Monday, February 27, 2017

Here are the Motley Fool's five favorite takeaways from this year's Berkshire Hathaway shareholders letter

Warren Buffett's Shareholder Letter: 5 Lessons for All Investors (from Motley Fool)

The Motley Fool
By John Maxfield)
Feb 25, 2017

There are few things more valuable for serious investors to read each year than Warren Buffett's annual letter to the shareholders of Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B).
His letter for 2016, released early Saturday morning (2/25/2017), is no exception. In it, Buffett covers his usual range of subjects, from the performance of Berkshire Hathaway and its operating units, to the future prospects of the United States, to advice for corporate executives and individual investors.
The whole letter is worth reading -- it is, after all, less than 30 pages long. But for those of you who want to view the highlight reel, here are my five favorite takeaways from Buffett's latest shareholder letter.

Chairman and CEO of Berkshire Hathaway.
1. On market panics
A growing number of high-profile investors and institutions have begun to issue warning signs that stocks are approaching unsustainable levels, following the market's surge in the wake of the presidential election.
Prominent hedge fund managers such as Ray Dalio and Seth Klarman have both touched on this in the past month, and the chief U.S. equity strategist at Goldman Sachs, David Kostin, wrote in a recent report that "financial market reconciliation lies ahead."
Buffett both buys this line of thinking and doesn't. While the market is certain to experience major declines, it's impossible to predict when they'll occur, he notes in this year's letter. At the same time, Buffett urges investors to look at these as opportunities to -- as he's said in the past -- be fearful when others are greedy:
"The years ahead will occasionally deliver major market declines -- even panics -- that will affect virtually all stocks. No one can tell you when these traumas will occur -- not me, not Charlie [Munger], not economists, not the media. Meg McConnell of the New York Fed aptly described the reality of panics: "We spend a lot of time looking for systemic risk; in truth, however, it tends to find us."
During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively financed American businesses will almost certainly do well.

2. On share buybacks
One of the hottest topics in the corporate world over the past few years concerns share buybacks. Tepid economic growth and lagging confidence have led companies to allocate excess earnings not into business investments, but rather into share repurchases.
In theory, there's nothing wrong with this, as stock buybacks are just another avenue for companies to return capital to shareholders. Done at the right price, moreover, they add value to existing shareholders' stakes. But in practice, as Buffett notes in this year's letter, companies tend to ignore this nuance, preferring instead to repurchase stock irrespective of price:
Assessing the desirability of repurchases isn't that complicated.
For continuing shareholders ... repurchases only make sense if the shares are bought at a price below intrinsic value. When that rule is followed, the remaining shares experience an immediate gain in intrinsic value. ... Ergo, the question of whether a repurchase action is value-enhancing or value-destroying for continuing shareholders is entirely purchase-price dependent.
It is puzzling, therefore, that corporate repurchase announcements almost never refer to a price above which repurchases will be eschewed. That certainly wouldn't be the case if a management was buying an outside business. There, price would always factor into a buy-or-pass decision.
When CEOs or boards are buying a small part of their own company, though, they all too often seem oblivious to price. Would they behave similarly if they were managing a private company with just a few owners and were evaluating the wisdom of buying out one of them? Of course not.
My suggestion: Before even discussing repurchases, a CEO and his or her board should stand, join hands, and in unison declare, "What is smart at one price is stupid at another."

3. On competitive advantage
If there's one thing I've learned from reading Buffett's letters, it's about the critical importance of competitive advantage. A company with a competitive advantage over others in its industry can continuously grow its market share while simultaneously earning superior returns.
And no competitive advantage is stronger than efficiency. A company that operates at a lower cost base than its competitors has the world at its fingertips, so to speak. It can underprice other companies in its industry, capturing many of their customers, and still generate wider margins and thus higher profitability.
As Buffett explains in this year's letter, Berkshire Hathaway's auto-insurance unit, Geico, offers a real-life demonstration of these forces in action:
Auto insurance is a major expenditure for most families. Savings matter to them -- and only a low-cost operation can deliver those. ...
Geico's low costs create a moat -- an enduring one -- that competitors are unable to cross. As a result, the company gobbles up market share year after year, ending 2016 with about 12% of industry volume. That's up from 2.5% in 1995, the year Berkshire acquired control of Geico. Employment, meanwhile, grew from 8,575 to 36,085.
Geico's growth accelerated dramatically during the second half of 2016. Loss costs throughout the auto-insurance industry had been increasing at an unexpected pace and some competitors lost their enthusiasm for taking on new customers. Geico's reaction to the profit squeeze, however, was to accelerate its new-business efforts. We like to make hay while the sun sets, knowing that it will surely rise again.

