Buffett dines out on a good result: You can too!

The enduring brand "Coca Cola" is one of the companies that
has made Warren Buffett's investment portfolio such a rip
roaring success.


*Get the latest Warren Buffett letter to shareholders here- Direct PDF 464 KB
*In blog format

*letters going back to 1977 also available here


Let me pick out some of my favourite parts from warren Buffett's latest letter to Berkshire Hathaway(BRK-A) shareholders. Gems of investment gold for readers to take on board:


"Insurance float – money we temporarily hold in our insurance operations that does not belong to
us – funds $59 billion of our investments. This float is “free” as long as insurance underwriting breaks even, meaning that the premiums we receive equal the losses and expenses we incur. Of course, insurance underwriting is volatile, swinging erratically between profits and losses. Over our entire history, however, we’ve been profitable, and I expect we will average break even results or better in the future. If we do that, our investments can be viewed as an unencumbered source of value for Berkshire shareholders".

That 59 billion that Berkshire Hathaway has isn't profit or retained earnings it is cash flow that has come in directly through the company's many insurance business.

That shows the importance in business that cash flow has and what you can do with it. In Buffett's case he has spun-off proceeds from the big money earner to use to buy other businesses. This is something I do with my share portfolio. The big dividend payer(around 15% net annual div) Sky City Entertainment(SKC) I have used consistently to buy share holdings in other companies I like, the NZ$20000.00 I receive in annual dividends from SKC and my other portfolio holdings have helped build my holdings consistently.

Nowhere as big as the Big Buffett Boy's portfolio but who knows, I could get there in the end.

Buffett and his business partner Charlie Munger have strict criteria when picking businesses to buy:


'Charlie and I look for companies that have a) a business we understand; b) favorable long-term
economics; c) able and trustworthy management; and d) a sensible price tag. We like to buy the whole business or, if management is our partner, at least 80%. When control-type purchases of quality aren’t available, though, we are also happy to simply buy small portions of great businesses by way of stockmarket purchases.

It’s better to have a part interest in the Hope Diamond than to own all of a rhinestone.
A truly great business must have an enduring “moat” that protects excellent returns on invested
capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business “castle” that is earning high returns.

Therefore a formidable barrier such as a company’s being the low cost producer (GEICO, Costco) or possessing a powerful world-wide brand (Coca-Cola, Gillette, American Express) is essential for sustained success. Business history is filled with “Roman Candles,” companies
whose moats proved illusory and were soon crossed".

I simply love the idea of what Buffett calls a "moat" business and the importance he places on that moat being retained as long as possible so as to achieve spectacular returns.

It is hard to pick a moat business in New Zealand but one that I think fits his criteria somewhat is Goodman Fielder(GFF), the Australasian food giant, that I have a small holding in. While not as moat worthy as Buffett's large shareholding in Coca Cola(KO) or Gillette, GFF is more like Buffett's shareholding in the company, Kraft Foods(KFT).

Plenty of brand strength, easily understood companies and steady, if not solid cash flows.

People have to eat!

While Buffett commented on the sad state of Americas trade imbalance with the rest of the world, especially China, pointing the finger at overspending US citizens on credit, he also looked for the long-term in his country's economy:


"At Berkshire, we will attempt to further increase our stream of direct and indirect foreign earnings. Even if we are successful, however, our assets and earnings will always be concentrated in the U.S.

Despite our country’s many imperfections and unrelenting problems of one sort or another, America’s rule of law, market-responsive(capitalistic) economic system, and belief in meritocracy are almost certain to produce ever growing prosperity for its citizens".

Very true, but longer term China is going to finish first, if it doesn't return to that other "ism", communism.

The United States must turn its hand at being a much larger exporter, its goods are in high demand overseas and its lower dollar makes China a very big opportunity for them indeed. Their protectionism when it comes to trade must be lowered dramatically.

Now while Buffett's politics are more to the left of centre and mine are more truly capitalist, I would give Buffett more benefit to himself for his success in life rather than his "start in life":

"At 84 and 77, Charlie and I remain lucky beyond our dreams. We were born in America; had
terrific parents who saw that we got good educations; have enjoyed wonderful families and great health; and came equipped with a “business” gene that allows us to prosper in a manner hugely disproportionate to that experienced by many people who contribute as much or more to our society’s well-being.

Moreover,we have long had jobs that we love, in which we are helped in countless ways by talented and cheerful associates. Every day is exciting to us; no wonder we tap-dance to work. But nothing is more fun for us than getting together with our shareholder-partners at Berkshire’s annual meeting. So join us on May 3rd at the Qwest for our annual Woodstock for Capitalists. We’ll see you there".

