The New York Times (NYT) has had an interesting series of articles over the past year or so discussing the tug of war over control of the personal finances and estate of socialite and philanthropist Brooke Astor’s fortune. The story gets interesting as her son, Anthony D. Marshall (son with her first husband but he took the last name of her second husband) is at odds with his son Philip and the trust division of JP Morgan Chase (JPM). If you are into soap operas then stop reading now. However, if you are interested in asset management then please read on.
Today’s installment in the NYT times of the Astor/Marshall story disclosed the findings of an audit over Astor’s investments. The entire estate was valued at $131 million. Real estate accounted for $41.2 of the estate. Personal property was valued at $10.3 million including some baubles that Mrs. Astor owns. Private equity and hedge funds accounted for over 1/3 of her assets or $46.8 million. It was disclosed in the NYT that a $20.6 million investment was in the Optima Fund, L.P. hedge fund which I am not familiar with and hence have no opinion. Bonds and cash equivalents were just over $9 million. Finally stock holdings were $23.5 million.
The stock portfolio is a compendium of big cap investing including, according to the NYT: Morgan Stanley (MS), Johnson & Johnson (JNJ), Citigroup (C), Eli Lilly (LLY), Four Seasons Hotels (FS), Google (GOOG), Molson Coors (TAP), PepsiCo (PEP), Proctor & Gamble (PG), Staples (SPLS), XTO Energy (XTO) , Encana (ECA), Cimarex (XEC), Cicso Systems (CSCO) and United Technologies (UTX). MS was her largest individual holding valued at $3.4 million.
What is strange is that her grandson accused her son of mismanaging the portfolio. I guess you have to call it as you see it and the son deserves some accolades because this is one splendid portfolio with lots of big safe growth and income names. As for the other charges leveled by her grandson at her son of stealing from and mistreating Mrs. Astor, that we can leave to the courts.
Saturday, June 9, 2007
Son's Bar Mitzvah Portfolio
My wife and I have been busy getting ready for our son’s Bar Mitzvah (the fourth of our five children) which will take place in June. We allow each child to buy a new computer with their monetary gifts and the rest I will invest in a portfolio of five of my favorite stocks as part of their college custody account. These five stocks are also amongst the top holdings for the client accounts at LakeView Asset Management, LLC and me personally. What follows is what I affectionately call the Bar Mitzvah Portfolio:
1. Apple (AAPL) – AAPL is not just an iPod company. AAPL iTunes is the largest site for digital downloads. The company is growing its core Macintosh desktop computer sales as more users continue to migrate away from the Microsoft (MSFT) Windows operating system platform. MSFT
operating system is such a disaster that it turns out to be the best marketing tool for the Apple Mac. For his Bar Mitzvah computer purchase my son and I went shopping for a Mac this week at the Apple store in the Short Hills Mall. We picked out a model as we now plan to take that first big step away from Windows. AAPL is making a move into home entertainment with Apple TV. Next to launch is the greatly anticipated iPhone. My guess, and this is only a guess, is that AAPL will develop its own video game system with digital download capability to compete against the Xbox and take more business away from MSFT
2. Google (GOOG) – Google is set to report earnings today after the market closes and I expect the company to far exceed analyst expectations for EPS of $3.30 cents. This should come as no surprise especially as we know how strong the company’s business model is performing and how poorly Yahoo (YHOO) is executing after that company reported a disappointing quarter earlier this week. The best way to look at this relationship is in SAT terms. GOOG:YHOO as AAPL:MSFT. GOOG continues to expand its reach into advertising, the internet, and the digital media. Just last week GOOG announced that it would acquire DoubleClick and entered into a radio advertising arrangement with Clear Channel Communications (CCU). Expect this company under its very astute management team to continue to innovate and grow. A price of $600 in the next year for GOOG is not out of the question.
3. McDonald’s (MCD) – I have held this stock for several years. Despite the unexpected passing of two CEOs in a short period of time, the company continues to be the best managed restaurant chain in the world. You can credit: the deep pool of management talent; innovative menu changes; increased operating hours; turnarounds in Europe and
; and, expansion in
for MCD continued success. Just last week MCD surprised analysts and investors by guiding to significantly higher than expected 1q07 EPS and sales. On top of all this, MCD has a dividend yield of 2% which should get a boost later this year on top of a healthy stock buy back plan.
4. Goldman Sachs (GS) – Oldie Goldie is the investment banker to the world. When it comes to investment banking, mergers & acquisitions, investment advisory, and sales & trading GS is the New York Yankees, Los Angeles Lakers, Montreal Canadians and Green Bay Packers all rolled up into one. It’s a proven winner. GS attracts the best talent, has the best stable of clientele, is well connected politically (in the
and abroad) and should attract your investment dollars.
5. Sears Holdings (SHLD) – I came upon SHLD many years ago when it was still Kmart not long after Eddie Lampert took it out of bankruptcy while I was doing my research into Martha Stewart Living Omnimedia (MSO) during the several months leading up to Ms Stewart's trial. I had correctly positioned our portfolios short MSO for a guilty verdict but also bought Kmart in the process. A few months later Lampert and Kmart gobbled up Sears turning the combined company into SHLD. I highlighted SHLD as one of the most compelling investments in a LakeView Asset Management blog entry last month. Recently Lampert put a plan into motion to harvest some benefits from its
, Craftsman and DieHard brands by securitizing those intellectual properties as part of a complex structured transaction. Expect Lampert to make some savvy acquisitions in the future. When people ask me if Lampert is the next Warren Buffet I always answer “No. He’s the first Eddie Lampert.”
