Investing Warren Buffett Watch

  Tuesday, 27 Feb 2018 | 12:56 AM ET

Some 90% of hedge funds aren't worth the fees, but there's still a place for them, says expert

Posted ByCheang Ming

Hedge funds have received their fair share of criticism for their hefty fees, but there are still reasons to invest in them, according to an expert.

"There's 15,000 hedge funds out there and I think 90 percent of those hedge funds aren't worth the fees that people pay," said Donald Steinbrugge, chief executive and founder of Agecroft Partners, a consulting and marketing firm that focuses on hedge funds.

Warren Buffett, famously compared active managers to monkeys in his annual shareholder letter last year and took issue with what he perceived as exorbitant fees. In his latest annual letter released on Saturday, Buffett also discussed winning a 10-year bet against hedge funds. "Performance comes, performance goes. Fees never falter," he wrote.

Despite that, Steinbrugge said hedge funds were a good way to have a diversified portfolio, adding that the hefty fees mentioned in Buffett's letter last year were "coming down a lot."

"I do think there're 10 percent of the market that has very talented managers or has strategies that you can't get in a mutual fund. For example, reinsurance, a lot of CTA (commodity trading advisor) strategies, direct lending. I think all of those provide valuable diversification and can generate returns even after you've paid the hedge fund fees," he told CNBC's "The Rundown."

Still, Steinbrugge made the case that the pick-up in volatility earlier this month during the stock markets sell-off was good for hedge funds. Volatility is usually seen as a positive for active managers like hedge funds as stock price swings mean that equity managers can hit their targets more quickly.

"In a market correction, hedge funds that have market exposure are going to go down, but they should go down less than a long-only index," Steinbrugge said.

"I think there is a place for hedge funds. Should people invest all their money in hedge funds? Absolutely not. Is it part of a well-diversified portfolio? I think it is," he added.

Data from eVestment showed that a total of $14.12 billion was allocated into hedge funds last month, making it the strongest start to the year since pre-financial crisis times. Those figures also contrasted with the $111.64 billion in flows withdrawn from funds in 2016 and was the first time since 2014 inflows were recorded in January.

— CNBC's Leslie Picker contributed to this report.

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  Monday, 26 Feb 2018 | 4:16 PM ET

Apple rides Buffett's praise to a new all-time high share price

Apple shares hit a new all-time high on Tuesday, riding a wave of praise this week from famed investor Warren Buffett.

The stock rose to $180.48 a share in intraday trading, according to FactSet, passing the previous high of $180.10. Shares hit an intraday high of $179.39 in the regular trading session on Monday, just missing the all-time high after Buffett spoke to CNBC.

"Apple has an extraordinary consumer franchise," Buffett told CNBC's "Squawk Box" on Monday following the release of an annual letter to shareholders on Saturday. "I see how strong that ecosystem is, to an extraordinary degree. … You are very, very, very locked in, at least psychologically and mentally, to the product you are using. [IPhone] is a very sticky product."

Buffett added that his firm, Berkshire Hathaway, had bought "more Apple than anything else" over the past year. Apple is now Berkshire Hathaway's second-largest position in terms of market value behind Wells Fargo and ahead of Bank of America, the company said in regulatory filings.

Apple shares have risen about 30 percent over the past year amid early expectations that a slew of customers would upgrade to new models such as the pricey iPhone X. But excitement around Apple has waned slightly, and other big tech names, such as Microsoft and Amazon, have seen faster growth. Nonetheless, Apple remains the largest public company in terms of market capitalization by a wide margin.

— CNBC's Tae Kim contributed to this report.

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  Monday, 26 Feb 2018 | 2:56 PM ET

Warren Buffett wants to lower health-care costs — while eating and investing in junk food

Warren Buffett wants to lower health-care costs, but his fast-food-fueled diet and his food and beverage investments have historically been linked to costlier care.

The Berkshire Hathaway CEO, Amazon's Jeff Bezos and J.P. Morgan Chase's Jamie Dimon announced in January they would partner to cut health-care costs and improve services for their U.S. employees. On Monday, Buffett repeated his now-famous line that health-care spending is a "tapeworm on the economic system" in an interview with CNBC's "Squawk Box."

In a conversation earlier in the morning, the investing legend said he frequents McDonald's, Burger King and occasionally Wendy's. Buffett's Berkshire owns International Dairy Queen and holds stakes in Restaurant Brands International, the parent company of Burger King, as well as Kraft-Heinz and Coca-Cola.

