Investing Warren Buffett Watch

  Friday, 23 Jun 2017 | 1:43 PM ET

Josh Brown: Here's the reason Wall Street hates the bull market in stocks so much

Enthusiasm about the stock market's rally is "absent" because active managers on Wall Street are worried they may not have a job soon, money manager and popular blogger Josh Brown told CNBC on Friday.

The more the bull market is led by indexing, "the less likely it will be that there'll be big bonuses, there'll be an expansion of business for these people," the CEO of Ritholtz Wealth Management said on "Halftime Report." "And I think if you can't get pros excited, it's tough to get euphoria amongst the amateurs."

The author of the widely read blog The Reformed Broker added that perhaps the negative sentiment has prolonged the bull cycle.

In the past decade, there's been a shift from active to passive management strategies, such as index funds, which replicate a stock index like the S&P 500, and ETFs that track the market.

Billionaire investor Warren Buffett has even said index funds make the best retirement sense "practically all the time."

Since the presidential election, the Dow Jones industrial average has risen more than 16 percent, the S&P 500 has gained more than 13 percent, and the Nasdaq composite has surged 20 percent as of Thursday's close.

Some analysts attributed the stock market's rally to proposed policies from the Trump administration, including looser regulations, infrastructure spending and tax reform.

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  Friday, 23 Jun 2017 | 9:55 AM ET

Buffett partner Charlie Munger says Al Gore is ‘an idiot’ but became rich with this strategy

Posted ByTae Kim

Warren Buffett's top lieutenant, Charlie Munger, told a small group of investors that the simple strategy of buying only service company stocks made former Vice President Al Gore very wealthy.

"Al Gore has come into you fellas business. ... He has made $3 or $400 million in your business. And he's not very smart," Munger said at the Daily Journal annual meeting on Feb. 15. "He had one obsessive idea that global warming was a terrible thing. … So his idea when he went into investment counseling is he was not going to put any CO2 in the air."

Though the comments were made more than four months ago, they went largely unnoticed and have not been widely reported on elsewhere.

Hedge fund manager Whitney Tilson in one of his email newsletters pointed to the YouTube videos of Munger's informal question-and-answer session held after the Journal meeting, and other investors have confirmed the subject matter of the talk.

Munger is one of the most celebrated investors in the world and was an essential partner in Buffett's success. Before becoming vice chairman of Berkshire Hathaway, the billionaire had quite the track record himself. From 1962 to 1975 Munger's investment partnership generated 20 percent annual returns versus the S&P 500's 5 percent.

He also shared more details on how Gore became successful in the money management business:

"So he found some partner to go into investment counseling with and says we're not going to have any (carbon dioxide). But this partner is a value investor and a good one. So what they did is, is Gore hired staff to find people who didn't put CO2 in the air. Of course that put him into services. Microsoft and all these service companies were just ideally located. And this value investor picked the best service companies. So all of a sudden the clients are making hundreds of millions of dollars and they are paying part of it to Al Gore. Al Gore has hundreds of millions dollars in your profession. And he's an idiot. It's an interesting story. And a true one."

Gore is co-founder and chairman of Generation Investment Management. The firm has more than $15 billion of assets under management and focuses on investing in low-carbon generating sustainable companies, according to its website.

One of its main funds beat the S&P 500's return by more than 6 percentage points per year during the last the five years, according to a March 2017 Barron's article.

Munger said the strategy of buying only service companies helps investors avoid capital-intensive firms, which have weaker business models and are less profitable.

"Inventories, receivables are all kinds of horrible things in business. If you just buy service companies, you can avoid them. And it's amazing how it has worked for this guy that does [leveraged buyouts] just the way it worked for Al Gore," he added.

Berkshire Hathaway did not immediately respond to a request for comment. Generation Investment Management declined to comment.

The YouTube video with Munger's service investing strategy comments had less than 3,000 views as of Friday morning.

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  Thursday, 22 Jun 2017 | 1:54 PM ET

Here's what didn't change in the Senate's health care bill: $1 trillion in tax cuts

Sen. Mitch McConnell.
Getty Images
Sen. Mitch McConnell.

The health-care bill the GOP rolled out on Thursday morning will retain the nearly $1 trillion in tax cuts previously proposed, with few minor differences.

This means the Senate health-care bill's tax breaks would go primarily to the wealthy, with 40 percent of savings going to the top 1 percent of earners and 64 percent of savings going to the top 20 percent of earners.

"The tax provisions are pretty much unchanged, except for some implementation dates," Gordon Mermin, senior research associate at the Urban-Brookings Tax Policy Center, told CNBC. "Substantively it's the same as what's passed the House."