At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of AAPL, GOOG, MCD, GS and SHLD -- although positions can change at any time.
1. Apple (AAPL) – AAPL is not just an iPod company. AAPL iTunes is the largest site for digital downloads. The company is growing its core Macintosh desktop computer sales as more users continue to migrate away from the Microsoft (MSFT) Windows operating system platform. MSFT
operating system is such a disaster that it turns out to be the best marketing tool for the Apple Mac. For his Bar Mitzvah computer purchase my son and I went shopping for a Mac this week at the Apple store in the Short Hills Mall. We picked out a model as we now plan to take that first big step away from Windows. AAPL is making a move into home entertainment with Apple TV. Next to launch is the greatly anticipated iPhone. My guess, and this is only a guess, is that AAPL will develop its own video game system with digital download capability to compete against the Xbox and take more business away from MSFT
2. Google (GOOG) – Google is set to report earnings today after the market closes and I expect the company to far exceed analyst expectations for EPS of $3.30 cents. This should come as no surprise especially as we know how strong the company’s business model is performing and how poorly Yahoo (YHOO) is executing after that company reported a disappointing quarter earlier this week. The best way to look at this relationship is in SAT terms. GOOG:YHOO as AAPL:MSFT. GOOG continues to expand its reach into advertising, the internet, and the digital media. Just last week GOOG announced that it would acquire DoubleClick and entered into a radio advertising arrangement with Clear Channel Communications (CCU). Expect this company under its very astute management team to continue to innovate and grow. A price of $600 in the next year for GOOG is not out of the question.
3. McDonald’s (MCD) – I have held this stock for several years. Despite the unexpected passing of two CEOs in a short period of time, the company continues to be the best managed restaurant chain in the world. You can credit: the deep pool of management talent; innovative menu changes; increased operating hours; turnarounds in Europe and
; and, expansion in
for MCD continued success. Just last week MCD surprised analysts and investors by guiding to significantly higher than expected 1q07 EPS and sales. On top of all this, MCD has a dividend yield of 2% which should get a boost later this year on top of a healthy stock buy back plan.
4. Goldman Sachs (GS) – Oldie Goldie is the investment banker to the world. When it comes to investment banking, mergers & acquisitions, investment advisory, and sales & trading GS is the New York Yankees, Los Angeles Lakers, Montreal Canadians and Green Bay Packers all rolled up into one. It’s a proven winner. GS attracts the best talent, has the best stable of clientele, is well connected politically (in the
and abroad) and should attract your investment dollars.
5. Sears Holdings (SHLD) – I came upon SHLD many years ago when it was still Kmart not long after Eddie Lampert took it out of bankruptcy while I was doing my research into Martha Stewart Living Omnimedia (MSO) during the several months leading up to Ms Stewart's trial. I had correctly positioned our portfolios short MSO for a guilty verdict but also bought Kmart in the process. A few months later Lampert and Kmart gobbled up Sears turning the combined company into SHLD. I highlighted SHLD as one of the most compelling investments in a LakeView Asset Management blog entry last month. Recently Lampert put a plan into motion to harvest some benefits from its
, Craftsman and DieHard brands by securitizing those intellectual properties as part of a complex structured transaction. Expect Lampert to make some savvy acquisitions in the future. When people ask me if Lampert is the next Warren Buffet I always answer “No. He’s the first Eddie Lampert.”
At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of AAPL, GOOG, MCD, GS and SHLD -- although positions can change at any time.
Will A States Refund for Tobacco?
The New York Court of Appeals on Thursday ruled tobacco companies who are part of the 1998 agreement that settled tobacco litigation with most states can go to arbitration to try to reduce their settlement payments. The $246 billion Master Settlement Agreement required tobacco companies to make annual payments to the states and also placed restrictions on how cigarettes are marketed but, if the tobacco companies that signed the agreement lose market share because of those restrictions, they are entitled to a refund of payments.
"It's clearly spelled out in the Master Settlement Agreement that a dispute over a payment, which this is, should be resolved through binding arbitration," said David Howard, a spokesman for R.J. Reynolds who has spearheaded tobacco's fight for reimbursement. Altria had no comment.
Thursday's ruling, which is in line with decisions by other state courts, means the tobacco companies can now try to reduce their 2003 payments through arbitration.
An auditor previously found in March 2004 that the companies who signed the settlement lost market share in 2003 and determined restrictions from the agreement were "a significant factor contributing to this loss".
Among the companies that signed the master Settlement Agreement are Altria (MO) and Reynolds American (RAI) although neither was part of Thursday's litigation.
One of two things will end up happening. Either the states will have to fork over hundreds of millions of dollars back to tobacco companies, monies that they just do not have or, the Master Settlement will be redone to both assure market share for it's signers, and further insulate the industry from future litigation. The second is the most likely scenario as states are pitifully dependent on the tobacco monies and simple to not have the fiscal ability to part with it. Assuring market share gives growth back to the signers and a more ironclad agreement cements their stranglehold on the industry.
Altria is letting today's plaintiffs, Commonwealth Brands, King Maker Marketing and Sherman and do it's dirty work while it plays good corporate citizen by supporting the FDA's potential regulation of cigarettes. The best part is? They are not only willing to do it but they are winning. Altria can rides their coat tails, avoid the legal expenses associated with it, and reap the rewards.
