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BERKSHIRE HATHAWAY INC DEL : Un article de 1979 exhumé par Joe Ponzi

30 janv. 200922:28




From Our Archives

You Pay A Very High Price In The Stock Market For A Cheery Consensus

Warren Buffett 08.06.79, 6:00 AM ET
Pension-fund managers continue to make investment decisions with their eyes firmly fixed on the rearview mirror. This generals-fighting-the-last-war approach has proven costly in the past and will likely prove equally costly this time around.
Stocks now sell at levels that should produce long-term returns far superior to bonds. Yet pensions managers, usually encouraged by corporate sponsors they must necessarily please ("whose bread I eat, his song I sing"), are pouring funds in record proportions into bonds.
Meanwhile, orders for stocks are being placed with an eyedropper. Parkinson--of Parkinson's law fame--might conclude that the enthusiasm of professionals for stocks varies proportionately with the recent pleasure derived from ownership. This always was the way John Q. Public was expected to behave. John Q. Expert seems similarly afflicted. Here's the record.
In 1972, when the Dow earned $67.11, or 11% on beginning book value of 607, it closed the year selling at 1,020, and pension managers couldn't buy stocks fast enough. Purchases of equities in 1972 were 105% of net funds available (i.e., bonds were sold), a record except for the 122% of the even more buoyant prior year. This two-year stampede increased the equity portion of total pension assets from 61% to 74%--an all-time record that coincided nicely with a record-high price for the Dow. The more investment managers paid for stocks, the better they felt about them.
And then the market went into a tailspin in 1973-74. Although the Dow earned $99.04 in 1974, or 14% on beginning book value of 690, it finished the year selling at 616. A bargain? Alas, such bargain prices produced panic rather than purchases; only 21% of net investable funds went into equities that year, a 25-year record low. The proportion of equities held by private noninsured pension plans fell to 54% of net assets, a full 20-point drop from the level deemed appropriate when the Dow was 400 points higher.
By 1976, the courage of pension managers rose in tandem with the price level, and 56% of available funds was committed to stocks. The Dow that year averaged close to 1,000, a level then about 25% above book value.
In 1978, stocks were valued far more reasonably, with the Dow selling below book value most of the time. Yet a new low of 9% of net funds was invested in equities during the year. The first quarter of 1979 continued at very close to the same level.
By these actions, pension managers, in record-setting manner, are voting for purchase of bonds--at interest rates of 9% to 10%--and against purchase of American equities at prices aggregating book value or less. But these same pension managers probably would concede that those American equities, in aggregate and over the longer term, would earn about 13% (the average in recent years) on book value. And, overwhelmingly, the managers of their corporate sponsors would agree.
Many corporate managers, in fact, exhibit a bit of schizophrenia regarding equities. They consider their own stocks to be screamingly attractive. But, concomitantly, they stamp approval on pension policies rejecting purchases of common stocks in general. And the boss, while wearing his acquisition hat, will eagerly bid 150% to 200% of book value for businesses typical of corporate America but, wearing his pension hat, will scorn investment in similar companies at book value. Can his own talents be so unique that he is justified both in paying 200 cents on the dollar for a business if he can get his hands on it, and in rejecting it as an unwise pension investment at 100 cents on the dollar if it must be left to be run by his companions at the Business Roundtable?
A simple Pavlovian response may be the major cause of this puzzling behavior. During the last decade, stocks have produced pain--both for corporate sponsors and for the investment managers the sponsors hire. Neither group wishes to return to the scene of the accident. But the pain has not been produced because business has performed badly, but rather because stocks have underperformed business. Such underperformance cannot prevail indefinitely, any more than could the earlier overperformance of stocks versus business that lured pension money into equities at high prices.
Can better results be obtained over, say, 20 years from a group of 9 1/2% bonds of leading American companies maturing in 1999 than from a group of Dow-type equities purchased, in aggregate, at around book value and likely to earn, in aggregate, around 13% on that book value? The probabilities seem exceptionally low. The choice of equities would prove inferior only if either a major sustained decline in return on equity occurs or a ludicrously low valuation of earnings prevails at the end of the 20-year period. Should price/earnings ratios expand over the 20-year period--and that 13% return on equity be averaged--purchases made now at book value will result in better than a 13% annual return. How can bonds at only 9 1/2% be a better buy?
