Finding Your Edge a Key to Investing Success

By John P. Reese The mathematician Ed Thorp figured out how to beat Las Vegas casinos at blackjack and baccarat and they didn’t like it. But the MIT and University of California Irvine professor didn’t get discouraged. He applied those same mathematical principles to the markets, and also won. Mr. Thorp knows that good ideas have limited runs. As more investors pile into a winning trade, the returns start to diminish and the idea can no longer outperform the market. During a recent Bloomberg interview with Barry Ritholtz, Mr. Thorp discusses this phenomenon in the context of Berkshire Hathaway, whose […]

Buffett and Berkshire Focusing More on Running Businesses than Stock-Picking

In his February letter to shareholders, Warren Buffett wrote that Berkshire Hathaway is seeing a “gradual shift from a company obtaining most of its gains from investment activities to one that grows in value by owning businesses.” This according to a Wall Street Journal article from earlier this month. The trend is being underscored by the company’s recent bid to purchase the bankrupt power-transmission company Energy Future Holdings Corp. (including utility company Oncor) for $9 billion. The shift began in 1999, the article says, with Berkshire’s first utility purchase, and gained steam with the conglomerate’s acquisition of Burlington Northern Santa […]

Buffett’s Airline Bet and Four Picks

In anticipation of its Prime Day this month, Amazon prepared for an onslaught of orders by “getting its delivery ducks in a row, including a fleet of over 20 dedicated Prime Air Cargo planes,” writes Validea CEO John Reese in a recent article for Nasdaq. Reese segued into Warren Buffett’s bet on major airlines and his general investment approach. Using stock screening models he created based on the methodology of Buffett and other market greats, he identified the following high-scoring airline stocks: Delta Air Lines Inc. (DAL) provides scheduled air transportation for passengers and cargo throughout the United States and […]

Berkshire’s Oncor Deal Feeds Buffett’s Energy Appetites

Berkshire Hathaway arrived at a deal to purchase one of the country’s largest power-transmission companies, making electricity one of the conglomerate’s biggest businesses. This according to a recent article in The Wall Street Journal. The bankrupt Energy Futures Holding Corp. will be acquired by Berkshire Hathaway in a deal valued at $18 billion ($9 billion of which will be cash), the article says, and will include the Texas-based company Oncor. The acquisition will further enhance Buffett’s energy holdings and ambitions, the article says, adding that Berkshire Hathaway Energy (BHE) contributed about 9.5% of Berkshire’s total earnings of $24.07 billion last […]

Warren Buffett Has Been Busy

The Oracle of Omaha has had a full dance card lately, as reported by CNBC and The Wall Street Journal: A CNBC article reports that, as of June 22nd, Buffett’s bets on four major airlines came in for a major landing, gaining $174 million from the market’s close the day before (according to SEC filings). The holdings are in American Airlines, Delta, United and Southwest Airlines. According to The Wall Street Journal, Berkshire Hathaway agreed to lend 2.4 billion Canadian dollars ($1.8 billion) to struggling Canadian mortgage banking company Home Capital Group—which has recently suffered an exodus of investors, the […]

Learning from Buffett and IBM

Warren Buffett’s announcement prior to this year’s Berkshire Hathaway annual meeting to sell a third of the firm’s IBM shares spurred a host of headlines, writes Validea CEO John Reese in a recent article for Nasdaq. In the article, Reese explains that while Buffett is known for his penchant to buy and hold, the article explains how the firm’s partial sale of IBM holdings is aligned with his philosophy around and focus on competitive advantage. Reese quotes Buffett from a recent CNBC interview: “IBM is a big strong company, but they’ve got big strong competitors too.” Reese adds, “When circumstances […]

Highlights from Berkshire Hathaway’s 2016 Letter to Shareholders

On Saturday, February 25th, Berkshire Hathaway released its much-anticipated 2016 letter to shareholders in which Warren Buffett presents his company’s results for the year and shares his inimitable insights and wisdom. Here are some highlights (Part I was posted yesterday): “Starting from scratch, America has amassed wealth totaling $90 trillion.” Meg McConnell of the New York Fed: “We spend a lot of time looking for systematic risk; in truth, however, it tends to find us.” Berkshire has $86 billion in cash on hand—perhaps the most ever. “We have made no commitment that Berkshire will hold any of its marketable securities […]