Buffett is wrong, the "business gene" that he talks about is inside everyone. While Warren may have been lucky in business and investing a few times, it is what he learn't for himself that made him the success he is today.

He studied, worked hard and had the stick ability and long-term goals to be able to achieve what he did.

Most of us are capable of the same.


Related Share Investor reading

Warren Buffett's 2007 letter to Berkshire Hathaway highly anticipated
Warren Buffett 2007 Letter in Blog Format
Global market meltdown: What is Warren Buffett doing?
The Intelligent Investor: Book review


Related Amazon Reading



The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham
Buy new: $14.95 / Used from: $10.74
Usually ships in 24 hours


c Share Investor 2008

Warren Buffett's 2007 letter to Berkshire Hathaway shareholders highly anticipated

Warren Buffett's Legendary letters to Berkshire Hathaway shareholders
will be even more poignant in 2008. Investors around the world will be
looking for words of wisdom from "The Sage of Omaha" given the current
market and economic turmoil.


Berkshire Hathaway Annual Letter to Shareholders 2008 - Read the latest Berkshire Letter; out 28.02.09.

Berkshire Hathaway Annual Letter to Shareholders 2007



*letters going back to 1977 also available here


Warren Buffett's letters to Berkshire Hathaway shareholders(BRK-A) are legendary long winded things.

The release of today's letter in a few hours will be perhaps more anticipated than most. Market turmoil, credit crunches and the like will see investors flock to read what he might be doing at this time and where he might be heading and indeed where he sees the world economy going in the short to medium term.

These opus' of Buffetts generally run on for 20 pages or more but they usually contain more than their fair share of sage advice from the worlds most successful investor the world has ever seen.

I anticipate that he will see opportunity rather than negativity, as assets retreat in value and he can see these assets fall into his mantra of businesses as "value investments".

Berkshire had an investment gain of over US$12 billion dollars in 2007 and the share price over the last year increased from just over $100,000.00 to just over $140,000.00.

You can read the whole Warren Buffett letter here but I would just like to quote a very illuminating piece from its 21 very interesting pages:

" I made an even worse mistake when I said “yes” to Dexter, a shoe business I bought in
1993 for $433 million in Berkshire stock (25,203 shares of A). What I had assessed as durable competitive
advantage vanished within a few years. But that’s just the beginning: By using Berkshire stock, I
compounded this error hugely. That move made the cost to Berkshire shareholders not $400 million, but
rather $3.5 billion. In essence, I gave away 1.6% of a wonderful business – one now valued at $220 billion
– to buy a worthless business.

To date, Dexter is the worst deal that I’ve made. But I’ll make more mistakes in the future – you
can bet on that. A line from Bobby Bare’s country song explains what too often happens with acquisitions:
“I’ve never gone to bed with an ugly woman, but I’ve sure woke up with a few.”

You wont find many CEO's detailing their mistakes in company reports, especially with such, candour, humour and a willingness to take responsibility for them.


Related Share Investor reading

Berkshire Hathaway Annual Letter to Shareholders 2008 - Read the latest Berkshire Letter
Berkshire Hathaway Annual Letter to Shareholders 2007
Warren Buffett 2007 Letter in Blog Format
Global market meltdown: What is Warren Buffett doing?
The Intelligent Investor: Book review

Related Amazon Reading



The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham
Buy new: $14.95 / Used from: $10.74
Usually ships in 24 hours


c Share Investor 2008

Sacha Cobern's column a slap in the face for Deborah Morris-Travers

Sacha Cobern has this week sparked debate from those sensible people with commonsense, who believe smacking a child should be a valuable tool in a parents toolbox and that government have no business putting their sticky beak noses in our business. The fear that parents now have over the anti smacking law, has already led to many parents labeled as abusers for lightly smacking their kids and has undermined the authority of good parents all around the country.

I am aware myself of two cases of children telling on their parents and these two accounts haven't hit the media like others have, probably because parents want to keep things secret for fear of being labeled abusers by do gooder socialists. There are bound to be more of these undisclosed cases.

Sacha's piece has sparked a violent, incoherent, high minded and intellectually offensive outburst by a former minister of Parliament, Debra Morris-Travers, an employee of the State backed Barnardos, a former advocate for children but now an extension of the Labour Party propaganda machine.

