Warren Buffett Investing

Ok...Ok...

investr — Wed, 24 May 2006 04:39:00 GMT

Bob did a good job of explaining the difference between a and b shares, the reason for the two classes...I'm not sure, but I'll take bob's word for it.

Warren is not "leaving out" responsible shareholders by keeping the price high. And by "leaving the price high" I'm assuming c_man_md means BRK not splitting its shares. Any real investor would pay 3k per share if it is believed 3k is a good price to pay.

Reasoning: By not splitting shares he leaves a consistant number of shares outstanding and therefore is able to increase the book value of BRK. Splitting shares has no benefit to the current shareholders or the company, and only causes more price volatility to new investors entering and exiting.

Dividends: Yes I agree with the comments on taxes and dividends. Yes I agree dividend paying companies have performed very well over time, then compare those companies to BRK which has also done well over time (which typically hasn't paid a dividend)...so an argument can't be made there. If the comapany was going to issue a dividend and my plan was to buy more shares of the company with said dividend, I'd prefer they used the money to increase their book value, thus making the company more valuable. Increasing book value in his company, and buying companies that increase their book value is how Warren invests. It's how investors invest in companies by paying prices of shares that aren't too far from the book value of a company. Value investing is a mindset...some people take to it...some people don't.

Originally posted in thread: 179

A Buffett Basic

Dr. Bob — Wed, 24 May 2006 03:40:00 GMT

Of of Buffett's basic beliefs is that if a company is worth investing in, it is worth a major part of your wealth. So most of the major players (Warren, Charlie Munger, their families, etc. have the fast majority of their wealth in Berkshire.

He would argue that if you are not willing to put 3K into a Class B share, but would rather put it in mutural funds or divide it up amongst funds, that you are not "serious" about liking Berkshire as an investment.

I am not arguing for this point, although I tend to believe it, but it is clear that this is part of Buffett's way of doing business.

Om Berkshire's own portfolio, he has major investments in a rather small number of companies (stocks) rather than following the mutual fund idea of investing amongst a very wide list.

Bob

Originally posted in thread: 179

Yeah, but...

c_man_md — Wed, 24 May 2006 03:31:00 GMT

OK true about the dividends being double taxed. But, there has been tax relief on dividends; plus, the corporation is still being taxed its 35% anyway whether it distributes it or not and stocks with reasonable dividends have, in the past, performed better and more stably over time than non dividend-paying stocks. And, of course, it's cool to build up your shareholdings by dividend re-investing (which in and of itself dollar-cost averages). I firmly believe that, when a corporation has a boatload of cash just sitting around, they should issue a dividend and share the wealth with their shareholders. It's part of the whole reason for being a shareholder!

Actually, not to get off topic, most of those mutual funds that do charge $3,000 minimums will waive that up front minimum if you set up the $50 or $100 per month automatic investments. So I disagree with you about it being like a mutual fund with an average minimum. How many people really pay that minimum on a mutual fund, rather than sign up for the automatic monthly investment? Probably not a lot.

Yeah I think Warren is being a little stingy...

Originally posted in thread: 179

BRKB Hits 52 week high

Dr. Bob — Tue, 23 May 2006 04:14:00 GMT

Just a not that BRKB shares hit a 52 week high while the rest of the market is down significantly.

Suggests that BRK offeres some offsetting protection from down markets??

Bob

Originally posted in thread: 179

BRK.B dividends and share price

goodness0001 — Mon, 22 May 2006 16:25:00 GMT

Issuing a divident is a very inefficient use of shareholder capital because that money is double taxed. The corporation pays taxes around 35% of net income and then paying it to shareholders would cost another 15% in taxes to the shareholder.

Berkshire says in their shareholder manual that they will review every 5 years where to pay out their cash in a dividend if they can't redeploy the cash back into other opportunities that will have a higher return.

As far as the high share price, the Class B shares are not much more than most mutual funds require as an initial investment. Berkshire is really like buying a mutual fund, without any of the expenses.

Just my 2 thoughts.

Originally posted in thread: 179

In other words...

c_man_md — Sun, 21 May 2006 21:11:00 GMT

...Warren doesn't want speculators taking control of Berkshire Hathaway. Well, I can't blame him. But really when you get right down to it, the speculators are just as much the corporate and insitutional investors (who are probably the only ones who can actually afford significant amounts of BRK.A) as the mom and pop middle-class IRA investors or day-traders who drove the tech bubble in 1997-2000: both are equally irresponsible entities. So personally I don't see any difference in the human nature of big shareholders and little shareholders, if that is what Warren is getting at. Corporations and institutions can be just as irresponsibly speculative on their stocks as the middle class married couple or your average gung-ho day-trader. IMHO.

Anywho, it's still ridiculous. With the "democratization" of the market, Warren is leaving out a lot of people who could be just as good "responsible" shareholders by keeping BRK.A and even BRK.B price so high. I would think even BRK.B is higher than most average shareholders would want to buy.

And if Warren wants this "different" kind of less-speculative, more responsible shareholder on his hands, why does he not issue a dividend??? Without the dividend you're turning BRK.A and .B into growth stocks.

But that's just me.

Originally posted in thread: 179

BRK A va BRK B

Dr. Bob — Sat, 20 May 2006 21:07:00 GMT

The two types of shares are essentially the same, except for the cost. Warren has refused to split the shares (in the traditional sense) to get a lower share price and reports that Berkshire wants a very different type of shareholder (in for the long run, minimally concerned about daily price fluctuations, and minimal transactions) and the high price associated with Class A shares maintains this.

Berkshire started to offer the Class B shares after (1) stockholders wanted a mechanism to gift shares to family members, and the gift tax limit is $10,000 ( so in the beginning you could gift a Class A share and it was less than 10K, but as the price rose this became impossible) and (2) private funds were getting ready to buy the Class A shares and then sell fractional interests via their fund.

Warren wanted to accomondate the first and prevent the second.

The floor manger for the Berkshire shares on the trading floor works to keep one Class B share = 1/30th of a class A share. It is not always a perfect 1/30th but it is often very close.

Berkshire also wants the price of the share to accurately reflect the underlying value of the business, and thus have minimal fluctuations.

The Class A shares also have a bigger voting right than the Class B shares (memory tells me that the Class B shares have a 1/200th of a vote even though they are about 1/30th in price.

Bob

Originally posted in thread: 179

BRK.A vs. BRK.B

c_man_md — Sat, 20 May 2006 18:41:00 GMT

What is the big difference between owning Berkshire Hathaway Class A shares vs. Class B shares? What's the big deal about the A shares that makes them more expensive (way more expensive)?

Originally posted in thread: 179