I simply cannot remember a time in which the litigation environment surrounding tobacco was this good.
"It's clearly spelled out in the Master Settlement Agreement that a dispute over a payment, which this is, should be resolved through binding arbitration," said David Howard, a spokesman for R.J. Reynolds who has spearheaded tobacco's fight for reimbursement. Altria had no comment.
Thursday's ruling, which is in line with decisions by other state courts, means the tobacco companies can now try to reduce their 2003 payments through arbitration.
An auditor previously found in March 2004 that the companies who signed the settlement lost market share in 2003 and determined restrictions from the agreement were "a significant factor contributing to this loss".
Among the companies that signed the master Settlement Agreement are Altria (MO) and Reynolds American (RAI) although neither was part of Thursday's litigation.
One of two things will end up happening. Either the states will have to fork over hundreds of millions of dollars back to tobacco companies, monies that they just do not have or, the Master Settlement will be redone to both assure market share for it's signers, and further insulate the industry from future litigation. The second is the most likely scenario as states are pitifully dependent on the tobacco monies and simple to not have the fiscal ability to part with it. Assuring market share gives growth back to the signers and a more ironclad agreement cements their stranglehold on the industry.
Altria is letting today's plaintiffs, Commonwealth Brands, King Maker Marketing and Sherman and do it's dirty work while it plays good corporate citizen by supporting the FDA's potential regulation of cigarettes. The best part is? They are not only willing to do it but they are winning. Altria can rides their coat tails, avoid the legal expenses associated with it, and reap the rewards.
I simply cannot remember a time in which the litigation environment surrounding tobacco was this good.
McDonald's Sales UP!
McDonald's (MCD)Chief Executive Officer Jim Skinner remarked, "May marks another month of strong sustained sales and shows how well we are providing solutions for today's busy lifestyles, with the convenience and value that customers expect from McDonald's. The chief reason given for the US business growth? Breakfast, or as I spell it c-o-f-f-e-e. Is Starbucks (SBUX) CEO Jim Donald paying attention now?
After their last earnings announcement, in an interview on CNBC, Donald said "we do not really consider or discuss our competition." He'd better start. They are stealing his business. Attracting only 1% more people per quarter will not fuel the long-term growth rate of 21.9% that analysts expect.
When you compare Starbucks recent quarter with today's statement by McDonald's Skinner who said, "We've re-energized our worldwide business with new food choices, redesigned restaurants and relevant marketing. Around the world, demand for McDonald's continues to grow as we now serve 6 million more customers every day than we did in 2002. We are working to attract more customers, more often, through innovation, added convenience and greater menu choices."
This upcoming quarterly announcement by Starbucks will be very interesting. They are officially entering the "reduced comps" phase. This means that when they are comparing quarterly sales growth, the comparisons they are going up against now become easier as this quarter marks the beginning of the recent slide. It also coincides with the improved coffee offering at McDonald's, but do not expect to hear that on the call.
While McDonalds is consistently blowing away improving numbers, Starbucks investors are hoping to beat diminishing ones. Not good. I am expecting bad news for investors this quarters and look forward to whatever excuse management comes up with. Last quarters anemic numbers were excused away as being "up against a tough comparison". Now that the comparisons are getting dramatically easier, we need to take that one off the table.
Should be quite interesting..
After their last earnings announcement, in an interview on CNBC, Donald said "we do not really consider or discuss our competition." He'd better start. They are stealing his business. Attracting only 1% more people per quarter will not fuel the long-term growth rate of 21.9% that analysts expect.
When you compare Starbucks recent quarter with today's statement by McDonald's Skinner who said, "We've re-energized our worldwide business with new food choices, redesigned restaurants and relevant marketing. Around the world, demand for McDonald's continues to grow as we now serve 6 million more customers every day than we did in 2002. We are working to attract more customers, more often, through innovation, added convenience and greater menu choices."
This upcoming quarterly announcement by Starbucks will be very interesting. They are officially entering the "reduced comps" phase. This means that when they are comparing quarterly sales growth, the comparisons they are going up against now become easier as this quarter marks the beginning of the recent slide. It also coincides with the improved coffee offering at McDonald's, but do not expect to hear that on the call.
While McDonalds is consistently blowing away improving numbers, Starbucks investors are hoping to beat diminishing ones. Not good. I am expecting bad news for investors this quarters and look forward to whatever excuse management comes up with. Last quarters anemic numbers were excused away as being "up against a tough comparison". Now that the comparisons are getting dramatically easier, we need to take that one off the table.
Should be quite interesting..
Thursday, June 7, 2007
Valuing Berkshire Hathaway
adesigar
Berkshire Hathaway is my biggest stock holding Its "The Security I Like Best". A lot of people ask me what Berkshire is worth in my opinion. I say the class B shares that are trading at $3100 are easily worth $4000+ (A shares would be $120,000+). How did I come up with the number? Berkshires cash and cash equivalents holdings are valued at cash value. Berkshires equity holdings are valued at market value. Then i value individual business units based on P/E multiples given to comparable companies by the stock market.
