Warren Buffett

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This is where I started following him. See how he managed to get BAC !

WB states in this year’s letter Berkshire made far more from its wholly owned businesses than from its equity positions. If you believe the stock market is ultimately a weighing machine that must mean the wholly owned businesses are worth far more than its equity holdings.

I am thinking about this question: is that a strategy we small investors can apply?

Buying real estate is a little bit like WB buying whole businesses. RE in land-restricted area like Bay Area also has pretty wide moats. But growth rate is less than 6% a year. Including rent income brings total return to about 10%. (Juicing it up with leverage means no net rental income so total return is again around 10%). Berkshire’s return since 1965 is over 20%.

I need to go back and read all of WB’s past letters.

Oh, by the way, it’s mentioned in the letter that this year’s shareholder meeting will be webcast live by Yahoo. And:

Yahoo will interview directors, managers, stockholders and celebrities before the meeting and during the lunch break. Both those interviews and meeting will be translated simultaneously into Mandarin.

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Gain is front-loaded. Easier to show higher return with a smaller capital. Below is comparison with S&P 500 from Feb 25 of different years to Feb 24 2017,

Year…BRK/A…S&P
2016…28.23%…191.21%
2015…6.98%…34.25%
2013…14.21%…11.76%
2010…11,53%…15.34%
2005…9.01%…-6.92%
1997…10.27%…-2.38%

Since 2010, better to buy S&P.

At this point, it may be better to buy BRK/A since it likely to crash less than S&P if there is one. If crash happens, sell BRK/A and buy S&P.

Land scarcity is a multiplier. Need to have greater than 1 multiplicand: job centers and great schools.
Job centers are usually found near sea ports and state/nation Capital.
Great lifestyle is also a multiplier at this moment, may be the only multiplicand as technology advances.
Until then, invest in Fortress.

Any1 who know nothing and invest in S&P performs pretty well too. Double money since Feb 2016. Any1 who didn’t perform as well should stop trading and stock picking.

For blind buy, instead of S&P, BRK/B is fine. If you know the crash ahead or during middle, better to keep it at cash or money market.

Between 2010 and now, BRKA slightly up over SPY, but long haul, 2000 to now, BRKA is superior than SPY. Additional benefit of BRKA/BRKB is that it has no fees, front load fees or redemption fees of mutual fund.

At downturn, people needs guts to invest and know the bottom. At those days, whatever anyone buys, it used to go down and down. No one knows the bottom, there by no one comes forward to invest.

This had happened in year 2000 and 2008 downturn. No one was ready to buy any homes after 2008, homes were not even open housed for more than six months.

We do not put entire wealth behind AAPL, but only portion of our wealth. Consistent overall investment growth is issue.

Second, very soon - in few years - we may get into crash. How many of the bulls now will have confidence to put the money in real estate or stock. Every one. mostly, used to fly away from investments.

At that time, he finds BAC is best to invest 5B ! The stock market reversed after hearing “Buffet is buying” after seeing his 13F form filing. He used to keep 30% cash for any bottom fishing.

You are right and I realized the benefit like this exactly. It is business initiative, more than investment. We need to have strong knowledge, about location, finance, and ready to go through hassles of rental business or real estate business. So far, leverage helped real estate. By growing interest rate hike, leverage does not help except prop 13 and depreciation, (to some extend rent increase rate) in real estate.

For example, I tried to calculate the benefit of buying this home (low cost, good rental location).

This is near by airport, just before VTA station, people can easily go to many BA companies san jose - mountain view, and low HOA.

This can be rented appx $2000 as of now, and cap rate is almost 3.75% (worst case) while borrow rate is 4.625% (condo has higher rate) for primary and 5.5% investment. Above all, appreciation is less than 5%, around 4% range.

With current bullish period, it is easy to get investment returns more than 8% as overall S&P growth rate is 7%. If someone has $400k cash, is it worth investing real estate or stock at this stage? If standard deduction is increased, primary buyers will have less attraction towards buying but renting will increase.

Stock (SPY) has higher growth, liquid cash while real estate has prop-13 coverage, depreciation and rent increase (3% level).

For business like real estate, we need to clearly identify better cash flow+better growth deals that can only defeat Stock growth. Loan leverage does not help nowadays.

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Past performance is no guarantee for future performance. Don’t extrapolate the past. Investment is about the future not about the past. If I invest at this point of time, not if I had invested 10, 20 years ago. WB is not an immortal. He will die one day. New leadership in BRK is an entirely different ball game. In the long haul, S&P is definitely a better bet.

All experienced investors are waiting for the signals to buy… value investors are likely to take WB investment as one of the signal. Not sure about growth investors… may be some do… I’m totally not aware of WB except when it was publicized in media. You are giving too much credit to WB, sound like a baby learning how to hammer and take everything as nail… everything is WB credit… incredible. He screwed up a lot too… I follow him quite closely long before you do… more than 10 years ago… not that good. Guess you’ve to find out yourself… you have only followed him for one year.