In March, the Tax Policy Center modeled the distribution results of the American Health Care Act's tax provisions to find where the $992 billion in tax cuts would end up. There are only "minor exceptions," Mermin said, as the Republican bill proposed Thursday retains the same provisions as the version proposed earlier this year.

The result of the Senate's bill is a time delay for some tax cuts, at most. The Tax Policy Center's table, which can be viewed on their website, is valid for the new bill when analyzed as showing results from 2023 onward.

Warren Buffett said in May the Republican health-care bill would slash his taxes.

"It was huge what they did on cutting taxes for the rich" in the GOP's measure to replace Obamacare, Buffett said on CNBC's "Squawk Box," at that time. "If there's one clear-cut message that comes out of that bill it is we're going to cut the hell out of income taxes for the rich on investment income."

The tax cuts include a repeal of a 3.8 percent investment tax — such as capital gains — and a 0.9 percent Medicare payroll tax. Both of those apply to individuals earning $200,000 or more a year and couples earning more than $250,000.

Buffett said his personal tax bill would be 17 percent lower under the GOP health measure — about $680,000 on his tax bill of a "little less than $4 million."

"I've had years when it's been a lot more than $680,000. But I'm $680,000 better off if everything else is equal just because of what happened last week," Buffett added.

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  Thursday, 22 Jun 2017 | 11:41 AM ET

Here's how much Berkshire Hathaway made on its airline investments Thursday morning

James D. Morgan | Getty Images

Berkshire Hathaway's big bet on airlines has paid off.

The conglomerate's holdings of four major airlines gained $174 million on Thursday morning from their closing prices on Wednesday, based on stock holding disclosures from recent filings with the Securities and Exchange Commission.

An SEC filing in May showed Warren Buffett's conglomerate owned tens of millions of shares of American Airlines, Delta Air Lines, United Continental and Southwest Airlines. Berkshire Hathaway added millions of additional shares of American and Southwest stock between filings in February and May.

The value of Berkshire's American Airlines shares rose $71.5 million on Thursday morning, opening more than $1.40 above the close price on Wednesday. American shares spiked after the company disclosed that Qatar Airways has signaled its intention to acquire a 10 percent stake.

As of its disclosure in May, Berkshire Hathaway held 49.3 million shares of American Airlines stock. It added 3.7 million shares since the beginning of the year.

Berkshire's Delta holding rose $39 million since the market close on Wednesday. Berkshire owned 55 million shares as of the end of the first quarter. Its 28.9 million United shares rose $23 million. And its 47 million Southwest shares rose $40.9 million.

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  Thursday, 22 Jun 2017 | 9:10 AM ET

Warren Buffett — the overlooked target in Amazon's grocery war

The grocery war Jeff Bezos and Amazon have started with the planned acquisition of Whole Foods has some obvious targets, including Wal-Mart, Costco and Target. One not-so-obvious quarry is also huge: Warren Buffett.

Buffett's Berkshire Hathaway is a big holder of supermarket and food company stocks.

Among Berkshire's relatively selective portfolio of publicly traded stocks are longtime holdings Wal-Mart and Costco, as well as Kraft Heinz (Buffett used to own tons of Kraft shares before engineering a deal to create Kraft Heinz), Coca-Cola and Mondelez, one of the world's largest snack companies.

Berkshire also owns McLane Co., a major food distributor it purchased in 2003 directly from Wal-Mart, the low-cost grocery company with which Amazon is now most seen as being on a "collision course."

Buffett's Kraft Heinz stake — 26 percent of the company's shares — is valued at $29 billion, and his Coke stake, representing 9 percent of its shares, is valued at $18 billion. Berkshire also has $100 million in Wal-Mart shares, which the company has reduced exposure to over time, and $700 million in Costco shares. It also has a very small $26 million holding in Mondelez.

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  Thursday, 22 Jun 2017 | 8:57 AM ET

Qatar Airways interested in acquiring about a 10% stake in American Airlines

Posted ByLauren Thomas

American Airlines on Thursday said it recently received an unsolicited offer from Qatar Airways about the Middle Eastern airline's intention to acquire at least a 10 percent stake in American, a move that not many people could have predicted.

The notice advised that state-owned Qatar intends to purchase at least $808 million in the U.S.-based airline following a conversation between the two companies' CEOs, which was initiated by Qatar Airways' CEO, Akbar Al Baker, American said in a statement.

American Airlines has a market value of about $24 billion. Qatar has said it plans to make its stock purchase on the open market.

