know how this all works. It's very comforting levels from open and the national and American so yeah, maybe other chances for them to get in qualifiers. So anyway, that's when bro whenever you go to like big events where there's like a ton of people in a room. Do you ever think maybe someone in this room listens to this podcast? And would be mildly impressed. If they knew that you are also in that room you ever think that no. Really? I think if they ever did meet me they'd be like oh that bro. Mildly disappointed kind of had a different idea of what you look like. But hey, it's great to meet you. And then they said you down and be like, okay. So I've got X amount saved in my Roth IRA, and I've got. All right. Well bach. Thank you again for joining us. And we have a lot of questions to get to. Let's get to them. First question comes from. Tony I often hear motley fool hosts discussing Berkshire Hathaway and Marquel. As companies invest in other companies and produce a nice annual return for shareholders. But since they buy stock and other companies aren't they like buying actively managed mutual fund instead of an individual company or gr-. Great question. Tony. Yes. When you look at Berkshire Marquel? They're both kind of diversified companies. But the different berkshires really big there over five hundred billion dollar company. Just give an example, like one little piece of Berkshire Hathaway owns about two hundred billion dollars worth of publicly traded stocks are huge companies like Hines and crafts and Wells Fargo and American Express those types of businesses, and they own big stakes in them where Marquel about fourteen billion dollar company so five hundred versus fourteen so I'd say berkshires larger and more diversified than Marquel is, but they both are doing the same thing. They own. Other companies in a diversified revenue. Streams, and I think they're a good idea to have in one's portfolio. In addition to the S and P five hundred is a matter of fact, if you look over the last few years on the performance of the S and P five hundred aggregate how much revenues grew and profits and that kind of stuff Marquel? Berkshire has grown much faster. Their performance has grown much better. And actually liked them. A better than the S and P five hundred though, you're not quite as diversified. And they trade about like, the financials ETF. So you'll find them they'll go down so two thousand eight two thousand nine when the financial ETF down about thirty seven percents so to Berkshire Hathaway, so it trades with it, but the business did much better. I like the idea of having some berkshire-hathaway or Marquel in your portfolio, and I think right now berkshires a little bit cheaper. So maybe that's a good choice for you. You don't mind having a company instead of just the S and P five hundred affects you there's always a lot of concern about its buffet. It's all about buffet now. Eight eight there there's good reason to have some concern that he may be is not going. To live forever. Maybe he is the night came. Yes. It was Marquel. Similar and how it's structured like is there one person at the top. Will it's similar in that it's been in the Marquel family for a long time. It's third generation. Now, that's running it. But their next group of leaders is already in place and running the business, so cozy ios Richie whitt and Tom gainer in their fifties. They're running the businesses while they're overseeing by Steven and Tony Marquel? And Mr. Kirshner was the CEO before. So they have a younger group. I would also stress though, I think the I mean, nobody's as good as Warren Buffett is. And that's a fact, but he's not running all the individual businesses. Those are all run by great people. And now they're overseen by Greg able and as he John was going to run the insurance businesses and Greg oversee the other businesses they have, and these are very capable great people that they have in place, and all those people running those other businesses have done it themselves buffet is basically allocated the capital and a few years ago we hired people to help with that too. So they're getting more and. More. So the bench strength is really strong there. So I think does anybody wanna see Warren Buffett go. No. But the people that are behind him are more than capable in. Berkshire will do just fine. So I think that's overblown little bit view. If you really are considering owning one of these stocks are both versus and actively manage fund just of you buy stocks, you just pay the commissions on. That's it. You don't pay any actively managed fee, which is anywhere from point seven percent to one percent and actively manage funds are not very tax efficient. So if you were looking for money outside of an IRA or for a one K one of these stocks would be worth considering I should say that I own both of them. I own both of them as well. All right next up. Question comes from Brad after listening to your foolish guide to buying a home episode. I felt you left out an important piece of advice. I recommend to all my younger. First time by our friends to stay within a price range that allows them to afford alone with a fifteen year term versus the more popular thirty year term at the beginning making the payments can be tough. But the reward of the lower interest rate and building equity so much faster is worth it. What are your thoughts? Brought to think that's actually a very good point. And I think the best way to see the differences just break it down to number so Cording to Freddie MAC now a fifteen year mortgage charges rate of three point six four percent thirty year mortgage four point two percent. So you're paying more than a half a percent a year to have the thirty year mortgage. Why would you do that? Because you're spreading alone over a longer period, which means have lower payments. So I compared what the payments would be a three hundred fifty thousand dollar mortgage, which Cording to the mortgage Bankers Association is the average size of new mortgage all time high, by the way. So if you get a fifteen year mortgage three hundred fifty thousand dollar loan you're gonna pay about twenty five hundred dollars thirty year mortgage seventeen hundred dollars. So it's an eight hundred dollar difference. If you choose that fifteen year mortgage, you have to be able to afford that extra eight hundred dollars a month that said you'll pay it off sooner and you'll have a lower overall payment. So if you look at the total cost of those loans at thirty year mortgage is actually going. Cost you over one hundred fifty thousand dollars more because you've paid that interest over a longer period. So I think it's worth considering. But I should say that I've always done thirty or mortgages. But then paid a little extra on the principal because I like the flexibility of saying if something happens, and I need to cut back on my payments. I can do that can always pay more. And it doesn't hurt. Right. Yeah. And there used to be back in the old days used to have prepayment penalties and that kind of stuff built in. But basically, those don't really exist anymore these days. So a lot of people pay like an extra payment on time. That's good for them of the year. Like not right after the holidays, or whenever they spend a lot of money, but maybe in the summertime to make an extra payment and that'll bring your mortgage down quicker too. But I think it all depends on knowing yourself. I think you know, bro, says like extra eight hundred dollars a month. If you're going to spend it on jelly bellies or vacations or whatever else or if you have other alternatives like I can't fund my Roth IRA, but if I get poor mortgage man, I could do that with a lower payment if you're gonna use that eight. Dollars. Well, might be worth to go with the thirty year mortgage. I also have thirty mortgages. Well, all right next question comes from. I was wondering what you have to say about investing very short term. And does just for the pop it seems that big name IPO's like lift almost always pop on the first day. Why not make a quick five to fifteen percent? And my missing something or is this foolish. Everybody loves a quick fifteen percent. Always take that zip. Good question. Here's here's the problem with this those investment banks that underwrite the IPO they reserve a certain amount of those shares. But it's usually not for you. Or I it's usually they're big clients, and those are pretty typically they get them, and they sell it. And they get the pop what happens in a lot of cases. And I went down to discount broker a year so ago, and there was a big IPO coming down the pike. And I said how's it going? He's like, oh my gosh. She shaking his head in there. And he said people are putting in orders. They don't realize they're not going to get the IPO price because it's priced at twenty two and it opens at twenty eight you know, what I mean? And what happens is if people put in market orders. You gotta be very careful not to do that. You're not going to get the IPO price. So Ziff good idea. It's unlikely you're going to get that pop, and I would say further for the the motley fool in general, you gotta remember people inside is are selling on these IPO's. Now, they go on their whole market tour, everybody, great the businesses and then they're selling off. Shares. So oftentimes not every time, but the motley fool kinda likes to sit back and wait see a few quarters of how well this company has performed in that initial pop a lot of times will dissipate, and we did this with Facebook. So Facebook came out as a big pop and everything else we recommend later and got it a much better price just say be a little bit patient. Probably not going to get that. Fifteen percent pop. Now at this point out if they're looking for an academic source, an IPO the guy to go to jail raider at the university of Florida go to his website. He has tons of great information and data on PEOs next. Question comes from cliff in an earlier podcast, bro. Mentioned stashing the emergency fund in a CD for a better yield. I always thought of CD's fixed term, and you can't withdraw them before the end of the term. So how does that help me in an emergency? If I need the cash, that's a good point most CDs. However, you can get the money early. You just have to pay a penalty. So a typical on a on a twelve month CD when you see D is ninety days worth of interest. So you can get the money, but you'll pay a little. Bit of a penalty the decision whether you should go with the CD or not. It's basically look at what's available as just a regular savings account and compare it to a one or two years. He d I went to the assent the motley fool's website where lots of good information about banking, and mortgages, you can get a savings account. That's two point two five percent. And you can get a one year. See that CD that's two point eight percent. So it is a little bit more. You might want to split up. Your agency has some in the savings, but some a one or two year CD because given where rates are now probably not going to go up nowadays. Actually, the market is betting. It's more likely that they will go down. So might be a good idea to lock in some of your money at today's rates, and you can ladder those CDs. So you always have some maturing if these are short term in nature, you don't put it all in one at one time you spread it out. And then every couple months of some money coming available, and you can decide to roll it into another CD or or or use it. If you need it next question Daniel when buying a basket, quote does that typically mean by each position. So the entire basket is a quivalent to a st-. Pandered position or by each position in the basket at your standard position size or good question during when you do a basket typically, the if you add up the all those positions in the basket, they should be one position. So like, if you want exposure to particular sector or a lot of times buffeted mentioned years ago in a Berkshire meeting that he said, you know, pharmaceuticals he thought were good companies. But he couldn't pick the company that's going to develop the next blockbuster drug like Lipitor, whatever else he said, here's the way. I would do it. I would just by five of those big pharmaceutical companies one of them will do really, well, maybe one won't that the basket of them will do. Well. So when you look at each position, you add them up. If your whole position sizes is three percent than all of them together. Should equal three percent curiosity. How many Berkshire annual meetings? Have you attended? It's a good question. I've been to about pink about four. So I haven't been to that many. But I think I've watched they started doing them live streaming. Now they have on Yahoo. So you can watch them. So I've watched one. Since they've been available there and nice thing is the fool is all usually sent groups of people there. So we were livestream even when they didn't. So we'd watch it. So feel like I've been the more. But I think it's probably around four I've been to one. And it's it's definitely one of those things that if you're an ardent investor, especially Berkshire investor you gotta do at least once and you kinda gotta hurry at this point. You should do it, and it's a fun event. And it's coming up here. In may vary. Next question comes from Kevin. I enjoy your podcast and listen attentively to the episode on the relevance of the four percent, which are all rule for today's retirement portfolios. I'm sixty nine years old and am anticipating future events that may impact my retirement income strategy. Do you have any thoughts of the impact that required? Minimum. Distributions have when a retiree has most of their retirement assets account that requires our MD's the fierce years don't have much impact on a plan withdrawal strategy, but when one is in their eighties, some serious percentages are required to be withdrawn and taxes paid so coming talking about when we had weighed. Fao on the show. If you go talking about the so-called four percent rule and one thing that's important to know is that is for people who are tiring when they're around age sixty five. So if you are in your seventies, you could actually take out more because you'll have a shorter retirement. He's talking about with required. Minimum. Distributions you have to start taking those at age, seventy and a half. So what's the percentage of withdrawal there at that first year when you're seventy it's only three point six five percent. So it's pretty low, but does creep up. So by the time, you're eighty five you're quite take out six point seven six percent, again, we're talking about from traditional retirement accounts and 4._0._1._K's not from your regular tax Bill account. So that does get to be higher. But the interesting thing is there's more and more research showing that are MD's are actually really good guidelines for withdrawal rates and that at eighty five you can safely take out six point seven percent from your count and and feel pretty comfortable. That's gonna last as long as you do. And I'll just give you one example. And that was a study by the Stanford center on longevity, which looked at two hundred ninety two time income strategies and the one they decided was the best relied on several factors. But one thing was delay security till age seventy and then require us the required. Minimum distributions withdrawals. As guidelines for how much you could spend. So it may sound like a lot. If you're told you have to take out six seven eight percent, but that's probably safe based on your age. Now, if you don't need the money, you actually don't have to sell the investment take out the cash, and then rebuy it you can actually withdrawal the investment from your account saves you some commissions there. But unfortunately, you are gonna have to pay the taxes. Next question comes from Dustin. I see a lot of public motley. Fool articles pop up around