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George Jung
02-25-2012, 12:23 PM
Any Warren Buffet fans? With the annual meeting of Berkshire Hathaway, his annual letter is available. Warren is always entertaining, might even be a good read. Should've bought a few shares when it was only $19/share, eh?

http://www.omaha.com/article/20120225/MONEY/120229608#warren-buffet-s-annual-letter-to-shareholders

An excerpt:



Beyond that, the company will likely spend $50 billion or so in those years to repurchase shares. Our quiz for the day: What should a long-term shareholder, such as Berkshire, cheer for during that period?

I won’t keep you in suspense. We should wish for IBM’s stock price to languish throughout the five years.

Let’s do the math. If IBM’s stock price averages, say, $200 during the period, the company will acquire 250 million shares for its $50 billion. There would consequently be 910 million shares outstanding, and we would own about 7% of the company. If the stock conversely sells for an average of $300 during the five-year period, IBM will acquire only 167 million shares. That would leave about 990 million shares outstanding after five years, of which we would own 6.5%.

If IBM were to earn, say, $20 billion in the fifth year, our share of those earnings would be a full $100 million greater under the “disappointing” scenario of a lower stock price than they would have been at the higher price. At some later point our shares would be worth perhaps $11⁄2 billion more than if the “high-price” repurchase scenario had taken place.

The logic is simple: If you are going to be a net buyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks rise. You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day’s supply.

Charlie and I don’t expect to win many of you over to our way of thinking – we’ve observed enough human behavior to know the futility of that – but we do want you to be aware of our personal calculus. And here a confession is in order: In my early days I, too, rejoiced when the market rose. Then I read Chapter Eight of Ben Graham’s The Intelligent Investor, the chapter dealing with how investors should view fluctuations in stock prices. Immediately the scales fell from my eyes, and low prices became my friend. Picking up that book was one of the luckiest moments in my life.

Paul Girouard
02-25-2012, 12:42 PM
I wish he'd pay his contested taxes before he sounds off about other people should pay more. He'd gather more merit if he did.


Warren Buffet contesting Berkshire’s taxes – hypocrisy? Posted on August 30, 2011 at 11:55 am by Ted Biondo
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Warren Buffet has been trying to make his case for taxing the rich, including an op-ed piece in the New York Times, as long as it isn’t Berkshire Hathaway, which has been fighting their taxes (http://netrightdaily.com/2011/08/warren-buffett%e2%80%99s-taxing-hypocrisy/#ixzz1WHfLioXC)with the IRS since 2004.
Excerpt:

To wit, he wrote of the so-called “super-rich,” which he apparently defines as households earning $1 million or more a year: “Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.” Isn’t that nice of Mr. Buffet?
But if he were truly sincere, perhaps he might simply try paying the taxes the Internal Revenue Service (IRS) says his company owes? According to Berkshire Hathaway’s own annual report (http://www.berkshirehathaway.com/2010ar/2010ar.pdf)- see note on pp 54-56 – the company has been in a years-long dispute over its federal tax bills.
Excerpt from Berkshire’s annual report:

We file income tax returns in the U.S. federal jurisdiction and in state, local and foreign jurisdictions. We are under examination by the taxing authorities in many of these jurisdictions. With few exceptions, we have settled tax return liabilities with U.S. federal, state, local and foreign tax authorities for years before 2002. We anticipate that we will resolve all adjustments proposed by the U.S. Internal Revenue Service (“IRS”) for the 2002 through 2004 tax years at the IRS Appeals Division within the next 12 months.
Warren Buffet seems to be very generous with other people’s money but when it comes to Berkshire Hathaway’s money it’s a different story. Do you think the IRS would be as generous with their time if one of us decided to contest our taxes for 9 years? I think not.

Paul Girouard
02-25-2012, 01:18 PM
Have you got a better source than a partisan op-ed from www.netrightdaily.com (http://www.netrightdaily.com) ?

Berkshire Hathaway is a HUGE company, and obviously is going to have a VERY complicated tax return. Whay are you assuming that Warren Buffett and his company are tax cheats? Did it occur to you that the disagreement over taxes might be a legitimate issue of contention, rather than what you appear to be presuming is some sort of hypocritical malfeasance?


I assuming exactly what I said , he says people should pay more taxes , yet doesn't want to pay taxes he MAY owe. Why not just run down to his local IRS agent and cut them a check? Why not "just pay more"? If it's determined he paid to much the Govt. could cut him a refund check , pretty simple really. But saying rich people should pay more , yet not paying what the IRS says he owes is inconsistent.

