Happy Birthday, Mr. Buffett!
I am writing this column on the 87th Birthday of Mr. Warren Buffett. With the media spending so much time babbling about political events in Washington, his perspectives on investing are particularly timely. He has lived through fifteen Presidency’s (out of a total of forty-five) and has bought stock in fourteen of them. The exception was during the Hoover Presidency, when he was only two.
His investment success illustrates the rewards of patience. In 2000, he said, “Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
The 21st century has brought similar challenges, yet the Dow today is 21,900. This shows how the powerful tailwinds of economic growth can lift sound businesses to even greater heights. His criteria for selection are grounded in quiet thinking, never in tips from friends or TV announcers. “Successful investing takes time, discipline and patience . . . You can’t produce a baby in one month by getting nine women pregnant.”
As this suggests, diversification can be overdone, particularly if it leads to tolerating the mediocre. Mistakes happen, in fact, Mr. Buffett’s Berkshire Hathaway is named after the company’s first acquisition, a failing textile company that he later described as his biggest investment mistake.
Naming your company after a mistake shows a great deal of confidence. It would be like naming a cat after a former spouse. Berkshire came late to technology stocks, but adapted. It is now the largest stockholder in Apple (AAPL-$161), which continues to be the largest position in my client portfolios.
In an interview on his birthday, he was asked about two of Berkshire’s bank holdings, Bank of America (BAC-$23) and Wells Fargo (WFC-$51). He spoke highly of the valuation and management of B of A, saying “that it would be a long, long time before we sell any Bank of America.” Regarding developing news of improper business practices at Wells Fargo, he said, “What you find is that there’s never just one cockroach in the kitchen.”
Bank of America remains a strong Buy for my portfolios. Although I advocate patience, Wells Fargo will probably demand an excess of patience and I see no need to hold it. Consumer stocks like Coca-Cola have long been bulwarks of the Berkshire portfolios but are losing relative positions. Mr. Buffett said today that the value of brands is waning as new-style retailers like Amazon (AMZN-$968) take center stage and are now beginning to establish their own brands.
At Berkshire’s shareholder meeting in May, when asked why he had not bought Amazon, Mr. Buffett answered, “Stupidity.” He’s being harsh on himself as he is currently the only executive running a successful retail business. In the three months through June, Berkshire’s retail earnings were up 27% while J.C. Penney, Macy’s, Kohl’s and Dillard’s had massive losses.
Berkshire’s stores, which are not tied to malls, focus on home-related lines like furniture, kitchen and cooking supplies and See’s Candies. In contrast to these stores, retail categories such as apparel, vitamins and pet supplies are suffering and should be avoided.
Last year, Mr. Buffett sold most of his Wal-Mart stock, saying that retailing is “too tough.” He made an exception, singling out Amazon (AMZN-$966). “It’s extraordinary what they’ve accomplished, saying that its CEO Jeff Bezos “is the most remarkable business person of our age.” He was impressed with Bezos, who has grown two seemingly different businesses–retailing and cloud competing–into dominant concerns.
Berkshire doesn’t own Amazon, at least, not yet, but it’s the fourth largest position in our portfolios.
“Happy Birthday, dear Warren, Happy Birthday to you!”
Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERTS Investment Counsel, a registered investment advisor in Laguna Beach since 1995. [email protected] 949.494.1376/800.697.2622
www.crowellroberts.com100-Year
