Wise words from Omaha

The annual shareholders letter from Berkshire Hathaway got published again in February.

Some actions have been taken in my portfolio inspired by the words of wisdom from Warren Buffett.

Without further ado let’s dive in.

The first lesson is more for financial blog writers and portfolio managers.

1.       Communicate in a manner that you would wish to be used if you were the reader or client. That includes being open about mistakes and trying to learn from them.

Amazon was highlighted as a company that has done this well in the past.

A lot of other listed companies use shareholder communication as a happy-clappy marketing exercise on how perfect management has been.

“Don’t fool your shareholders or you will soon believe your own baloney and be fooling yourself as well.”

With marketable securities it is easy to change course when mistakes have been made.

One simply has to press the sell button.

We can come and go on a dime.

Berkshire is too big for that now. Cleaning up mistakes by selling the listed stocks has a real cost these days.

Sometimes it takes a year or more to get out of a position.

Apple comes to mind here. Not that the Apple investment was a mistake, quite the opposite.

Nevertheless Warren has been selling Apple shares for most of 2024, but recently there was no new selling in the Berkshire holding of Apple.

1.       Investment mistakes happen to the best of us.

Every collection of equities includes laggards and disappointments.

Even Warren Buffett’s stock portfolio includes mistakes.

As long as your winners make up for your mistakes the stock market can be a very rewarding place.

“A single winning decision can make a breathtaking difference over time.”

“Mistakes fade away; winners can forever blossom.”

2.       The winner takes it all.

Investing is a very binary process.

Either you bought Apple as a similar percentage of your stock portfolio when Berkshire did and either you managed to hold on to them or you didn’t...

Growing a big flower Omaha style

A lot has been written lately about BRK’s share return the last five and ten years compared to the performance of the S&P 500 index.

Some have the return of Berkshire Hathaway Inc as just ahead of the index and some similar or just below.

What is certain though is that without the Apple investment the return would have been below the S&P 500 index.

An Apple a day keeps the doctor away.

One growing flower can make up for the weeds.

Cash compared to assets is high for the company at the moment.

It is all short-term cash by the way.

Buffett places lots of cash in Treasury Bonds with maturity periods of less than one year.

Warren doesn’t feel like investing in long term bonds.

So which stock in their portfolio is the new Apple?

I am not seeing it.

Obviously they still own a couple of very large and highly profitable businesses such as Apple, American Express, Coca-Cola and Moody’s.

Source CNBC

Firepower is abundant so maybe gems of really outstanding businesses will be added from Monday through Friday on Wall Street at bargain prices in the future.

But the share repurchases of Berkshire’s own shares have been stopped completely.

Also since the publication of the annual report BRK has been outperforming the S&P 500 index.

·         For better or worse I have sold about 15% of my BRK B shares recently and put that into an S&P 500 ETF.

1.       Paper money can see its value evaporate if fiscal folly prevails.

Even in the U.S. history they have come close to the edge at times.

Fixed-coupon bonds provide no protection against runaway currency.

Businesses on average will find a way to handle monetary instability as long as their customers are happy.

Countries need to maintain a stable currency and that result requires both wisdom and vigilance on the part of politicians and central bankers.

Wisdom seems to have been in short supply here lately.

I am not seeing the wisdom.

Uncle Sam now spends more on interest payments than on defence. What a complete waste of money.

Fiscally incontinent is more like it. For every 1 dollar that the U.S. government spends, 0.5 dollar is borrowed now.

The Americans didn’t vote for austerity either during the recent election.

Will Musk actually manage to cut spending like he did at Twitter? Time will tell.

The ECB’s interest rate is now only 2.5%.

Interest rates by the ECB, Sweden and Switzerland are now at or below inflation levels which looks like financial repression to me all over again.

If Western countries one day face a Turkey, Venezuela or Argentina scenario with inflation rates above 50% and an ever depreciating currency that would be seriously bad news for my portfolio.

·         With that in mind I have been adding recently to three of my five Bitcoin proxies’ positions. Rightly or wrongly I am trying to get the Bitcoin part of the portfolio to 10%. I am not allowed to add to my 2 Bitcoin ETF’s in the UK. So I am forced to add to the more risky Strategy(MSTR), Semler (SMLR) and Bitcoin Group SE (ADE).

Maybe Bitcoin is another Tulip mania and the price will go to zero.

If that happens my portfolio will still survive like a cockroach.

The gold price just made new record highs.

If Bitcoin is a new form of digital gold then new highs should be coming up here as well in the future.

·         So I am still buying the Bitcoin dip...

2.       Berkshire’s insurance operation blossomed once again in 2024 and is a real gem.

Properly pricing insurance is part art and part science.

Berkshire has outstanding insurance managers (no optimists).

Investing the substantial sums of insurance money also has never been a problem historically rather the opposite.

Todd Combs and Geico were praised in the letter.

“Our insurance business delivered a major increase in earnings, led by the performance of Geico.

“Geico was a long-held gem that needed major repolishing, and Todd got the job done in the last five years.”

Geico in the last couple of years has been hiking its prices and cut down its marketing spend.

Hopefully enough was spend on tech and systems that the underwriting practices are up to date to the modern day and age now.

In terms of “moat” though hiking prices is not what is going to make your clients more loyal.

As Amazon always said the only thing we can know up front that customers would like to have lower prices in the future.

Therefore despite the praise it seems to me that Geico’s moat has decreased.

If Geico had a good performance in 2024, its competitor Progressive Corp (PGR) must have had an amazing performance.

Progressive still manages to profitable grow with reasonable prices and no cuts in marketing spend.

·         I added to my holding in PGR recently. I wasn’t that convinced about insurers American International Group (AIG) and Markel Group (MKL) anymore in terms of their ability to outperform the S&P 500 index and sold those two.

·         My reluctance on bank shares was a mistake in 2024. The insurance (mini-Berkshire) plays worked nicely though in 2024. Berkshire itself worked nicely as well and is up 24% over the past year now.

3.       Warren believes in lifelong learning. However a very large portion of business talent is innate with nature swamping nurture.

Dear reader if you got all the way to the end of this long blog you got the lifelong learning sorted.

Best of luck with your business talent and as always may the force be with you!

Much obliged for your interest in my writing.

Please make your own investment decisions.

This is not financial advice.

This blog was purely written for entertainment and informational purposed.

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