Buffett’s Berkshire Hathaway conglomerate pounced on the bank’s shares in late July and early August last year, when they were trading in the $23-to-$25 range, SEC filings show. The stock has surged more than 80% since then to close above $45 on Thursday, marking its highest level since the financial crisis.
As a result, the roughly 85 million Bank of America shares that Berkshire bought last year are now worth $3.8 billion, representing a $1.7 billion gain in 14 months.
Berkshire’s purchases boosted its Bank of America holding to just over 1 billion shares, giving it a 12% stake worth more than $45 billion at the current stock price. The conglomerate’s latest annual report shows it spent less than $15 billion building the position, indicating it’s made an unrealized gain of about $30 billion on the wager.
Buffett’s company has counted Bank of America as one of its biggest holdings for years, so its aggressive buying of the stock last summer might not seem surprising. However, it contrasts sharply with Berkshire’s sale of JPMorgan, Goldman Sachs, and other financial stocks over the past 18 months.
Warren Buffett famously says the first rule of investing is “don’t lose money.” The billionaire investor and Berkshire Hathaway CEO has embraced that principle throughout his career, even comparing aggressive borrowing and reckless trading to gambling with one’s life.
“It is madness to risk losing what you need in pursuing what you simply desire,” Buffett said in his 2014 letter to shareholders. “We will never play financial Russian roulette with the funds you’ve entrusted to us, even if the metaphorical gun has 100 chambers and only one bullet.”
Buffett takes a conservative approach to Berkshire’s finances so that he’s always ready when disaster strikes, he continued. Minimizing borrowing means leaving money on the table, but it also prevents his company from getting into trouble in periods when “credit vanishes and debt becomes financially fatal,” he said.
“A Russian-roulette equation – usually win, occasionally die – may make financial sense for someone who gets a piece of a company’s upside but does not share in its downside,” he said in his 2018 letter. “But that strategy would be madness for Berkshire.”
Buffett deployed the same analogy during Berkshire’s annual shareholder meeting in 1999. He was discussing Long-Term Capital Management, a top hedge fund that had just collapsed under a mountain of debt and derivatives.
“It’s like playing Russian roulette,” Buffett said about individuals risking their wealth and reputation for a chance at making money they don’t need. “If you hand me a revolver with six chambers and one bullet, and you say, ‘Pull it once for a million dollars,’ and I say, ‘No.’ And then you say, ‘What is your price?’ The answer is there is no price.”
Buffett asserted that people, especially the rich, shouldn’t risk failure and embarrassment for any sum. They shouldn’t bet the farm even with a 99% chance of success, he continued, noting that the percentage probability of surviving a round of Russian roulette with a six-chamber revolver and a single bullet is a solid 83.3%.
“Neither 83.3% or 99% is good enough when there is no gain to offset the risk of loss,” he said.
Buffett underlined his views during a CNBC interview in 2018. People only make leveraged wagers because they’re in a hurry to get rich, and they risk going broke and devastating their families, he said.
The investor also shared his reaction when someone tells him they staged a comeback and became wealthy again: “I’m not impressed, because why the hell did they lose their first fortune?”
Warren Buffett advises investors to “be greedy when others are fearful.” Charlie Munger showcased that approach last quarter by doubling down on Alibaba stock while other shareholders rushed for the exit.
Munger is best known as Buffett’s business partner and Berkshire Hathaway’s vice-chairman. However, the 97-year-old has also been Daily Journal’s chairman since 1977, and manages the newspaper publisher and legal-software provider’s investment portfolio.
Daily Journal boosted its Alibaba stake by 83% to more than 300,000 shares in the third quarter, Securities and Exchange Commission filings show. It established a position in the Chinese e-commerce group in the first quarter of this year, marking the only addition to its US stock portfolio since at least the end of 2013, when it began disclosing its holdings.