the internet on my newsfeed. Some of those articles are bearish on stocks that are current and even recent sock advisor recommendations I trust almond David's pick. And I know they are in it for the long game. So maybe the discrepancy is on short term versus long term. I was hoping you could comment on the somewhat mixed messages. I'm getting from time to time from the Molly. We get this question a lot, right? This happens all the time. I'd say we don't have a company line on any stock at the motley fool. So we're a motley group we have lots of smart people writing for us. We all have divergent views and experiences and insights to bring to those stocks. And we think there alternately smarter because of those so I'd say when you read somebody else's, and this goes for people off side of outside of the fools. Well, often, we'll get some questions from people in a short report comes out about a particular company. The motley fool really likes, and they man this report came out, it's one hundred pages long, and they say how much they hate this particular company, and my answer is they could be right. And we could be right. You mentioned duration their timeframe, we're long-term thinkers and investors here. So when we make a pick we're looking out three to five years at least, and hopefully a lot longer with that pick where people that have a negative you, particularly if they're short the stock. That's usually a very short time horizon. And they put out these reports because they have to have action on the stock. Otherwise, you have to buy another short that cost more money. So we could both be right. But I would. Just say like, we're pretty good, Tom. Dave have a good track record. And but understand the argument. We don't we don't have company line on any particular stock, and we would encourage you to read negative things about your company. So you have a better perspective. Right. Yeah. I saw upon one of these examples today I was trying to see on full cue, which is where we kind of aggregate all of our analysts thoughts. Like I needed someone to talk about tesla with reporter. And so I go to fool like you. And it's negative conviction for tesla. But it's recommended in eight of. Like, yeah. That's a that's a mixed message. I can completely understand why our members are confused and it happens. I don't know. It happens. Tesla's a perfect example like that because the optionality for this business is so wide. You know, I mean that Elon Musk which is a lot of things around Elon Musk makes headlines every day, some good some bad, but he's ridiculously smart and accomplished a lot. And as far as the business. There's some debt the only about ten billion dollars in debt on their balance sheet. And there's some questions about that in an are launching into new countries and developing new models and self-driving and all this kind of stuff. So there's one of these businesses were just a lot of questions around them. But also a lot of opportunity. So that means there's going to be a lot of divergent of you points on that business, and there are within within the company and outside of it. All right next question comes from Britain. I work for a great insurance company that is willing to pay in full for me to get a graduate degree. That's awesome. I initially thought of just getting a general MBA but found multiple specialized graduate programs that range were financed. Entrepreneurship and innovation. If ultimately a career investing is my goal. What would you recommend? Well, if you're looking to get a job somewhere, every company will have their own take on this. So if you have a specific company in mind that you'd like to work for I would start with them and say what they favor and what they like, generally speaking, I would say, you can even start actually at your own insurance company because insurance do manage portfolios, and you may be asking just to work at a different position in your own a company, and I would start with those folks and say which degree so you get I asked some of the folks at the motley fool in charge of hiring for our investing group. And the only thing they said that's a company line is that the full does not pay more for people who have graduate degrees. So that's good to know. But then of the people ask they each had different opinions about whether a master's degree was helpful or not one said. He he has a bias towards people with a finance degree, but not necessarily it's not necessary. They're also designation. So maybe the insurance company pay for you to be CFA, for example. And there are many folks like mutual fund companies really favor people who have CFA motley fool kind of mixed on it. So that's what I would say in general in terms of find out where you want to end up and find out what they're looking for. But buck, you might have opinion as someone who has an MBA. Yeah. I do have an MBA. They didn't pay me more because of it. No. But yeah, I'd say do what you wanna do. I mean study what you're interested in when I look across our pool of analysts. We're pretty a collective group of people starting with Tom, Dave, we're both English majors, and that's a pretty non traditional route. I think among our pool of let's say thirty five or forty analysts. We may maybe have to finance majors, which is very strange for company. We have art history. People we have people with their PHD's and. You know, chemistry or biology and that kind of stuff so we have why I was a sociology major, and they got my MBA. So I say we like critical thinkers, people can think well and solve problems. And I think whether you get an MBA or degree or CFA or something else that shows you have an interest. Do you like and you'll be a better thinker because of it? So that's what I would suggest next question comes from Amar. I'm subscriber to stock advisor and have been following the recommendations for about twenty months as a result. I now have more than one hundred ten different stocks in my portfolio. I think it's getting too much for me to handle understand and follow it with a fulltime job of twelve to fourteen hours a day. Yeah. Yeah. I would agree. It seems to me it might be more prudent in easier to somehow narrow this down to twenty to thirty stocks. And she's index funds for the rest of my money. What are your thoughts your higher Tamar? If you can cover a hundred and twenty stocks he'd be a good member of the team here. This is a question that we get pretty frequently as well. And it it's a difficult one to answer because it's it's so personalized Shelby Davis was agreed investor. And I know Tom Gardner likes a lot about Shelby Davis. And he often mentions he had he owned twelve hundred stocks guide, and he had a great track record. Walter Schloss was similar had a similar amount of stocks. And he collected them almost never sold them. And did really wonderful had a great return. Charlie Munger on the other hand, vice chairman of Berkshire Hathaway's comfortable having billions of dollars in only three investments. So there's a wide range here. Right. And I say, mar it's it's more about you. So from this question. It sounds to me like you think it's getting too much. And that's okay. That's that's totally fine. I'd say if I had average across we have some people that are fine with owning hundred twenty that are in our service, and they love that. It's they're passionate, maybe they're retired. And they have a lot of. Time to dedicate to it. There's others like you that are working fulltime job. And they don't wanna spend it on time. It's fine to cut down your number. I'd say twenty to thirty is probably a pretty good mix of stocks. We tell people in stock visor at least fifteen I think twenty to thirty is a reasonable amount to have their. But if you go a little bit over a little bit under. That's that's fine to recommend choose this twenty to thirty stocks pick your favorite ones. Now. I I would I I would kick them. Within I would use stock advisor as your guide. And you know, we have a core list of stocks that we think are fundamental that people coming in there. So I would certainly hold that core group of stocks in then I would hold a list of some from Tom side, and Dave side, you can make your favorites or you can use best buys now to indicate which ones that we liked the best. And I'd also say are like we're there for you. Like, we're not, you know, deacon tach to these stocks. We're following them for you. So don't feel like you need to everything. I mean, something big happens to these stocks. We have the promise and all that kind of stuff. Well, we cover them for you. So were there to help you, you know, so, yeah, I'd say I mean, that's part of why you subscribe to one of our services that there's someone who's keeping an eye on it. And they'll tell you whether it's time to sell that stock. So that's why you can have a portfolio with that many stocks and not have to know each company individually that that dramatically. Hey, tiger writes in retirement, what should we spend? I and what last at present. I'm five percent rates. Five percent bonds. Ten percent cash. Twenty five percents. Stocks fifty five percent mutual funds. I figure I will maintain that allocation until I finally retire. But I'm not sure what have I my wild. Guess is cash. First taxable mutual fund second non-taxable, raw third and individual stocks with big capital gains. Last some I've held for more than twenty years. Well, carnage should definitely be first because every retiree should have what we call an income cushion, which is the next three to five years worth of portfolio provide income out of the stock market and you rely on that every year. And then after you've spent at that as that you're goes on the next year, you replenish it. The next thing would be I guess the types of account. So we've mentioned before that several studies have found that when you're in retirement, you'll per flow lasts longer if you tap your taxable accounts. I then usually traditional accounts and then Roth last the Roth and traditional can be flipped in some situations. But. Basically drain your taxable accounts. I I can't really say about the mutual funds because it depends on which what's those funds are invested in cash stocks bonds, whatever it is international US, but I will say that definitely makes sense to evaluate your funds every year. And if you have a fund that has been underperforming its peers for the last three to five years, that's definitely a candidate for where you could get some cash you'd mentioned the stock in the stocks that you've held for more than twenty years and generally speaking, you don't want to hold onto a stock. Just because if you sell it, they'll be tax consequences, if it's not a promising investment anymore. But I think what you're suggesting, or what could be strategies if that money eventually will be left to the next generation, it could make sense to hold onto that for longtime because when you pass on and your heirs get it. They get stepped up cost basis, and they won't have to pay those capital gains. Then the last thing I'll say is just when terms what the cell is. Whatever will bring your portfolio. Leo back into balance. Right. You have an asset allocation that you've decided as appropriate to you after one to three years that's going to change depending on what is performed well, and what has not generally speaking, you sell what has performed well to bring your portfolio back into some sort of balance these days that would be US large cap growth. Stocks have significantly outperformed most others. And if there's anything that has become overweighted in your portfolio. It's probably that category. Yeah. And yeah, you didn't ask this. But the extent you're gifting some of these things. I mean, cash always make sense, and that goes at its and its cost basis. But if you have a very something you've held for twenty years with a low cost basis as a stock. That's probably not the thing that you wanna gift to your grandchildren or whatever else because they're going to get the same cost basis. Just hold onto it went until you pass away. Or if you are looking to if you donate to charities donating highly preceded stock is a great strategy next. Question comes from Ryan. In a recent episode, the advantages of real estate were discussed largely in regard to buildings and land inside city. What about farmland doesn't investing in farmland compared differently do investing in buildings or stocks? I believe farmland will behave differently with IRS and other regulate regulations has similar return as buildings, but I believe classified differently buck. I had no idea that you would have the answer to this question. Well, not the tax expert on farmland versus buildings, but I grew up on a. Arm, and like, my mom still lives there. She's eighty now. So she's not farming the farm, but I this is a broader kind of suggestion as you look at this. We also some commercial real estate, and that kind of thing farmland is probably not going to earn. You the return that you want from a from an asset that generates cash having worked a farm at least a small farm. There's larger farms that have some different economics with them. It's a hard business, and you got commodity pricing. And you've got whether that impacts this all kinds of stuff that can happen on farms, and there's a larger move from people. And this is not just United States thing. This is all around the world where people are moving from rural areas into the cities. And so do the extent that you're looking to make investments in that kind of stuff. I think to to make money off of and for an investment, I would probably look towards those places where people are moving. I don't think they're moving out to the farm land. And I know there's other people that. Managed pensions and do that kind of stuff, and they own farmland and timberland, and I think there's some value in that from a diversification and asset standpoint from an individual investor for normal person's account. I think probably they have some exposure to real estate with the house and things that they own assume you own a house and to get extra diversification through farmland. I wouldn't suggest it. I don't think it's probably the best course of action. It's my next question comes from Ardy regarding the twenty thirty fifty budgeting guideline you discuss during the Lucy episode does the thirty percent for home costs also include utility bills repair costs and internet streaming cable costs or does it only include fixed costs such as mortgage payments property taxes HOA fees insurance, I understand it's just a guideline, but I wanna track this to determine where to reduce if possible to increase the twenty percent savings school. I love how people love the just like just tell me what to do what? Good rule of everyone loves it. Which is why this one number of the year in the aloof are awards show. Anyway. So let me remind what the rule is twenty percent of your budget should go to savings thirty percent to housing fifty percent to everything else. So he's asking for the what does what falls under that thirty percent for the housing. If you ask different people, you get different answers. I think it's it's the fixed or mostly fix stuff that you decided on when you buy that house. So that's going to be the mortgage property taxes and the insurance those are things that you're going to have to pay either fixed or they're really not too much under control. I mean, you can raise a deductible the change your your insurance. But that's about it. Property taxes are just part of the deal. Cancel your cable Bill next week. If you need to exactly all that other stuff utilities. That's more manageable. You can try to be more energy fishing. You can fiddle with the thermostat. It's morning and in terms of repairs. That's what your emergency fund is for. And that's part of that twenty percents. Savings comes from building up your -mergency fund until