4. On accounting red flags
Buffett prides himself on being a straight shooter. He calls things how he sees them and doesn't try to inflate the performance of Berkshire Hathaway through accounting adjustments that exclude temporary, but nevertheless real, costs, as so many companies do nowadays when reporting "adjusted earnings."
The 86-year-old billionaire has taken issue with this practice in the past, and he does so again in this year's letter:
Too many managements -- and the number seems to grow every year – are looking for any means to report, and indeed feature, "adjusted earnings" that are higher than their company's GAAP earnings. There are many ways for practitioners to perform this legerdemain. Two of their favorites are the omission of "restructuring costs" and "stock-based compensation" as expenses.
Charlie and I want managements, in their commentary, to describe unusual items -- good or bad -- that affect the GAAP numbers. After all, the reason we look at these numbers of the past is to make estimates of the future. But a management that regularly attempts to wave away very real costs by highlighting "adjusted per-share earnings" makes us nervous. That's because bad behavior is contagious: CEOs who overtly look for ways to report high numbers tend to foster a culture in which subordinates strive to be "helpful" as well. Goals like that can lead, for example, to insurers underestimating their loss reserves, a practice that has destroyed many industry participants.
Charlie and I cringe when we hear analysts talk admiringly about managements who always "make the numbers." In truth, business is too unpredictable for the numbers always to be met. Inevitably, surprises occur. When they do, a CEO whose focus is centered on Wall Street will be tempted to make up the numbers.

5. On holding periods
If you scan the list of Berkshire Hathaway's major stock holdings on Page 19 of Buffett's latest letter, there's a glaring absence: Wal-Mart (NYSE:WMT).
At Berkshire's 2003 annual meeting, Buffett was asked what his biggest mistake was in recent years. His response: "Wal-Mart." As he went on to note: "I set out to buy 100 million shares of Wal-Mart at a [pre-split price of] $23. We bought a little and it moved up a little, and I thought maybe it will come back a bit. That thumb-sucking has cost us in the current area of $10 billion."
Two years later, in 2005, Buffett tried to remedy this matter by establishing a major position in the discount retailer. By 2016, Berkshire's stake in Wal-Mart was worth nearly $6 billion.
But that stake is no more, causing some investors to question Buffett's sincerity when he said in the past that he and Munger's favorite holding period is "forever." But as Buffett clarified in this year's letter, this rule applies to the whole companies that Berkshire owns, not its stakes in marketable securities:
Sometimes the comments of shareholders or media imply that we will own certain stocks "forever." It is true that we own some stocks that I have no intention of selling for as far as the eye can see (and we're talking 20/20 vision). But we have made no commitment that Berkshire will hold any of its marketable securities forever.
Confusion about this point may have resulted from a too-casual reading of Economic Principle 11 on pages 110-111, which has been included in our annual reports since 1983. That principle covers controlled businesses, not marketable securities. This year I've added a final sentence to No. 11 to ensure that our owners understand that we regard any marketable security as available for sale, however unlikely such a sale now seems.
That rounds out my five favorite lessons from Buffett's 2016 shareholder letter. But let me repeat: If you're a serious investor who's intent on getting better at the craft, there are few better ways to do so than digging into the Oracle of Omaha's letters yourself.
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Sunday, February 26, 2017

Consider Reading "Unequaled" by Jim Runde, Marquette University Alumnus and Morgan Stanley Investment Banker

Unequaled: Tips for Building a Successful Career 
through Emotional Intelligence 

by James A. Runde  (Author), Diana Giddon (Contributor) 
Wiley, ISBN: 978-1-119-08145-6,  176 pages,  September 2016

Mr. Runde speaking at Marquette University
On Tuesday, February 21, 2017, Mr. Jim Runde visited the AIM program - he later delivered a speech to over 75 Marquette students in Sensenbrenner Hall. A book signing and reception followed.

During his lecture, Mr. Runde discussed 'emotional intelligence' which is the theme of his new book, Unequaled.

[Note: James Runde became America's longest-serving investment banker at a single institution in May 2014 by celebrating forty years at Morgan Stanley. He is corporate director specializing in strategic and financial advice, best known for his role in advising the United Parcel Service on its IPO in 1999. Mr. Runde continues to be involved with his alma mater, and in 2000 he was elected to the Board of Trustees of Marquette University.]

The Marquette students appreciated Mr. Runde's insights. He offered tips and talked about the secrets to career success in the financial industry. In short, he emphasized that EQ is needed to succeed and get ahead!