Below is the price chart of BRK-A showing its gain is front-loaded. Very fast climb since inception till 1998. Thereafter, pretty slow.

http://finance.yahoo.com/chart/BRK-A?ltr=1#eyJ1c2VMb2dTY2FsZSI6dHJ1ZSwibXVsdGlDb2xvckxpbmUiOmZhbHNlLCJib2xsaW5nZXJVcHBlckNvbG9yIjoiI2UyMDA4MSIsImJvbGxpbmdlckxvd2VyQ29sb3IiOiIjOTU1MmZmIiwibWZpTGluZUNvbG9yIjoiIzQ1ZTNmZiIsIm1hY2REaXZlcmdlbmNlQ29sb3IiOiIjZmY3YjEyIiwibWFjZE1hY2RDb2xvciI6IiM3ODdkODIiLCJtYWNkU2lnbmFsQ29sb3IiOiIjMDAwMDAwIiwicnNpTGluZUNvbG9yIjoiI2ZmYjcwMCIsInN0b2NoS0xpbmVDb2xvciI6IiNmZmI3MDAiLCJzdG9jaERMaW5lQ29sb3IiOiIjNDVlM2ZmIiwicmFuZ2UiOiJtYXgiLCJhbGxvd0NoYXJ0U3RhY2tpbmciOnRydWV9

Need to click 10 year and click max again. Merely clicking show only a 1-year chart.

Many people have guts… they are waiting for signals to buy not don’t have guts to buy… those who don’t have guts to buy at the bottom are likely to be the same people who buy near the peak :wink: … don’t need to know or buy at the bottom… scale in when it is doing a bottoming process, not all in in one go… is not that hard… those who experience one cycle of peak and trough is likely to know.

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Good point. Are you implying, for primary buyers better to rent and invest in stocks. Rents are rising again, just not sure is the usual Spring/Summer or Trump effect.

We are all aware of this. In fact, no one really know the future too.

But past shows how well it is managed and how well it was growing, a comparative study and a kind of guideline we use.

There are plenty of books about him and his strategies.

Yes, they are not allowed to inform outside when they buy or sell. When they file form 13F at Sec, media grabs it and publicize it.

First, he is one among the investors shown consistently grown his company net worth over plenty of other fund managers, be it vanguard, fidelity or any other funds.

Second, he even challenged with 1M win over him. http://fortune.com/2016/05/11/warren-buffett-hedge-fund-bet/

Third, he is transitioning Berkshire to team members and will not be depended on him soon. He gets all credits, but management changes. I see they are aggressive than WB based on their recent investments.

Fourth, they do not have any fees. Other Mutual funds or ETFs have fees to run.

BTW: I have almost 30-40 stocks, keep adding them when ever it dips more than 2%. I added BRKB (instead of SPY) as one of my investment and keep on adding whenever it dips more than 2%.

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I have considered that too. Sad to say I have chosen S&P, return of BRK/B is actually higher :blush: . I have to defend my choice of S&P, muahaha.

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The someone I referred is investor, not primary buyer.

The primary buyers, most of them almost 90% of first time buyers, are scared of high real estate loans, but not investors. First time Primary seekers try to break even rent by using mortgage tax deduction.

“The White House and congressional Republicans want to increase the standard deduction. If Trump has his way, it would climb to $30,000 for joint filers, up from $12,600 last year. The House plan would hike it to $24,000.”

If standard deduction is increased, for them, there is no attractive point to get a big loan, esp condos, town homes etc and their rental parity changes.

Second, mortgage interest rate increases, reduces the eligibility.

“House Speaker Paul Ryan wants to make half of capital gains tax-free and tax the rest like income. Based on the proposed 33% top bracket, the top capital gains rate could fall to 16.5%.” Trump has similar at 25% and 12.5% flat.

“Eliminate estate taxes and the AMT”

This boosts investments side as these tax rates are very attractive with elimination of AMT.

Unless rent increases in future, I do not see buying investment real estate is attractive other than depreciation+prop-13 benefits. So far, low mortgage rate and high rents made the real estate rental investments, esp high value SFH & THs, attractive. Multiplex in good location may have better returns.

In short, Any real estate investment which gives overall (cap+growth) less than 8% is not attractive.

This is my opinion, it may be right or wrong. I welcome any comments.

WB is not a unique unicorn. In this 1984 essay he listed quite a few fellow students of Ben Graham with outsized returns:

WB and Graham’s value approach is easy to summarize but difficult to do: buy good businesses when price is far lower than intrinsic value. Everyone knows the price, but intrinsic value is hard to calculate. WB sticks to boring old business because those are ones he can actually calculate the intrinsic value, using FCF for example. If business is still evolving in a big way nobody can be sure.

I don’t see anyone using this approach here. Me neither. It’s hard, and takes tons of work.

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True, it is really hard, I do not do that too.

There are some software, like bloomberg terminal - $24000/year subscription, gives such and BT is used by big firms. There are similar softwares used by banks, hedge funds and institutions.

This is the main reason, we depend on Mutual Funds and ETFs as they are managed by someone.

It is not for small investors like us. Some sites are giving similar ones like oldschoolvalue.com with subscription. There are plenty of other website that may give such, but may not be 100% reliable.

The best is to follow - watch list - companies and read quarterly results.