you have it. So that's the way I would say no also just again point out the other. Version of this rule, which is fifty thirty twenty rule developed by Elizabeth Warren back when she was a professor at Harvard before she came at presidential candidate. That was fifty percent for your must pay expenses your needs thirty percent for once twenty percent for saving. So for those who also like another type of guideline that's something to consider. I think. Ardi trying to beat that twenty percent savings. Good job Arctic go for it. All right next. Question comes from Bruce. I have some very basic questions about stocks general. How does the money flow with stocks when a company issues stocks is that the only time it makes money from the stock? Is there any other time? Actual money comes back to the company from that stock without buybacks are they're tangible or other benefits f-r-o-t-h stock price going up when someone purchases a stock where does the money go. Is there just another stockholder that I'm buying from? And not from the company, you're Bruce. You're you're right on when you buy a stock if bro selling it, and I buy it. I mean, it's just a transfer of money from me to him. And I get the stock in between there. There's the brokerage that takes a little commission. Right. And they take mission on each side of that for the sale and the and the purchase. And so they like it when you trade a lot you're right when the company doesn't IPO initial public offering, and they issue shares typically, but not always they will get that money and that goes into their coffers and fuels their growth. As a business nowadays receiving more and more of these IPO companies where it's actually just a recapitalisation where they've taken money they've taken venture capital. And they've taken a lot of along the way and those people are selling their shares, according to the IPO, and that company gets none of the money. So it's going to pay back the people that had loan them money. Not all those a lot more of them than it used to be. And I generally don't like those as an investor when they come public, and they're just giving the money as somebody else. I like it when the company gets it, and it can use it to fuel their growth as a business. The other thing I wanna make a point about that. And we hear some people that are pretty big on the ES g movement, and you'll hear people say I'm not going to buy that company stock because I don't believe in what they do it could be tobacco company or now call company whatever else in that's fine. But I think, you know, according to your question, Bruce, you're not really hurting that company by not buying their stock. They don't get that money. Right. That's just coming from someone else. Then to the extent you wanna make? Social stand or or do something like that. I would consider every dollar that you spend discretion, you know, discretionary basis is probably more important. So it's more important. What you buy every day where you spend your money because that's a larger percentage than what you save and invest, and so if you wanna be an activist role like that with your capital consider where you spend all your money, not just what you do with the investment dollars that you spend. Right next question comes from Ben I currently have five to nine accounts for my son and daughter opened when they were each born. If they don't use all the money, what are their options can five to nine account be transferred to a subsequent generation within the family, for example, their unborn children. So Ben the the benefits of having the five twenty nine account are that you put the money in you invest the money, and when you take the money out, it's tax free as long as you use it for qualified expenses. If you don't use the money, you can always take the money out, you'll just pay taxes and a ten percent penalty on the growth, so not the whole amount. So if you put in twenty thousand it grows to thirty thousand only it'd be taxed and penalized on at ten thousand dollars worth of growth. Also, if if for one one of the reasons that you don't need the money is maybe when your kids got scholarships, and they're going to a military academy there some ways in which you can get the money back you still pay taxes, but you avoid that ten percent penalty. Also, it's important to appreciate all the things you can do with the money. So everyone knows about tuition room and board, but any other things that are considered necessary expenses for attending college even computers, in some cases books supplies. They can be used. Also, if your. Student decides to live off campus housing you can use that money to pay for an apartment as long as it comes under the university's stated cost of attendance. So as an example for my son who's going to Virginia Tech next year. The cost of attendance officially for root for board is five thousand four hundred seventy eight dollars. So as long as you're -partment doesn't cost more than that you can use that now for buck son who's going to UVA next year. He's gonna he's a higher allowance national champions. That's true. So you've eight six thousand seven hundred twenty dollars. So you do have to know that number, but you can use that. And a lot of people don't understand it. So make sure you are using the money as many ways, you can then graduate didn't use Ella money. Yes. You just leave that money in that count. Wait till you have grandkids opened five twenty nine for them, and you can transfer the money or if only one kid one of your kids has kids and the other the you can transfer the money to nieces nephews two cousins, you can transfer it back to yourself, and you can go back to school as long as it some relative you can use the money. I and our last question comes from Janet my husband, and I both came late to investing in our late thirties. I would argue that's not not. Yeah. We'd like to give our kids ages twelve eight and five a better start. We've already taught them about savings, and they each have small savings account. Now, our kids are asking questions about investing is they overhear talking about our stocks and brokerage accounts. Oh, it seems like a good time to formally introduce them to investing our questions are what is the best way to set up a brokerage account for them should we put their respective names. As joint owner, we don't want them to have control over transactions yet. Or should we simply make our own sub accounts with the understanding that XYZ accounts are meant for each child to do you recommend any fantasy investing account where they can buy and sell pretend shares without playing with real money. Are there any safe games apps that teach kids about investing in a fun way? First of all, congratulations. I think I know that your children will thank you later on like getting them started. Because as we know with investing, this compound interest is a great thing. And it's really when you start not even so how much you say, but you know, getting a start at what twelve and eight and that kind of stuff they're going to have such a head start in life. So congratulations on that. What should you do? I think you should probably consider setting up a custodial account. And so I would set it up in their name. You're gonna have you're gonna have to oversee that until they're eighteen years old. But you know, we did that for each of our kids, but you can go in there, and they can watch you make the trade and do all that kind of stuff. They can see what they own. And that's a great way for them to get started Seneca. Custodial count is probably way. Automatic than they take it over. Yep. That's all there's then when they're eighteen. So that's if you're kidding. Being kind of a. Would call a kid. I mean, there's a couple of ways to think about that. I I would say this is probably not going to be all your assets. Right. And so if the kid is a clunker, and they're gonna make some mistakes, you'd probably want him having make it with that account before they inherit what you've saved because I imagine if you're starting with your kids, you're gonna have a decent amount of savings. So the got to learn at some point in time so learning with a little bit last is probably better than when they inherited all go. I've never done this before. But but anyhow, so I would I would suggest that custodial count and then for fantasy. I would say, you know, caps dot full dot com. A good place for people to go here. It's free. They can enter whether they think that's knock will beat the market or not. And once they get seven stocks a rating and all that kind of stuff. That's a good way to go on. And learn what other people are liking and just kind of get them interested in stocks. I'll give a couple other things that my kids enjoyed when they were younger one is we play the market cap game in that as you can take twenty different companies. Put two rows of stocks there, and we used to give out a dollar for every right answer. And they would just say, which company is bigger. So by market cap. You could have General Motors, and Microsoft and kind of go down the list, and the great thing about is Foster's discussions about these different companies. I also they could they could have hints they refree they always truthful, but sometimes misleading so they could ask who has more sales in those companies and tell them, you know, General Motors as many more sales, Microsoft, they would go Kay. That's the bigger one wrong. It's not we have a discussion about how profitable Microsoft is versus General Motors leads to good discussions about that. And the last thing I'll suggest and I think this is just a great to get somebody interested in investing is encourage your children's start their own business, and that may sound funny because they're twelve and eight and that kind of thing, but they can you'd be surprised entrepreneurial kids are give them a little bit of seed money a hundred two hundred dollars and let them figure out a business for themselves though. Learn about shoebox, accounting, what are my expenses. You know, what are my revenues and one of my profits? All kinds of great lessons that come out. It doesn't have to be a big business could be babysitting. Dog-walking making lemonade whatever snow shoveling snow. It's a great way to learn about investing in start that kindle at fire a little bit will also has a game mobile game coming out in the next few months. So keep an eye out for that Janet, I haven't played it. But. Like, you don't believe me. No. I believe you. I know we've been working we've got people slaving away on that game. And I'm sure it's going it's going to be awesome. But the kids like mobile games, they play them these days. Right something. We don't even understand the one thing I'll say about custodial counts is it is an asset owned by the kid. So we talked about how they get to get possession of that age of majority. But also when you apply for financial aid for college assets owned by the kid will are more will reduce your aid more than if it's an asset owned by the parent for a lot of people. It doesn't matter because they're not going to get financial aid anyhow, but if you think that is in your future that is a consideration. And you might consider going with you just have the count yourself in us going to hand it over at the right time. Can I add something real quick? Just this works for my kids. Anyway, we use stockpile as brokerage, and it allows the kids to have a window into their own accounts. And they can actually make a trade, and it comes to me as the as the guardian of the account, whatever to approve their trade. So they that way they can have little more hands on and still it's in your control to actually make. The trade the do, and they also do fractional shares which is important for small amounts lets them by companies like Berkshire whatever that are high dollar stock price, but still get companies. That's great great. Can you get you also easily like gift stock through stockpile as well? Yeah. That was there. Gift cards in the grocery store and hand them like here's shares of Microsoft or something. That's that's kind of neat little gimmick. But I think that there's other aspects of that particular brokerage that are even more conducive to investing for kids. There may well be other brokerages out there that are equally good for different reasons whatever, but that's one that. I like I like that idea of letting them they don't do much. My kids are young. But I like the idea that they can make the trade and it just comes to me for approval. That's cool. Yeah. That's cool. And the folio folio f n has ability where you can in one trade by portions of like, you know, ho- portfolio stock so you could put in ten or fifteen and in one trade, they get a spread across that. Which is really nice if you have small amount of money, and you wanna spread it and get some diverse Gration across a basket of companies. So it's nother option for folks. All right. Well book. Thank you so much for joining us. Thank you for having me. Appreciate it. That's it for the questions today. Please come back again ah. Territory. All right. That's my part of the mail bag where we talk about the other stuff you guys sent in. That is not question elated. I up, bro. Oh, what did I do as Dan pointed out? Oh, you're the linebacker who saves ninety percent of his income, and is working to teach kids about money is Brandon Copeland not cope. Right. I said cope because his nickname is professor cope when teaches at the university of Penn, but just a slip in the mind or something like that. Sorry about that out of all the things that come out of this face here. That's not bad just one wrong thing. Oh there. Many more many more. I think you've got a pretty good batting average. All right. Let's get to the postcards. Rich wrote a postcard from the Luxy Mississippi, which which I guess is our first one from Mississippi, but I've been doing bad about keeping track. He wants to know if any fools wanna do a listener meet up at the Berkshire Hathaway shareholders meeting so listeners if you do why don't you go ahead and drop us a line of answers at full dot com. And I'll try to connect all of you could think for the Facebook group. Yeah. Okay. We can also post something on the Facebook group. All right. What else do we have Jim is still swimming? And he sent us a postcard all the way from Miami with his little he wrote where he's. Various shoots says hi from Wyoming and did a little fact checking his the devils tower is not actually in this county. I know whatever I shoots that's a card from Bali. And gene in patio back on the road. They I believe our first card from Rhode Island and another one from the Isabel Stewart Gardner museum. Which reminds me of a great podcast. Have you guys? Listen to the podcast last seen. It's about the art heist that took place at that. Same jozy and back in nineteen ninety five hundred million dollars worth of art was stolen, and it has never been seen since. It's really good poss-. It's a good like road trip podcast because it's a contained like eight episode story. It's very good last seen S E E N highly recommend it. Okay. So summers around the corner. And if you wanna send us a postcard from your travels, we would love it. Our address is two thousand Duke street, Alexandria, Virginia. Two two three one four. You can also join our podcast Facebook group. It's motley fool podcast use s we let in and we'll let you in or follow us on Twitter. I'm at Allison Southwick, bro. What are you? Add on Twitter. The slightest idea at Robert bro camp. I guess I don't know. Rick. What are you at our angle? And if you can spell the name, Bellamy, luck luck. Wait ago. Yeah. So. Invested in this social media stuff. So some any Twitter. Or the cool the cool kids stable. Media world. All right. The show is edited starkly by game. Maybe I don't know. Forever broke camp. I'm Alison south wing staple. Everybody.

