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Friday, January 28, 2011

THE STREET: Warren Buffett Won't Pay a Dividend: Poll

NEW YORK (TheStreet) -- Warren Buffett and his capitalist empire Berkshire Hathaway(BRK.B) aren't as likely to start paying a dividend of 2% within the next two years as Barron's thinks, or so say readers of TheStreet.

In case you missed this week's big Warren Buffett headline, which sent shares of Berkshire Hathaway higher by 3% on Monday, Barron's speculated, albeit without any named source for the information, that the cash hoard on top of which Warren Buffett and Berkshire Hathaway are sitting indicates a dividend payment is coming, even though Berkshire Hathaway hasn't paid a dividend since 1962.

Barron's provided plenty of logical reasons for a break from the Warren Buffett and Berkshire Hathaway anti-dividend tradition:

  • A lot of cash, as noted
  • A diminishing field of potential big acquisitions into which to plow his cash
  • A Berkshire Hathaway that looks very different than it once did, with utilities and railroads in the mix
  • The desire to take pressure off eventual Buffett successors to manage such a high cash level

  • It's not just that Berkshire Hathaway hasn't paid a dividend since 1962 that makes the dividend speculation a pawn for any market devil's advocate. It's also the fact that Warren Buffett has written several times in the past about the issue of corporate use of cash, dividends and share repurchases, and never given an indication that his philosophy would change based on the size of the Berkshire Hathaway war chest alone.

    Warren Buffett, CEO of Berkshire Hathaway, which hasn't paid a dividend since 1962.

    In several Berkshire Hathaway annual letters, Warren Buffett has outlined his views on cash, most notably in the 1984 and 1999 editions of the most famed capitalist missive.

    Here's Buffet in his 1984 annual letter writing on dividends:

    "As long as prospective returns are above the rate required to produce a dollar of market value per dollar retained, we will continue to retain all earnings. Should our estimate of future returns fall below that point, we will distribute all unrestricted earnings that we believe cannot be effectively used. In making that judgment, we will look at both our historical record and our prospects. Because our year-to-year results are inherently volatile, we believe a five-year rolling average to be appropriate for judging the historical record."

    Here's Buffet in 1999 on the subject of cash management and share repurchases (some of his favorite public stock holdings are serial share repurchasers).

    "Rationally, a company's decision to repurchase shares or to issue them should stand on its own feet. Just because stock has been issued to satisfy options -- or for any other reason -- does not mean that stock should be repurchased at a price above intrinsic value. Correspondingly, a stock that sells well below intrinsic value should be repurchased whether or not stock has previously been issued (or may be because of outstanding options). We will not repurchase shares unless we believe Berkshire stock is selling well below intrinsic value, conservatively calculated."

    The humble Oracle of Omaha, always one to point out his mistakes, including his worst-purchase ever (that underperforming textile company Berkshire Hathaway) said of share repurchases, "You should be aware that, at certain times in the past, I have erred in not making repurchases."

    In the least, it doesn't seem that the equation "huge cash balance = looming dividend" would be the one upon which Warren Buffett would alone base such a decision.

    Buffett himself has said that it gets harder to find the type of deals that culminated in last year's Burlington Northern purchase, and the financial meltdown sweetheart investments in GE and Goldman Sachs are probably one-time events, too. Yet it's a leap of faith from these facts to thinking that Buffett doesn't think there are going to be good acquisition opportunities in the foreseeable future.

    Paul Howard, a long-time Berkshire Hathaway analyst who recently formed his own independent research shop, Solstice Investment Research, wrote in an email to TheStreet last week, "I think having a lot of cash on hand has allowed him to sleep well at night. I don't see this changing as he gets into his 80s."

    Paul Lountzis of Lountzis Asset Management, a long-time Berkshire Hathaway shareholder, believes investment opportunities abound around the world for Berkshire to invest in, including more deals in the utility sector to add to the weight of the MidAmerican Energy holding.

    Berkshire Hathaway investors among readership of TheStreet agree, and sent in their speculative Berkshire Hathaway M&A bets in response to the dividend speculation. One reader said that the long-anticipated Buffett purchase of privately held confectioner Mars will be Buffett's last big M&A play.

    "He already owns over $7 billion in debt and another $1 billion or so in preferred stock in the [Wrigley-Mars] business. The Mars brothers aren't getting any younger, and such a merger would give their heirs diversity and liquidity," the commenter wrote.

    Another Berkshire Hathaway investor is betting on more M&A action from Buffett in the reinsurance sector. One of the biggest data points in the Barron's piece was that Berkshire's core insurance business alone was estimated to be sitting on $50 billion of cash at 2010 year-end.

    "I would not be surprised to see a possible 'last hurrah' in the purchase of Munich Re. He already owns about 10% of the outstanding shares and with a purchase price around $30 billion, the investment would be large enough to 'move the needle'. As a shareholder I would love to see it," the commenter wrote.

    Even readers who see another big Berkshire Hathaway deal coming, though, are divided on the issue of the dividend. One reader noted that many of the big acquisitions that Berkshire has made over the past decade have been capital intensive and steady cash flow businesses, and this profile suggests that dividend planning was, in fact, all along part of the long-term rationale for Berkshire Hathaway deal-making.

