link to 2009 PDF annual shareholder letter here.
Buffett CNBC interview
(part 1 here, following the link from part 1 to get to part 2 to 8 )
Recommend reading by Buffett
Keynes’s *General Theory*, chapter 12
Intelligent Investor Chapter 8 and 20
My Notes
We only need two, according to Buffett, at 2008 shareholder Q&A session (transcript at GuruFocus). Note Q5, WB answer, he noted the following two courses:
1) how to value a business;
2) how to think about stock market fluctuations.
I think the first one is obvious, all the accounting, financial and quantitative skills. The second, is less obvious, it’s more about psychology. Buffett’s sidekick Charlie Munger summarized in his Human Misjudgement speech. Buffett also said something like “be cautious when others are greedy; be greedy when others are cautious“. This is certainly not science or a rule can be applied easily. For instance, if one person bought SPRD last Friday (like yours truely), it fell more today.
I noticed Danbin, a China hedge fund manager admires Buffett very much, also has his own way. He is almost religous about holding his stocks these days, amid the recent big drop of China market. You can read this article at his blog to get a glimpse. I am sure many of his clients are thinking or asking to bail out.
Oh, well, whatever it works for him/her. The key is to make money in the long run.
I quoted some questions which are relevant for little guys (like me). The full transcript can be located at gurufocus. WB: Warren Buffett, CM: Charlie Munger, MX: yours truely.
BTW, I bought one more BRK.B yesterday, at $4130, not the lowest price of the day but about 5% off the price I bought for my first share. A few things happened since April 3 the day I bought it: the CEO of General Re resigned because of AIG scandal; Mars Wrigley deal; annual shareholder meeting (BRK.A and BRK.B both ran before the meeting); the Q1 earning result was not good because of paper loss of stock index derivatives. But I don’t think those things worsened the value of BRK in anyway.
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Q9: Melbourne Auz. Berkshire has bought a lot of shares in last twelve months in listed companies. Do you expect return to be between 7-10% pa over many years? Well below achievements in past.
WB: Yes. We would be very happy if we could buy pretax returns of 10%, dividends included. We would probably settle for a little less than that. Berkshire returns will be less, no question, in future than in past. We operate now in universe of marketable stocks with caps of 10bil, but really 50bil and up in order to have an impact. This universe is not as profitable. If we find 10bil, a 5% position is 500mil. If it doubles, we make 325m, this is less than 2/10ths of 1%. We have found things to do time to time to make money. They are nice, but don’t move needle much at Berkshire. Anyone who expects us to replicate past should sell their stock. We’ll get decent returns, but not indecent returns.
In the annual shareholder meeting of Berkshire Hathaway, Buffett and Munger took on a series of questions from audience as usual. Although I did not go, I found some of those Q&A both interesting and educational. Thanks to gurufocus, the full transcript is here (WB: Warren Buffett, CM: Charlie Munger).
Q5: Would you use stock options to enter a position in a public co?
WB: If you want to buy or sell a stock, you should buy or sell a stock. We sold puts on Coca-cola once, but usually it is best to just buy stock. Using option technique is an idea where you get to buy a stock cheap. 4 out of 5 times you get it right and one time you may miss the opportunity to buy. We virtually have never used options to enter or exit a position. We have sold long term equity put options described in press report. We don’t get involved in fancy techniques.
CM: If I remember right, a public authority was wondering if they should set up an option exchange market. Warren was alone in the opinion (against it). You wrote a letter saying it wouldn’t do any good to throw out margin rules in this fashion. It doesn’t serve the country. I always thought Warren was totally right. Turning financial markets into gambling markets to enrich the croupiers doesn’t make sense.
What a day. I mean the stock market. Monday IBM gave us some good news. Today neither Citi nor Apple (and New Oriental if I may add) sent out re-assuring news, and the market (both Dow and Nasdaq) tanked…
These days I started to read the Buffett shareholder letters date back to year 1978.
I also found this talk “human mis-judgement” given by Charlie Munger, vice chairman of Berkshire Hathaway, to be enlightening. Two things I immediately connected with:
1) Association: He mentioned Coke is associating its product with Olympics etc. I think McDonald is another genius doing this. It gives all kinds of toys to the kids. So as Buffett’s own Geico Car insurance, did you see all these “stupid” ads on TV?
Geico = a cool car insurance company.
2) Frog is not as alert to a slow cooker compared to being put into hot water. I know I have similar problem. Take my loss on Longtop as an example, I did not sell when it dropped a little every day. Today I decided to sell some eventually because it dropped more (under $17 the IPO price).
(source: creighton.edu)
A thousand words 