Unequaled can be described as the client service professional's guide to getting ahead and achieving professional goals. As Mr. Runde stated, "Most young professionals are smart and hard working, but guess what—so is everyone else. So how do you stand out? You need to distinguish yourself in order to get ahead, but simply being good at your job is not enough. Moving up is about soft skills, networking, client connections, emotional intelligence, and your personal reputation." 
His book is a frank and candid guide to what it really takes to succeed in the field of finance. It is packed with insights, stories, and actionable tips based on the author's 40 years at Morgan Stanley, one of the world's most respected investment banks. The book can help the young professional learn how to lead, when to follow, and how to build the reputation you need to get ahead in a competitive field.
Mr. Jim Runde
Mr. Runde's advice (contained within his book) shows young professionals how to step up their relationships, strengthen "soft" skills, and build their brand for success. Examples include how to:
·         Differentiate yourself and expand your career

·         Build relationships through planning and preparation and deliver commercial results

·         Lead effectively, increase productivity, and build a better work environment

·         Build, enhance, and leverage your personal brand to support your own success

·         Network effectively to find mentors and sponsors

Realizing your career goals means being visible, having influence, and crafting a reputation as a valuable contributor while delivering outstanding results. UNEQUALED shows you how to adapt yourself, collaborate with colleagues, influence clients, and become an excellent boss.

Saturday, February 25, 2017

On Friday, 2/24/17, Five AIM Students Pitched Stocks at 1492 Capital Management

AIM Students' Equity Recommendations Presented to 1492 Capital Management on Friday, February 24, 2017

On Friday, February 24, 2017, 1492 Capital Management hosted five students from Marquette University’s AIM program.

Joe Frohna, Rodney Hathaway, and Adam French provided the opportunity for Dr. David Krause (AIM director) to escort five current AIM program seniors to 1492's Third Ward (Milwaukee) office for the third ‘road show’ of the semester. Copies of this week’s equity write-ups can be accessed at:

Jack O'Connor, Nick Dykema, Anthony DiSanto, Ryan Thern, and Casey McClellan presented their equity recommendations as potential additions to Marquette’s AIM Equity Funds. Students in the AIM program manage over $2,500,000 of the University's endowment. Ballots will be forwarded to AIM students over the weekend and any additions to the small cap and international equity portfolios will be made on Monday.
Ryan Thern, Casey McClellan, Nick Dykema, Jack O'Connor, and Anthony DiSanto 

Joe Frohna visited the
AIM program last fall
The AIM student equity pitches take place each Friday afternoon during the semester – either in the AIM Room or at a local investment company. 

Dr. Krause added, "We are thankful for the opportunity to go into area investment companies and present our stock recommendations --- this is an important element of the Applied Investment Management program at Marquette. Special thanks go to Joe, Rodney and Adam for hosting us again at 1492 Capital Management. They have allowed us to visit and pitch numerous times before and various members of the 1492 team have been regualry guests in the AIM Program."
The students prepare and distribute a professional equity write-up (note: every AIM write-up since the inception of the program in 2005 is archived here). To receive information about upcoming AIM student presentations and events, follow us on Twitter and LinkedIn.

Thursday, February 23, 2017

Fourth Set of AIM Equity Pitches During the Spring 2017 Semester

Five AIM Students Will Pitch Their Equity Recommendations at 11:00 am in the AIM Room on Friday, February 24, 2017 

Image result for aim program marquette

At 11:00 on Friday, February 24, 2017, five students from the AIM Class of 2017 will present their equity recommendation in the AIM Room (4th floor of Straz Hall). The write-ups can be accessed at:

Image result for CryoLife, Inc.Jack O'Connor, Nick Dykema, Anthony DiSanto, Ryan Thern and Casey McCelland will pitch their stock recommendations as potential additions to Marquette’s AIM Equity Funds. Students in the AIM program manage over $2,500,000 of the University's endowment. 

Image result for matrix servicesThe AIM student equity pitches take place each Friday afternoon during the semester – either in the AIM Room or at a local investment company. At 2:30 the students will trek over to 1492 Capital Management to present their recommendations to the team of research analysts.
Image result for Control4 Corp.Dr. Krause, AIM program director stated, "We are thankful for the opportunity to go into investment companies and present --- this is an important element of the Applied Investment Management program at Marquette.
Image result for Hackett Group, Inc.The students prepare and distribute a professional equity write-up (note: every AIM write-up since the inception of the program in 2005 is archived here). To receive information about upcoming AIM student presentations and events, follow us on Twitter and LinkedIn.
Image result for orange sa