"If anything, that side of the debate has been too earnest and intellectually-based and that's why so few people seem to understand what has driven the law change.

The media's refusal to give coverage to the evidence and research supporting the law change is the only reasonable argument for a lack of intellectual rigour in the debate".

Morris-Travers contends that she practices what she calls "positive parenting" so by exclusion labels parents who smack negative and clearly criminal for "assaulting" their children by lightly smacking them.

In another poke at the average Kiwi she labels them as too stupid to understand the "intellectual debate" over the repeal of section 59, when it is clearly very simple, parents need to be able to correct their children's behaviour with every reasonable tool possible. Nothing complicated about that.

Like Helen Clark she blames the media for it not revealing the facts supporting her case. The reason none have been forthcoming is that those "facts" do not exist.

Read both and then decide for yourself who is talking garbage and deserves a smack on the behind.


c Political Animal 2008

Sacha Coburn: Smack on the hand worth time in jail

5:00AM Tuesday February 26, 2008, NZ Herald
By Sacha Coburn

The Smacking Debate

• Deborah Morris-Travers: Lead by example, not with violence
• Garth George: Full up and fit to burst on a gutsful of Govt ideology

I agree with Bob McCoskrie and Larry Baldock. Eight words which churn my stomach as I write them. When left-leaning, social liberals like me are forced to align with the fundies speaking in tongues and organising petitions, you know our little country at the bottom of the world has gone mad.

I want to smack my daughter. At least twice today I'm likely to threaten it and may even make meaningful preparations to carry it out. Send her to her room. Get the wooden spoon out of the drawer. Enough to be arrested for an attempted smack, I'd have thought. Is it wrong to fantasise about a night in the lock-up?

"You mean that in solitary I'd be by myself for 23 hours in a row?"

Smacking my son was a parenting strategy of last resort and was immediately effective when dealing with defiance and dangerous situations. I've never smacked in anger and never without issuing a final warning first. I'm a text-book smacker. Pin-up girl has a certain ring to it.

But now, with my precious Portia, aged 2 years 8 months, my tool box is looking a little empty.

"No," she says. "I won't put my seat belt back on." Try reasoning, Aunty Sue B suggests. "If we crash, you'll get hurt."

"No, I didn't."

Try praising the good behaviour, says Aunty Cindy K.

"Mummy loves it when you wear your seatbelt."

"No! I love Daddy!"

Wait out the bad behaviour, advises Aunty Dianne L.

Good idea until my phone rings: "Hello Sacha, are you coming to get your son from school today? It's 5.30pm and the cleaners are going home."

"Not yet," I reply. "Just wearing Portia down, should be there by midnight."

Scare her, suggests my guardian demon.

"If you don't put it back on, tonight I'll close your bedroom door and leave the light off." Cue screaming, but still no seat belt. What kind of parental monster uses fear of the dark as a legitimate tool?

The problem for me is that I love the law and the democratic process. As a lawyer, I understand the benefits of obeying the law and the potential consequences of disregarding it. I want to parent within the law and I want to be able to use smacking as one of many parenting tools.

I'm a bloody good parent; well-read, patient, on the Board of Trustees even. I know that clothes driers are for clothes only and that I shouldn't leave my child with the man next door who's on bail awaiting trial for manslaughter. I understand the food pyramid and surely I get brownie points with the Greens for breastfeeding both babies past 12 months.

I don't believe smacking is for every parent or every child. I don't believe that it's an effective tool once children get beyond four or five. I wouldn't insist that you smack your child, but I don't believe Parliament fixes anything by taking away my right to smack mine.

Sue Bradford told us that we had to stop treating our children as property. They are people too, with their own minds and their own rights. Illuminating stuff. But the police officer who pulled me over and asked why my child was wandering willy-nilly around the backseat didn't buy it. I am apparently totally responsible for her well-being and behaviour, but not to be trusted when it comes to making parenting decisions about how to develop her sense of right and wrong.

Perhaps the most frustrating aspect of the whole smacking debate is the lack of intellectual rigour evident on both sides of the issue. To continue the rhetoric about child abuse and smacking having any casual link is absurd - as all of us who were smacked-not-beaten as children can attest. And to suggest on the other hand that God gave us the right to smack is equally offensive - he also okayed some other pretty dodgy ideas.

The obvious victims remain. Children who are violently abused in their homes are no more protected than they were before the law change. But my own daughter is undoubtedly a victim too and our whole family suffers the consequences of her strong sense of self-above-all-else.