S.V. Airlie
02-25-2012, 01:31 PM
It has to be okayed and approved by Huffypoop..:)

George Jung
02-25-2012, 06:29 PM
You are mistaking Berk/Hath taxes with Buffets personal taxes - and the reason he is following the letter of the law is because BH is owned by many other people, and as such, how the taxes are settled affects investment return. I also have to wonder how many large companies go through similar straits with the IRS.

Did any here read his letter? Pretty interesting, actually, and much which can be applied to finance/investing, in general. A short tutorial, IOW. I esp. liked his discussion of IBM, and why he hopes the stock languishes for several years. Not the way of thinking I'm accustomed to, but.... makes a lot of sense.

Paul Girouard
02-25-2012, 06:32 PM
So we're full circle back to is a corporation a person , god you lib's play the game from all sides if it's one of your own.

hokiefan
02-25-2012, 06:51 PM
You are mistaking Berk/Hath taxes with Buffets personal taxes - and the reason he is following the letter of the law is because BH is owned by many other people, and as such, how the taxes are settled affects investment return. I also have to wonder how many large companies go through similar straits with the IRS.

Did any here read his letter? Pretty interesting, actually, and much which can be applied to finance/investing, in general. A short tutorial, IOW. I esp. liked his discussion of IBM, and why he hopes the stock languishes for several years. Not the way of thinking I'm accustomed to, but.... makes a lot of sense.

Haven't read it yet, but I do every year. Have you ever read all of the old ones? Tremendous amount to be learned in there.

BTW, have you ever read his letters to his original partnership? The one that predated Berkshire Hathaway. Fascinating stuff.

Cheers,

Bobby

ljb5
02-25-2012, 06:54 PM
So anyway... back to the original topic.

It sounds like he's hoping for a "pie and eat it too" solution.

He wants stock prices to stagnate while the company thrives.

Sure, this would definitely work out well for current owners, but is this really feasible? Shouldn't stock prices be expected to rise as the company thrives?

I can think of some examples (Intel), where the stock price has remained flat while revenue and profits rose, but that's usually caused by some over-arching trend, like a global recession. Absent a repeat of the crisis, I'd hope to see steady improvement in both the performance and stock prices of the companies I hold.

George Jung
02-25-2012, 07:11 PM
AFA 'hopes they remain stagnant', certainly he's not attempting to steer that. My impression is it was a teachable moment, for those inclined to listen and learn. Amazing to me what a lot of folk (no names necessary) read into all of this.

ljb5
02-25-2012, 07:47 PM
If Obama gets his way, Intel shares won't be flat for long. Over 80% of their profits are overseas, and Obama is aiming to tax those profits.

Intel does a lot of sales overseas, but nearly all of their R&D and a huge amount of their production (especially the newest, high margin stuff) is in the US.

It is a US company, with head quarters in the US, operations in the US, etc. I can see no reason why they shouldn't pay US taxes.

ljb5
02-25-2012, 07:57 PM
Their overseas profits are taxed overseas. Why should they be taxed twice?

I don't know the specifics of Obama's proposals, so I can't say for certain that there is any intent to "tax twice." The devil is in the details, of course.

Intel makes revenue from sales. They pay tax on their profits. They pay out a dividend to shareholders. I pay tax on the dividends I receive. I use the dividend to buy a new computer. I pay tax on the purchase. Intel pays tax on the revenue....

I have long been used to the idea that "double taxation" is both commonplace and a red herring.

We could all complain that we're being "double taxed" or "triple taxed" or "taxed ad infinitum" and we could all offer some justification for why we shouldn't be taxed. Sadly, we can't all go without paying taxes.

hokiefan
02-25-2012, 09:39 PM
So anyway... back to the original topic.

It sounds like he's hoping for a "pie and eat it too" solution.

He wants stock prices to stagnate while the company thrives.

Sure, this would definitely work out well for current owners, but is this really feasible? Shouldn't stock prices be expected to rise as the company thrives?

I can think of some examples (Intel), where the stock price has remained flat while revenue and profits rose, but that's usually caused by some over-arching trend, like a global recession. Absent a repeat of the crisis, I'd hope to see steady improvement in both the performance and stock prices of the companies I hold.

As I read Buffett, that is the situation he searches for when looking to invest in a company. A thriving business that hasn't been widely recognized for the value it has. That gives him the opportunity to buy $1.00 for $0.60. Those companies are out there, the trick is to find them. I think thats what George is referring to with the "teachable moment" comment. Been wrong before though...

Cheers,

Bobby