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As a Berkshire Hathaway shareholder, I was absolutely stunned when I heard the news over the weekend about Buffett giving almost all of his money to the Gates Foundation.
Buffett's announcement this weekend went against everything he said he would do.
In the past, his philosophy was he would be able to compound money at a faster pace than the overall market, and because he was such a great capital allocator, would be able to donate a much larger amount of money after his death.
This turn of events, leads me to believe he weighed the benefits of donating now versus the benefits of donating post-mortem and concluded he would be unable to compound his wealth at a significant pace. Age factors, and the death of his wife, played a major factor, imo.
BEST FRIENDS
I recalled a Charlie Rose DVD where Gates and Buffett were being interviewed together. In the interview, Gates called Buffett his 'best friend', which proved their closeness.
PSEUDO-DEATH
Today, was a pseudo-death for Warren Buffett.
I can reflect upon my March 10, 2006 post on GuruFocus.com: (here) where I entertained the idea of what might happen if Buffett died.
"Has anyone ever thought that Berkshire Hathaway's share price might actually go up the day (or day after) Buffett dies? I don't think so, but I believe it's quite possible after all the negative "mojo" that's been festering around the past several years. It seems everybody wants to buy the stock, but they won't buy it until after he dies."
In what could be called "the closest thing to death", Berkshire's stock tanked -2.86551% in mid-day trading before ending the day -0.0091175% (less than a 1 percent loss).
From my recollection, when Sam Walton died, WMT stock fell about 10% before resuming it's upward momentum. I knew the company was larger than the man, so I treated today's event as if it were Sam Walton dying.
STRUGGLING WITH THE EMOTIONS
As I watched the stock price drift downward and downward, I typed in the "Buy" order and I struggled with the emotion of impending doom. I felt the emotion today of the urge to sell. It's been awhile since I felt that way. I knew I should fight the emotion, so I placed a Buy order and got filled at $3,011.
CONFUSION
Right before I got into my car to listen to the lunchtime hour-long press conference, I placed another buy order.
After listening to the press conference, I was a bit confused.
The letter at: www.berkshirehathaway.com tells us the disbursement would occur at a rate of 5% per annum, which is about 500,000 B shares. However, during today's press interview, I thought I heard Buffett talk about giving The Bill & Melinda Gates Foundation one million shares per year.
After returning from lunch, I noticed I got filled the second time - this time at $3032.
CLEARING UP THE UNCERTAINTY
For me, I was always uncertain how quickly Buffett's shares would get unloaded onto the market after his death. Today's move, clears up that uncertainty (assuming my confusion regarding the 500k/yr vs. 1mil/yr distribution is answered) of the percentages and how fast his stock gets liquidated. Today, we learned it would take a long time for his stock to get liquidated. I believe it will take longer now, since he is still alive, than it would if he were dead. Any time you can remove negative uncertainty from a stock, it's likely to rise. Today was no exception.
Today, Buffett alleviated much sharesholder grief that could have taken place upon a sudden death probably. However, since we're in the eigth inning, I'm always in a state of confliction about the stock. Do I keep holding because it enforces me to learn more about Buffett? Or, do I sell because I'm holding onto a lackluster performing stock? Or, do i buy because everyone is selling, including Buffett, now? I haven't found an answer to my dilemma yet.
SPECTATOR
On another DVD interview, I recall Warren Buffett saying he'd trade in 5 years of his life in order to become a spectator for the next 40 years. He's genuinely interested in the markets. Perhaps, his statement was focused on being able to see the fruits of his donations. After today's action, he'll be able to see that fruit now.
In the end, I think Buffett made the right decision once again. I think it gives him peace of mind.
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Secondly, I don't believe it is true that Buffett made the gift now, because he thought "he would be unable to compound his wealth at a significant pace." There are subjective factors involved here (even Buffett can be subjective!) such as the death of his wife, his wife's wishes that he "do more now," and simply being friends with Gates, knowing more and more what Gates is doing, and simply being influenced by that whole Gestalt of the Gates connection. Today, Buffett mostly waits for the phone to ring, plus keep his eye on the stock market and prices. The ringing of the phone (with offers to sell whole companies) is irregular and could increase dramatically at any time (particularly now that he has signalled his desire to buy outside the U.S.), and a new terror event, or something equally dramatic, could cause the stock market to swoon big time, and opportunities fly in the window like so many golden pigeons (sorry for the mixed metaphor). Sooner or later something outsize will happen. And they are ready. Meanwhile, free cash flow continues to pour in, and, if we are smart, we should never forget that the most important thing (and the second most important thing) is WHAT IS YOUR DOWNSIDE? HOW MUCH CAN YOU LOSE, REALLY? And Berkshire Hathaway is as much a Fort Knox as any public company that exists. It is my top holding.