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THESIS: We can all learn from success and from failure . The only real failure is in not learning from our mistakes.
Hear are some lessons learned by Warren Buffett – cited in the latest Berkshire letter ( referred to in recent posts in this market letter ):
Mistake #1. A few years back, I spent about $2 billion buying several bond issues of Energy Future Holdings, an electric utility operation serving portions of Texas. That was a mistake – a big mistake. In large measure, the company’s prospects were tied to the price of natural gas, which tanked shortly after our purchase and remains depressed…I totally miscalculated the gain/loss probabilities when I purchased the bonds.
In tennis parlance, this was a major unforced error by your chairman.
Mistake #2. Last year, I told you that “a housing recovery will probably begin within a year or so.” I was dead wrong.
We have five businesses whose results are significantly influenced by housing activity…Housing will come back – you can be sure of that. Over time, the number of housing units necessarily matches the number of households (after allowing for a normal level of vacancies)…People may postpone hitching up during uncertain times, but eventually hormones take over.
And while “doubling-up” may be the initial reaction of some during a recession, living with inlaws can quickly lose its allure.
Meanwhile, Buffett continues NOT to like gold.
He writes this, “Gold, however, has two significant shortcomings,being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.”
“In God We Trust” may be imprinted on our currency, but the hand that activates our government’s printing press has been all too human.
Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See’s peanut brittle. In the future the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce. Our country’s businesses will continue to efficiently deliver goods and services wanted by our citizens.
Metaphorically, these commercial “cows” will live for centuries and give ever greater quantities of “milk” to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk.”
Buffett On share Repurchases:
“[We] favor repurchases when two
conditions are met: first, a company has ample funds to take care of the operational and liquidity needs of its business; second,
its stock is selling at a material discount to the company’s intrinsic business value, conservatively calculated. We have
witnessed many bouts of repurchasing that failed our second test. Sometimes, of course, infractions – even serious ones – are
innocent; many CEOs never stop believing their stock is cheap. In other instances, a less benign conclusion seems warranted. It
doesn’t suffice to say that repurchases are being made to offset the dilution from stock issuances or simply because a company
has excess cash. Continuing shareholders are hurt unless shares are purchased below intrinsic value. The first law of capital allocation – whether the money is slated for acquisitions or share repurchases – is that what is smart at one price is dumb at another.”
What do you think? Reply to jbassbia@yahoo.com
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http://www.youtube/watch?v=4hb4vG07Zt4&feature=youtu.be&t=55s
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