American said that it will respond to the notice "in due course" with the appropriate filings required under the Hart-Scott-Rodino (HSR) Act. Qatar Airways has submitted a filing under the HSR Act, with respect to its potential investment in American Airlines common stock, the companies have confirmed.

This news comes just weeks after Qatar was engulfed in a diplomatic row with neighbor Saudi Arabia, which led other nations including Egypt, the United Arab Emirates and Bahrain in cutting ties with Doha, Qatar's capital city. Qatar Airways is one of the Middle East's biggest airlines.

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  Thursday, 22 Jun 2017 | 6:45 AM ET

Buffett's Berkshire Hathaway offers $1.5 billion lifeline to Canada's Home Capital

Home Capital said billionaire Warren Buffett's Berkshire Hathaway will provide a new C$2 billion ($1.50 billion) line of credit to its unit Home Trust Co., ending the Canadian lender's strategic review process.

Berkshire will also indirectly buy C$400 million of Home Capital's common shares in a private placement through its unit Columbia Insurance Co., Home Capital said on Wednesday.

"Home Capital's strong assets, its ability to originate and underwrite well-performing mortgages, and its leading position in a growing market sector make this a very attractive investment," said Warren Buffett, Berkshire chairman and CEO.

Berkshire will hold an about 38.39 percent equity stake in Home Capital after buying 40 million shares at an average price of about C$10 per common share.

Berkshire will make an initial investment of C$153.2 million to buy 16 million common shares and an additional investment of C$246.8 million to purchase 24 million shares through a private placement.

The additional investment is subject to shareholder approval, while the initial investment will not require approval from shareholders.

Canada's biggest non-bank lender also said it will continue to explore further asset sales and financing deals over the next year, but has concluded its strategic review process that began in April.

"This investment from Berkshire not only addresses Home Capital's near-term requirements for additional liquidity and a lower-cost credit agreement, but also facilitates what the Board feels is the best available path to long-term success," Home Capital's Chair Brenda Eprile said.

Berkshire will not be granted any rights to nominate directors to Home Capital board or any governance rights as an equity holder, Home Capital said.

The C$2 billion loan facility, expected to be effective on June 29, will replace the existing one for a similar amount between Home Trust Co. and a major institutional investor.

On Tuesday, the company said it would sell a portfolio of commercial mortgage assets valued at C$1.2 billion to bolster its liquidity and trim outstanding debt on a C$2 billion emergency facility it agreed with the Healthcare of Ontario Pension Plan in April.

Last week, Home Capital reached a C$30.5 million settlement with the Ontario Securities Commission, settled a class action lawsuit and accepted responsibility for misleading investors about problems with its mortgage underwriting procedures.

The settlement is expected to help secure long-term financing at sustainable interest rates, investors and analysts said.

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  Tuesday, 13 Jun 2017 | 6:13 PM ET

Alex Rodriguez swings for the fences in the business world

Posted ByRachel Cao

Alex Rodriguez has always been interested in becoming a player in the business world. Now that he's retired from baseball, the former superstar is able to cash in on his interest.

"I'm very data driven and I like numbers. I always said that in business, numbers don't lie," Rodriguez told CNBC on Tuesday. "I started seeing a lot of athletes going bankrupt at a 70 percent rate within a few years of retirement. So I wanted to start my own investing."

Rodriguez, who won a World Series during his tenure with the New York Yankees, has continued his success off the field with his own businesses.

The baseball legend recounted how he started investing in a small duplex that grew into a large entity called ARod Corp., which manages more than 15,000 apartment units in 12 states.

"In business, we've been really fortunate. The market the last five years have been incredible," Rodriguez said. "We've been laser-focused in every sector we participate in. And now we're in real estate, auto dealership, and in fitness."

Rodriguez listed big name investors such as Barry Sternlicht, Marc Lasry and Warren Buffett as some of his mentors in the ways of finance and business, but he also acknowledged he needs to put in the work to succeed.

"You know, business is like a sport. You've gotta put in your 10,000 hours and it takes time," Rodriguez said. "And for me, my philosophy is slow and steady will win the race and there's no reason to be in a rush."

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  Friday, 9 Jun 2017 | 6:17 AM ET

Warren Buffett auctions off lunch to raise money for charity

Warren Buffett
David A. Grogan | CNBC
Warren Buffett

The winning bid for a private lunch with billionaire Warren Buffett may top several million dollars in an online auction to benefit a California homeless charity that wraps up Friday night.