"I think it's a little irrational wanting to improve health care and investing in companies that also produce highly processed, minimally nutritious products that are contributing to, are not the only cause of, but are contributing to a public health epidemic," said Las Vegas-based nutritionist Andy Bellatti.

More than one-third of American adults are obese, according to the Centers for Disease Control and Prevention. Obesity costs the U.S. an estimated $147 billion in medical expenses, according to a study published in Health Affairs in 2009.

Being overweight or obese can contribute to chronic, and costly, conditions such as diabetes and heart disease.

Type 2 diabetes was estimated to cost $245 billion in the U.S. in 2012, including $176 billion for direct medical costs and another $69 billion in indirect costs, according to the American Diabetes Association.

Heart disease costs the U.S. $200 billion every year in health-care services, medications and lost productivity, according to the CDC's National Center for Health Statistics.

Of course, not everyone who drinks a can of Coke or eats a cheeseburger is overweight or obese. But public health advocates have urged people to eat fewer processed foods and drink fewer sugary drinks while boosting consumption of whole foods such as fruits and vegetables.

As for Buffett, he has spoken very publicly about his love for breakfast at McDonald's and his penchant for Cherry Coke.

Buffett wasn't immediately available to comment.

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  Monday, 26 Feb 2018 | 1:58 PM ET

Warren Buffett remembers first meeting Charlie Munger: ‘We were sort of made for each other’

The chairman and vice chairman of Berkshire Hathaway, Warren Buffett and Charlie Munger, are legendary business partners.

And to hear Buffett tell it, the two didn't have to learn to like each other.

"We had dinner together in 1959," says Buffett, speaking to CNBC's "Squawk Box" on Monday, recalling how the two first bonded.

"We went to dinner and in five minutes, Charlie was rolling on the floor laughing at his own jokes — and I do the same thing," says Buffett.

"We knew we were sort of made for each other," adds the Oracle of Omaha.

Though the men both grew up in Omaha, Nebraska, and both worked at Buffett's grandfather's grocery store, they didn't know each other until Munger was 35 and Buffett was 29, according to Buffett.

Today, Munger is 94 and Buffett is 87. Munger is worth almost $2 billion and Buffett is worth $89 billion, according to Forbes.

The wife of a prominent Omaha doctor, who had invested with Buffett and also knew Charlie Munger, first brought the two men together for lunch at the Omaha Club, according to a 2015 piece about the two men in the "Omaha World-Herald." Munger was a lawyer in California, but his father, Alfred, had died and Munger had to return to Omaha to take care of his father's legal practice.

Soon after, Buffett and Munger were both invited to dinner at a local businessman's house. Later the two went for dinner together at Johnny's Dinner. That's the meal where Munger fell on the floor laughing, the "Omaha World-Herald" says, citing Buffett biographer Alice Schroeder.

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  Monday, 26 Feb 2018 | 1:54 PM ET

Buffett's hunting for deals and 'wouldn't rule out owning an entire airline'

Warren Buffett's newfound optimism for the airline industry appears to have grown.

"I wouldn't rule out owning an entire airline," the billionaire investor and Berkshire Hathaway CEO told CNBC.

In an annual letter published on Saturday, Buffett said the company is searching for deals but is struggling to find one for a good price. Airline stocks are trading at lower multiples than the S&P 500.

Buffett surprised investors in 2016 after Berkshire revealed it took stakes in the largest U.S. airlines. Buffett's stakes in American Airlines, Delta Air Lines, United Continental Holdings and Southwest Airlines were worth close to $10 billion based on Friday's closing prices and Berkshire's recently disclosed investments.

Buffett had long shunned airlines and had been so opposed to investing in airlines in the past that he told shareholders in a 2007 note that "if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down."

But airlines have recently enjoyed a stretch of profitability, helped along by a plunge in fuel prices in mid-2014 and record numbers of travelers who are taking to the skies.

Buffett told CNBC in an interview that the industry may not be out of the woods entirely.

"It's a business that's always subject to someone doing something very dumb, competitively," he said.

The chances of that happening are less now following a decade of mega-mergers, Buffett said.

"The industry was suicidally competitive for decades," he said. Now "it could turn into fierce competitive battles that wipe out earnings or it can be a business that's more decent but still subject to lots of competition. It's really hard to know for sure how it will develop. It's not risk-free."

