The Rational Walk will be on a mid-summer hiatus until August 23. In the four weeks since the site redesign, average daily traffic on The Rational Walk has more than doubled which definitely exceeded expectations. Since we have many new readers who may be unfamiliar with articles that were written prior to mid-July, we present below a list of popular articles from January to July 15. We look forward to providing new content starting the week of August 23.
From Cigar Butts to Business Supermodels
Published February 16, 2010. There are numerous books and publications that provide detailed accounts of the history of Berkshire Hathaway as well as Warren Buffett’s life and career. It is also impossible to fully understand Berkshire without studying the life and career of Vice Chairman Charles T. Munger. A list of resources for those interested in a comprehensive history of the company and its leaders is provided as an appendix to this document. In this article, we attempt to provide some context regarding the remarkable history of Berkshire Hathaway and Warren Buffett’s investment approach. Read this article for an essay that appears in The Rational Walk’s Berkshire Hathaway Briefing Book.
Charlie Munger’s Latest Parable: Basically, It’s Over
Published February 20, 2010. Those who have followed the career of Berkshire Hathaway Vice Chairman Charlie Munger know that he has a long history of using parables to educate the public regarding business, economic, and political issues. By far, the best compilation of Mr. Munger’s thoughts on life can be found in Poor Charlie’s Almanack, which is a must read book for anyone seriously interested in Berkshire Hathaway. The latest Munger parable can be found on Slate.com and the story lacks a happy ending. Read this article for more details.
Highlights from Warren Buffett’s Letter to Shareholders
Published February 27, 2010. Warren Buffett released his annual letter to shareholders this morning along with Berkshire Hathaway’s 2009 annual report. Our full package of analysis on Berkshire Hathaway will be available soon as part the Berkshire Hathaway 2010 Briefing Book. For now, this article highlights several notable statements that were made in the shareholder letter regarding Berkshire’s results, management philosophy, and future plans. Mr. Buffett also includes his usual commentary on broader economic issues.
Berkshire’s Investment in BYD: A Bet on Wang Chuan-Fu
Published March 10, 2010. Berkshire Hathaway’s investment in BYD made its first appearance in Warren Buffett’s annual letter which provides a table listing common stock investments with a market value of more than $1 billion. As of December 31, 2009, Berkshire held 225 million shares of BYD with a market value of nearly $2 billion. Berkshire’s cost basis is $232 million. While the investment has appreciated significantly, it is unusual for Warren Buffett to purchase shares of what is essentially a technology company in a very unsettled industry environment. Read this article for more details.
Examining Middleburg Financial: David Sokol’s Favorite Bank?
Published March 26, 2010. Middleburg Financial Corporation is a small bank holding company with primary operations in the western suburbs of Washington D.C. The bank’s headquarters are in Middleburg, Virginia. Over the past two years, David Sokol has accumulated nearly twenty percent of the bank’s outstanding shares in his personal accounts. Mr. Sokol is Chairman of MidAmerican Energy Holdings and Chairman and CEO of NetJets, both of which are subsidiaries of Berkshire Hathaway. Since Mr. Sokol is often mentioned as a potential future CEO of Berkshire Hathaway and would be responsible for allocation of capital, we found it interesting to learn of his significant personal investment in Middleburg Financial and decided to take a closer look. Read this article for more details.
Highlights From Buffett Partnership Letters
Published April 19, 2010. Warren Buffett started his investment partnership in 1956 with $105,100 of capital made up of his own funds and investments from family and close friends. According to the BLS inflation calculator, initial capital was $840,920 measured in 2010 dollars which would be a very small sum to start a modern day hedge fund. What is even more remarkable was the fee structure of the Buffett Partnerships. Mr. Buffett, as the general partner, took 25 percent of all profits in excess of 6 percent. There was no “2 and 20″ structure in which the general partner received any guaranteed payment. With nearly all of his net worth invested in the fund and a young family to support, it obviously took a very self confident 25 year old to start this venture. Read this article for more details and a link to extensive notes on the letters by Frank Gifford, a Berkshire shareholder.
Graham’s Advice on “Relatively Unpopular Large Companies”
Published May 29, 2010. Few books have been able to withstand the test of time in better form than The Intelligent Investor. Written by Benjamin Graham in 1949 as a guide to investing principles designed to be accessible to the general public, The Intelligent Investor clearly presents not only information regarding sound selection of securities but, perhaps more importantly, the correct mindset that separates true investors from speculators. For decades, Warren Buffett has recommended that readers pay particular attention to Chapters 8 and 20 covering how investors should think about market fluctuations and margin of safety. Read this article for Ben Graham’s views on “relatively unpopular large companies”.
Noble Corporation Profile and Analysis
Published June 2, 2010. As we discussed in our recent article on National Oilwell Varco, the financial markets have been reacting to the Deepwater Horizon disaster by punishing the stock prices of nearly every company associated with oil and gas exploration in the Gulf of Mexico. In certain cases, the market reaction may be justified by deteriorating fundamentals and in other cases, stocks may be under pressure based on confusion, uncertainty, or merely “guilt by association”. The current situation in the Gulf of Mexico is a national disaster but is it reasonable to believe that this rich domestic source of oil and gas will not be tapped in the future? The job of the value investor is to look at these types of situations as opportunities and to identify cases where Mr. Market may have overreacted. In this article, we take a look at Noble Corporation.
The Value Investor’s Guide to Value Line Investment Survey
Published June 17, 2010. Value Line Investment Survey is one of the best ways to gain exposure to a large number of companies in an efficient manner. Value Line provides stock screening tools but the strength of the service is in the information packed one page company reports. Read this article for information on how a value investor can leverage Value Line Investment Survey.
Ten Books for Summer Reading
Published July 4, 2010. With the nearly unlimited supply of books on business and finance, it seems impossible to keep up with the list of important titles that appear on a regular basis. This is particularly true for books covering the financial crisis. While we have covered many of these titles in the book review series, it is sometimes beneficial to pick up a title on topics completely unrelated to business and investing.