Market Cap of Berkshire Hathaway = 145 BillionValue of Individual Berkshire Parts = 196 Billion (Based on the Interim 2nd quarter report. Numbers used are 6 Months Net Profits *2 for full year estimate values)
Cash and Cash Equivalents - 42 Billion
Equity Holdings - 52 Billion
Subsidiary Insurance companies - 4.372B * 12PE = 52.464B
Subsidiary Utilities and Energy - .782B * 14PE = 10.948B (Pacificorp excluded)*
Subsidiary Manufacturing , Services and Retailing - 1.864B * 16PE = 29.824B (Iscar/Russel Atheletic excluded)*
Subsidiary Finance and Financial Products = 0.744B * 12PE = 8.928B
Investment and Derivatives gains = 0.8B (Excluded)**
The company has a 35% discount to its actual value (I think it should have a 10% Warren Buffet premium).Based on this valuation class B shares of Berkshire should sell for $4200 and class A shares for $126,000.
* Berkshire has just acquired PacificCorp, Iscar Metalworking and Russel Atheletic but the earnings of these companies is not part of berkshire earnings yet.
** Investment gains or losses are recognized upon the sales of investments or as otherwise required under GAAP. The timing of realized gains or losses from sales can have a material effect on periodic earnings. However, such gains or losses usually have little, if any, impact on total shareholders’ equity because most equity and fixed maturity investments are carried at fair value, with the unrealized gain or loss included as a component of accumulated other comprehensive income. - From the Report
Conflicts: I own Shares of Berkshire Hathaway
Berkshire Hathaway is my biggest stock holding Its "The Security I Like Best". A lot of people ask me what Berkshire is worth in my opinion. I say the class B shares that are trading at $3100 are easily worth $4000+ (A shares would be $120,000+). How did I come up with the number? Berkshires cash and cash equivalents holdings are valued at cash value. Berkshires equity holdings are valued at market value. Then i value individual business units based on P/E multiples given to comparable companies by the stock market.
Market Cap of Berkshire Hathaway = 145 BillionValue of Individual Berkshire Parts = 196 Billion (Based on the Interim 2nd quarter report. Numbers used are 6 Months Net Profits *2 for full year estimate values)
Cash and Cash Equivalents - 42 Billion
Equity Holdings - 52 Billion
Subsidiary Insurance companies - 4.372B * 12PE = 52.464B
Subsidiary Utilities and Energy - .782B * 14PE = 10.948B (Pacificorp excluded)*
Subsidiary Manufacturing , Services and Retailing - 1.864B * 16PE = 29.824B (Iscar/Russel Atheletic excluded)*
Subsidiary Finance and Financial Products = 0.744B * 12PE = 8.928B
Investment and Derivatives gains = 0.8B (Excluded)**
The company has a 35% discount to its actual value (I think it should have a 10% Warren Buffet premium).Based on this valuation class B shares of Berkshire should sell for $4200 and class A shares for $126,000.
* Berkshire has just acquired PacificCorp, Iscar Metalworking and Russel Atheletic but the earnings of these companies is not part of berkshire earnings yet.
** Investment gains or losses are recognized upon the sales of investments or as otherwise required under GAAP. The timing of realized gains or losses from sales can have a material effect on periodic earnings. However, such gains or losses usually have little, if any, impact on total shareholders’ equity because most equity and fixed maturity investments are carried at fair value, with the unrealized gain or loss included as a component of accumulated other comprehensive income. - From the Report
Conflicts: I own Shares of Berkshire Hathaway
Warren Buffett remarried.
adesigar
HAPPY BIRTHDAY Warren and CONGRATULATIONS to both of you.Warren buffet married his longtime companion Astrid Menks on 30th August 2006 which was also his 76th birthday.The 15 minute wedding was hosted by his daughter Susie Buffet at her Omaha Nebraska home. Astride Menks has been Buffetts companion for the last 30 years.
HAPPY BIRTHDAY Warren and CONGRATULATIONS to both of you.Warren buffet married his longtime companion Astrid Menks on 30th August 2006 which was also his 76th birthday.The 15 minute wedding was hosted by his daughter Susie Buffet at her Omaha Nebraska home. Astride Menks has been Buffetts companion for the last 30 years.
The next Warren Buffett or the next Berkshire Hathaway
adesigar
Every investor wishes he had bought Berkshire Hathaway shares 25 years ago. If you had $10,000 invested with Warren Buffett in 1982 the shares would be worth $1,280,000 in 2006. Berkshire Hathaway shares are undervalued at the moment and will have consistent and above average growth for years to come, but the law of large numbers dictates that the company is too big. You cant get the same 25-30% annual returns from Berkshire Hathaway anymore. We missed out on Berkshire Hathaway but we could look for companies that may turn out to be "The Next Berkshire Hathaway".
What to look for in the search for the next Berkshire or Buffet
* Company is run by a Brilliant money manager(s) * It follows value oriented investing * The investments are diversified across industries so a downturn wont affect the business. * Insurance backed so the company can use float generated with positive underwriting to create wealth. Free money is always good. * High levels of Management ownership, which orients management goals with those of the shareholders * Focus on long term growth of Shareholder value and not on keeping the dumb anylasts on wall street happy every quarter.
It will be nearly impossible to find a perfect match but we can look for companies that match 2 or more criteria.
1. Sears Holdings led by Eddie Lampert (SHLD).Eddie Lampert started ESL investments in 1988 with 28 million. ESL has averaged 28% a year for the last 18 years. Eddie Lampert is one of the best money managers in the world. Recently he took a bankrupt K-mart and turned it into a cash cow. He merged k-mart with sears to form sears holdings. The stock has been on a tear since Kmart came out of bankruptcy, it opened for trading at $16 in May 2003 and now trades at $160. Eddie searches for companies that are seriously undervalued, he also sticks to companies whose industries he understands. The board has given Lampert the freedom to invest the profits from sears holdings any way he sees fit. Just as Buffett did with Berkshire Hathaway in the 60s. If any person will take over from Buffett as the greatest money manager of the current generation it looks to be Eddie lampert, and the vehicle through which he will reach there is Sears Holdings.
