Lessons from Berkshire Hathaway
The shareholders asked a variety of questions and the duo offered great answers. Here are 5 main lessons learnt from the Q&A session. Read More:
What are the spending plans of $96.5 billion cash stockpile?
For the first quarter earnings report, Berkshire Hathaway revealed that it has a cash stockpile of $96.5 billion. Berkshire is just one of the companies with large stockpiles of cash but the difference is that most of its cash is with the United States boarders.
Buffet revealed that he is planning to always keep a minimum of $20 billion in its balance sheet. This means that the company has a huge opportunity to invest in more stocks and acquire majority shareholding in other businesses.
Charlie Munger reported to the shareholders that Berkshire Hathaway has a capacity to close even a $150 billion deal on condition that it sells some stocks and takes some debt.
The problem according Berkshire Hathaway is that good deals are hard to come by these days. This fact that good deals are hard to find contributes to the large stockpiles reported.
Buffet said that his motivation to start using the cash is that the company has plans to acquire firms which will give a competitive advantage for the next decade. The companies to be acquired shall have competitive management teams and above all their selling price should be fair.
Warren Buffet in his annual letters to the Berkshire Hathaway shareholders outlines criteria for business acquisition. Further, Buffet noted that if the shortage of good deals persists, Berkshire Hathaway may decide to scale out its buyback criteria. That notwithstanding he has optimism that he will find ways to spend the excess cash.
What would be the effect of lower tax rates for Berkshire?
Donald Trump has been associated with Tax reform since he ascended into power. The president has been proposing lowering corporate taxes from 35 percent to 15%. The Berkshire shareholders wanted to know how lower tax rates will affect business and how much benefit will shareholders get.
Buffet assured the shareholders that changes in tax rates will benefit them. In addition, the savings made by the business will most likely be passed to the shareholders. Above all, Berkshire is able to do well in any economic landscape. He pointed out to the shareholders that in the past Berkshire had even performed well under prohibitive tax regimes.
Buffet still likes index funds
Warren Buffet expressed his love for S&P 500 index funds. Recently he has been a great advocate of these funds. To show you how serious that is, Buffet has actually advised his wife to invest in index funds after he dies.
He further elaborated that if you an investor who does not want to get worried, then invest in index funds. The index funds are mostly likely to perform well over a long period of time.
There is a wide gap between railroads and airlines
Many shareholders were caught by surprise when Berkshire invest in four of the largest US airlines. Buffet had invested in railroads which performed poorly. Where asked about decision he said that airlines are different from railroads.
All business firms have challenges
Warren Buffet responded to questions about Wells Fargo and its business model of “fake accounts.” He mentioned it is still a great company despite the serious mistakes that the company management committed.
Buffet noted that Berkshire does not abandon its investments because of the challenges that they are facing. A good example is United Airlines. The point is the investor should be part of the solution. This is very important point.