Were you surprised how quickly Markets digested the risk of Russia and the Ukraine?
It’s not the news … it’s what markets do after the news hits. In Bear Markets, markets are looking for excuses to pull-back and take risk off the table. In Bull Markets, things can advance, even with uncertainty.
The New York Stock Exchange publishes end-of-month data for margin debt. Historically, surging peaks of margin debt often happen before big market pull-backs.
The chart, below, shows the relationship between margin debt and the market (using the S&P 500 as the proxy for the market). Even adjusted for inflation, the latest data puts margin debt as at an all-time high.
Why should you care? Well, his fund posted a record profit, last year, of $19.5 billion. It owns meaningful parts of American Express, Goldman Sachs, Wells Fargo, IBM, Exxon, Phillips 66, Walmart, Coca Cola … and the list goes on.
Buffett's annual letter is always an interesting read … even if you don’t agree with everything he says. There is a reason he is called “the Oracle of Omaha.”
Here are a few of the ideas that I noted.
Own Low-Cost S&P 500 Index Funds:
Mr. Buffett advocates going long "the economic future of the United States."
That sentiment was nothing new for him: "We’ve been making similar wagers ever since Buffett Partnership Ltd. acquired control of Berkshire in 1965. For good reason, too. Charlie and I have always considered a 'bet' on ever-rising U.S. prosperity to be very close to a sure thing."
Historically, Mr. Buffett has cautioned against trying to pick winning stocks. Instead “own a cross section of businesses that, in aggregate, are bound to do well.” A low-cost S&P 500 index fund helps any investor do this well.
Mr. Buffett has emphasized this point throughout his investing career.
“In the 20th century, the Dow Jones industrial average advanced from 66 to 11,497, paying a rising stream of dividends to boot. The 21st century will witness further gains, almost certain to be substantial.”
Mr. Buffett writes that when he passes away, he has left instructions for his trustee to invest the cash designated for his wife in two ways — 10% in short-term government bonds and 90% in a very low-cost S&P index fund. He suggests Vanguard’s index fund.
“I believe the trust’s long-term results from this policy will be superior to those attained by most investors who employ high-fee managers.”
Swing Both Ways When It Comes To Investing:
Buffett said Berkshire likes to buy businesses outright, but also will invest large sums in stock or partial ownership of a company, to increase its profit opportunities.
"Woody Allen stated the general idea when he said: 'The advantage of being bisexual is that it doubles your chances for a date on Saturday night.' Similarly, our appetite for either operating businesses or passive investments doubles our chances of finding sensible uses for our endless gusher of cash."
A Hint Towards the Future:
Three things struck me here.
First, in describing the large purchase and financing of ketchup maker (H.J. Heinz), Mr. Buffett called it a 'template' that Berkshire Hathaway could use in future acquisitions.
Second, near the end of this year's letter, Mr. Buffett notes that most Americans don’t understand the math behind pensions … and cautions about the 'accelerating' dangers of local and state financial problems. Pensions, he says, have become a "gigantic financial tapeworm" because "public entities promised pensions they couldn’t afford." Mr. Buffett predicts: "During the next decade, you will read a lot of news — bad news– about public pension plans."
Third, he said: "Next year’s letter will review our 50 years at Berkshire and speculate a bit about the next 50." Interesting …
Mr. Buffett has often said: "At Berkshire, our time horizon is forever." That perspective makes it a lot easier for the game not to end until you've won.
It reminds me of a lesson from an earlier Annual Letter:
Nothing stopped so many innovators and entrepreneurs more than the fear of failure. If you allow yourself to be constantly scared into thinking that the world is doomed you will never take that risk which might result in great reward. And perhaps worse, if you never fail you will never learn to get up, brush yourself off, move on and succeed in the future. This does not mean you should wander through this world with great complacency and blind optimism, but if you deny yourself the ability to maximize your full potential, you will always come up short.
Two Other Things:
Quicken Loans announced on Tuesday a $1 billion prize paid out over 40 years—insured by Warren Buffett's Berkshire Hathaway—to anyone who pulls off the ultimate forecasting feat in sports: predicting every tournament game's winner.The winner also gets investment advice from Mr. Buffett. (WSJ)
Buffett bulleted five fundamentals of investing (BusinessInsider)
Are the Olympics over yet? No? Here are some worthwile momements, in case you missed them.
For example, here, a woman tried to snap a picture of the hockey game between Russia and Slovenia — but instead she got an eyeful. Call it a new form of 'Selfie'.
When Facebook bought Instagram for $1B, I remember thinking that seemed like a lot of money. Well, this deal is like Facebook buying 19 Instagrams … That's lots of lots of money!
So, why does Facebook think WhatsApp is worth $19 Billion dollars?
The answer is surprisingly easy to understand.
When Facebook announced its acquisition of WhatsApp last week, it revealed some interesting statistics about WhatsApp's user base and overall usage. They are eye-popping.
According to Facebook's presentation slides, WhatsApp's 450 million monthly active users send 19 billion messages per day … and receive 34 billion (the seeming discrepancy is caused by WhatsApp's group chat feature, where one message can be sent to several receivers).
This chart shows how much an average user uses WhatsApp per month.
WhatsApp's growth and usage numbers are absolutely mind-boggling. As noted, it has 450 million monthly users … but 70 percent of them (310 million) use the service daily.
More impressively, Facebook claimed that the number of messages being sent through the company’s service is “approaching the entire global telecom SMS volume” (according to telecom market researcher Informa, this was about 19.5 billion last year).
And for a 'cherry-on-top', Whatsapp continues to bring in over a million new users each day. That’s the kind of growth that Facebook can’t ignore if it wants to remain a leader in social networking and communication, and the company knows it.
In other words, WhatsApp has both offensive and defensive value to Facebook.
One last thought on the subject … word on the street is that Whatsapp only had 55 employees. It is a testament to what cloud-scale is making possible.
Here is a comilation of views from global experts. They consider things like whether the U.S. will still be the one of the top global economies in 25 years … and who else will share that stage?
As the Olympics unfold in Sochi, countries continue to compete in the global economy. This chart, by the Economist, shows how ‘thin’ the Emerging markets really are. For example, the market cap of Google equals the market cap of all 379 Brazilian stocks.
Here are some of the posts that caught my eye. Hope you find something interesting.
The Bloomberg Billionaires Index is a daily ranking of the world's richest people.
The site is interactivie and lets you look at the imformation from different perspectives (e.g., who made or lost the most money today? … Or, last year?). Click to launch Bloomberg Billionaires.
Each Billionaires profile contains a detailed analysis of how that person's fortune has been tallied.
According to IFI Claims, IBM was assigned a record 6,809 patentsin the United States last year, marking the 21st straight year that IBM has topped the unofficial U.S. patent ranking.
Google and Apple, often considered the most innovative companies in the world, were ranked 11th and 13th, respectively, both breaking into the Top 20 for the first time.
Just read a pretty good analysis of "Global Risks" (where Global Risk is defined as an occurrence that causes significant negative impact for several countries and industries over a time frame of up to 10 years).
A key characteristic of global risks is their potential systemic nature – meaning that they have the potential to affect an entire system, as opposed to individual parts and components.
Here are the Top 5 Global Risks, based on likelihood and severity of impact.
So, the big issues are: Financial Crisis caused by or in conjunction with … Social Problems (employment levels and income disparity), Environmental Issues (e.g., climate and weather), and/or Cyber Threats. Surprise, Surprise, Surprise …
The WEF article is much more nuanced and worth reading if you are interested.
It is a little funny to think about a group of the world's wealthiest people gathering in an secluded mountain enclave to discuss concerns over income inequality.