* Brilliant money manager(s) - Yes * Value oriented - Yes * Diversified - Not yet but board has given Eddie Lampert the flexibility to do so. * Insurance backed - No * Management ownership - Yes * Long term growth - Yes
2. Brookfield Asset Management (BAM).A canadian asset management company which focuses on industries that need lots of capital such as real estate, natural resources, energy and financial service. Assets include 70 office properties, 120 power-generating plants, thousands of acres of timber and a property development operation under the Brookfield brand name. The stock has moved from $8 to $50 in 5 years thanks to the brilliant investments its management has made.
* Brilliant money manager(s) - Yes but not in same league as Buffett. * Value oriented - Yes * Diversified - Yes * Insurance backed - No - Brookfield uses low cost debt which is the next best thing to insurance. * Management ownership - Yes * Long term growth - Yes
3. Leucadia National Corp led by Ian Cumming (LUK).Leucadia is an investment company run by two brilliant money managers Ian Cumming and Joseph Steinberg. The company invests in anything that can make the shareholders money. Their preferred investments are generally turnaround plays. Leucadia will buy large stakes in a distressed company. They revive the company, improve performance and then sell it off at a nice profit. The company is currently diversified into telecom, manufacturing, healthcare, banking, real estate and wineries.
* Brilliant money manager(s) - Yes * Value oriented - Yes but riskier than Berkshire as Ian cumming seems to go for higher risk companies * Diversified - Somewhat. Cumming occasionally likes to make extremely big investment bets. * Insurance backed - No * Management ownership - Yes * Long term growth - Yes
4. Markel (MKL)Markel is an insurance holding company. The company is a mini Berkshire any way you look at it. Extremely steady and consistent growth. Like Berkshire the company has never declared a split and the shares have risen from their 1986 IPO price of $8.33 to nearly $400 in 2006. The company holds diversified investments in a large number of stocks. The top 10 current holdings are Berkshire Hathaway, Carmax, Diageo, Fairfax Financial Holdings, Anheuser-Busch, General Electric, White Moutains Insurance, Citigroup, Exel Ltd, Brookfield Asset Management. Its funny how they seem to like Berkshire and other companies that look like Berkshire.
* Brilliant money manager(s) - Yes but not in the same league as Buffett * Value oriented - Yes * Diversified - Yes. * Insurance backed - Yes * Management ownership - Yes * Long term growth - Yes
5. White Mountains Insurance (WTM).This company has Buffetts blessings. White Mountains is 16% owned by Berkshire Hathaway. The way the company operates it seems to be another mini Berkshire. The operating principles, view of the management and their operating principles are an exact match with Berkshire.
Operating Principles - White Mountains cares most about the following.
* Underwriting Comes First * Maintain a Disciplined Balance Sheet * Invest for Total Return * Think Like Owners
Other Excerpts - "Intellectually we really don't care much about leaving our capital lying fallow for years at a time. Better to leave it fallow and to wait for the occasional high-return opportunity. Frankly, sometimes shareholders would be better off if we just all went to play golf."
"We also admire Benjamin Graham who said: "In the short run the market is a voting machine; in the long run it is a weighing machine."
* Brilliant money manager(s) - Yes but not in the same league as Buffett * Value oriented - Yes * Diversified - Yes * Insurance backed - Yes * Management ownership - Yes * Focus on long term growth - Yes
6. Interactive Corp led by Barry Diller - A Futuristic Berkshire HathawayBarry Diller (the CEO of IACI) says the comparison is "undeserved at present but not my hopes and dreams". He also says that the web will help IACI fit its pieces together in a manner that Berkshire's parts from Insurers to Manufacturing, just cant. IACI has sales that will reach 7 bilion this year and a ton of cash but the company trades at just 8.5 billion. The company is spread across a lot on industries including Retailing which includes Home Shopping network; Ticketing with Ticketmaster; Real Estate with Lending Tree, RealEstate.com and others, Online search includes Ask.com, Excite, etc..
I know IACI is a far stretch but the company is undervalued, has leading sites in their business segments a great CEO.
* Brilliant money manager(s) - Barry diller is an ok money manager but hes a brilliant CEO * Value oriented - If theres such a thing as a value based investment on the internet * Diversified - Yes * Insurance backed - No * Management ownership - Yes * Focus on long term growth - Yes
Conflicts : I own shares of Berkshire hathaway and Interactive Corp.
Every investor wishes he had bought Berkshire Hathaway shares 25 years ago. If you had $10,000 invested with Warren Buffett in 1982 the shares would be worth $1,280,000 in 2006. Berkshire Hathaway shares are undervalued at the moment and will have consistent and above average growth for years to come, but the law of large numbers dictates that the company is too big. You cant get the same 25-30% annual returns from Berkshire Hathaway anymore. We missed out on Berkshire Hathaway but we could look for companies that may turn out to be "The Next Berkshire Hathaway".
What to look for in the search for the next Berkshire or Buffet
* Company is run by a Brilliant money manager(s) * It follows value oriented investing * The investments are diversified across industries so a downturn wont affect the business. * Insurance backed so the company can use float generated with positive underwriting to create wealth. Free money is always good. * High levels of Management ownership, which orients management goals with those of the shareholders * Focus on long term growth of Shareholder value and not on keeping the dumb anylasts on wall street happy every quarter.
