Munger_Disciple

Yes, that should be obvious by now although I would change it to "attractive female reporters", not just blonds! Betty Quick, Poppy Harlow, Betty Liu, and on and on...... Even the Chinese TV interview he did around the last annual meeting was with an attractive female reporter.

Superb talk! Howard Mark is simply awesome.

A great man who made Singapore what it is today. His accomplishments are truly stunning. The wisest world leader of our time. May he rest in peace.

All I know is that this 1.2 threshold of book was publicly announced in 2013 and was never removed. So both the statements may still be valid: they can purchase below 1.2 times book, which is a price that is well below intrinsic value at the current time. In the new letter, Buffett mentioned "well below intrinsic value" when discussing The Next 50 Years at Berkshire. He does not want to tie the hands of future management for the next 50 years to the 1.2 number. But I still think they will not buy above 1.2 times book for the next few years.

The weird thing is that the buyback threshold is still left in place as 1.2 times book value despite the new argument that book value is no longer a good yardstick to measure Berkshire's intrinsic value. Edit added: I think it is because book is still way below intrinsic value, and easy to calculate.

Schroeder has her opinions but she is definitely not part of the Buffett inner circle. The only people who know are the Berkshire board members.

NBL, I certainly read it as either Ajit Jain or Greg Abel. But, Buffett specifically said in this letter that (1) the next CEO is not likely to retire at 65, (2) Berkshire will operate best if its CEOs average well over ten years (Jain can serve into his early 80s, thus easily satisfy this wish of Buffett) (3) Warren raised the possibility of him stepping down (for the first time in his letters I believe), and (4) We know Buffett talks to Jain daily. Due to these reasons, I still think there is a good chance that the next CEO will be Ajit Jain.

Yes, I too got that impression after reading Charlie's piece. It is almost as if Charlie is assuring us that Ajit will be the next CEO and Abel will be the backup.

Prem is a great guy with integrity. That is not what this discussion is about, nor is it about people giving unsolicited advice to others about buying/selling FFH. I am currently not a shareholder, but owned FFH in the past. Regardless I don't see any contradiction in owning shares and voicing a differing opinion (to management) on an important issue such as capital allocation. It is done all the time, for example Buffet's disagreement with KO's comp policy last year.

I know it is considered blasphemy to ask the following question on this board, but I will do it anyway: Why can't Prem and his family "survive" by selling a tiny portion of their family holdings in FFH in stead of forcing a taxable dividend on all shareholders? Let us see the damage done just from dividend taxes imposed on all shareholders: 22M shares times $10 per share dividend means $220M in dividends, and at average tax rate of 28%, shareholders are poorer by $62M a year. Then you consider that while on one hand they are paying a dividend of $220M, they are turning around and selling additional stock almost simultaneously to raise $650M. How can anyone defend this as rational policy?

By the way, even if stock is trading around intrinsic value, it is better to buyback than pay a dividend because shareholders avoid dividend taxes. In California, federal+state dividend taxes can add up to as high as 37%. So this is not some theoretical issue we are discussing.

The first priority for management is to reinvest in the business if they can earn good rates of return on newly employed capital. If this is not possible, then they should buyback shares if they are trading at a meaningful discount to intrinsic value. If the stock is trading well above intrinsic value, then they should payout as a dividend assuming no reinvestment opportunities.

This is precisely the sort of trap that Ben Graham advised us not to fall into. Like Berkshire in the 80s? And Markel now?

This doesn't make any sense to me. By definition, book value includes any cash held by the company. There is only one single stock price for the whole company at any given time and there is no separate stock price for its cash. If the company has sensible things to do with its earnings, it should retain it. Otherwise it should pay it out. But it is idiotic for the company to pay a dividend when it can internally compound capital at a high rate. When you need cash, you can manufacture your own dividend by selling a portion of your stock holdings if the company is internally compounding at high rate (w/o paying dividends). In this case most of the time the stock trades at a premium to book (example: P/B of FFH currently 1.3-1.4) because of good rates of return on incremental capital invested.

Why not? When a company pays dividend of $1, its cash account as well as its book value immediately get reduced by $1.

KinAlberta, Dividends can be thought of as selling a portion of your holdings at 1xBook. If the stock trades at a premium to book, you are better off selling shares instead if you need cash. There are exceptions to this of course. Some companies may not be able to earn good rates of return on incrementally reinvested earnings (tobacco companies for instance), in which case they should either buy back stock or payout earnings as dividends. But by issuing dividends you are forcing all shareholders to pay taxes whether they need cash or not. I would rather decide it for myself.

Great job!

Yeah, but you don't expect them to keep making the same mistake year after year. This is why I think it is bad capital allocation decision as opposed to an honest one off mistake made by management.

+1

To me it shows poor capital allocation skills on the part of management to on one hand issue a tax disadvantaged dividend to shareholders (who are forced to pay tax on it) and then turn around and raise new equity diluting the same shareholders. If they need cash for acquisitions, why bother paying a dividend?

"Man is too soon old and too late smart." -Old German Saying

More details on Charter Brokerage acquisition: http://finance.yahoo.com/news/berkshire-hathaway-inc-acquires-charter-220000293.html

New Acquisition Announced: http://www.marketwatch.com/story/berkshire-hathaway-acquiring-charter-brokerage-2014-12-12-17911452?siteid=yhoof2 Susan Decker on Berkshire succession: http://www.bloomberg.com/news/2014-12-09/berkshire-s-decker-sees-ceo-pay-becoming-issue-for-board.html

By the way, it seems that Anupreeta Das of Wall Street Journal is the new go to reporter for Buffett. She is a great reporter and I enjoy reading her articles.

I can't wait to read the 2014 annual report. We will get both Buffett's and Munger's vision for the next 50 years.... http://blogs.wsj.com/moneybeat/2014/12/12/warren-buffett-looks-ahead-to-berkshires-next-50-years/?mod=yahoo_hs