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Warren Buffett & Berkshire 2.0; Market Sell-Off

Squawk Pod

43:11 min | 1 year ago

Warren Buffett & Berkshire 2.0; Market Sell-Off

"No one likes to feel stuck boxed in or held back especially by your cloud. It's a problem but the IBM cloud is different. It's the most open insecure public cloud for business. It can manage all your apps and data anywhere across all your clouds so it can help take on anything from re booking flights on the fly to restocking shelves on demand. Without getting in your way. Smart loves problems. Ibm Let's put smart to work. Visit IBKR DOT com slash flexible to learn more bringing show musically. This is squawk pod the daily podcast brought to you by the team behind squawk box control through. Cnbc's essential morning show every day. Get the best stories. Debate and analysis from the biggest names in business and politics are coming today on. Squawk POD history-making week on Wall Street. The February selloff is intensifying as the corona virus spreads. The first thousand point day was very unsettling. And then you get a couple of more. And it's incredibly unsettling. The Dow falling twelve hundred points Thursday. The biggest point drop in a single day ever and the fastest ever correction from an all time high. Andrew's going to make the joke. What how does it compare to? Nineteen twenty nine. I was not there for twenty nine. Kevin warsh a fed governor during the financial crisis urges the Central Bank to cut interest rates in response to the corona virus outbreak. If our them this would not be the time to say well. I'm going to preserve my Hammo and Warren Buffett. What the eighty nine year old chairman of Berkshire Hathaway says about Berkshire after buffet? We're well prepared for succession. Almost GONNA BE EMBARRASSING IOWA. I'm in BC producer Katie Kramer. It's Friday finally February. Twenty eight twenty twenty. Squawk pod begins right now becky by one. Good morning welcome to Squawk box here on. Cnbc we are live from the Nasdaq market site in Times Square. I'm becky quick along with Joe. Kernan Andrew Ross Sorkin and with us for the Hour Steve. Grasso he is Stuart. Frankel director of institutional sales and Steve. It's good to have you here today. Let's get right to the markets because the Dow just at its biggest point drop in history falling eleven hundred and ninety one points. That's thirteen hundred points this week alone. That's a drop of more than eleven percent and in fact the Dow is down almost thirteen percent from its highs the S. and P. Five hundred had its worst day since August of two thousand eleven and by the way. This is the fastest correction a ten percent drop from the highs in the history of the stock market happening. Just about six days. Let's provide a little bit of historical context. Role is like this does not happen very often. look back at similar four day routes in the Dow show they are usually tied to an event usually very specific event in nineteen ninety. Eight was the collapse of the massive hedge fund long term capital and the Russian financial crisis. The Dow then lost a thousand sixty three points or twelve percent in two thousand one. The September eleventh attacks resulted in twelve hundred point. Drop also a twelve percent drop then then the big one two thousand eight. The financial crisis led to a four day decline in the Dow more than fifteen hundred points and today it is the corona virus in a four day loss now of more than thirty two hundred percent. That was a big one for for some people but the big one was nine thousand. Nine hundred seventy wasn't really precipitated. By any specific event other than portfolio insurance combined with the Vortex Future selling twenty two percent in a day twenty two percent today. But I want to make a point about all of these In virtually every instance there was a firewall and when I mean by a firewall was there was some kind of action that was taken to end the route. The Fed announced plans Treasury in case two thousand eight and now seven plans back. During long term capital plans were made. There were things that there was a new piece of news which seemed to Provide some semblance of confidence back into the market and so the question in this instance is what could that piece of news be or do we continue to go south and told that piece of news emerges or on a Friday the Dow going to walk into this weekend to hold onto stock because it could be a thousand cases that happened over the weekend and I don't want it to be worst this week but I've already gone. I've already gone past that and I've decided that this market has discounted a lot already. That's what I'm saying even on a Friday we are now. I mean we're we're looking at the possibility of of having a negative GDP near-term not sometime in twenty twenty and in China. Maybe a flat zero. I said that it was if you really think. That's look I can give you lots of optimistic that it wasn't a distance what was I wasn't mild symptoms. I read that was like that should be good now. I know it's spreading it and that's the problem is if you have something that has very severe symptoms it burns itself out because it's the mortality rate that we're looking at. We're not looking at with thirty. Five Percent Merson agree with SARS. You had a ten percent. What's out Ebola's ninety percent singing? Look I agree and put some money into the S. and P. Five hundred yesterday because I thought okay. This is a big selloff but I also think what happens if you start to see school closures. I mean it's the human reaction don't you think I think we're anticipating market already reflect. You know you're going to see school. Closures don't close. They're going to be on the line. So the whole protocol is you have to have a protocol so boats going out to corporations all over America saying non essential international travel ixnay non-essential domestic travel. No good so then. The question is when does that kind of News Role? Oh I hear from the health of it when when you brought up long term capital. It's like a hedge fund goes belly up we're talking about a global endeavor. Coming seems so much more and there is no magic bullet. I mean I could get some type of some kind of some kind of therapeutic but I'm trying to look at rates is not going to do it. Probably not by definition if you go twelve percent from the highs in the quickest time ever the market is discounting something really quickly nick and also. I'm not looking for silver linings. Although I think we shouldn't be all all gloom and doom necessarily but short sharp corrections typically are ones that are eventually settled by pockets gaming. Absolutely there's a hockey stick to this. At some point. The question is your. I'm worried about a big you. I know I'm no worry about that. Actually looking for me you. Just tell me what he along a hockey. Tell me what is the thing? That's going to flip it. That's what I did you ever know what the thing was before. No that's tough right now. Really in hindsight. You're you're acting like we knew something that was happening. There was real fear eighty. We had no idea how that was going to play itself out. I mean when you see all the Dow points single digits. That day I was looking at American Express at four dollars a share my screen. You weren't right now. We're in high school. Whs Anders Joke. What what how does it compare to nine hundred twenty nine? I was not there for twenty nine but I was there as a stockbroker just soil in my wares in nineteen eighty-seven under my desk. It was horrific and every time we go through that you don't know the Black Swan Event and don't know the the white dove Avec some updates on corona virus and the market selloff around the world in Europe. Travel disruptions have hit airlines thin air and I aged which owns British Airways have issued. Profit warnings in Germany's government has reportedly quarantined thousand people in town in the western part of the country in South Korea Hyundai Motor closed one of its factories. After a worker tested positive for the corona virus the total number of cases. There is above twenty three hundred Tokyo. Disney will close this weekend through March fifteenth. Japan has suspended all elementary junior high and high schools in the country for most of March New Zealand has confirmed its first case of Corona virus and Nigeria confirmed the first case in sub Saharan Africa and in China where this whole story began the total number of reported. Cases is nearing seventy nine thousand. Do we believe China when they say that that it looks like the severity is is less than he is leave. China's you believe medical expert who we had on yesterday. Who said look as they send people back to work? It's going to pick up again if people China did the right thing by shutting things down and sort of eighty thousand if you stopped at somewhere near eighty or one hundred thousand in a country with one point two billion people. I think the measures China took helped tremendously by really seriously shutting things down but now they are worried about the economic impact of that and sending people back door. I'd certainly I went to the gym yesterday and I told a guy that I know there who works I said. I hope you've saved some money because you're no one's going to be here in two weeks in my own line. I'm afraid and I'm discounting the worst case scenario and I'm not sure that comes to pass I I asked you know all all the machines sweating on machines. You think people are GonNa go there looking at the lunch. I think you're right but I also have already discounted. Maybe the market has discounted right. You don't head of this new stuff going to the gym to go based on yesterday just said but seriously I mean all the weights people. I couldn't help but think if you were there you'd be like you need things down but at the same time it's like this too will pass people here headlines like this and they get concern particularly as they headed to a weekend. A lot of this stuff is not the individual investor saying. Let me sell everything. I have a lot of this stuff is de leveraging where you have trigger effects with the counts that have to sell mass selling program orders. This is not the individual sitting home. Saying I don't want to own stocks anywhere right not seeing that. The first thousand point day was very unsettling. And then you get a couple of more. And it's incredibly unsettling but you wonder when you're doubting you're going to get the first thousand point four of them more if you're down four thousand points for the week. Aren't you discounting some very serious? So I know it's a Friday but I'm I'm going to hold out. Housing people realizing how much it is electron ix and algorithms to that are just triggering off of moving averages off of whatever average in the overall market says spits out a thousand sell orders. And that's truly. Unfortunately that's what happens with the marketplace. I don't know whether I should hope on Friday for stabilization. But that's what I'm hoping for. Well what what was concerning yesterday is hearing Gavin. Newsom the governor of California saying yeah. We Have Englander K. People that were monitored right now but only two hundred kids if the CDC could more quickly get those kids out to people for testing. I think that that would probably be very reassuring casual. Observer has obviously seen. What's happened this week so you don't have to be a a an avid stock market Aficionado even if you have a 401k. I'm sure you know what's happening. In the markets and many widely-held stocks have dipped into bear. Market territory the historic selloff. May Have many people worried about those retirement. Plans for one KS and other investments joining us to discuss the state of the retail investors. Jj Kimmelman chief market strategist at TD AMERITRADE and in breaks in the past Jj. I've seen times when the average investor and people not quite as close to the the trees in the forest of actually fared better and maybe not panicked as much as it professionals. What are we seeing this time around? Yeah I think you bring up an important point. We always here. Don't be emotional about it and it's kind of interesting that most of the people I hear that from our managing other people's money instead of their own and so the one thing I would say is the The first thing is people do get emotional about money. I just read recently. It's the number one cause of fights in a marriage but Lee taking a step back if you are nervous. Don't think all or not. I think that's the mistake. People MAKE JOE AS THEY GET. They get nervous in a sell out their whole portfolio. That's is a huge mistake. In most cases you know if you really that nervous about it and you have to sell something make it. A small percentage and in fact longer term what tells us is. These are often nice times too by not saying you know you guys had a great discussion a few minutes ago with Mike about is this the bottom. Isn't this the bottom? Nobody knows for sure. But you know I I really think the partial if you will mentality thinking about by a little bit here if we go lower you still have money to spend I if you still like to stocks etc and if you've got to sell sell just a little bit right here overall that's one of the biggest differences between professional and a retail investor when we look at sentiment and things like the vix or put call or or all these things that you've watched for years and years and years. What are you seeing? And it's been very sharp. It hasn't been that long of a time. We pointed out again again. This quickest correction that we've seen in many many many years from the highs. Have we done enough work? Instilling fear at this point to make a trade will bottom. Do you think Jj. I won't go to your point about it being so fast. It's also you know you've seen many sell-offs also it's been incredibly orderly. I mean they're really it'd be besides yesterday on the clothes when it was so much stock to sell and it really slammed him. You know you guys are shown to fair value and you see how much the S. and P. Five hundred closed under pharaoh value is. There was just so much to sell on the clothes outside of that. This has been a very orderly sell off. And with that you know we saw gold and we saw bonds two of the three sort of you know measures of risk in my opinion and then along with Vicks all starting to go up but with that they remain elevated you know. Many of our clients are turning toward more I guess risk off assets the way to look the I'm looking at it. Right now is a sports analogy. The defense has been on the field all week pretty much and I think the defense may stay on the field for much of today The thing I'm most interested in today you know before we talk longer term is can we muster some sort of a rally before the close because I think people want to unwind their positions who have shorter term positions on the clothes for those with the 401K's and longer term positions? This is a blip on the radar. If you're nervous look how you've done for the last two to three years. I guess overall it's been pretty pretty good if you've stayed invested so don't let one week you know. Change All your decision. Okay will be next next on squawk pod Kevin warsh former Fed governor and some sake candidate for next chair of the Central Bank says. The Corona virus is such a risk to the economy. The Fed needs to act now a certain level. The pain at this moment is inevitable. The suffering is option. We'll be right back. No one likes to feel stuck boxed in or held back especially by your cloud. It's a problem but the IBM cloud is different. It's the most open insecure public cloud for business. It can manage all your apps and data anywhere across all your clouds so it can help take on anything from re booking flights on the fly to restocking shelves on demand. Without getting in your way. Smart loves problems. Ibm Let's put smart to work visit. Ibm DOT com slash flexible to learn. More this is squawk pod from CNBC. Joe Three Hugh here. Good morning and welcome back to. Squawk box here on CNBC. I'm Joe Kernan low with Becky. Quick and Andrew. Ross sorkin our guest. This morning is Kevin Wars. He is former Fed governor and distinguished visiting fellow at the Hoover Institution. He's also author of a Wall Street Journal op ED. That was published yesterday. Got A lot of attention. It was headlined. The Fed can't wait to respond to the corona virus. Us bankers central bankers should lead a global response. Kevin it is great to have you here today. Thanks very much for having me. We spend a Lotta time on our air yesterday. Talking ABOUT EUROPE. Ed The markets. I think took it as a signal of as to what might