Think for a moment of book value of the Dow as equivalent to par, or the principal value of a bond. And think of the 13% or so expectable average rate of earnings on that book value as a sort of fluctuating coupon on the bond--a portion of which is retained to add to principal amount just like the interest return on U.S. Savings Bonds. Currently our "Dow Bond" can be purchased at a significant discount (at about 840 vs. 940 "principal amount," or book value of the Dow. Figures are based on the old Dow, prior to the recent substitutions. The returns would be moderately higher and the book values somewhat lower if the new Dow had been used.). That Dow Bond purchased at a discount with an average coupon of 13%--even though the coupon will fluctuate with business conditions--seems to me to be a long-term investment far superior to a conventional 9 1/2% 20-year bond purchased at par.
Of course, there is no guarantee that future corporate earnings will average 13%. It may be that some pension managers shun stocks because they expect reported returns on equity to fall sharply in the next decade. However, I don't believe such a view is widespread.
Instead, investment managers usually set forth two major objections to the thought that stocks should now be favored over bonds. Some say earnings currently are overstated, with real earnings after replacement-value depreciation far less than those reported. Thus, they say, real 13% earnings aren't available. But that argument ignores the evidence in such investment areas as life insurance, banking, fire-casualty insurance, finance companies, service businesses, etc.
In those industries, replacement-value accounting would produce results virtually identical with those produced by conventional accounting. And yet, one can put together a very attractive package of large companies in those fields with an expectable return of 13% or better on book value and with a price which, in aggregate, approximates book value. Furthermore, I see no evidence that corporate managers turn their backs on 13% returns in their acquisition decisions because of replacement-value accounting considerations.
A second argument is made that there are just too many question marks about the near future; wouldn't it be better to wait until things clear up a bit? You know the prose: "Maintain buying reserves until current uncertainties are resolved," etc. Before reaching for that crutch, face up to two unpleasant facts: The future is never clear; you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values.
If anyone can afford to have such a long-term perspective in making investment decisions, it should be pension-fund managers. While corporate managers frequently incur large obligations in order to acquire businesses at premium prices, most pension plans have very minor flow-of-funds problems. If they wish to invest for the long term--as they do in buying those 20- and 30-year bonds they now embrace--they certainly are in a position to do so. They can, and should, buy stocks with the attitude and expectations of an investor entering into a long-term partnership.
Corporate managers who duck responsibility for pension management by making easy, conventional or faddish decisions are making an expensive mistake. Pension assets probably total about one-third of overall industrial net worth and, of course, bulk far larger in the case of many specific industrial corporations. Thus, poor management of those assets frequently equates to poor management of the largest single segment of the business. Soundly achieved higher returns will produce significantly greater earnings for the corporate sponsors and will also enhance the security and prospective payments available to pensioners.
Managers currently opting for lower equity ratios either have a highly negative opinion of future American business results or expect to be nimble enough to dance back into stocks at even lower levels. There may well be some period in the near future when financial markets are demoralized and much better buys are available in equities; that possibility exists at all times. But you can be sure that at such a time the future will seem neither predictable nor pleasant. Those now awaiting a "better time" for equity investing are highly likely to maintain that posture until well into the next bull market.
Editor's Note: This editor's note accompanied the original publication of this article:
Warren Buffett is a down-to-earth man of 48 who prefers to operate out of his native Omaha rather than in the canyons of Wall Street, but the pros regard him as possibly the most successful living money manager, a direct descendant of the legendary Ben Graham under whom he studied. Buffett made a fortune for himself and his clients in the Fifties and Sixties but threw in the towel in 1969 because he could no longer find bargains. Then in late 1974, when the Dow Jones industrials were below 600 and the air was thick with doom, he told Forbes: "I feel like an oversexed man in a harem. This is the time to start investing." Within months, the greatest rally in history began, with the DJI running almost 450 points in a bit over a year. What does Buffett think now? In this article, he puts it bluntly: Now is the time to buy.

