Warren Buffett

Benjamin Graham

Berkshire Hathaway


Investment techniques

Book Reviews


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February 15, 2004

In this issue:

A value investor with a difference
Coca Cola - The real story
Standard Life - a Buffett target?

Wish you had bought in earlier?
A successor to Buffett?
Buffett into power?
Behavioural Investing
The Economist on Graham’s theories
Disney – a sale too soon
New at Warren Buffett Secrets

A value investor with a difference

Wilbur Ross is a value investor with a different style to most. Or is he, as Nanette Byrnes poses, just erratic? This interesting perspective on an unusual investor appears here in Business Week Online.

Coca Cola - The real story

We are hearing good reports about a new book on Coca Cola, one of Buffett’s "forever" investments called The Real Thing: Truth and Power at the Coca-Cola C by Constance L Hays.

Although there have been several Coke books, this one is supposed to reveal the full story about the company’s ups and downs, stormy internal politics and relies heavily on internal sources.

We will try to review the book in a future issue but subscribers may like to get a start on the rest, and we would be more than happy top publish a subscriber’s review.

Purchase at Amazon.com
The Real Thing : Truth and Power at the Coca-Cola Company

Standard Life – a Buffett target?

According to a report in The Scotsman, Standard Life, a British mutual fund, is a likely candidate for a purchase by Berkshire Hathaway. This company, about which we know very little, is apparently considering whether to sell its business or carry out an IPO. Analysts suggest that if they take the business sale route, the odds are on the Buffett group to make the purchase. Go here for the full story.

Wish you had bought in earlier?

On 28 January 2004, shares in Berkshire Hathaway sold at $90,360 a share, the highest to date. We wish that we, or our forbears, had invested just $1,000 in the company in 1958 when its shares sold at $7.63. The investment would now be worth about $11.8 million.

At a time when tax returns are on many people’s minds, it is worth reflecting on the tax position. Because Berkshire does not pay out dividends, a lucky investor since 1958 would not have paid any income tax on their share of the company’s earnings. When sold, tax will be levied at a capital gains rate.

The disadvantage, of course, is that there would have been no return on the money to pay for ordinary living expenses. But, had one made the investment, this would be of little importance in an investment that has, on these figures, compounded at about 22.6 per cent.

A successor to Buffett?

The New York Post has reported that, according to an associate of Buffett’s, a possible successor is Louis Simpson, who heads the investment section at Geico, a Berkshire subsidiary. The plan, according to the report, is for a Buffett family member to serve as Chairman, and for Simpson to take over as CEO. Who knows?

Buffett into power?

There are reports that Warren Buffett is heavily engaged in acquiring power properties when they are available at the right price. In an article in the Arizona Republic, Max Jarman looks at the glut of power plants and similar outfits that are on the market.

Behavioural Investing

There is an interesting recent interview with Woody Dorsey about the merits of behavioural investing here.

While we do not agree with the principles of this form of investing, it is always educational to look at other perspectives.

The Economist on Graham’s theories

A recent article in the highly regarded Eonomist discusses the wisdom, or rather lack of it, in investing in bonds in emerging companies. In the course of the article, the writer states that Benjamin Graham warned against bond investments except at bargain basement prices.

This is not our understanding of what Graham said in The Intelligent Investor.

There may be a mixing of several of Graham’s investment principles. On our reading, Graham suggested, when he wrote, that an investor should always have a proportion of their investment in prime quality bonds; of course, he never suggested that one should pay over the odds for this investment. When talking about second grade common stock, however, he did strongly state that they should only be bought at bargain prices and in a diversification strategy.

We do not see, from this, the conclusion drawn by The Economist, that Graham thought that bonds should only ever be bought at sacrifice prices. This is more in line with Buffett’s recent dip into the junk bond market, where he could buy them at next to nothing.

Subscribers can read the full article here and make up their own minds.

Disney – a sale too soon

It is understood that over the past few years, Berkshire Hathaway has unloaded most, if not all of its stock in Disney, because it was not happy with the management of that company.

If the current hostile takeover by Comcast goes though, then this might well turn out to be an expensive way to show your disfavour with the management of a company.

Still, Buffett would have been consistent to his principle of not having an investment in a company where you do not have confidence in the management.

New at Warren Buffett Secrets

The newest addition at our website is a review of Robert Hagstrom's Investing: The Last Liberal Art. Based in part on the investment philosophy of Charlie Munger, this is a very interesting book that goes beyond being an investment primer, to encourage readers to think more deeply about both investment and life in general. You can read our full review here

Best wishes,
Warren Buffett Secrets

website: www.buffettsecrets.com
email: [email protected]