be coming. I in fact a very early yesterday morning. You did see the future's the Fed futures indicate that we could see a cutoff as recently as March. Let's talk about why you wrote this right now. What you're saying so I wrote it because I'm not in the middle of these things Chairman Pailin his guys are. It's tough moment to be at the Federal Reserve in the middle of the week. Like this all you want to get to the weekend. Gets the weekend where you can have no markets trading rick and sit down with your kitchen cabinet. Ask Hard questions and think what to do and so I thought it was good advice. It was sort of advice that we got in the darkest days of the crisis. I remember Marty Feldstein News. No longer with us but a great friend and mentor. Who when we were trying to figure out what to do. We were Jackson hole and he went up and said the. Fed needs to cut rates materially. They need to do it now and we said Oh well that's not so helpful. But he made us think again about where we are and reassess things so it was just to give my best candidate advice. They know more than we do about the state of the corona virus. They know what their tools are. They've certainly had discussions. I would think with their counterparts around the world. That's my unvarnished view. Get them to the weekend. Let them take stock. This the gloss of history forgets all the mistakes. We made early in our crisis. I think they'll get to the weekend. And then we'll think knew about the path is and what markets are telling them. Why do you think a coordinated global rate cut would be useful at this point so I think it's likely to be a gunfight out there when I look at the world's big central banks not a lot of have guns maybe. The Fed has a bigger gun than everyone else but the Fed probably a knife. I wish they had a big powerful gun coming into this moment. I wish they had more ammunition. I wish for the discussions. We've had on this show over the last nine years. They prepared themselves for an exogenous shock. Because we certainly didn't know this virus was coming. We knew that complacency in a world like this sets itself up for big tail risks. But you go to market with the Fed. You've got not the Fed you want. They've got a knife. There's a gun fight. You might as well go find some friends that also have knives and see if you can't do it together so yours some knives out there and the other big central banks their knives guns because rates are already so low and negative interest rates in many parts of globe. Yeah I mean this is a time where the country needs to come together where has been central bankers and the current generation of central bankers need to unite but my judgment early in this crisis. Is You know a was that the Fed need to restock. Its tool kit restock. Its credibility created such that they could shrink. It's balance sheet and prepare for whatever big shocks happen and what we find is. That opportunity was missed over the last nine years. But YOU'RE GONNA be successful here. I'm not doubting them and believe me. We made plenty of mistakes early in our crisis. So if this thing manifest itself in an ugly way my instinct would be that chairman pal needs to reach out to his counterparts around the world and by some time. That's what a quarter point could do. Let's just say you just said if this manifest itself in an ugly way meaning. We're not there right now. Meaning it's not necessarily next week that the Fed needs to cut. I think the sooner they cut the better Kevin. I I WANNA get into what a lot of people have been saying since they read this op Ed yesterday. I think you just answered a Lotta reasons about why you wrote it. But yesterday Another former Fed official Richard Fisher was on. Cnbc with Scott Wapner. And here's what he said about writing that in who was reading that op ED. Let's let's listen it Gardner Kevin. There's an audience for that op-ed and that is the United States. I think he's looking to possibly be the next year when Mr Powell's not reappointed. Two thousand twenty two so. I understand his perspective. Now you say you thought the Fed. Maybe did the wrong thing when it lowered rates earlier last year. You're not talking about lowering rates all the time which is what president trump has said. He's wanted to do but what? What are you say in response to comments like that? Because I heard it from a lot of places yesterday so for those of us that were in the middle of the last one of these wars. None of US Covet Jay Powell seat today. We still have scar tissue from it and and I think that's the kind of divisive rhetoric. That's the kind of sense that politics have entered everything we do. That's frankly dangerous. The good news is for those of us that went to a real war. We've learned to block out noise. Stay focused on what you know. Make your best judgments and the truth is there are plenty of areas of disagreement that I've had with the administration all sorts of things And and I don't think they'd be a surprise to people on the inside. President trump mentioned Kevin during the signing of the US China trade agreement. Back in January saying Kevin should have fought harder for the Fed chairman job. Kevin warsh. Kevin where is Kevin? I Dunno Kevin. I could've used you a little bit here. Why weren't you more forceful when you want that job? Why aren't you more forceful Kevin Year forceful person in fact? I thought you were too forceful. Maybe for the job and I would have been very happy with you. Is Yours. Just the burning a little bit there. But I don't think he meant by that. You wanted to keep rates high at some point or you're arguing for. When did you push back? What what do you think he was referring to? You don't know I couldn't speculate that Joe. Could you could come up with a few scenarios I think. But you've been made a very forceful case today for for For some easing globally. I think with central bankers. Even though we're already negative most places that that is not what I necessarily would have thought your tack would have been given some of your previous comments that we should have been raising rates through a lot of the last three or four years right so when the facts change we change. That's supposed to do and there's too much discussion about who's Hawk and who's a dove. The best central bankers going back to Chairman Volcker and others react to changing circumstances Kevin Moore. Thank you very much for being with us today. Thank you coming up on squawk another conversation with the world's most famous investor Warren Buffett were ending. Are Crazy week with some more and wisdom for Wall Street to know angels in the Infield and any including the stock market game for number people and I'm sure Major League baseball will address the problem. You're listening to Squawk Pot all this week. We've been asking Warren Warren Buffett the legendary investor and CEO Berkshire Hathaway joined Becky quick on swap box for a marathon interview on Monday. And it's been our pleasure to give you the highlights of everything from buffets I stock purchase in nineteen forty two. Unfortunately I bought in the morning so when I came home with Evening Bye Dad Execution Price. It was down two percent to how investors should whether concerns about corona virus or other strains to the market buffets. Wisdom is a thing. His insight is prized by the Wall Street. Community CEOS and the thousands of people who own Berkshire hathaway stock. So for this podcast. I spoke to a colleague of Mine at CNBC ABOUT WATCHING Warren. I'm Alex Griffin. Cnbc for almost thirty years. And I also edit and produce the Warren Buffett Watch newsletter that comes out every Friday. What is it about Warren Buffett that really grabs audiences people love to read about him to watch interviews to see him in person? What makes him so compelling? I think it's a combination of his success. And how he seems like a a regular person with extraordinary common sense and that appeals. I think to a large number of people who think I can understand this. I can do this to a lot of his investment. Philosophy really has carryovers to what you do in your life. He wants to make sure that everything he does is ethical both in his investments in business. he doesn't want to get too full of himself. He wants to have fun if it's not fun. It's probably not worth doing. Warren Buffett's annual letter tisch shareholders. is very highly waited for in the investment community. How hungry are people for his wit and wisdom and his really kind of narrative thoughts over their head. It's extraordinary that there's so much interest for what is essentially an annual report of course with his. His letter is somewhat unusual for annual report some other. Ceo's now are beginning to do at. Jeff bezos. Does Jamie Dimon does it. has been doing bank has been doing it. I think it's become more of a thing since Buffet started long ago. And Yeah I mean I understand that people Get together on conference calls when it comes out to exchange their ideas and it's it's very very anticipated. It's been getting shorter though which is interesting over the years. Do you do a word count? I haven't done a workout exactly. That's not a bad idea. Maybe for this coming Fridays newsletter. What are the kinds of material that you put in the Warren Buffett newsletter? We start with News so certainly The the letter is big news for us. We also have general stories What berkshires buying or selling off it is probably the only character in business news that resonates. I think to a mainstream audience. His name recognition absolutely is so high. So when you're curated things from around the Internet it's not just business news sources. It's everything from lifestyle to the General News. Two local papers absolutely there are. There are a lot of stories around the net. That will take something that he he said and turn it into almost a lesson with headlines like Warren Buffett says this is the one thing you need to do to maintain your integrity in life or Warren Buffett has these five rules said he follows in investments and those stories. Just keep coming. He's turning ninety fifth year Berkshires. Not going to go on forever. He probably disagree with you and say that Berkshire is going to go along as it has because of the way it's been built. It has these businesses that are not being controlled from Omaha. Warren Buffett is not telling as he said see's candies what kind of candies to put their Valentine's Day assortment. These businesses that are running themselves with managers that he trusts. That's a very important thing for him when he's looking at buying a business running a business. He wants managers who treat the business as a trust for the shareholders buffets feeling is that even after he's gone that kind of culture will remain. That things really will be. He thinks the same after he's no longer CEO. I'm not sure everyone believes him. Especially on on Wall Street and not that they don't think he's he's giving his honest opinion but rather that he is such a force such a personality that without him the company just cannot be the same. Thank you Alex. Little Buffet Allergy my pleasure. I'm always happy to talk about Warren Buffett. Do you subscribe to the weekly. Warren Buffett Watch GOTO BUFFET NEWSLETTER DOT COM. Easy right you get the best of buffet around the Internet as well as special video clips. Right in your inbox. Every Friday. I`Ma Subscriber. You should be one to as Alex mentioned the question of who runs Berkshire Hathaway after. Buffet comes up regularly in this next conversation with becky quick. Warren Buffett covers a lot of topics baseball ketchup and succession in early twenty eighteen buffet named to Berkshire Executives. Jane and Greg Able as vice chairman of the company. Jane Runs Berkshires Insurance Business. Able oversees all non insurance energy railroads. Candy Kraft Heinz speculation. Is that either man. Could be in the running for the top job someday. Another contender is todd. Combs who runs berkshires equity portfolio and was recently named CEO of subsidiary. Geico the auto. Insurer you've seen the commercials in the release of the annual letter to shareholders Buffett hinted the Jane enable will play a bigger role at the company's annual meeting in May so becky asked for a little more than a hint. Jim Being writes in a question he says in the past both you and Bill Gates have stated that half of the board meetings are spent discussing succession. How has this changed since? Jeet and Gregor on the Board. Do they leave the room? They leave the room but tonight the board tomorrow morning knows exactly what they're going to do. Hope applied about the body. Cool off basically. They know what they're gonNa do and the interesting thing about it. Is We own a apple and J. P. Morgan all those things. I don't know who's going to succeed the CEO's of any of the companies. I think that we own stock. But we're well prepared for succession. Almost GONNA be embarrassing. I want to ask you a question about todd. Combs in his new role at Geiko got several questions that came in from that. Let's just use this one from Peter? Lamp Ras during last year's interview on CNBC after the two thousand eighteen letter was released. You were asked about succession at Geiko and you mentioned that. At a recent meeting at Geico you met about forty of their top executives and after each introduce themselves. They stated their length of time with the company the shortest was nineteen years. Please explain why none of these forty top executives were qualified to take over a CEO. After the retirement of Bill Roberts again. That's Pete Sampras. From Chicago Bill Roberts took all were not even two years ago and last and he has done a terrific job in connection with Tony Nicely. I mean guy goes my first love. Absolutely I'd tell the can't compete for second love but you could be Gyco. Goes back sixty sixty nine years and did wonders for anyway Gyco BILL Roberts took over the lesson two years ago and then in October November last year. He said he would like to retire a year. He would adjusted in any way that made it the easiest for us and and We did not have the person In my view to replace him at that point and todd combs is work with Burchard now for ten years he actually was a product manager progressive and the president. He knows a lot about insurance. Insurance is probably the only business I know something about that. We're all the rest of them confusion but I understand the insurance business to some degree. Todd understands very well at the Bay and slow. Todd is there at. I hope very much that that he's not there very long. Because I get it back on Mojo but our intention always to promote from within and we would hope to pick out the right person at Geiko. It isn't it there's somebody there it's just you want to have the right one because when you put somebody and you're going to keep them there for a long time and and Or and Is that suggest? Todd is not going to be there for a long time. I don't think you know the plan is not for me is not made a permanent career shift and He you know I don't. I don't know how long will be there. We have we have one important problem which is Which all insurance companies but progressive has done a better job of managing of of of correlated or risk with With rate and. That is what we're focused on now. Correlating rate in other words having the proper rate right charging the right amount starting to write about if you were the life insurance business and you thought that eighty year olds at the same might be expected to see twenty year old. You'd have a big problem and what happens. You ride all the eighty year olds and somebody would all year old so in auto insurance the same thing. There's a insurance I might prefer the eighty year olds over the twenty well and certainly would prefer the year olds sixteen year olds and you'd prefer the sixteen year old female sixteen year old male. There's a whole bunch of things so you've got you really got segment risks and that's enormously important and every company's trying to do it better all the time we do it far better than we didn't fifty years ago but We have room for improvement on that. We're focused on that. And the meantime we're growing faster that we're dating market share with gyco is a fantastic asset. Todd's job is to focus on that but it's also to work himself out of a job very very quickly and preferably to work definitely the preferably to work themselves out of a job with somebody back. Home Eric. Lafont writes a follow up question. He says Warren. Why did you decide to appoint tied? Combs is the CEO of GEICO. That part dancer. But how will he be able to run? Gyco managed to thirteen billion dollar. Investment