Munger plowed $40 million into Alibaba in the first quarter of this year, and probably invested another $25 million or so last quarter, based on the stock’s average closing price in the period. However, Alibaba’s US-listed shares have plunged almost 40% this year due to the Chinese government’s crackdown on technology companies, meaning Daily Journal’s enlarged stake was worth only $45 million at the end of September.
Daily Journal owned only nine stocks, worth a combined $350 million with a $80 million cost base, as of June 30 this year. It held four of those – Bank of America, Wells Fargo, US Bancorp, and South Korean steelmaker Posco – along with one other foreign stock and a sixth company’s bonds at the end of 2013, valuing its portfolio at $151 million at the time.
Munger has mostly invested in American companies such as Coca-Cola and Costco throughout his career, making his wager on Alibaba somewhat surprising. However, he did bring BYD to Buffett’s attention, which led to Berkshire plowing about $230 million into the Chinese electric-vehicle company in 2008. The conglomerate’s stake has skyrocketed 30-fold in value to about $7 billion since then.
Warren Buffett warned that failing to raise the US debt ceiling would “probably be the most asinine act that Congress has ever performed.” He also urged legislators to get rid of the limit on how much the government can borrow to meet its existing obligations.
The famed investor and Berkshire Hathaway CEO made those comments a decade ago, but they’re just as relevant today. Democrats and Republicans are squabbling over lifting the ceiling once again, even with the Treasury set to run out of cash by October 18. If the US were to default on its debt, it would send shockwaves through financial markets and the global economy.
President Joe Biden blasted Republicans’ obstructive behavior as “hypocritical, dangerous, and disgraceful” this week. Meanwhile, Senate Minority Leader Mitch McConnell has ruled out bipartisan support to raise the ceiling, arguing it would help Biden pass his sprawling infrastructure bill.
Buffett, speaking at Berkshire’s annual shareholder meeting in 2011, underlined the stupidity of the legislative standoff at that time. He pointed to Indiana lawmakers in 1897 proposing to change the value of pi to exactly three for simplicity’s sake.
“That’s the only bill I can think of that would give competition to a refusal to raise the debt ceiling,” Buffett said.
The Berkshire chief said it was a mistake to have a debt ceiling when the US economy keeps growing, expanding its debt capacity as a result. While he doesn’t necessarily support increasing the national debt as a percentage of GDP, he’s tired of the politics and brinksmanship around the borrowing limit, he continued.
“These games get played, and all the time that gets wasted, and the number of silly statements you hear,” he said. “It just seems such a waste of time for a country that’s got a lot of things to do.”
“I’d love to see them eliminate the idea, because it results in these periodic stalemates where everybody uses it for posturing purposes,” he added.
Buffett asserted the US wouldn’t face a debt crisis as long as it issues debt in its own currency. He highlighted inflation and excessive printing of money as the only real risks of government borrowing.
Charlie Munger, Buffett’s business partner and Berkshire’s vice-chairman, also bemoaned the debt-ceiling dispute at the 2011 meeting.
“It seems to me that both parties are trying to compete to see who can be the most stupid, and they keep topping one another,” he said.
Warren Buffett may be one of the wealthiest people on the planet, but he’s notoriously frugal. The famed investor and Berkshire Hathaway CEO initially balked at the idea of owning a private jet, but grew to appreciate the luxury and convenience.
A triumph over thriftiness
Buffett was riding high in 1986 after growing Berkshire’s net worth by over $600 million or 48% the previous year. He called up Walter Scott Jr., a fellow executive and longtime friend, to ask how he could possibly justify buying a plane for himself.
“Warren, you don’t justify it, you rationalize it,” Scott replied. Buffett followed his advice and “sheepishly” spent $850,000 on a used Falcon 20 jet, author Alice Schroeder wrote in “The Snowball: Warren Buffett and the Business of Life.”
