The success of Warren Buffett’s investing, and his transformation into an icon, has led to a constant flow of articles and videos referencing his investment style.
Should we pay attention?
While reading about Warren Buffett is nice and fun, does anything about his experience have any bearing on the rest of us?
It is a fair question. Can a man with a net worth over 100 billion dollars, and head of company worth over 900 billion dollars have any relevance for the rest of us with more modest means?
What Is Money
So Buffett has a lot of money, his investing is seen as highly successful, and thus is lionized. It is the gargantuan numbers that attract everyone to his words and deeds. The financial activities of his company Berkshire Hathaway are scrutinized with every SEC filing as if they were an oracle. Hence he was dubbed the “Oracle of Omaha.”
Not So Fast
None of the rest of us can buy an insurance company and use its “float” to invest. None of the rest of will be called at odd hours of the night during a financial crisis to save a financial institution. None of us will get our musings on investing published in the New York Times. None of the rest of us can fill a stadium with thousands of people listening to our words at annual meetings.
Well, Something
Buffet (and Charlie Munger) do have lessons for us. They buy low, and hold for a long time, collecting dividends. That in itself should tell us everything.
In many cases, at least, Berkshire holds. While it is commonly quoted that Buffett’s “favorite holding period is forever,” it is not true in many cases. Berkshire Hathaway has sold many, many times.
So perhaps the aphorism that their “favorite holding period is forever,” could be revised to state: “We wish we could hold forever.”
Buffett’s (and Munger’s) famous annual base salary of $100,000 in contrast to the many millions for other CEOs is certainly attention-getting, albeit because Berkshire does not pay dividends. (“Other compensation” may increase both of their compensations.) On the other hand, other executives in his company are paid many millions. For 2021, Ajit Jain and Gregory Abel both each earned over $19 million each.
Dividends, No Dividends
Berkshire Hathaway famously does not pay dividends, but they sure love to receive them. Is this duplicity? Is this hypocrisy? Speculating gets us nowhere… at least, about intentions. I do seem to recall hearing that at one Berkshire Hathaway annual meeting some years ago, they were asked about a hypothetical future after Buffett and Munger are gone, and Jain and/or Abel take over, what their reaction to be if Berkshire paid dividends, and the answer was that would be acceptable. So, as we know, the future is unknowable, but dividends may someday be issued.
A conjecture on my part is that in the unknowable future, it may be possible spin-offs may occur. Berkshire Hathaway has a very large and diverse collection of companies, many of which have nothing to do with each other. So from a logical point of view, spin-offs would not be surprising. It remains to be seen what might occur.
Since Berkshire Hathaway does not pay dividends, it is not really an appropriate stock for a dividend investor. As it happens, it is the only stock I bought a few shares of that does not pay dividends. It is in anticipation of those theoretical future dividends, and/or spin-offs, that I own it. Someday I might be right, even if it is a long time from now. I hope I am right.
Ultimately, Warren Buffett is one of many successful American businessmen. Interesting, but hardly emulatable.
What do you think of Warren Buffett in regards to your investing? Let me know here.
The image shown is part of the Huexotzinco Codex of 1531 in which the Huexotzinco of Mexico protested excessive taxes of the Spanish conquerors. In 1538, King Charles of Spain agreed with the judgement against the Spanish administrators in Mexico and ruled that two-thirds of all tributes taken from the people of Huexotzinco be returned.
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