portfolio oversee haven and be on the board of J. P. Morgan. Yeah well let's keep him busy and we're and we've told him he's unlimited use of a netjets. Oh sure I mean. We wanted to be efficient. That's what this is for it. And and and you know he'll be working somebody our wigs the question about the folios interesting most months neither. Ted Turner Todd makes single change in their portfolio portfolio. Management is something that you learn over decades and when I ran solemn I was running Berkshire portfolio is not something that you have to sit there day by day and do people do it that way but if they're many years where if I just left the portfolio entirely the same. It didn't make any changes that we'd be better off so that's not about but but you're right in terms of JV mortgage board. He's he's going to be a very busy guy. Geico's the top priority but it isn't GonNa say the priority for a long time and Run to another question that Max. Oh Two oh five wrote in Have Todd Com combs and Ted Weschler outperformed the S. and P? Five hundred since they began working at Berkshire. Why don't you disclose record? Why don't you disclose their record? They said well. We're not disclosing a I think it would be very unusual For a firm to discover disclose everybody sales last year among their sales people or anything like that I think they're titled to Work And relative at an empty our directors how they do. I know how they do. We've made a lot of money with them. I feel very good. I mean I would feel very good about always but we're not going to. We're not going to tell you how much each Candy Store Sells See's Candy. Era was the top the top person that At anyplace brought in sales or whatever it may be another purchase that came up recently Kroger And Jayson S Camilla writes in. Was that one of yours or or lieutenants pick it was one of the others and I Know Kroger has done a good job but it's in a very tough business. I mean when you have when you have Amazon Walmart slugging it out and Costco taking a special part of it everything. It's a tough business. But they've done a good job and and one of our managers decided to buy that. Okay and then Kraft Heinz. This comes in from David Hall. He says Mr Buffet. While craft hines continues to whittle down their total debt. Do you feel that? The current dividend payout is appropriate or. Should it be reduced further to free up more cash flow to reduce debt more rapidly? Now I've been crying should pay down. Its debt and it should but I think under present circumstances it appears that it conveyed the dividend and pay down debt at a reasonable rate and it has too much but it doesn't have some it doesn't have data can't pay down and The the debt holders are GonNa get the interest and the debt should come down here by your. I think it will and I think it can with President within but who knows for sure in the future Another question comes in from bill again Kraft Heinz and this person writes in private labels have performed very well against brands like Kraft Heinz. But they haven't made a dent against other brands like Coca Cola. Sees why do you think that is? And how do you think about brands? Modes given your experience with craft. Brands are always going to be in a fight with the retailer and It varies by country enormously. It varies by product. Category If people worked in a grocery store in nineteen forty one. Charlie worked in nineteen. Forty people would call them they ask for a canopies and I'd ride Donna canopies. They call then they ask for Heinz Ketchup and I. I better get game Heinz Ketchup. They didn't care which brand appease where they didn't care that much whether the two courts we sent him where this brand or that brand but the curb whether it was it was it was Heinz Ketchup. that was you know. Nine hundred forty one Some brands are terribly strong You can't bring out a a private-label Colin do very well with it. And people have tried for a long long time on the other hand you can bring up private labels and lots of products and and You Take Costco with their kirkman level. I mean that. That label grows dramatically. It cuts across categories. It it It it it's done since nineteen ninety-two were whatever. It was introduced to other people. Spend a hundred years with huge amounts of advertising and special display all kinds of so the battles on I would say that the retailer has gained ground against brands to some degree but prancer still terribly important I mean I try and give me a ten billion dollar budget and asked me to bring out another call. Call of it makes a dent in Coca Cola and I can't do it all right. Let's talk about a question that comes in from Rusty Thomas and he has. He's got a question on baseball he said given. Warren's love of baseball the contrast between his death management at Salomon Brothers Scandal and Major League Baseball's inexplicable mismanagement of the Astros signed stealing debacle. What advice would warn provide MLB commissioner Manfred to restore confidence and integrity? And the game. Well it survived the Black Sox scandal background nineteen twenty. They will continue to love baseball but One thing to steal signs of your on second base but it's bad baseball will get passes hearing you. You're a huge baseball fan where you surprised to hear about yeah. I was surprised to hear about it. Yeah but then I find out the Bobby Thompson hold. Somebody stole it aside. I think I'll Ralph braggers it So they weren't gonNA in any games including the stock market game number people cheat and And generally we have people administer things to try and minimize the cheating and and I'm sure that Major League Baseball will will address the problem stress players. Get off scot-free. Oh I'm not GonNa Judgment on that Gioja accident certainly. That's the show for today. Thank you for listening all this way. And if you've been listening to Squawk pod all week thanks for tuning in to our special coverage. Warren Buffett's two thousand twenty shareholder letter and extended conversation with the billionaire. Next door. If you're new and you like what you've heard subscribe to squad and get us in your feed every day. Our PODCAST is a hybrid. That we hope offers you the smartest moments and best conversations from our three hour morning show on CNBC with a little extra and that is thanks to the squawk box TV. Anchors Joe Kernan Becky quick and Andrew Ross Sorkin as well as the team climbed the sounds. Let's go special. Thanks to squawk box executive producer Max Meyers and CNBC. Managing Editor Leo tool and our own becky quick for their hard work Omaha getting more downloads. Terrific folks we've given becky an iphone Mike and a podcasting star for. Do you ever listen to podcasts. I've listened to maybe four or five. Squawk pot is produced by me. Katie Kramer Cameron Kosta Ends Carolina. O'brien we will all meet you back here on Monday. Have Egos clear? Thanks guys feel stuck boxed in or held back especially Bhai your cloud. It's a problem but the IBM cloud is different. It's the most open and secure public cloud for business. It can manage all your apps and data anywhere across all your clouds so it can help take on anything from re booking. Flights fly to restocking shelves on demand. Without getting in your way smart loves problems IBM. Let's put smart to work visit. Ibm DOT com slash flexible to learn more.

Warren Warren Buffett Cnbc Federal Reserve Joe Kernan Becky IBM China Kevin warsh Kernan Andrew Ross Sorkin chairman Ceo Mr Buffet baseball CEO Berkshire Hathaway Joe Berkshire Hathaway Kevin Ted Turner Todd president
21 Stocks for 2020

Motley Fool Money

40:03 min | 1 year ago

21 Stocks for 2020

"Thanks for checking out our twenty twenty preview show. We got a lot of stocks and a lot of industries to get to and it's brought to you by health. I Q health. Iq uses science data to secure lower rates on life insurance to see if you qualify health IQ dot com slash fool to take the proprietary health IQ quiz and potentially save up to forty one percent on premiums. Everybody needs money. That's why they call it. Money Fromm Chrome fool global headquarters this motley. Fool money it's demonic tool money radio show. I'm Chris L. Joining me in studio this week. Senior analyst. Jason Moser Andy Cross and run gross. Good he was is always gentlemen. It is our twenty twenty preview. We've got stocks to watch stocks to avoid CEOS on the hot seat and of course as we do every year. We're I'M GONNA make a few reckless predictions but wrong us. Let me start with you. We're GONNA go wide to begin with what's an industry to watch twenty twenty. I'm going to go telecommunications occasions and specifically the five G. Catalyst within that industry so data transmission rate that is about ten to one hundred times faster than the existing four g networks. It'll be the primary catalyst for the next generation Internet of things whether that's connected. Cars augmented reality virtual reality smart cities companies short benefit if it Eric Kia verizon. At and T.. Even apple will come out with five G.. Phone are we really getting it. In Two thousand twenty feel talked about this is the year. There's no. This is the year unless I do it again next you all right Jason Moser. What about you Matt Franklin? I talk about this a lot on. The industry focused financial show with interest rates as low as they are and really. We're we're not seeing any signs that they will be on the rise anytime soon. Banking is going to be an industry to watch closely because we do believe consolidation is going to continue in the space We it's awesome signs last year with suntrust and beating T for example. Now I believe you mean true. Yeah I was GonNa say granted fungal talk about rebrand But but even down to smaller banks like Ameris Bank core infidelity in Atlanta. I mean we're seeing banks of all sizes looking at consolidation really scale up and take advantage because as they are they're witnessing some pressure on that interest margin and that's really how banks make their money So I I think we will continue to see some consolidation in the space. There's GonNa be some opportunities reserve so we'll be keeping an eye on it and across which in industry you're watching twenty twenty actually go into a part of the market. I'm going small-cap fellas. I think the small caps. It's been a tough the past Three five years or small caps. They've they've made money but they've as an overall as a group have trailed the S P five hundred however when rates are falling falling low and the cut overtime. This history tells us that's actually pretty good sign for small cap stocks. The valuations relative to large cap. Stocks are the most attractive. They've been in in ten fifteen years And so I think that small caps might actually have a little bit of light this year. Saying this now for past couple years but hopefully this cheer small calves will have a little bit of boost above the large cap brethren in the S&P five hundred so ron in terms of trends that you're excited about in twenty twenty. I'm assuming assuming five G. is on that list. Well if you know anything about me you know. I'm excited about the trend of convenience whether it's same day or next day delivery from retailers lawyers are immediate delivery from my favorite restaurants or calling a car on demand watching a TV. Show or movie. Whenever I want from a variety of platforms companies is a rapidly moving to meet the needs of me and other consumers? I like to think that there are businesses out there. That are asking themselves the question. How can we make Ron's life more more rod? How do we get Ron on board with what we're doing here? What are the chances of this guy setting up a home studio this year Kamali for money from your on Iran getting to us from Bethesda America? Jason Moser what trend are you watch. Of course I mean if you know anything about me the Enron I think you do It's all about mixed reality really excited about where augmented and virtual and mixed reality are all headed I think we saw over the course. The last several years it's easy to dismiss this technology is a fad but we are really seeing a lot of money pouring into it and with the market that was valued at around four billion dollars in two thousand seventeen expected the top sixty billion dollars by twenty twenty. Three We have a service devoted towards it and It's been a lot of fun building out a lot of ideas out there. Just a lot of excitement of the space and I'll be heading out to California in May the augmented World Expo. No that sounds pretty big. It is big. Chris and I'm very excited to see all these new ideas on great technology technology and and bring back some ideas for members. We're going to get a field report from your absolutely no question. You will and across work versus getting much more distributed fell as we all know no this we're working from home and just in different locations more collaborative tools. I just think this areas can continue to be an explosion. Grosso the likes of the zooms and the Atlassian slack even even Microsoft J. Moineau Fan of Microsoft with outlook three sixty getting more and more distributed as we are working different locations. I just think this is going to be a place that investing dollars are going to go in that investing returns are going to be pretty high over the next five years In all services. I'm not making a joke here. I'm assuming that when you you are looking at the workforce you're not looking at the shared space industry because of what happened with we work but it seems like that business is great for convenience but not necessarily want to invest into. Yeah it's just the opposite Chris. I think it's not so much. The shared workspaces actually becoming more shared and connected did just remotely and through online systems. And I think that's going to be a place where we're going to be doing a lot more work of the next decade. I agree with that but I still don't want run getting the idea. He can phone own into this show. I wouldn't even think all right up next few stocks with upside potential and a few stocks with you know the opposite. Stay right here. You're listening to Motley fool money. Look Mac and Motley. Fool Money Chris Sale here in studio with Jason Moser. Andy Cross run Gross Jason. Let me start with you. What is a stocker stocker industry that you think is poised for upside in twenty twenty? Well I'll go stock specific here and as an economics major. I love efficiency. Let's just find the quickest way to get get from point A. to Point B. and I think what we're seeing more and more with companies in aerospace and Defense Electronics Energy Healthcare. It's really all about simulation software in figuring out the best solutions without we're having to invest too much money in time company that is really spearheading. This movement answers It the global market for simulation software is a big one. That's GONNA reach sixteen billion dollars by two thousand twenty three and this is a company that brings in around one point three one point. Four billion dollars in revenue today it is the market leader. Their customer base of around forty five five thousand worldwide renewal rates ninety five percent gross margins of ninety percents very attractive business model but I think also something. That's really noteworthy. Is that answer supplies about twenty four hundred entered academic institutions and more than seventy nine countries so their training a lot of people on this software while they're still in school which means when they get out of school. They're jumping into the jobs with that. Knowledge base so a lot of those employers are investing a lot in that answer Seco system to make sure they can not waste any time getting them right Right there started whose antics competing with. I have to believe there are big players in this space actually answer. This is one of the biggest to be honest with you. I mean it it. It's obviously you've got companies out there like autodesk to salt systems in in the light that are doing similar things But honestly answers is a bit unique in what they're doing in simulation and a partner with companies like P T C to develop more offerings of for for more purposes there but but answers released that the market leader Andy Cross. What about you? My Humble Pie stock was from our Thanksgiving show was Orissa networks. And I'm going back to it. fellas networks which provides cloud based networking gear for the big cloud titans and big data centers. It's tough go. It's had some challenges with some of its largest clients Microsoft and facebook. These cloud titans pulling back on some of their spending but I think that trend is going to if not next year will reverse Down the line and