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2 réponses

  • robert-d
    01 février 200911:23

    voici un autre texte du même genre , de MARKEL dont la première position est BRK.A achetées à 5700 $ au lieu de 384 $ !
    il en est question à la fin du texte :
    "BUFFET ? :who is that GUY ?

    Back in May of this year, Buck Hartzell and I drove down to Richmond to attend Markel's 2008 Annual Meeting of Shareholders. Below are some of the key takeaways from the meeting, along with our full notes from the proceedings (this content was originally published on Inside Value's Markel discussion board -- I thought it would help MDP members learn a bit more about the company). --TMFMattyA

    Markel Annual Meeting of Shareholders
    Tuesday - May 13, 2008

    Key Takeaways:

    (1) Chief Investment Officer Thomas Gayner called the current environment the best he's seen in his 18 years at Markel for buying best-of-breed companies at a discount. Pretty strong words from him there.

    (2) Steve Markel thinks Markel should be valued at 2x Book Value. At the current book value (as of 3/31) of $263 Book value, that puts shares at $526.

    (3) The culture at Markel is extremely strong. The employee owners (we call them that because they actually buy shares on the open market) are bought in to what Markel is doing. That is an incredible advantage for an insurer, or any business.

    (4) Thomas Gayner thanked the underwriting side of the business when he first got up, saying he understands how hard it is to have such discipline and generate the money (float) that his team gets to invest. Their top investing priority is not to lose it.

    (5) Thomas Gayner also said that bad times will always come and go. There have been many times in the past when people have predicted the worst (food and energy crises, runaway inflation, economic depression). It usually doesn't happen. :-)

    Below are our full notes from the meeting, including the shareholder Q&A and some fantastic quotes from Thomas Gayner:

    Markel Corp. 2008 Annual Meeting of Shareholders
    Richmond, VA
    May 13, 2008, 4:30pm

    General Notes

    The Markel Annual Meeting took place at the fancy Jefferson Hotel in Richmond, VA. The actual meeting took place in one of the hotel's elaborate ballrooms. Buck Hartzell (TMFBuck) and I might have been the only attendees in jeans, as the place was dominated with suits. There were two large screens on either side of the room.

    Near the beginning of Chairman Alan Kirshner's remarks he asked all Markel employees to stand up. Of the 400 or so people in attendance, we estimated that about 90% of them were Markel employees. These are clearly people who have bought in to the company -- this is more to them than just a place they go to work at every day.

    We got a chance to speak briefly with a nice woman who works in the IT department at Markel. She seemed very enthusiastic and was delighted to hear that we were down from the Fool. Buck and I told her that we were also shareholders and she was quick to say that she was as well and that all employees of Markel are shareholders. Great to hear!

    Opening Remarks - Alan I. Kirshner, Chairman & CEO

    • The big question: How do we perpetuate the Markel style with now almost 2,000 employees?
    • There was then a video featuring a number of Markel managers and employees (associates) talking about various aspects of the Markel style
    • Markel style is a living, breathing document that all employees use as a model -- this can be found at the beginning of every Markel annual report
    • Constantly looking for better ways to do things
    • Honesty and fairness in all endeavors
    • Long-term thinking
    • A disdain for bureaucracy
    • Always with a sense of humor
    • Back to Kirshner: It takes a life-time to build a reputation, half a second to lose it
    • We support our local communities
    • We want all of our employees to dive in and contribute at all levels; employees are encouraged to challenge management; "the best ideas come from the troops”
    • Winning, winning, winning
    • We are building this company to last, focus on long-term results
    • Kirshner then introduced each member of the management team: Richard R. Whitt III (Senior VP & CFO), Thomas S. Gayner (CIO), Anthony F. Markel (Vice Chairman), Paul W. Springman (President & COO), and Steven A. Markel (Vice Chairman)

    Financial Review - Richard R. Whitt, III, Senior Vice President & Chief Financial Officer

