I am curious, why would this be a mistake?
secret of Buffett's success
- Thread starter billyjoerob
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I am curious, why would this be a mistake?
Berkshire doesn't just have public companies. They own a ton of private companies. So there isn't a real thing as NAV.
Secondly, I would think that Berkshire's subsidiaries would be subject to regulations if they bought or sold Berkshire stock.
Thirdly, he made his initial money buying insurance companies for less than their float. He isn't the only one to do it. A guy in Canada did the same thing and made billions. He has money coming to him all the time which is why he can have infinite holding periods. He invests 1MM in KO today. Next year he has another 1MM to invest.
But above that, he's done a good job picking stocks. His investment model works. A lot of people who have followed Graham and Dodd investing have done very well. And unlike Jack Hershey or any other "guru" these guys success is visible, audited, and public.
Secondly, I would think that Berkshire's subsidiaries would be subject to regulations if they bought or sold Berkshire stock.
Thirdly, he made his initial money buying insurance companies for less than their float. He isn't the only one to do it. A guy in Canada did the same thing and made billions. He has money coming to him all the time which is why he can have infinite holding periods. He invests 1MM in KO today. Next year he has another 1MM to invest.
But above that, he's done a good job picking stocks. His investment model works. A lot of people who have followed Graham and Dodd investing have done very well. And unlike Jack Hershey or any other "guru" these guys success is visible, audited, and public.
Agreed. Another advantage he had was he started very young with a huge capital base because of his doctor partners. (Assuming you invest well and don't go bankrupt, time AKA compound growth and low taxes is a friend.)
He was a good wheeler-dealer and a smart hard-working guy. That paid off big for him. Kudos to his success.
p. 395, Snowball by Alice Schroeder:
"He was now [1974] very, very rich but cash poor. The companies he controlled, especially Berkshire, had cash to buy stocks, however. To move some of Berkshire's money to Diversified [a retailing company owned by Buffett], Buffett set up a reinsurance company in Diversified."
So Diversified was a reinsurer of the Berkshire insurance company and therefore received premiums. Diversified would merge with Berkshire in 1978.
"Buffett began to buy stocks for Diversified. Principally he followed the Wattles model and bought stock in Blue Chip and Berkshire. Soon, Diversified would own 10% of Berkshire. It was almost as if Berkshire was buying back its own stock -- but not quite."
"He was now [1974] very, very rich but cash poor. The companies he controlled, especially Berkshire, had cash to buy stocks, however. To move some of Berkshire's money to Diversified [a retailing company owned by Buffett], Buffett set up a reinsurance company in Diversified."
So Diversified was a reinsurer of the Berkshire insurance company and therefore received premiums. Diversified would merge with Berkshire in 1978.
"Buffett began to buy stocks for Diversified. Principally he followed the Wattles model and bought stock in Blue Chip and Berkshire. Soon, Diversified would own 10% of Berkshire. It was almost as if Berkshire was buying back its own stock -- but not quite."
Interesting. I read those pages on Amazon. It was pretty sneaky. He basically used a company he controlled (Diversified) to receive cash from Berkshire so he could cement his control of Berkshire and Diversified.
He basically built a perpetual motion machine of money through the acquisition of insurance companies and then used that money to obtain control of those companies.
I think he has a great sense of fun buying a train company in his eighties. He can play real choo choos all day long on a real train. Don't know if it has ever made him a profit though ?
Of course super fast trains ( 300 mph ) could be the future of medium range travel ( 100 to 600 miles ).
Of course super fast trains ( 300 mph ) could be the future of medium range travel ( 100 to 600 miles ).
If you know insurance, there are no problems with float. Maybe some of us should do an insurance startup and make real cash....
Buffett's "secret" was that he:
A. Worked at Graham Newman Corp. From which he retained clients after leaving the company to invest for himself/create his own fund. Also, Graham Newman bought Government Employee Insurance Company (GEICO) and as a mutual fund distributed Geico shares to investors and employees.
B. Used his own fund to generate profits and cash flow with which he began to acquire shares in Berkshire (in its initial textile company state).
C. Cashed out his own fund when "value could no longer be found" in the market.
D. Invested majority/ all of personal wealth in Berkshire to acquire a controlling stake, buying out partners on the cheap after dissolving his own fund.
E. Used Berkshire's profits as investment capital
F. Bought the rest of GEICO out of bankruptcy, adding to his stake from Graham Newman Corp.
G. Used GEICO's insurance premiums to invest in stocks and buy companies outright.
Etc.
A. Worked at Graham Newman Corp. From which he retained clients after leaving the company to invest for himself/create his own fund. Also, Graham Newman bought Government Employee Insurance Company (GEICO) and as a mutual fund distributed Geico shares to investors and employees.
B. Used his own fund to generate profits and cash flow with which he began to acquire shares in Berkshire (in its initial textile company state).
C. Cashed out his own fund when "value could no longer be found" in the market.
D. Invested majority/ all of personal wealth in Berkshire to acquire a controlling stake, buying out partners on the cheap after dissolving his own fund.
E. Used Berkshire's profits as investment capital
F. Bought the rest of GEICO out of bankruptcy, adding to his stake from Graham Newman Corp.
G. Used GEICO's insurance premiums to invest in stocks and buy companies outright.
Etc.