Indeed, investors are still skittish about fare wars eating into company revenues as they compete with each other. Shares of United sank after the carrier announced plans for annual capacity growth of as much as 6 percent.

It wasn't clear which airline Buffett would purchase, if any. But he did say that the airline business climate allows carriers to form ultra low-cost airlines. Low-cost carriers Spirit Airlines and Allegiant Travel Company each have market capitalizations of around $2.7 billion, compared with the $25 billion market cap of American Airlines and Delta's nearly $39 billion.

Buffett last year told CNBC that many travelers are just focused on price and that they would rather fly for a lower fare than pay more for additional legroom or other perks.

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  Monday, 26 Feb 2018 | 1:30 PM ET

Warren Buffett says he has $116 billion to spend. Here are five companies he should buy

Posted ByLauren Hirsch

Warren Buffett's Berkshire Hathaway wants a deal, but according to Buffett's most recent annual letter to shareholders, it simply can't find one that both fits its criteria and is trading at an affordable valuation.

At year-end last year, Berkshire Hathaway had $116 billion in cash and short-term Treasury bills, the letter revealed.

The letter outlined the kinds of companies Buffett is looking for, a set of criteria that has not digressed much over the past several years. They include: "durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price.

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  Monday, 26 Feb 2018 | 12:46 PM ET

Here are Cramer's top 4 takeaways from Warren Buffett's 3-hour interview

Warren Buffett's three-hour interview with CNBC on Monday was "spellbinding" and a teaching moment for every investor on Wall Street and Main Street, Jim Cramer said Monday.

The "Oracle of Omaha" spent the morning with "Squawk Box" following Saturday's release of his widely read annual letter to Berkshire Hathaway shareholders.

Cramer, who said he watched every minute of Buffett's CNBC appearance, described it as "the most important three hours you're going to get about securities analysis."

Here are Cramer's top four takeaways from the Buffett interview:

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  Monday, 26 Feb 2018 | 6:35 AM ET

GE nominates accounting, turnaround experts to its board of directors

Technicians build LEAP engines for jetliners at a new, highly automated General Electric (GE) factory.
Alwyn Scott | Reuters
Technicians build LEAP engines for jetliners at a new, highly automated General Electric (GE) factory.

General Electric nominated top aviation and industrial executives and an accounting expert to its board on Monday, as it seeks to restructure its business and restore investors' confidence in one of the largest U.S. industrial conglomerates.

The Boston-based multinational, which racked up a $10 billion loss in the fourth quarter, was the worst-performing stock on the Dow Jones industrial average last year. It fell another 3.5 percent on Monday.

GE said on Friday that it was facing potential legal action by the U.S. Department of Justice in connection with subprime mortgages. It also said a restatement of its 2016 and 2017 results would likely lower reported earnings.

Those problems along with long-term care contracts, which resulted in a $6 billion charge on its insurance businesses last year, drew criticism from billionaire U.S. investor Warren Buffett in an interview on CNBC on Monday.

"I would say the accounting at GE has not been a model at all in recent years, but you can make mistakes," said Buffett, who exited his stake in GE last year.

"Long-term care has probably been the biggest single element of mis-reserving in insurance throughout the industry ... but I was staggered by the amount of it (at GE)."

One of the new directors named on Monday was Leslie Seidman, a former JPMorgan Vice President and chairman of the Financial Accounting Standards Board nicknamed "Loophole Leslie" by opponents for her bank-friendly approach to regulation after the 2008 financial crash.

The other two were Thomas Horton, who oversaw the restructuring and merger of American Airlines with US Airways, and Lawrence Culp Jr., who as former CEO of Danaher transformed the company from a manufacturer into a science and technology firm.

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  Monday, 26 Feb 2018 | 11:23 AM ET

Berkshire shares jump as Buffett says buybacks are an option

Posted ByJeff Cox

If Warren Buffett's company can't find other ways to deploy the $116 billion in cash it has lying around, it will consider returning some to shareholders. Just don't expect it to be in the form of a dividend.

In a letter to Berkshire Hathaway shareholders released over the weekend, Buffett revealed that the conglomerate has been having a difficult time finding bargains as market prices continue to increase.

He told CNBC in an interview Monday that using the cash for share repurchases is not out of the question.

"I'm fairly confident that we'll find ways to deploy money," he said on "Squawk Box."