    • Recap of 1Q 2008 results
    • Underwriting is off to a great start, but lower premiums due to extreme competition in most markets
    • Purchasing less resinsurance
    • Focusing on customer retention in all lines
    • Total investment return was a loss of 0.3% in 1Q, not too shabby given market conditions; there were several large equity writedowns, including Citigroup
    • Long term (5-year and 10-year) results still very solid
    • Book value declined 1% from year-end 2007 to $263.16 per share
    • Over the last 5-years, book value has grown at an 18% annual rate; focus will always be on the long-term

    Investment Overview - Thomas S. Gayner, Chief Investment Officer

    • Begins by giving thanks to the insurance side for maintaining great discipline in all underwriting endeavors and of course for providing the capital with which to invest
    • Markets are volatile and turbulent
    • Our fixed income investments avoided complicated mortgage securities, CDOs, etc.; fixed income focused on quality
    • The coupon yield is what we achieved in 2007 – and that is exactly what should happen; we should invest at the maturity yield, and not try to stretch into other areas in search of yield; we're buying bonds first for safety, then return
    • Over entire history of fixed income investing (18 years), we’ve only experienced one default
    • Equity side didn’t fare very well, but outperformed S&P 500 in 1Q 2008
    • We take a four-part focus to equity investing: (1) Returns on capital, (2) management team (equal parts: integrity and talent), (3) reinvestment opportunities, and (4) reasonable prices
    • Save money on transactions and taxes by reducing active management; buy great businesses and hold onto them
    • References famous author Kurt Vonnegut (nice!); Vonnegut's secret to success: “get yourself a gang!” this is good advice, Markel has a great investment portfolio (investment gang); our portfolio contains the strong, swift, and agile – a perfect gang for all situations
    • Companies owned are continuingly becoming global enterprises
    • News is full of bad stuff…inflation, catastrophes, food shortages, energy shortages….this is nothing new….think back to 1789; the Club of Rome published a book that year calling for the end of the world; now go to 1972, the Club of Rome again predicted massive inflation, high unemployment, economic catastrophe; yet another update in 1993; then again in 2004....stay tuned for more updates! (laughter) These were all great times to invest!
    • In a bull market, time horizons become longer and longer; in a bear market, they become shorter and shorter
    • Despite what the media says, "temporary" (problems) doesn’t mean "forever"
    • Unusual time of opportunity; great companies are trading at a discount to what we think they're truly worth
    • “The gods cannot help those who do not seize opportunities” , said Confucius, "perhaps during the subprime crisis of 500BC" (laughter); trust me, Markel is seizing opportunities

    Introduction of Business Partners - Anthony F. Markel, Vice Chairman

    • Very funny man
    • Introduces 16 wholesale partners/brokers at meeting that are responsible for 35% of Markel's U.S. insurance production and 20% of Markel’s worldwide production ?
    • AmWINS Brokerage
    • Atlantic Specialty Lines
    • Burns & Wilcox
    • Colemont Brokerage Group (Dallas, TX)
    • CRC Insurance Service (Birmingham, AL)
    • Crump Group (Dallas, TX)
    • Gresham & Associates (Stockridge, GA)
    • Hull & Company, Inc. (Ft. Lauderdale, FL)
    • Jimcor Agencies (Montvale, NJ)
    • LoVullo Associates, Inc. (Buffalo, NY)
    • Partners Specialty Group (Philadelphia, PA)
    • Peachtree Special Risk Brokers (Stockridge, GA)
    • Risk Placement Services (Illinois)
    • U.S. Risk Insurance Group (TX)
    • Westrope (Kansas City, KS)
    • Worldwide Facilities, Inc. (Los Angeles, CA)