they're they're going into new. A new markets like campus networking which is a big opportunity for Orissa. They're exceptionally profitable. So I- growth. Ah Top line is slow this year. I don't think that is gone for good. The market's four looking so I think next over the next twelve to eighteen months the stock will start to rebound the recognize that its founders. Are Andy Beckel Shaima One of the original investors into Google. He owns the largest shareholder exceptional amount of vision. And I just just like the way that they are positioning their company. Tough time right now. Run Cross what about you. I'll give you one sector n one stock for extra credit I think the gene therapy sector of the biotech tech industry is going to remain very exciting listeners. Know I've been a big fan of crisper therapeutics It's part of my gene therapy basket along with six other companies. I specifically typically created the Bassett. Because I think gene editing will eventually be the future of medicine now shares of Crisper and particularly their up one hundred twenty five percent this year but do not let that scare you. This is a long term play. There's GonNa be lots of volatility ups and downs before we're done here years from now but their balance sheet is very solid which is essential for these early the stage biotech companies Jason. You know this isn't everybody gets a trophy day. Their stocks out there that are worth avoiding or shorting or or at a minimum. Just keeping on a short leash. What's on your list for that category Yes I mean I. I looked towards the food. Delivery Service in you know. Come on you jump on Ron's Pension for convenience era. I love convenience as much as the next guy. I don't know that the economics of food delivery or necessarily as attractive as some investors may be thought from the get go. Now I'm not saying. Forget about GRUB hub. It's just game over but but I do think we're going to see ultimately consolidation in this space where we're just one food delivery services leading the way there may be that. Is Grub a square earlier last year. Unload their stake in caviar I in anything thing. A lot of that was because number one it wasn't very complimentary to their overall business and number two the economics just didn't really work out for for squares overall business model so I think that food delivery along with you know we're talking about Uber. Lived on the rideshare side. Those are businesses were the economics just aren't as clear cut. They're going to have to probably figure out some other things to do with those networks. Keep a very close Asai on this one to let it get too far away longtime listeners. Know you like to put together baskets of stocks the war on cash basket Somewhere on your list can. Can you start to think around a run gross convenience basket new. That's that's that's now I mean that's the resolution for twenty twenty right. I mean I. I hadn't really figured it out now. But thank you. Because you figure that out for me and it's so convenient and across. I don't own shares of Harley Davidson Symbol H. O. G. But if I did I would keep them on her shortly. They've you've had eleven straight quarters of sales declined. Nineteen out of the last twenty. The stock has trailed. Polaris one that we do Follow in the last three years had had some real struggles with what's called their livewire e bike. That was supposed to really try to lead the turnaround at Harley Davidson as a kind of tried to go after a much younger audience on that that struggled they did not get that out the doors like they wanted to so questions around the live. Wire the Stockdale's you'd a little. Four percent has a relatively really low payout ratio so it has some dividend potential there but overall the stocks underperformed and I think they have to get some things turned around their harley-davidson it is one of the great iconic Hannukah American brands but When you think about the trends that they are working at it is a real struggle for what about you run? I think mall based retail tell specifically department stores have to be kept on a very short lease whether you're talking about macy's or Coles or JC Penney's Dillard's even pains pains me to say Nordstrom's my favorite one. The trends are just not in favor of these kind of stores. UBS recently did a survey that shows the percentage of folks that are going to the mall specifically to shop at a department apartments are are falling and stands at about twenty percent now of folks only going to a mall specifically the Shopper Department Store. Most going for other reasons including things like the food court Right now roughly. One fourth quarter of apparel shopping is done online by twenty twenty three. That's going to be closer to one third. The trends are just not there. Do you think and we talked recently about in the run that discount retailers have had over the past decade Ross Dollar General Tj etc.. They're obviously not dealing with malls in the same way. That a macy's or Nordstrom is but I'm wondering if you think that there's maybe even greater brand loyalty loyalty around a dollar general than there is for something like macy's I think it's more about the value proposition than the brand loyalty. You have to give consumer something so if you're a costco or a TJ maxx delivering that value and the assortment in certain circumstances are what people are looking for. So CEOS in twenty nine thousand nine we saw essentially a record number of CEOS. Saying you know what I'm Outta here and some of them. It was of their own volition. Listen and some of them were shown the door by the board of directors or just flat out for legal reasons when you look around the CEO Landscape Landscape Jason Who Do you think If they're not on the hot seat it's certainly getting warmer underneath them. stood out to meet him immediately. And it Stephen Coffer with trip. Adviser Liser It is a company that I've wanted to like Over the last five years you look at the stocks performance. I mean it's just been a visible in honestly that's for a number of the reasons that a lot of it has been self inflicted. A lot of it is is also due to just competition in this space. In the fact that you're going up against companies like booking dot com and Google Google But the bottom line is that tripadvisor has failed to really be able to pivot in and develop a business that can sustain any long term success and really what is a massive market good opportunity in travel. So it's it's a wonderful service as a traveler but they were never able to really become that Oh ta like they wanted to become and then they kind of got stuck doc in this battle with Google Seo and in in now. I mean you've got this business that they don't know what else to do. Last year. Declared that special tiven end. They're reassessing the business model olen returning more value to shareholders in the form of repurchases. And so these are all just signs to me of of management waving a white flag and saying they don't know what else to do You add to that. He doesn't really own much of a stake. In the business. And there is a bit of a convoluted owner ownership structure there with liberty tripadvisor holdings To me this just all reeks of a business that needs to put itself up for sale to the most interested buyer. If they don't do I just don't understand how offer continues being able to get away with this performance because it's been it's been horrible. Andy Cross I'm going to see. Oh not even see yoga officially in that. Patrick Chris who's taken over from Kevin Plank from under armour Kevin Plank decided to hand over for the reins to the Footwear and the Athletic Apparel Company Patrik Frisk and he starts in January so while he might not be on the hot seat I think taking over from founder founder lead. CEO especially the one who has such a personality Kevin Plank. The performance of under armour really has struggled over the last couple years sales of stagnated profit to fall in the stocks talks underperformed It's an eight nine billion dollar business. So he's got some challenges ahead of him to really turn around that performance culture at under armour make make the sales growth in the prophets comeback. Run so when I first started thinking through this one a couple of weeks ago I thought Dennis Muhlenberg from Boeing was a no brainer honor. And Chris Guess what the Board of directors agreed with you. I was right because he is out of there. So I've been forced to go with Plan B and that is Warren Warren Buffett of Berkshire Hathaway. Yes you heard at Warren Buffett. And it's certainly not because he's in any danger of being fired but it's because he's got to get things right I he won't be at the helm forever. He needs to get the solid succession plan in place which he has begun to do. We've got as Jane who is now head of all insurance activities ladies. Greg able has been given authority over basically everything else. We've got tended todd who we speak about quite often each managing four billion dollars. Interestingly tied combs was just also named CEO of GEICO which. That's a lot. That's a lot of work fourbillion plus CEO of GYCO. Let's assume he can get that done. But buffy really does need to get this right number two buffet has got to figure out what to do with one hundred twenty eight billion dollars of uninvested cash the stock has underperformed for five years. That's partly because twenty three percent of Berkshire's market cap sits in cash. This is my largest personal stock position. Mr Buffet needs to get this right. So twenty twenty. Obviously we're going to have a presidential election and CEO. Compensation is one of those issues that seems to get more attention in presidential election years than other other years all things being equal and Jason. I'll just start with you. How do you like to see a CEO being compensated as an investor? Obviously part of that has got to be you. Want them to have a stake in the company. Yeah I mean I think having a stake in the company is nice now I I don't look at that as a reason to invest. I think it's just a nice thing thing to see I I'm a little bit torn here. I mean I understand the argument against excessive compensation but by the same token must recognize the. CEO's that are taking care of up. A lot of employees and in many cases are responsible for a lot of economic output So generally speaking. I'm you dislike performance based incentives that encourage courage CEOS to think more long term as opposed to hitting quarterly arbitrary Wall Street goals. And we love to see disease that don't even focus on those goals in honestly. If you see an executive team that just doesn't even say guidance on a quarterly basis I I love to see agreed a bonus metrics that are aligned with shareholder the shareholder and typically long-term is what I prefer to see. Plus I love to see CEOS that with their own cash purchase stock and yeah I think just understanding understanding how the culture of compensation from the board level to the CEO is designed and appreciate something. That's really interesting to look at. And I think everything that Jay Mo and and and Ron said makes sense because if you are having a CEO at the at that level who is compensated in the right way and building a culture that is sustainable and lasting the one that we want. There's a lot of power there and we've seen that a lot of good really successful. CEO's also know funky metrics just based based on sales growth or or operating income targets. Remember the further to the bottom line. You get there the more they can manipulate. Those numbers are twenty twenty preview rolls on right after this sustain right here this is motley back to Monaco money. Priscilla here in Studio Chasing Moser. Andy Cross and Ron Gross. Run A lot of questions going into twenty twenty. What is your biggest question? It can be about a company or an industry. What do you got? I'm going to go with a company. I'm GONNA make a bed bath and beyond a new. CEO Mark Trittin targets. It's former chief merchandising. Officer recently took the Helms did great things for target. It took him less than two months to clear out. Nearly the entire executive sweet six members of the C. Suite are leaving including the chief merchandising officer Chief Marketing Yeah Marketing Officer Chief Digital Officer. CFO is the only remaining executive executive. Not An easy turn around here but I think it's possible If he can do what he did for target Maybe moving into some private label brands improving the in store experience speeding up deliveries online. Pick ups. I think there's something to do here. As investors we like transparency and if nothing else is clear about bed bath and beyond we have total transparency. About who is running this show and who's going to get the credit and therefore who's going to get them absolutely Jason. What about very similar to your business says I'm going with wayfair actually E You look in the most recent quarter revenue up thirty six percent gross margin up forty basis points active customers of nineteen point one million orders owners delivered up thirty two percent. And I'm telling you like half of those showed up on my doorstep thanks to this master Bath Reynaud but all of these metrics tell the story of the business. That's doing really well but there was a key the point the call from CFO. Michael Fleisher. He said I quote since the beginning of the year. More than ninety percent of our suppliers who are subject to China tariffs. Ron have raised wholesale prices which which have resulted in higher retail prices as retail prices on the site fluctuate. We observed that our customer consideration cycle gets disrupted and is effectively lengthened. The Stock Doc sold off twenty percent after that earnings call. And I feel like if we can see some Some certainty here on the China tariff side. The business itself is really performing forty. Well if we can see that China situation resolved I think twenty twenty stands to be a very good year for a business that really is firing on all cylinders otherwise us over all the profitability of so many of these softwares of service companies. The cloud based companies has been in question and for a while. It was like hey just grow as fast as you can. Continue to plough money back on in the business. We don't care about a prophets or in this case mostly losses. I think that's starting to shift now. We saw all that this year a little bit and I think when twenty twenty there's going to be more and more demand for closer scrutiny on the profitability of some of these SACERBEY's a high growth companies I talked about review episode the situation at Pager Duty I think. In general companies are going to be under more scrutiny and under the the hot seat to really drive up the profitability curves. I'm paying a lot of attention to the Prophet to some of these high growth companies and that ties a little bit into our next topic which is the IPO. So you want to see in twenty twenty because it seems like when you think about twenty nineteen and the failed. IPO of we work in a way that sort of brought an end in some respects to the excitement around. IPO's and I think when I look back on twenty one thousand nine hundred and it seems like more was just as you're saying about SAS companies and we're going to be looking for a little bit more on the profitability side. It seems like we had this ten year bull market and at some point investors started to say you know what we're not just buying any hot. IPO that comes down the pike. We actually want more of a promise of profitability regardless of the industry. And what's really interesting is if you look at the first half of of the two thousand ten period for those big Unicorns that came public when IPO. They're almost all profitable like like very promising about facebook when it came very profitable in the second half very few of them were actually a profitable in some of the Uber lift example just getting worse so I think the market is definitely going to start looking for and appreciate the profit picture much more. You agree with that. I do agree with that. I think I think in general in this market profitability is. We could become become more and more important as the bull market gets older and older and Top Line growth is wonderful but I think cash flow is going to become king once again or genucel. Let me start with you. What is a private company that you would love to see come public in twenty twenty? Well yeah to my favorite markets in healthcare and mixed reality. There's a little company out there called Meta visit a medical software maker In in I tweeted out a little while back the verizon keynote from CAS Twenty Nineteen Dr. Christopher Morley who is