Buffett wrestled with the ostentatious purchase because it clashed with his upbringing and self-image. He was so miserly that when The Washington Post’s publisher and his close friend, Katharine Graham, asked him for a dime to make a phone call at the airport once, he pulled out a quarter and started rushing off to get change. She eventually convinced him to let her squander 15 cents.
“For Buffett, it was like leaping in one bound over Mount Kilimanjaro to go from justifying 25 cents for a phone call to rationalizing two pilots and an entire airplane to carry him around like a pharaoh on a litter,” Schroeder said in her biography of the investor.
Yet Buffett quickly embraced the high life. He sold the first jet and splurged $6.7 million on a different used jet in 1989, he admitted in his yearly letter to Berkshire shareholders. He joked they might “understandably panic” if the cost of upgrading the plane kept multiplying like bacteria, as it wouldn’t be long until Berkshire had its entire net worth wrapped up in a single aircraft.
“Charlie doesn’t like it when I equate the jet with bacteria; he feels it’s degrading to the bacteria,” Buffett quipped, referring to his business partner, Charlie Munger. He also revealed the nickname they had chosen for the uncharacteristic indulgence: “The Indefensible.”
Buffett poked fun at his hypocrisy in his 1992 letter, framing his purchase as a display of “uncharacteristic flexibility.”
“For years, I argued passionately against corporate jets,” he said. “But finally my dogma was run over by my karma.”
Planes and buses
Buffett may be a fan of luxury travel, but Munger considers it frivolous.
“The back of the plane arrives at the same time as the front of the plane, invariably,” Berkshire’s vice-chairman said at the 1994 shareholder meeting.
“His idea of traveling in style is an air-conditioned bus, a luxury he steps up to only when bargain fares are in effect,” Buffett teased Munger in his 1989 letter.
The investor noted in his 1990 letter that if he died the next day, Berkshire’s earnings would jump by $1 million annually as Munger would immediately sell the company plane.
Moreover, when Buffett was asked at the 1994 meeting if a new cross-country service would spur him to cut back on private flights, he jokingly accused Munger of hiring the audience member to shame him.
“This is a question planted by Charlie,” he said, before underscoring how much he enjoys the plane.
“I take it to the drugstore at the moment,” he said. “It’s just a question of when I start sleeping in it at the hangar.”
Buffett ultimately overcame his qualms and championed the plane’s value, rebranding it as “The Indispensable.”
Warren Buffett invoked one of the most famous paintings in history to explain why art is a poor investment.
The billionaire investor tackled the topic in his 1963 letter to clients of his Buffett Partnership, the investment fund he ran before turning his attention to Berkshire Hathaway. He wanted to convey the power of compound interest in building wealth over time.
Buffett noted that Francis I, the former king of France, bought Leonardo Da Vinci’s “Mona Lisa” in 1540 for 4,000 gold crowns, or the equivalent of $20,000. If the monarch had plowed that money into an investment generating a modest after-tax return of 6% a year, the country’s coffers would be overflowing with more than $1 quadrillion by 1963, or 3,000 times its national debt, the investor pointed out.
Meanwhile, the “Mona Lisa” was insured at a value of $100 million in 1962, or over $900 million in today’s dollars.
“I trust this will end all discussion in our household about any purchase of paintings qualifying as an investment,” Buffett quipped. His comments resurfaced this month courtesy of Dividend Growth Investor, a Twitter user who tweets about investing.
The famed boss of Berkshire Hathaway might not view art as a worthwhile holding, but he considers his job to be something of an art form.
“Investing is the art of laying out cash now to get a whole lot more cash later on,” he said at Berkshire’s annual shareholder meeting in 1998. He also described valuing businesses as an “art” during the next year’s meeting.
Moreover, Buffett has compared building a business to crafting a painting. He deployed that analogy to persuade the cofounder of National Indemnity, Jack Ringwalt, to sell his insurance company to Berkshire in 1967, he recalled at the annual meeting in 2000.