She has, in the past six months, learned that there are few sanctions I can impose on her that are meaningful enough to deter her from her intended course of action. She knows that if she screams loudly and for long enough she might not get her way but, by golly, there'll be a flurry of action around her. In short, she has learnt that behaving badly works.

How ironic if, in years to come, the lack of corrective smacking in childhood is raised in mitigation of criminal offending.

* Sacha Coburn is a Christchurch businesswoman, lawyer and mother.

Helengate: Retreat while you are behind

c Emmerson 2008



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Watch Video: Winston's outburst

New Zealand Herald Feature: Democracy under attack

Continuing with her media attack this week, the mother of the nation, Ms Clark drew on the similarities made by journalists, also by Political Animal, between the ousting of a Journo from Fiji this week and Clark's paranoid attack on the media and especially the NZ Herald this week.

She, however, didn't see the obvious similarities that the New Zealand public saw emphasised by this quote from the Prime Minister:

"Democracy of course involves elections but it also involves freedom of media and freedom of speech and you're not going to be able to have a proper democratic process and elections in a years time unless those basic freedoms are upheld."

Earlier on this week Clark's paranoia escalated to lithium sized proportions when she attacked the Herald for running an active campaign for the last 91 years to discredit Labour and that the papers revelations last year over the anti freedom and anti democratic Electoral Finance Act were motivated by greed and a lust to retain advertising on the Herald's part.

Clark of course forgets that the majority of the media also railed against her fascist bill and most sensible people will tell you that the Herald is far left of centre, mostly favours Labour and has done so for her 9 years in the big swiveling chair.

Her Husband, Peter Davis, has dropped his apron and rubber gloves to pen another opus to the NZ Herald over what he calls the papers "happy mischief and headlines" and their attacks on Labour, Owen Glenn, and his rather uniquely attractive wife.

"The Herald has had great fun at the expense of a wealthy donor and a political party.

Fair enough, perhaps, but does this incident not underline how perilous it is for our system of electoral financing to be so dependent - as it is - on (generally secretive) wealthy individuals and corporates?

Electoral financing in most well-ordered countries relies on a judicious mix of expenditure limits, state subsidies, individual contributions, and some transparent, larger donations.

Is it not about time the Herald did some even-handed reviews of the area, rather than just foment happy mischief and headlines?"

Dr Peter Davis, Kingsland

Now I'm not sure if Dr Davis has stopped taking his medication but he writes about "secretive, wealthy" people giving money to political parties but that is the very thing the subject of his letter is about. Glenn loaned $100,000.00 secretly to the Labour Party in 2005!

Now I'm not against individuals or corporates giving any amount of money to a political party, there should be no limits, as is the case in many civilised democratic countries, but I do agree with Davis that those donations should be made in a transperent way.

"some transparent, larger donations"

Davis is clearly referring to Owen Glenn's $500,000.00 donation to Labour for the funding of the 2005 election and it is also significant to the 2008 election because Labour added a specific clause into the Electoral Finanace Act to allow donations for expat individuals such as Glen, who live mostly overseas, to give to the party.


"Is it not about time the Herald did some even-handed reviews of the area"

Obviously Davis shares this view with his good wife and they seem simpatico on such matters.

What galls about New Zealand's first couple attacking the media and the Herald specifically, is that they are merely reporting what has transpired. It happened, get over it, move on, its getting bloody tired and quite frankly not a very statesman like way to behave.

Because you don't agree with it, it doesn't mean you should try and shut down debate by throwing your pitiful socialist labels around like a drunken teenager ejaculating on his bedsheets.

I'm embarrassed for her and her administration and look for more in a leader.

Labour's chief lap-dog Winston "Baubles" Peters also got into the act today. He abused media in a press conference that looked like something from "Yes Minister" crossed with "The Osbourns" and brought back distant memories of a drunken Rob Muldoon, Prime Minister back in the 1970s -80s.

Did Winston have a drink or two on the plane back from meeting with Condoleezza Rice in Korea or did he have a quick swig of duty free in the Airport toilets prior to going before the cameras?

Of course first class travel, five star hotels and late nights can be very stressful.

This attack on the media from the left just has to stop, not for their sake, because it is clearly comedy gold for the media, but for the sake of the Labour Party and its prospects for the coming election.

They should be worried.


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Snouts in the trough bent out of shape
The Owen Glenn story: Singing the same tune but hitting a bum note
Victim of Electoral Finance Act forced to close website
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Electoral Finance Bill: Day of Protest Auckland Nov 17, 2007

c Political Animal 2008