Highlights from Berkshire Hathaway’s 2016 Letter to Shareholders

On Saturday, February 25th, Berkshire Hathaway released its much-anticipated 2016 letter to shareholders in which Warren Buffett presents his company’s results for the year and shares his inimitable insights and wisdom. Here are some highlights: Berkshire has undergone a “gradual shift from a company obtaining most of its gains from investment activities to one that grows in value by owning businesses.” The company’ present course is to: Continue to build insurance operation; Acquire large and diversified non-insurance firms Make deals largely with cash In discussing the issues surrounding issuance of additional shares, Buffett is forthright in admitting mistakes. “I made […]

A Little-Known Buffett Home Run

Long before Berkshire Hathaway became the acquisition behemoth it is today, Warren Buffett was primarily involved in the insurance business. That hasn’t changed, and these operations have been some of his biggest and most successful ventures. In an article for CNBC, Validea CEO John Reese describes how the Oracle’s foresight back in the 1970s led to a relatively unknown but impressive investment win. Insurance companies rely heavily on data for their risk analysis and pricing. Back when Buffett was trying to build strong businesses, he joined a consortium of large insurers to form Verisk Analytics (whose name combines the Latin […]

Berkshire’s Close-Ended Investment Model – Simple and Successful

Every year, droves of shareholders attend the Berkshire Hathaway annual meeting, some lining up before sunrise to get front row seats. The high point of the event is the question-and-answer session with Warren Buffett and Charlie Munger, celebrities in the investment world. It makes perfect sense that attendees want to pick the brains of these market moguls. They have enjoyed enormous success with the simple, closed-end fund strategy of establishing close engagements and long-term commitments with well-run, fundamentally strong companies. Buffett isn’t a fan of micro-managing his acquisitions. He leaves that to the folks who have been doing it well […]

Top Value Investor Chris Davis on the Value in Financials

Chris Davis, chairman of the value investing shop, Davis Advisors, and portfolio manager of multiple Davis funds including the Davis Financial Fund, talks about a wide range of investing topics with WealthTrack’s Consuelo Mack.  One of the key points he makes early in the interview is that financial firms with the right culture and the right business can be “compounding machines” over many years or decades. Many financials are growth stocks disguised as a value stocks, says Davis. Davis explains there is a secular opportunity in financials, because of their long term growth prospects, but a cyclical opportunity exists as […]

Fidelity Manager Shares Top Lessons Learned from his Berkshire Pilgrimage

Jamie Harmon, Portfolio Manager of Fidelity Advisor Small Cap, shared some takeaways from his 18 years of attendance at the Berkshire Hathaway annual meeting. In an interview with Andrew Daniels of Morningstar, Harmon said, “I think the thing that I really focused on from this year is the importance of great management and how they [i.e. Buffett and Munger] try to find great management in the companies that they buy, and they try to nourish and encourage great management that they already have.” When asked how he handles short term fluctuations in stock price, he said, “I try not to […]

All Things Buffett

In the spirit of Berkshire’s Hathaway’s annual meeting this weekend, we thought it would be good to put together a list of articles and links that may be interesting for Buffett followers. We’ll continue to update this from time to time as we find interesting Buffett-related commentary. Berkshire Hathaway’s annual letters (1977-2015) – Buffett’s shareholder letters are jam-packed with Buffett wisdom. Must-reads. If you don’t have the $219,000 to put up for Berkshire’s A shares, the company’s B shares are another option. WSJ has a good read on the creation of that class of stock. Ever wanted to track Berkshire’s […]

Be Like Buffett: Go Low — Low-Beta, That Is

Conventional wisdom has long held that, in investing, greater risk leads to greater reward. But over the past couple years, new research has turned that idea on its head, and in his most recent Seeking Alpha article, Validea CEO John Reese looks at some of the implications for investors. “In Betting Against Beta, Andrea Frazzini and Lasse Pedersen found that [Warren] Buffett’s Berkshire Hathaway has beaten the market over the long haul by focusing on low-beta stocks, and using leverage – other people’s money – when buying them,” Reese says. “Most investors can’t use large amounts of leverage, however. Instead, […]

Would Lynch, Buffett, and Graham Like Apple, Facebook, and GE?

How do Apple, Facebook, Berkshire Hathaway, and other market giants stack up against the strategies used by history’s greatest investors? In his latest column for Forbes.com, Validea CEO John P. Reese takes a look at how 10 market titans fare, and the results might surprise you. Reese notes that, historically, small stocks have beaten large stocks by a significant margin. Small stocks have an advantage because they can fly under the radar in a way that larger stocks cannot, and they usually come with an added risk premium because they tend to be less stable and more susceptible to bankruptcy. […]