It will be nearly impossible to find a perfect match but we can look for companies that match 2 or more criteria.
1. Sears Holdings led by Eddie Lampert (SHLD).Eddie Lampert started ESL investments in 1988 with 28 million. ESL has averaged 28% a year for the last 18 years. Eddie Lampert is one of the best money managers in the world. Recently he took a bankrupt K-mart and turned it into a cash cow. He merged k-mart with sears to form sears holdings. The stock has been on a tear since Kmart came out of bankruptcy, it opened for trading at $16 in May 2003 and now trades at $160. Eddie searches for companies that are seriously undervalued, he also sticks to companies whose industries he understands. The board has given Lampert the freedom to invest the profits from sears holdings any way he sees fit. Just as Buffett did with Berkshire Hathaway in the 60s. If any person will take over from Buffett as the greatest money manager of the current generation it looks to be Eddie lampert, and the vehicle through which he will reach there is Sears Holdings.
* Brilliant money manager(s) - Yes * Value oriented - Yes * Diversified - Not yet but board has given Eddie Lampert the flexibility to do so. * Insurance backed - No * Management ownership - Yes * Long term growth - Yes
2. Brookfield Asset Management (BAM).A canadian asset management company which focuses on industries that need lots of capital such as real estate, natural resources, energy and financial service. Assets include 70 office properties, 120 power-generating plants, thousands of acres of timber and a property development operation under the Brookfield brand name. The stock has moved from $8 to $50 in 5 years thanks to the brilliant investments its management has made.
* Brilliant money manager(s) - Yes but not in same league as Buffett. * Value oriented - Yes * Diversified - Yes * Insurance backed - No - Brookfield uses low cost debt which is the next best thing to insurance. * Management ownership - Yes * Long term growth - Yes
3. Leucadia National Corp led by Ian Cumming (LUK).Leucadia is an investment company run by two brilliant money managers Ian Cumming and Joseph Steinberg. The company invests in anything that can make the shareholders money. Their preferred investments are generally turnaround plays. Leucadia will buy large stakes in a distressed company. They revive the company, improve performance and then sell it off at a nice profit. The company is currently diversified into telecom, manufacturing, healthcare, banking, real estate and wineries.
* Brilliant money manager(s) - Yes * Value oriented - Yes but riskier than Berkshire as Ian cumming seems to go for higher risk companies * Diversified - Somewhat. Cumming occasionally likes to make extremely big investment bets. * Insurance backed - No * Management ownership - Yes * Long term growth - Yes
4. Markel (MKL)Markel is an insurance holding company. The company is a mini Berkshire any way you look at it. Extremely steady and consistent growth. Like Berkshire the company has never declared a split and the shares have risen from their 1986 IPO price of $8.33 to nearly $400 in 2006. The company holds diversified investments in a large number of stocks. The top 10 current holdings are Berkshire Hathaway, Carmax, Diageo, Fairfax Financial Holdings, Anheuser-Busch, General Electric, White Moutains Insurance, Citigroup, Exel Ltd, Brookfield Asset Management. Its funny how they seem to like Berkshire and other companies that look like Berkshire.
* Brilliant money manager(s) - Yes but not in the same league as Buffett * Value oriented - Yes * Diversified - Yes. * Insurance backed - Yes * Management ownership - Yes * Long term growth - Yes
5. White Mountains Insurance (WTM).This company has Buffetts blessings. White Mountains is 16% owned by Berkshire Hathaway. The way the company operates it seems to be another mini Berkshire. The operating principles, view of the management and their operating principles are an exact match with Berkshire.
Operating Principles - White Mountains cares most about the following.
* Underwriting Comes First * Maintain a Disciplined Balance Sheet * Invest for Total Return * Think Like Owners
Other Excerpts - "Intellectually we really don't care much about leaving our capital lying fallow for years at a time. Better to leave it fallow and to wait for the occasional high-return opportunity. Frankly, sometimes shareholders would be better off if we just all went to play golf."
"We also admire Benjamin Graham who said: "In the short run the market is a voting machine; in the long run it is a weighing machine."
* Brilliant money manager(s) - Yes but not in the same league as Buffett * Value oriented - Yes * Diversified - Yes * Insurance backed - Yes * Management ownership - Yes * Focus on long term growth - Yes
6. Interactive Corp led by Barry Diller - A Futuristic Berkshire HathawayBarry Diller (the CEO of IACI) says the comparison is "undeserved at present but not my hopes and dreams". He also says that the web will help IACI fit its pieces together in a manner that Berkshire's parts from Insurers to Manufacturing, just cant. IACI has sales that will reach 7 bilion this year and a ton of cash but the company trades at just 8.5 billion. The company is spread across a lot on industries including Retailing which includes Home Shopping network; Ticketing with Ticketmaster; Real Estate with Lending Tree, RealEstate.com and others, Online search includes Ask.com, Excite, etc..
I know IACI is a far stretch but the company is undervalued, has leading sites in their business segments a great CEO.
* Brilliant money manager(s) - Barry diller is an ok money manager but hes a brilliant CEO * Value oriented - If theres such a thing as a value based investment on the internet * Diversified - Yes * Insurance backed - No * Management ownership - Yes * Focus on long term growth - Yes
Conflicts : I own shares of Berkshire hathaway and Interactive Corp.