    Operations Overview - Paul W. Springman, President & COO

    • Atlas – major undertaking to increase internal efficiency, and enhance avenues for customers to shop services
    • Atlas initiative aims to address: (1) Bring down barriers to cross-selling from a broker perspective, (2) Need to better manage expenses; cut down on operating redundancies, (3) Improve processes through Markel, (4) Expand opportunities for associates
    • Establish regional PPG business model that serves producers and gives access to all available products ? everything Markel available at a single office (One Markel), rather than a host of offices with varying responsibilities and expertise
    • Get closer to our brokers and our customers
    • 5 separate regional offices serving: West, Northeast, Southeast, MidWest, MidSouth
    • Dallas, TX will be the first regional office
    • Target Business Model is to focus on profitable growth and underwriting rigor
    • Full model implementation by 2010
    • Long-term growth strategy, but benefits can be felt in the short-term
    • Change is a fundamental part of the Markel style, but this change will not take us away from the Markel style

    Closing Remarks and Q&A - Steven A. Markel, Vice Chairman

    • Gives thanks to producers, associates, and shareholders
    • Opens Q&A session

    Q&A session

    Q: Do you have any thoughts on splitting the stock? (This is from a shareholder who claims to have bought the stock at $11 per share!)

    A: Our attitude will not change. We are very happy with our current group of shareholders. Many of the new shareholders that would come in after a split would not be long-term minded. No economic benefit to split. Doesn’t matter how many times you split a pizza. The size of the pizza won’t change. We want a stable shareholder base.

    Q: How much of your previous $200 million share repurchase (agreed on a few years back) is still available?

    A: Still have $120 million available. We have bought a bit since the end of 1Q. At these price levels, we are more inclined to buy more shares back. However, general troubles in insurance industry have created opportunities to invest outside of Markel, so we remain cautious on being too aggressive with buybacks. No thoughts right now on increasing our share buyback allocation.

    Q: Disconcerting to hear that Goldman Sachs downgraded the stock over valuation concerns. Any thoughts? (GS went from Neutral to Sell last week)

    A: Obviously, the stock price is out of our control. What we do control is the intrinsic value. We think 2x book value is a good benchmark for Markel stock. Reasonable trading range probably between $450 - $550, but these are just thoughts. Goldman Sachs insurance analyst is a good one…he also downgraded AIG. We’re in good company! (laughter) But now Markel, due to its size (small to mid-cap), is being rated by a more junior Goldman Sachs analyst who just did a simple ranking, probably on valuation (top 20 get buys, middle 20 get holds, etc.)...for some reason, we got put near bottom of the list.

    Q: Any thoughts on expanding operations in emerging markets?

    A: We have expanded…Markel International recently opened offices in Madrid, Spain and Singapore and Stockholm. These locations give us windows into those emerging markets. Just got back from Shanghai, China….market is a bit young and risky for Markel. Little too complicated right now. We certainly see the opportunities, but are proceeding cautiously. Springman: We do see many opportunities through the Singapore window. We have a work group looking into Eastern Europe, Brazil, and India.

    Q: What is equity portfolio looking like in 2Q and rest of the year? Berkshire, in particular, your largest holding (15%), has been under some pressure.

    A: Berkshire is our largest holding simply because we have extreme confidence in the company and of course its management. Incredibly strong balance sheet. Gayner: First, we don’t think from quarter-to-quarter. Gayner shares a funny story about Berkshire. Back in 1983, Gayner read his first Berkshire annual report…and then went to his boss and asked “who is this Warren Buffet" (pronouncing it "buffet"). Boss called him an idiot. He looked into Berkshire and had an opportunity to buy it at $384…but held off, thinking "how could this little company in Omaha be valued so high." Unfortunately, held off on purchasing it. Years later, Tom bought Berkshire for Steven Markel at a price of $5,700 per share. Will hold forever – best business “two ways to Sunday.” Very confident in rest of portfolio – we own some of the best companies at the best prices we’ve seen in years. Extremely confident going forward.

    Q: I was upset to hear about Goldman Sachs. But ValueLine says buy? What should I do?
    A: Listen to ValueLine! (laughter)

    That was the end of the brief Q&A. With that, shareholders were then treated to what Steven Markel referred to as Markel's once-a-year "dividend": a nice spread of o'dourves and an open bar! While indulging, shareholders got a chance to look at presentations by various segments of the company and pick up some cool souvenirs!

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