The investor asked Ringwalt if he would be happy to have a trust officer dispose of his life’s work the day after he died. He reassured the entrepreneur that Berkshire would respect and not resell his business, and also allow him to continue “painting” it.
“We won’t come in and tell you to use reds instead of yellows or anything like that,” Buffett recalled telling Ringwalt. “So even though it’s a masterpiece now, you can keep adding to it.”
The Berkshire chief took the metaphor even further, framing his conglomerate as a collector of fine art.
“We like to think we’re the Metropolitan Museum of businesses and that we can get really outstanding creations to reside in our museum,” he said.
Buffett has also described Berkshire – which owns scores of subsidiaries including Geico and See’s Candies as well as multibillion-dollar stakes in Apple, Coca-Cola, and other public companies – as his magnum opus.
“I regard Berkshire Hathaway sort of like a painter regards a painting, the difference being the canvas is unlimited,” Buffett said in 2016.
Tesla, Netflix, and Warren Buffett’s Berkshire Hathaway are among 16 companies in the race to hit the $1 trillion mark within the next five years, according to a recent study by cloud-based procurement solutions provider Approve.com.
Approve.com analyzed the market caps of the 50 biggest publicly-listed companies alongside their average annual growth to find which ones could hit the 13-digit mark the quickest. The analysis, published in July, showed that even more tech companies are set to dominate the trillion-dollar zone.
Projections made for Chinese-based companies in this study are based on annual growth rates, and don’t include the impact of the recent regulatory crackdowns. These companies have had a turbulent year, ever since Beijing began to tighten its grip on services that were abruptly presented with new compliance challenges.
Here are the 16 companies on track to reach a $1 trillion-dollar valuation by 2026:
Market Cap: $754 billion Sector: Automotive (US) Estimated year to hit $1 trillion: 2022 Average annual growth rate: 123.87%
Market Cap: $569 billion Sector: Technology (China) Estimated year to hit $1 trillion: 2022 Average annual growth rate: 97.04%
Market Cap: $263 billion Sector: Telecommunications (US) Estimated year to hit $1 trillion: 2023 Average annual growth rate: 186.93%
Market Cap: $179 billion Sector: E-commerce (China) Estimated year to hit $1 trillion: 2023 Average annual growth rate: 115.74%
Market Cap: $555 billion Sector: Technology (US) Estimated year to hit $1 trillion: 2024 Average annual growth rate: 48.27%
6. Kweichow Moutai
Market Cap: $317 billion Sector: Alcohol (China) Estimated year to hit $1 trillion: 2024 Average annual growth rate: 48.6%
Market Cap: $257 billion Sector: Entertainment (US) Estimated year to hit $1 trillion: 2024 Average annual growth rate: 74.16%
8. Alibaba Group
Market Cap: $433 billion Sector: Technology (China) Estimated year to hit $1 trillion: 2025 Average annual growth rate: 19.16%
9. Taiwan Semiconductor Manufacturing Company
Market Cap: $620 billion Sector: Semiconductors (Taiwan) Estimated year to hit $1 trillion: 2025 Average annual growth rate: 16.05%
Market Cap: $492 billion Sector: Financial Services Estimated year to hit $1 trillion: 2025 Average annual growth rate: 22.32%
Market Cap: $342 billion Sector: Financial Services (US) Estimated year to hit $1 trillion: 2025 Average annual growth rate: 32.15%
Market Cap: $332 billion Sector: Financial Services (US) Estimated year to hit $1 trillion: 2025 Average annual growth rate: 43.71%
13. Berkshire Hathaway
Market Cap: $635 billion Sector: Investment (US) Estimated year to hit $1 trillion: 2026 Average annual growth rate: 10.49%
Market Cap: $444 billion Sector: Technology (South Korea) Estimated year to hit $1 trillion: 2026 Average annual growth rate: 19.24%
Market Cap: $372 billion Sector: Luxury Goods (France) Estimated year to hit $1 trillion: 2026 Average annual growth rate: 22.78%
Market Cap: $250 billion Sector: Software (US) Estimated year to hit $1 trillion: 2026 Average annual growth rate: 40.67%
Warren Buffett had at least three chances to bail out Lehman Brothers before the investment bank collapsed in September 2008, fueling the global financial crisis. The billionaire investor and Berkshire Hathaway CEO rejected the first two invitations, and a technology mix-up meant he didn’t get the third one.