Entrepreneurial Encouragement
4basra
The weekend newspapers offered some encouraging news.
In northern Iraq – 400 miles north of Baghdad, the city of Sulimaniyah thrives peacefully, according to The Mail on Sunday.
Having suffered at the hands of Saddam Hussein back in the late eighties, five million Kurds live here in an area the size of Switzerland, sharing the territory with Turkmen, Assyrians and Christians.
Sheer determination and tolerance, it would seem, can defeat violence.
In other news, Virgin founder Richard Branson is planning to devote more of his time to social entrepreneurship. Along with the likes of Bill Gates and Warren Buffett, it is encouraging to know that role models like Branson realise that their wisdom, experience, drive and ideas can contribute to improving lives through work that is not solely governed by the bottom line.
I wonder if we will see Ryanair’s Michael O’Leary championing a charitable cause any time soon?
And finally, on the subject of Irish entrepreneurs, I wonder if James Hyland - whose new TV music channel, Bubble Hits was launched recently - could be persuaded to turning his hand to something charitable?
The weekend newspapers offered some encouraging news.
In northern Iraq – 400 miles north of Baghdad, the city of Sulimaniyah thrives peacefully, according to The Mail on Sunday.
Having suffered at the hands of Saddam Hussein back in the late eighties, five million Kurds live here in an area the size of Switzerland, sharing the territory with Turkmen, Assyrians and Christians.
Sheer determination and tolerance, it would seem, can defeat violence.
In other news, Virgin founder Richard Branson is planning to devote more of his time to social entrepreneurship. Along with the likes of Bill Gates and Warren Buffett, it is encouraging to know that role models like Branson realise that their wisdom, experience, drive and ideas can contribute to improving lives through work that is not solely governed by the bottom line.
I wonder if we will see Ryanair’s Michael O’Leary championing a charitable cause any time soon?
And finally, on the subject of Irish entrepreneurs, I wonder if James Hyland - whose new TV music channel, Bubble Hits was launched recently - could be persuaded to turning his hand to something charitable?
Jeremy Siegel (The one whose demented according to Charles Munger) and Dividend Indexing
Eric Schleien
I think Jeremy Siegel's new index funds are great for someone looking to get started investing. Index funds are a great way to invest as they are basically buying large basket of stocks so a novice stock picker won't get screwed by one single stock. Siegal's index fund has only dividend payers which have actually outperformed the market. It's not that they outperform because they pay dividends (since they are meaningless hence a transfer of cash plus taxed twice) but rather dividend paying companies usually have better balance sheets and are smarter with using cash. While these companies have only outperformed the general market by around 2%, 2% goes along way over the course of many years. While Charles Munger of Berskhire Hathaway may think he's demented, for the average investor this is a good strategy to invest.
He has some testimonials on his site JeremySiegel.com
Jeremy Siegel is one of the great ones. [His article at the market top was] one of the most stark and prescient calls I have ever seen. - Jim Cramer, CNBC MadMoney
His contributions to finance and investing are of such siginificance as to change the direction of the Profession. -The Financial Analyst Institute, May 2005
Jeremy Siegel is a wise man and an astute observer of the ever changing investment universe. - Barton Biggs, Traxis Partners
I think Jeremy Siegel's new index funds are great for someone looking to get started investing. Index funds are a great way to invest as they are basically buying large basket of stocks so a novice stock picker won't get screwed by one single stock. Siegal's index fund has only dividend payers which have actually outperformed the market. It's not that they outperform because they pay dividends (since they are meaningless hence a transfer of cash plus taxed twice) but rather dividend paying companies usually have better balance sheets and are smarter with using cash. While these companies have only outperformed the general market by around 2%, 2% goes along way over the course of many years. While Charles Munger of Berskhire Hathaway may think he's demented, for the average investor this is a good strategy to invest.
He has some testimonials on his site JeremySiegel.com
Jeremy Siegel is one of the great ones. [His article at the market top was] one of the most stark and prescient calls I have ever seen. - Jim Cramer, CNBC MadMoney
His contributions to finance and investing are of such siginificance as to change the direction of the Profession. -The Financial Analyst Institute, May 2005
Jeremy Siegel is a wise man and an astute observer of the ever changing investment universe. - Barton Biggs, Traxis Partners
Buffett thinks Natural Gas is Cheap
Eric Schleien
Several weeks ago, I wrote about how I believe natural gas is cheap. I still do. It's also interesting to look at Berkshire Hathaway's portfolio and see the company recently bought shares in Conoco Phillips. Conoco recently made a huge bet on natural gas, which I think should pay off. Conoco is also cheap as it haS an after-tax earnings yield of around 15%.
Some other companies who have large exposures to natural gas are:Chesapeake Energy (Which I own shares of) as well as XTO Energy.
Several weeks ago, I wrote about how I believe natural gas is cheap. I still do. It's also interesting to look at Berkshire Hathaway's portfolio and see the company recently bought shares in Conoco Phillips. Conoco recently made a huge bet on natural gas, which I think should pay off. Conoco is also cheap as it haS an after-tax earnings yield of around 15%.
Some other companies who have large exposures to natural gas are:Chesapeake Energy (Which I own shares of) as well as XTO Energy.
Bill Gates: Changing the world...again
Taps
What would you do with $55bn? Buy a massive house? Fancy car? Island off the coast of Java? Or would you sit there, sipping a martini while lounging in your pool of money, and say to yourself "Ok, now that the money has been made, how can I change the world for the better with it?"