Berkshire shares rose 3 percent in morning trade following the Buffett interview.

"The best chance to deploy is when things are going down, obviously," Buffett added. "But if we don't we'd probably be more likely — it would depend on the price of the stock entirely — but the inclination might be more toward repurchases than dividends because dividends have the implied promise that you keep paying them forever."

Berkshire Hathaway's buyback benchmark is when shares hit 120 percent of book value. Both the Class A and B shares are trading near 170 percent of book currently, so shares would have to fall quite a bit before a fresh round of repurchases would be initiated.

Some shareholders and analysts over the years have called for Berkshire to raise the threshold, but Buffett did not indicate if he is considering a change.

"We know that we're doing the continuing shareholders a favor if we buy it at that price," he said. "Obviously, I'd leave some margin of safety when I'd do the 120 percent."

As for a dividend, Buffett recalled that a few years back the question was put to investors whether they wanted one, and the measure lost by a margin of 47 to 1.

He thinks investors are better off with repurchases, because they get a larger share of the company when shares are reduced. Buffett called Berkshire stock a "savings account."

"You can sell a little piece of Berkshire every year and still end up owning more of it than you had before," he said.

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  Monday, 26 Feb 2018 | 6:10 AM ET

Warren Buffett: The new GOP tax law benefits Berkshire and acts as a 'huge tailwind' for businesses

Billionaire investor Warren Buffett, who did not support the Republican plans to cut taxes, told CNBC on Monday his Berkshire Hathaway conglomerate stands to benefit from the new corporate rate.

The GOP tax law, which lowered the federal corporate rate from 35 percent to 21 percent, is a "huge tailwind" for American businesses, Buffett said.

"It certainly means corporations will pay quite a bit less in tax than they otherwise would," he said. "When we make money in 2018 domestically, and subject to a lot of little things here and there, basically we'll be paying at 21 percent instead of 35 percent. That's a lot of money."

The 87-year-old Berkshire chairman and CEO released his annual report to shareholders on Saturday. It revealed that the company's net worth increased to $65.3 billion for the 2017 tax year, including $29 billion because of tax reform.

In a "Squawk Box" interview, Buffett explained the reasons for most of the gain.

"[First,] we had about $100 billion of unrealized gain in equities. When they're sold you pay tax on that. And previously when the tax was 35 percent we would have had a $35 billion reserve for taxes against that as a liability. That would drop to about 21 billion," he said. "So $14 billion, roughly, was a reduction in the amount of tax that when we sell those securities we will pay. It wasn't cash now. But it reduced a liability. When you reduce a liability net worth goes up."

"The other important point related to the same thing, deferred income taxes, [is] when we buy some kind of fixed asset," he said. "It's particularly a tailwind if you've got ... lots of deprecation and taken bonus deprecation upfront. So it's a big item there."

However, Buffett made a point to say the money is not in the bank yet: "We haven't really gotten cash yet from this. But we will save cash as we go along."

In his letter, Buffett also said the Omaha-based conglomerate has amassed a $116 billion war chest to spend on a deal, but he feels prices were too high to act in a big way last year.

Buffett has long been against lowering taxes, especially for wealthy Americans like himself. In October, he told CNBC the old corporate tax rate was not hurting American businesses in the world economy.

But he said at the time that he hoped the corporate tax rate would be lowered. "I would like it in the sense that it would be good for a million shareholders of Berkshire in terms of their returns."

Buffett was a supporter of Democrat Hillary Clinton in the 2016 presidential election. But he's since said he hopes President Donald Trump has a successful administration and positive effect on the economy."

Buffett, also nicknamed the "Oracle of Omaha" for his successful track record of stocks picks and his market commentary that's widely followed by the investment community, joined CNBC from Omaha, Nebraska. He became the controlling shareholder of Berkshire in the 1960s.

He also spoke on these topics in the CNBC interview:

Stocks vs bonds, 'I would choose equities in a minute'
'We've bought more Apple than anything else' in the last year
Buffett sees buybacks as an option if Berkshire can't find ways to deploy its big cash stockpile
There are three ways to go broke: 'liquor, ladies and leverage'I don't think Berkshire should avoid doing business with people who own guns
Bezos, Dimon, and I aim for something bigger on health care than just shaving costs
Buffett will tell you which is better, Taco Bell or Chipotle, when they start serving burgers
March Madness contest will double the payout if a Nebraska team wins it all

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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.