Buffett has repeatedly underscored the severity of the situation in the fall of 2008, when investors were pulling billions of dollars out of money-market funds, and credit markets were frozen.
It was “as close to a total meltdown throughout the financial system as you can imagine,” Buffett said at Berkshire’s 2008 shareholder meeting. “We really were looking into the abyss at that time.”
“I describe it as an economic Pearl Harbor,” he told Vice News in 2018, a decade after the financial crisis began.
Lehman CEO Richard Fuld first called Buffett in March 2008 to suggest Berkshire inject several billion dollars into the ailing bank, the investor told CNBC in 2018.
Buffett was open to the idea, and spent a night in his office scouring hundreds of pages of Lehman’s latest financial reports. He jotted down every red flag he spotted, and soon had a lengthy list.
“I just saw a lot of things that made me very worried about their financial condition, and what would be happening to them under the circumstances that were happening on Wall Street,” the investor told CNBC.
Lehman executives tried their luck again in the weeks before the bank’s collapse, Reuters reported. However, Buffett rejected the overture and dismissed the idea of an investment as “unrealistic.”
Barclays’ president at the time, Bob Diamond, called Buffett in September 2008. The British bank was looking to buy Lehman, and he asked Buffett if Berkshire would insure Lehman’s trades until Barclays shareholders could vote on the prospective deal.
Buffett was staying at a hotel at the time, and asked Diamond to fax him the details, he told CNBC. However, the Barclays boss was operating out of the Federal Reserve and couldn’t find a fax machine, so he left Buffett a voicemail instead. The investor didn’t notice, and only heard it the following summer when his daughter spotted it and played it for him.
Regardless, Buffett told CNBC that he couldn’t have offered the sweeping guarantee that Diamond wanted.
“It would have been an unlimited exposure that wouldn’t have made sense,” he said, especially “with the whole world falling apart.”
While Berkshire had the cash to swoop in and save Lehman, Buffett dismissed the idea that doing so would have prevented the financial crisis. “I really don’t think the world would have changed,” he said.
While Buffett said no to Lehman, he noted in his 2010 shareholder letter that Berkshire deployed about $16 billion in the 25 days after the bank filed for bankruptcy on September 15, 2008. For example, it made vital investments in Goldman Sachs, General Electric, and other struggling businesses.
Warren Buffett’s favorite investment over the past year could shoot up in price if US lawmakers succeed in slapping a 2% tax on buybacks.
The famed investor is itching to deploy $80 billion of Berkshire Hathaway‘s cash. However, he has struggled to find bargains with the US stock market at record highs, and private equity firms and special-purpose acquisition vehicles (SPACs) driving up the price of acquisitions.
The lack of compelling investments spurred Buffett to spend a record $31 billion repurchasing Berkshire stock in the 12 months to June 30. Meanwhile, his company sold a net $2.7 billion of equities in the period, and its only major deal was a roughly $8 billion purchase of natural gas infrastructure.
Buffett’s go-to investment could become significantly less attractive if Sen. Sherrod Brown and Sen. Ron Wyden have their way. The two senators are seeking to pass the Stock Buyback Accountability Act, which would impose a 2% excise tax on share repurchases.
The legislators want to encourage corporate executives to invest in their companies and workers instead of using spare cash to reward shareholders. The tax promises to raise more than $100 billion for the federal government over the next decade, a Brown aide told The Wall Street Journal. The funds raised could be spent on healthcare, education, infrastructure, and other public programs.