Well, Bill Gates has done all of the above (minus, perhaps, the island and the swimming pool of money part). After changing the way the world operates with his Microsoft Windows operating system (granted, I am an Apple guy myself, but I have to give credit where credit is due), he has amassed enough wealth to look at the world and think about how he can leave a lasting impression...for the second time.
Together with his wife Melinda, he has started the Bill & Melinda Gates Foundation, the largest charitable foundation in the world...and when I say large, I mean huge. Take an initial endowment of $29.2bn and add to that the $31bn donation by Warren Buffett, who decided to give his money to the only man in the world who made more than he did, and you have over $60bn in 'save the world' money...and with such an exorbitant amount, you might be able to do just that.
The Gates Foundation has already taken steps towards improving the quality of life for millions around the world. Their main focuses are global health, education, and various libraries and institutions around the Pacfic Northwest. Some notable donations have been a $750m donation to the Global Alliance for Vaccines and immunization, and, more recently (try yesterday), a whopping $287m that was donated towards HIV research. This money will be divided amongst 165 researchers across 19 countries, who will be sharing their information and comparing findings with the other researchers, all done in real-time.
With all the chaos in the world today (Mumbai bombings, Lebanon crisis, earthquake and tsunami in Indonesia), reading about positive change and optimistic outlooks are a breath of fresh air. With Bill Gates, a man who is known for making money (and, I'll bet, is damn good at managing and allocating it), leading the charge towards improving the quality of life of the world's population, caring not about color, race, religion, or nationality, but instead about mankind as a whole, who knows...the world might turn out ok after all.
What would you do with $55bn? Buy a massive house? Fancy car? Island off the coast of Java? Or would you sit there, sipping a martini while lounging in your pool of money, and say to yourself "Ok, now that the money has been made, how can I change the world for the better with it?"
Well, Bill Gates has done all of the above (minus, perhaps, the island and the swimming pool of money part). After changing the way the world operates with his Microsoft Windows operating system (granted, I am an Apple guy myself, but I have to give credit where credit is due), he has amassed enough wealth to look at the world and think about how he can leave a lasting impression...for the second time.
Together with his wife Melinda, he has started the Bill & Melinda Gates Foundation, the largest charitable foundation in the world...and when I say large, I mean huge. Take an initial endowment of $29.2bn and add to that the $31bn donation by Warren Buffett, who decided to give his money to the only man in the world who made more than he did, and you have over $60bn in 'save the world' money...and with such an exorbitant amount, you might be able to do just that.
The Gates Foundation has already taken steps towards improving the quality of life for millions around the world. Their main focuses are global health, education, and various libraries and institutions around the Pacfic Northwest. Some notable donations have been a $750m donation to the Global Alliance for Vaccines and immunization, and, more recently (try yesterday), a whopping $287m that was donated towards HIV research. This money will be divided amongst 165 researchers across 19 countries, who will be sharing their information and comparing findings with the other researchers, all done in real-time.
With all the chaos in the world today (Mumbai bombings, Lebanon crisis, earthquake and tsunami in Indonesia), reading about positive change and optimistic outlooks are a breath of fresh air. With Bill Gates, a man who is known for making money (and, I'll bet, is damn good at managing and allocating it), leading the charge towards improving the quality of life of the world's population, caring not about color, race, religion, or nationality, but instead about mankind as a whole, who knows...the world might turn out ok after all.
CEO Pay for failure
maven
"A study released earlier this year by the Corporate Library -- and titled "Pay for Failure" -- singled out some of the corner suite's worst offenders. Among them: Pfizer CEO Henry McKinnell; Merck former CEO Raymond Gilmartin; and AT&T's Edward Whitacre." (via DCSBN)
Some well-known managers weigh in on the issue:
“It's time for more walk and less talk. As Charlie Munger puts it, "The CEO has an absolute duty to be an exemplar for the civilization." Munger isn't the only leader with that old-fashioned view."At big-box retailer Best Buy, 33-year company veteran Brad Anderson decided he was making plenty when he became CEO in 2002.
Because he also wanted to shake up the company's strategy, he decided to hand over his annual option grants to the frontline troops - which he's done for three years now and plans to continue doing until he steps down. Says Anderson: "I thought it would help internally to be indicative to my people that I was thinking about more than myself."
(…) Warren Buffett has long believed that "the only cure for better corporate governance is if the small number of very large institutional investors start acting like true owners and pressure managers and boards to do the same"."
"A study released earlier this year by the Corporate Library -- and titled "Pay for Failure" -- singled out some of the corner suite's worst offenders. Among them: Pfizer CEO Henry McKinnell; Merck former CEO Raymond Gilmartin; and AT&T's Edward Whitacre." (via DCSBN)
Some well-known managers weigh in on the issue:
“It's time for more walk and less talk. As Charlie Munger puts it, "The CEO has an absolute duty to be an exemplar for the civilization." Munger isn't the only leader with that old-fashioned view."At big-box retailer Best Buy, 33-year company veteran Brad Anderson decided he was making plenty when he became CEO in 2002.
Because he also wanted to shake up the company's strategy, he decided to hand over his annual option grants to the frontline troops - which he's done for three years now and plans to continue doing until he steps down. Says Anderson: "I thought it would help internally to be indicative to my people that I was thinking about more than myself."
(…) Warren Buffett has long believed that "the only cure for better corporate governance is if the small number of very large institutional investors start acting like true owners and pressure managers and boards to do the same"."
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