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Steven Chen
Steven Chen
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Some Enlightening Moments From Warren Buffett's CNBC Interview

Guru discusses market timing, yield, portfolio management, crypto and more

February 25, 2020 | About:

Berkshire (NYSE:BRK.A) (NYSE:BRK.B) shareholders, Buffett fans and many value investors may have seen quite a busy schedule for the past few days. Soon after the publication of Warren Buffett (Trades, Portfolio)’s annual letter over the weekend, the Oracle of Omaha sat down with CNBC’s Becky Quick on Monday and spent hours expanding on various topics regarding the company, investing and business at large. As time goes by, it may be reasonable to expect such precious wisdom-sharing to decrease as the Guru nears retirement.

In this article, we will share a collection of moments from the interview that we found enlightening.

Market timing

“Well, if you think that then you’re gonna get fabulously rich if you are right. All you have to do is to keep buying at ten-day intervals… I don't think anybody knows what the market is going to do.”

Instead of timing the market, Buffett suggests people focus on the value that they get at a given price.

Liquidity

“Because they can make decisions every second in stocks whereas they can’t with farms, they think an investment in a stock is different from an investment in a business or an investment in a farm or an investment in an apartment.”

The excessively liquid characteristic of the stock market puts many investors in a disadvantageous position, Buffett hints.

Cognitive Bias

“Darwin said if you found evidence that was contrary to what you already believed, write it down in 30 minutes”

Investors inevitably make mistakes. Buffett cites a simple way to mitigate resistance to new evidence.

Yield

“Reaching for yield is really stupid. But it’s very human.”

It is often observed that investors chase yield beyond their risk tolerance. Adjusting spending according to income is what Buffett suggests people do.

Conglomerate

“Our managers are I would say in a sense almost more independent than the managers of the S&P 500 who go around and report to Wall Street week after week. They go to investor relation meetings and they’re always explaining what they’re doing and trying to get the approval of the analysts and all that sort of thing. And we just tell our managers to do what makes sense.”

Buffett argues that Berkshire might be less of a conglomerate than the S&P 500 index by pointing to the unique advantage of its acquisition approach.

Portfolio management

“The question about the portfolio is interesting. Most months, neither Ted nor Todd makes a single change in their portfolio. I mean, portfolio management is something that you learn over decades… It is not something that you have to sit there day by day and do. People do it that way. But if there are many years where I just left the portfolio entirely the same and didn’t make any changes, we’d be better off. So, that’s not a problem.”

When it comes to trading stocks for investment, less is more.

Berkshire’s Underperformance

“I don’t think it will be in the top 10% of stocks performing over the next 10 years. I don’t think it’ll be in the top 15% of stocks performing in the next 10 or 15 years. I also don’t think it’ll be in the bottom 10% or 20% or 30%. But our ability to have a huge edge over the market generally with a $550 billion market value - it’ll be minor, but it’ll be done in a very, very safe manner.”

While acknowledging the size disadvantage, Buffett values the limited downside of the business as well as the stock.

Share Buyback

“It’s harder to buy back Berkshire shares than, say, Bank of America is buying back their shares. Bank of America bought back 8% or 9% of its stock last year. And they can really do it without moving the market. I mean, Apple’s been buying back a ton of stock. They were buying the stock at the same time we were buying the stock. But it was easier for us to buy Apple stock even though Apple itself was buying a lot of stock than it is to buy Berkshire. Berkshire is held by people that are really trying to keep it. I think the amount of speculation in Berkshire stock is relatively low compared to most stocks.”

Buffett explains his unusual move of “advertising” for share repurchase in his annual letter and the “pain point” of having a loyal shareholder base.

CryptoCurrency

“Cryptocurrencies basically have no value. And they don’t produce anything. So, you can look at your little ledger item for the next 20 years and it says you’ve got X of this cryptocurrency or that. It doesn’t reproduce. It doesn’t deliver. It can’t mail you a check. It can’t do anything. And what you hope is that somebody else comes along and pays you more money for it later on. But then that person’s got the problem. But in terms of value, you know, zero.”

Buffett again compared trading crypto to the Greater Fool’s Game. To elaborate on the economic value of Crypto, he went on and introduced an interesting trade to profit from the introduction of Bitcoin:

“Bitcoin has been used I think to move around a fair amount of money illegally… So, the logical move from the introduction of Bitcoin is to go short suitcases because the money that was taken in suitcases from one country to another, suitcases will probably fall off in demand.”

Brand moat

“Brands are always going to be in a fight with the retailer. It varies by country enormously and varies by product category… I would say that the retailer has gained ground against brands to some degree. But brands are still terribly important.”

Buffett believes that the brand remains an important source for the moat, although companies are seeing increasingly competitive pressure from private labels.

Disclosure: The mention of any security in this article does not constitute an investment recommendation. Investors should always conduct careful analysis themselves or consult with their investment advisors before acting in the stock market. We own shares of Berkshire Hathaway.

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About the author:

Steven Chen
Steven CHEN is a quality-focused, business-perspective investor (with bottom-up opportunistic approaches), an ex-hedge fund analyst on Wall Street, a serial entrepreneur, computer scientist, and free-market capitalist.

Steven is the Managing Partner of Urbem Partnership, a value/quality-focused investment partnership fund (www.urbem.capital).

Steven can be reached at [email protected], LinkedIn, or WeChat (ID: LSCHEN2005).

Also, check out his column at Smartkarma on the Asian market - www.smartkarma.com/profiles/steven-chen

Visit Steven Chen's Website


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