Latest Buy: BRK.B

On March 1st Warren Buffett, CEO of Berkshire Hathaway, released his annual stockholder letter. If you haven't read it, I suggest you do. It's a very well written, easy to understand piece. It gives you a peak into the mind of one of the most successful investors in history. http://www.berkshirehathaway.com/reports.html

On monday 3/3/2014 I bought:

• 13 Shares BRK.B @ $116.16

Why now? Warren Buffett said it himself: The intrinsic value of Berkshire Hathaway shares exceeds 120% of book value by a meaningful amount.
A quick calculation, using numbers from the annual report, puts the value of BRK.B shares at $107.98. I basically picked up some shares at 129% book value ($116.16 a share) which is probably a good deal is 120% of book value is cheap.


This buy will not give me dividends. I think it's highly likely BRK.B will start paying a dividend in the future, it may be 5 years, it may take 10 or 25 years. When Berkshire grows bigger and bigger, it will become exponentially harder for the director's to find good use with the incoming cash, to the point it starts to make sense to send a piece of the profits to shareholders.

Berkshire doesn't grow, or even pay a dividend, but its ability to pay out a dividend grows over time.

Buffett passing away doesn't scare me too much. Berkshire is a very decentralized business where every manager is focusing on his specific area of expertize. If Buffett passes away you still have the dozens of high quality, privately held businesses, hand picked by Buffett, bringing in cash to the headquarters. Buffett has two capital allocators working for him. Todd Combs and Ted Wescher, who actually outperformed Buffett's portfolio by a wide margin.

Berkshire is a great collection of businesses, there are very talented people in charge and the price seems good too. It's great to finally be a shareholder of Berkshire Hathaway.

Warren Buffett on rising Coca-Cola dividends

Warren Buffett is one of the most successful investors in history. Berkshire Hathaway's chairman has a reputation of eloquence in his annual shareholder letters. I was reading the 2010 annual letter to shareholders this morning. One of my favorite passages came from page 18, he was talking about how time is the friend of the wonderful business.

I couldn't agree more. I try to spot great businesses, acquire them for a reasonable price, let time do the heavy lifting and compounding work its magic. A great business at some point generates more money in the form of dividends than you put into, you can use that money to fund your lifestyle, retire early or buy more pieces of great businesses.

Buffett on Coke's rising dividends:

Other companies we hold are likely to increase their dividends as well.  Coca-Cola paid us $88 million in 1995, the year after we finished purchasing the stock.  Every year since, Coke has increased its dividend.  In 2011, we will almost certainly receive $376 million from Coke, up $24 million from last year.  Within ten years, I would expect that $376 million to double.  By the end of that period, I wouldn’t be surprised to see our share of Coke’s annual earnings exceed 100% of what we paid for the investment.  Time is the friend of the wonderful business.

When you start out collecting these stocks that pay rising dividends it might be frustrating because the cash generators only produce a trickle in the beginning. But a trickle becomes a drip, a drip becomes a stream, a stream becomes a torrent and a torrent becomes a deluge. That's how compounding works. It starts small and starts growing, faster and faster. Nobody started his first year dividend investing and getting thousands of dollars in passive income immediately. It starts small, that shouldn't stop you from beginning.  You have to start somewhere!

For more shareholder letters from Warren Buffett, read more at www.berkshirehathaway.com/reports.html

Thanks for reading.