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Warren Buffet Quotes :

• [The perfect amount of money to leave children is] enough money so that they would feel they could do anything, but not so much that they would do nothing.
  • Richard I. Kirkland Jr., ”Should You Leave It All to the Children?”, Fortune, 29 September 1986.

• I don’t have a problem with guilt about money. The way I see it is that my money represents an enormous number of claim checks on society. It is like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And the GNP would go up. But the utility of the product would be zilch, and I would be keeping those 10,000 people from doing AIDS research, or teaching, or nursing. I don’t do that though. I don’t use very many of those claim checks. There’s nothing material I want very much. And I’m going to give virtually all of those claim checks to charity when my wife and I die.
  • Quoted by Janet C. Lowe, in Warren Buffett Speaks: Wit and Wisdom from the world’s Greatest Investor, (1997) John Wiley & Sons, Inc., pp. 165-166 (ISBN 0-471-16996-X).

Warren Buffett’s Magic Formula In 1965?

I recently read through Buffett’s Partnership Letters again. This time I paid particular attention to one of the strategies he used to perform better than the market in down years. Buffett employed three such techniques from 1956-1965:

Generals – Private Owner – Large margin of safety was a cushion when markets fell.

Workouts – Special situations were not correlated to the market.
Controls – Accounting of “controls” typically outperformed the market in down years.
In his January 15, 1965 letter to partners, Buffett introduced a fourth category called:

4. Generals -Relatively Undervalued

“We have recently begun to implement a technique which gives promise of very substantially reducing the risk from an overall change in valuation standards; e.g., we buy something at 12 times earnings when comparable or poorer quality companies sell at 20 times earnings, but then a major revaluation takes place so the latter only sells at 10 times earnings. The risk has always bothered us enormously because of the helplessness position in which we be left compared to the “Generals -Private Owner” or “Workout” types. With this risk diminished, we think this category has a promising future.”

Costco is not cheap when you look at either price to earnings or price to free cash flow. Before digging into Costco’s annual report – I looked around for some information on Warren Buffett’s investment in Costco. It’s small. Berkshire Hathaway (BRK.B) owns just over $300 million of Costco stock. That’s about 0.5% of Berkshire Hathaway’s stock portfolio. Buffett’s investment in Wal-Mart (WMT) is much bigger. Berkshire owns about $2 billion worth of Wal-Mart stock.

http://www.investorquestionspodcast.com/storage/investor-questions-podcast-episodes/IQP_0008_Why_Did_Warren_Buffett_Buy_Costco_Stock.mp3

I should also point out that this is a Warren Buffett investment – not a Lou Simpson investment. Lou Simpson runs GEICO’s stock portfolio. But if you look at one of Berkshire’s reports to the SEC – something called a 13F – you’ll see that Costco is not listed under GEICO’s investments. So even though Costco is a small investment for Berkshire Hathaway – the decision to buy Costco stock was made by Warren Buffett himself.

When I got this voicemail message – I posted the question on Twitter. And 2 people answered it right away. One said that Buffett invested in Costco because his partner – Charlie Munger – loves the company. Charlie is on Costco’s board.

The economy collapse two years ago proved to the economic world that no matter what new inventions are made in investing business, we should always stick to the basics of investing. The basics are creating an emergency fund, always contributing to your retirement fund, allocating your investments in diverse area and different places and balancing your portfolio to minimize the risk.

Warren Buffet, the second richest man in the world and the CEO of Berkshire Hathaway, is an agent of common sense investing. Many people will raise their brows to the way he invests. He buys stock for less than its fundamental value. You can use some investment websites in the internet to find out the trusted value funds which have consistent records.

Berkshire had warned all the manufacturers where it has a stake before the recession including H.H. Brown, Nebraska Furniture Mart, Dairy Queen, McLane, and Borshiems. Berkshire itself owns 70 firms and they varied from one area to other, from American Express to Coca Cola. It obviously does not put its eggs in one basket for that matter. This is one of the main reasons it can survive the recession which put many business to an end, but not this one.