one of the CO founders of Metaphysics Gave gave talk in in showed some examples hauer using augmented and virtual and mixed reality in in the medical profession now in it's just staggering to see The potential that exists there and they're raising a lot of money based on the software that they're producing a building stuff for Microsoft for that Microsoft. Hololens too that's coming out I I hope they have a chance to go in on their own. I think that the the work that they're doing he is very important. I wouldn't be surprised to see them. Acquired before they had the chance to go public but if they do go public amount had a very close eye on I was just GonNa say earlier in the show you were talking about the banking industry and consolidation consolidation. Everything you just said about. Meta's makes me sick. They might not make it to the public market. Andy what about you. This one has a lot of political ramifications. I'm not quite sure in the election election season whether it will actually go. IPO or not Pailin Tier Technologies. which is the massive data analytics firm that was founded by Peter Thiel and outlet car and does a lot of business with government agencies including the Defense Department the intelligence community and even the Immigration and Customs Enforcement group so the last rays was at twenty six billion to massively? Large Company does a lot of really complex. The lyrics There in the market right now looking to raise not in the public market but looking to raise another one two three rebe billion so. I'm really interesting because it's such a large company and it's so fascinating because it touches on so much of the analytics that we deal with. Every day run I would love to see family owned chick fillet go public. Probably in my opinion the best run fast food chain with the best food a very powerful combination Asian controversy surrounding some of their political moral stances notwithstanding I think it is the best position fast food chain for the next five to ten years. And that's regardless of the so-called chicken can sandwich battle that is currently being waged. I think they've got the staying power here. It's not so-called battle an actual. It was one of the more interesting things things going on in two thousand nine hundred. Nineteen and twenty twenty. He presumably this test. The McDonald's is doing in Knoxville. And Houston if that goes well at all. They're they're GONNA be rolling that out and yeah it's more competition out right more competition. I don't disagree. It could take a bite pun intended out of the company's traffic and and business and that would be reflected in whatever and IP evaluation is but the way they get the customer in and out the throughput. The operations of that company is very impressive. Any chance they open on Sundays Sundays. I think not other business shows air on the side of caution but up next we're going to give you are reckless predictions for twenty twenty stare. Stay right here. You're listening to Motley fool money before we get to reckless predictions. Quick shout out to health. IQ If you're a runner or cyclists or your cross fit vit- or any other type of athletes even if you're just a committed weekend warrior. You're vegetarian Vegan. You deserve to be rewarded for your hard work and the way you get rewarded with more affordable life insurance rates health. IQ can save you up to forty one percent. Because physically active people have significantly -nificant lower risks for heart disease cancer and diabetes but these savings are exclusive to health queue. You won't find anywhere else and you must qualify five to get a special rate so if you want to see if you qualify good health. I Q dot Com slash fool. You can take the proprietary health. IQ Quiz depending depending on your score as well as other related qualifying factors. You can save up to forty one percent on your life insurance premiums compared to other providers that's health IQ dot com slash fool as always. These people on the program may have interest in the stocks they talk about on the Motley fool may have formal recommendations for against him by herself. Stocks based solely. What you here? Welcome back to Motley. Fool Money Chris Hill in-studio once again. Gamma Jason Moser Andy. Cross and Ron Gross before we get to the reckless predictions a quick round of fill in the blank. Andy Cross Europe. I in twenty twenty blank going to surprise a lot of investors. A lot of ways you can go there. You can go company. CEO Whatever you want in honor of Herb Kelleher died about a year ago. This time. I'm going with South West. I think think out a little bit of a tough Ronan. As tied into law the Boeing Max issues that have really hurt their earnings. Last quarter knocked twenty percent off their earnings but we look at the stock market cap. Twenty eight billion cash and debt or about neutral at four billion stock is cheap at twelve times earnings there now aggressively going into why they offer four from four different cities in California offer a flight to Hawaii. EPS growth north of ten percent. A year I think of the stock price there I think over the next not just. Nah Not just next year but over the next three to five year southwest winter run. What's going to surprise? Investors in Twenty Twenty Chris in two thousand twenty value investing is going to surprise a a lot of investors. Now I get it. Value has been crushed by growth for the last eleven or twelve years and even more recently crushed even worse but that will not last forever value will make its comeback and it will regain its lead over growth over long periods of time. Any chance you can team up with Jason unlike a value slash convenience basket value talking. Jason Buzzer Well they pretty well established track record of ripping on this company during my tenure here at the molly full but I do think that in two thousand twenty bed bath and beyond new. CEO Mark Trittin Britain. I think this is going to surprise people that if these guys have a chance it's gonNA happen this year. I think we're GONNA see some glass half full results here this your bed bath and beyond. I'm not counting on them out just yet. A shock glass half full given the fact that the glass has been like five eight full half full. It's going to be a simple talk too much math involved from year. Now I'm I'm confused and across this time next year. I think I'm going to regret not owning blank. I'm I'm GONNA regret Not Owning stitch fix and. I'm hoping to buy it at some point here. I look at this business founded by Katrina Lake. They provide Personally shopping online. Ain't through their algorithms. I think what they are doing and how we are changing our shopping behavior considering A lot of people now are going online to shop there tailored lillard experiences. I look at stitch fix symbol S. F. I x.. Relatively small company a very large market. And I think that's going to be a winner. Ron What about you. I think I'm I'M GONNA regret not owning target of spoken before about the great job that Brian Cornell has done to turn this business. I think there's plenty of room for it to continue stocks. Not Cheap. Certainly compared to other folks like Costco or Walmart. I think there's plenty of room to run here. I think it's a great stone. All kidding aside about convenience have you tried tried the target order online. And then pick up a system. Because I've done that a COUPLA Times it works out very say Jason. What about you? Yeah I'm going to remedy this so I I don't regret it but I it's it's owning shares of Adobe. I've talked about this company before a tremendous business on the creative software alone but big investments. They're making into their a document cloud business and giving Companies like Docu sign a little bit more competition out there. There's a lot of different ways for this company to win. And it's amazing to think that it's one hundred fifty billion dollar company now. I see plenty more upside and You know recent recent recommendation and are augmented reality service. I will be using this as a no brainer leaner reminder as you put it Christie by shares are trading guidelines allow. We often talk about food and beverage innovations on Motley fool money and let's face is it. Sometimes it is at the expense of the company involved So this can be helpful if you want or it can be not helpful. You can continue that trend. Andy in twenty twenty I think blank should test blank. It's a holiday season. An anglophile and I like mincemeat Pie. I actually make a good mincemeat vegetarian. Syrian style. Ron Vegetarian I think I think for the holiday season. McDonald's should bring a mincemeat pie to their menu. They have the Apple Pie tweet delicious. Yeah I think mincemeat would do them very well. They've certainly had success in the past in usually in December with the mcrib role. You're saying go to be the whole holiday season uh-huh brace it all and go the mincemeat. Wow Okay Ron well because I like to cook I know Jason You do as well. I tried to really give some thought and come up with a real suggestion. I think Wendy's should test a stuffed sweet potato to the have a stuffed baked potato so this is just augmenting the menu here. We're going to stuff it with things. Like Chili really which they already have. I would suggest an Avocado Bacon. Cheese stuff sweet potato for those like Andy a black bean keen Wadham data or perhaps a fetter tomato. No an olive sweet potato. Why my phone is open if you'd like to discuss this when you say my mincemeat pie wasn't a real recommendation? That was what I gather from what he was just saying. I just liked it. He preface it by put a lot of the day came up with choices. Unlike all the information talk about earlier in the show Jason Moser. What about you I will say I gave this as much thought as all of all of our other segments for the show and and I think Mac Mac you probably will like this? I'm going back to my southern roots. Here you know I love chicken and Waffles and I love making chicken waffles for dinner at home. The kids love it. My wife loves it. It is a lot of work okay. I'M NOT GONNA lie. I mean you could cheat by the frozen chicken fingers or whatnot I listen bojangles. I know you had a tough time of it as a public company but how about you introduce introduce a chicken and Waffles burrito where the actual rap is a waffle and then your chicken is going inside of a chicken and Waffles Burrito and and we can experiment with the things that go in there other than the chicken. Maybe it's just chicken syrup. Hey maybe it's chicken syrup and some bacon or something like that but shaken in Waffles Burrito from a restaurant Wyk bojangles. I think would resonate and you eat this with your hands absolutely very sticky. Oh Man I mean if you have the APP then you know you you can at least keep it somewhat clean but yet as the mess is part so a few months ago in this show our guests David Hancock who's spent his career studying the restaurant industry and one of the things we talked about. was applebee's which is something we've talked about from time to time on this show and applebee's and their drink specials and at first it was kind of funny that Applebee's was coming out with the one dollar long island iced teas. And you know apple teeny and all this sort of thing and applebee's which is part of dine brands publicly traded. It'd company once you start to say. Hey wait that thing that they're doing with the one dollar drink. Specials is really working. It's driving traffic. It's paying off for shareholders holders so I think To our behind the Glass de Brito big fan of Darden restaurants and a parent company Olive Garden. I think Darden restaurant has to you start looking at their portfolio of restaurants. What are the drink specials? They can start offering because it is working for Applebee's it's working for brands. I think it could work for Darden Dollar Kiat glasses. The CHIANTI Amid Stalin Go Rhino Yanti and salad breadsticks. That's much more palatable than something sticky. Let's get to the reckless predictions. which is what the listeners have been waiting for the entire show and we'll bring in our minded glass Jebron? He can make his own reckless prediction for twenty twenty run. What do you got so last year? I talked about finding a life on Mars or former proof of life on Mars and that was pretty reckless. And I still believe We're going in that direction but for this year I'm going to come a little more down to earth and it's an actual actual prediction not necessarily so reckless. Even though that's the name of the segment sorry I say berkshire-hathaway is going to buy back fifteen percent of their outstanding shares for eighty to ninety billion billion dollars and initiate an annual cash dividend equal to one point five percent yield for the B shares. That would equate three dollars and fifty cents per year. Your dividend I think that's going to Berkshire really nicely. They plenty of cash one hundred twenty eight billion dollars on the balance sheet right now. It's going to be great for the SOCK. I mean it's not life on Mars. I but in the context of Berkshire hathaway that they allocate capital. Yeah that qualifies thing Jason Moser sticking with what a threat there a couple of episodes ago I I do think given all of the signs. We've seen from adobe investing in their document cloud business They Covet I think doc. You signed small and medium-sized business. Clientele I think think with where the stock prices today with the balance sheet that Adobe as I think that twenty twenty adobe acquires Docu sign that nice premium because they could afford to do it and it would pay off for many in many years to come. Excuse me I'm going to call my broker chosen Dr signed because you're right about that. Andy Cross reckless at Berkshire paid a dividend. Similar Jason's I this year are we saw last year resolve salesforce by Tableau for sixteen billion. Google bought. looker I talked about Palin tear technology. This data analytic space is going to be really interesting and continued you do all. I think there will be another big acquisition. Maybe as data dog which is a really fabulous company Some big player. Maybe it's Microsoft will continue to buy out out and consolidate the data analytics space for the software space. So I'm really interested to see which one buys whom in that space so if we look back on Twenty Nineteen Nineteen and the IPO's and sort of these sobering thought amongst the Wall Street community when it came to does it. Sounds like we feel pretty bullish bullish about acquisitions whether it's the banking industry or more individual cases with software that sort of thing we're feeling like investors are going to be on board with all all these acquisitions. Well I think so from certainly from the competitive space when you look at the continued growth of the larger players Amazon Microsoft Apple Facebook as they continue to look for ways to growth and the other companies that are going to acquire have to compete against that growth. And that's hard to do in a world that the big dogs continue generate more and more of the of the revenue growth so I think some of those investors from the smaller companies recognize. That's that's the way to go is to get bought out. And more importantly investment bankers need something to do so the IPO market dries up a little bit. They're going to have to start consolidating industries. He's breaking up bigger companies because you know the investment bankers have to eat also. Let's let's go to our man behind the glass. Steve Royko listeners have been waiting the entire show. Do you have a reckless this prediction for two thousand twenty. You Bet I believe there will be a national ban on the electric scooter market in cities and that all those companies that are jumping in to rent you scooters will go away. That's a good one as someone who's never actually gotten on an electric scooter but has walked around them when people just leave them on on sidewalks up. Is it safe to assume. You're the same as me in that regard fan it just not gonNA end well. It's just not there in college towns all over the place which is a dangerous mix. The kids come out of the bars jump on a scooter. What could go wrong Steve? You'll save private equity a lot of money at the top investment today. Andy Cross Jason Moser. Ross thanks for being here. Thanks thanks I do it for this week's edition Mon- money. Our engineer is e Brito. Our producer is macaroni. Or I'm Chris. Hill thanks for listening. We'll see you next week.

twenty twenty CEO Jason ron Jason Moser Andy Cross Microsoft Jason Moser Andy Google Motley facebook Jason Moser Andy Cross Liser It Berkshire Hathaway Patrick Chris apple verizon Chris Hill