For the 18th consecutive year, Buffett is auctioning off a lunch to raise money for the Glide Foundation, which helps homeless people in San Francisco. The chairman and CEO of Berkshire Hathaway has raised nearly $24 million through the auctions. Last year's winner paid $3,456,789, which tied the record set in 2012.

Buffett has praised the charity for the work it does helping people. Buffett became a believer in Glide's work after his first wife, Susie Buffett, showed him what the group was doing for the poor and homeless. Susie Buffett had volunteered for the San Francisco charity before her death in 2004.

"Everyone that has experienced Glide comes away a believer," said Buffett.

Glide provides meals, health care, job training, rehabilitation and housing support to the poor and homeless.

This year's eBay auction began Sunday and runs through Friday at 7:30 p.m. PDT.

Buffett says the only topic that's off limits in the lunch conversation is what Buffett might invest in next, and the 86-year-old says he usually gets a wide range of questions.

The winners of the lunch auction typically dine with Buffett at Smith and Wollensky steak house in New York City, which donates at least $10,000 to Glide each year to host the lunch. If the winner chooses to remain anonymous the lunch has sometimes been held elsewhere.

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  Thursday, 8 Jun 2017 | 12:55 PM ET

The investment strategy pioneered by Warren Buffett is in crisis

Posted ByTae Kim

Wall Street is questioning the value investing strategy espoused by legendary investors such as Warren Buffett after a decade of weak returns.

The value "strategy's poor performance has coincided with a swell of assets into passive equity investment strategies as well as quantitative and 'smart beta' funds," Goldman strategist Ben Snider wrote in a report Wednesday entitled "The death of value?"

"The disconnect has led investors to question the future viability of value investing, which has been embraced by the academic literature and espoused by investors including Benjamin Graham and Warren Buffett," he added.

Snider noted the value investing long/short strategy based on Eugene Fama's and Kenneth French's work generated an average annual return of 5 percent from 1940 to 2007.

"The simple strategy – buying stocks with the lowest valuations and selling those with the highest – realized a theoretical gain in seven out of every 10 years and never spent three full years below its previous high water mark," he wrote.

However, in recent years performance has faltered. The strategist said investors that used the same long/short value strategy generated a 15 percent cumulative loss in the past decade and negative returns in 6 out of the last 10 years.

Snider explained why the returns have suffered:

"Value has historically posted its strongest returns during periods of strong economic growth early in the economic cycle. The factor typically wanes late in the cycle as investors search for secular growth opportunities when economic growth slows. Concerns about the possibility of 'secular stagnation' in recent years have compounded the investor hunt for growth."

Goldman Sachs' chief U.S. equity strategist, David Kostin, also told CNBC on Tuesday why growth stocks outperform in sluggish economic environments.

"A modest growth environment means that growth is still relatively scarce. So the growth stocks … [where] tech is a prominent area, are likely to continue to do well and outperform," Kostin said on CNBC's "Squawk on the Street."

But perhaps investors should heed history. The last time Wall Street questioned Buffett's favorite strategy it preceded a strong multiyear run for value investing.

During the height of the dot-com bubble in 1999, when technology growth investing was crushing the market, Buffett defended value investing in a classic column for Fortune magazine.

"At Berkshire we focus almost exclusively on the valuations of individual companies, looking only to a very limited extent at the valuation of the overall market. Even then, valuing the market has nothing to do with where it's going to go next week or next month or next year, a line of thought we never get into. The fact is that markets behave in ways, sometimes for a very long stretch, that are not linked to value. Sooner or later, though, value counts." - Warren Buffett, Fortune Nov. 1999

And to be sure, Buffett's value style differs from Goldman's simplistic study. The Oracle of Omaha says he looks for good companies with strong management and competitive advantages at a good price. And he never explicitly stated you need to sell a stock once the valuation got "high."

In the end, Goldman's Snider is not giving up on value investing.

"We believe that value will remain a good long-term strategy, although future returns will likely be lower than the historical average. Behavioral finance suggests that some value premium will persist even as changes in the investment landscape reduce its expected returns going forward," he wrote.

Watch: Inside Buffett's vacation home

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About Buffett Watch

  • Warren Buffett is arguably America’s most-admired and most-followed investor. Buffett is the largest shareholder and CEO of Berkshire Hathaway and one of the world’s most famous and most generous philanthropists. Legions of investors - from all walks of life - follow Buffett's homespun investment philosophy: invest in what you know, invest in value. Here on CNBC.com's Warren Buffett Watch, we’ll keep you up to date on what the “Oracle of Omaha” is doing by following Buffett's trades, words and deeds.