However, the bill would be a blow to Berkshire and other companies that spend billions of dollars on buybacks annually. All things being equal, if the tax had been rolled out last summer, Buffett’s company would have owed about $620 million on its buybacks during the 12 months to June 2021 – equivalent to 5% of the $12 billion of income tax it paid in 2020.
Buffett has repeatedly trumpeted the value of buybacks for companies that have ample cash and can repurchase their shares at a material discount to their intrinsic value. The investor has noted that sensible buybacks increase shareholders’ ownership of a company by reducing its outstanding shares, help stock sellers get a price, signal that executives are acting in shareholders’ interests, carry less risk than acquisitions, and don’t incur taxes like dividends – at least for now.
Berkshire’s buybacks have already grown more expensive over the past year as its stock price has risen. A tax would make them even less attractive, further limiting Buffett’s spending options.
Warren Buffett’s Berkshire Hathaway recorded a hefty $2.4 billion of underwriting losses from the terrorist attacks on September 11, 2001. However, a nuclear assault could have put the investor’s company out of business entirely, along with its insurance peers.
“Had a nuclear device been available to Osama bin Laden, the loss could have bankrupted most of the industry, Berkshire very much included,” Buffett wrote in a Washington Post editorial in November 2001. He added that the total insured losses could have surpassed $1 trillion, exceeding the combined value of the world’s property-casualty insurers at the time.
Berkshire counts Geico, National Indemnity, and General Reinsurance among its subsidiaries, making it one of the largest insurers in the world. Its underwriting losses from 9/11 dealt a $1.5 billion blow to its net earnings, fueling a sharp decline from $3.3 billion in 2000 to less than $800 million in 2001. Berkshire stomached an estimated 3% to 5% of the global insurance industry’s losses from the incident.
Buffett kicked himself in his letter to Berkshire shareholders in 2001. He knew a major terrorist attack could occur, and was aware of the devastating impact it might have on Berkshire. Yet he failed to adjust the insurance policies his company was writing, which would have softened the blow to its bottom line.
“I violated the Noah rule: Predicting rain doesn’t count; building arks does,” he said. The investor added that Berkshire was perfectly willing to pay out upwards of $2 billion following a catastrophe, but in the case of 9/11, it hadn’t charged enough for assuming the risk that led to a loss of that scale.
Berkshire wasn’t cowed by the episode, however. In the months after 9/11, it was one of the few insurers to actively cover terrorism losses. For example, it wrote policies for multiple international airlines, Chicago’s Sears Tower, and a North Sea oil platform, Buffett disclosed in his letter.
While Berkshire sold a significant amount of terrorism insurance after 9/11, it limited its coverage of nuclear, chemical, and biological attacks, Buffett noted during his company’s annual shareholder meeting in 2002.
A major nuclear explosion would pose an existential threat to Berkshire, he explained, while a biological attack in a major factory or office building would result in workers’ compensation losses that could “make the World Trade Center loss look like nothing.”
Buffett emphasized that the human cost of a terrorist attack far exceeds the insurance costs, but asserted that Berkshire has to consider whether it can cover claims. If the company collapsed into bankruptcy, it wouldn’t be able to compensate those involved in the disaster, not to mention others who suffered injuries years ago but rely on insurance payouts to live, he said.
Charlie Munger, Buffett’s business partner and Berkshire’s vice-chairman, underscored the tragedy of 9/11, but framed it as an important lesson for the company.
“To the extent that September 11th has caused us to be less weak, foolish, and sloppy, as we plainly were in facing some plain reality, it’s a plus,” he said at the meeting in 2002.
Berkshire’s fallout from 9/11 pales in comparison to the deaths, injuries, and national trauma caused by the attack. But it showed that even careful insurers can be caught off-guard by catastrophes, and taught Buffett and Munger some important lessons.