    Other Berkshire Hathaway hawks counter that the cash needs of these businesses, by nature of their operations, provide an alternative to a dividend.

    Stifel analyst Meyer Shields, who rates Berkshire Hathaway a sell, thinks that a dividend would further "de-mystify" Berkshire Hathaway and as a result, would not be a move made by Warren Buffett.

    In any event, with the Berkshire Hathaway dividend speculation in the press, and the legitimate question of how Warren Buffett play's his cash hand, TheStreet thought it worthwhile to crowd-source an opinion on a Berkshire Hathaway dividend.

    And...the "nays" have it!

    Only 12% of respondents are in favor of Berkshire Hathaway paying a dividend.

    Roughly 26% of readers think that a Berkshire Hathaway share repurchase program would be a better use of cash.

    And an overwhelming 62% of respondents don't think Buffett, in his 80th year, will change a thing about the company's cash philosophy.

    In any event, it won't be long before Buffett has his chance to chime in on the dividend, with fourth-quarter and full-year earnings due out at the end of February and another annual meeting and epistolary ode to capitalism due out in May -- which Buffett is already hard at work on, per the Buffett profile in a recent Vanity Fair issue. That profile included the annual letter sneak peek quip that in hiring hedge fund manager Todd Combs, Buffett wanted a two-year old Secretariat and not a ten-year old Seabiscuit.

    Indeed, when it comes to laying down cash at the racectrack betting window, we know the direction in which Buffett leans, though handicapping the dividend issue remains difficult.

    -- Written by Eric Rosenbaum from New York.


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    GLOBE & MAIL: Will he or won’t he pay a dividend?

    JOHN HEINZL — INVESTMENT REPORTER

    From Friday's Globe and Mail

    Warren Buffett has a love-hate relationship with dividends: He loves collecting them, but hates paying them.

    The billionaire investor’s holding company, Berkshire Hathaway Inc., (BRK.B-N83.03-0.04-0.05%) is stuffed with dividend-paying stalwarts such as Coca-Cola Co., Johnson & Johnson, and Procter & Gamble Co. Many of Berkshire’s biggest holdings are so-called dividend aristocrats, which have paid rising dividends for at least 25 consecutive years.

    Yet Berkshire itself is a model of stinginess, having never paid a penny in dividends to shareholders since Mr. Buffett took control in the mid-1960s.

    Is that about to change? Some Buffett watchers think so, pointing to the enormous sums of cash piling up in Berkshire’s coffers and the Oracle of Omaha’s advancing age. But Mr. Buffett’s public comments over the years suggests a dividend is highly unlikely, at least while he is at the helm.

    The dividend speculation was fuelled by a recent Barron’s article, which said Berkshire’s core insurance operations could be sitting on nearly $50-billion (U.S.) in cash by the end of 2011. What’s more, Berkshire’s operating profit is poised to hit record levels this year, helped by the 2009 acquisition of Burlington Northern Santa Fe Corp. and some savvy deals during the financial crisis.

    “The flood of cash could prompt Berkshire to finally start paying a cash dividend in the next 12 to 18 months, particularly if the 80-year-old Buffett is unable to find what he calls an ‘elephant’, or large acquisition,” Barron’s said. Paying a “modest” dividend, likely yielding less than 2 per cent, would also “take some pressure off [Mr. Buffett’s] successors to invest the company’s profits.”

    Berkshire's “B” shares climbed to $83.03 from $80.45 over the past four trading sessions, partly in response to the rumours.

    If Berkshire did start paying a dividend, it would mark a radical departure in philosophy. Mr. Buffett has always maintained that as long as he can reinvest his cash at a reasonable rate of return, it’s better to retain the money.

    “We don't pay dividends because we think we can turn every dollar we make into more than a dollar in market value,” he told Berkshire’s annual meeting in 1997. “If we come to the conclusion that we can't do that, we should distribute it to you.”

    He conveyed a similar message at Berkshire’s 2008 annual meeting, where he remarked: “The test on dividends is, ‘can you create more than $1 of value with the one you retain?’ … We hope to move the capital to a place where it will be worth $1.20.”

    Given such pronouncements, Buffett watchers are skeptical that a dividend is in the cards.

    “I’ve read pretty much every book on Buffett that’s out there. I read all the annual reports and pretty much every piece of information, every speech, whatever I could find,” says Pavel Begun, a partner with 3G Capital Management in Toronto.

    His conclusion? “I’d be surprised if he pays a dividend. I will be surprised simply because if you look at what he’s said over the years, it leads me to believe that he still thinks that it’s reasonable to expect them to find opportunities to invest back in the business at a good rate of return as opposed to paying it out to shareholders.”

    If Mr. Buffett wanted to return cash to shareholders, it’s possible he might buy back Berkshire shares, Mr. Begun says. But he would do that only if the stock was trading well below its “intrinsic value.” Mr. Buffett contemplated doing a buyback in 2000, but “after this intention was announced, the stock went higher and the opportunity was gone,” Mr. Begun says.

    At some point, Berkshire Hathaway may get so big that it can’t find enough good opportunities to put its cash to work. Or Mr. Buffett’s successors may lack his expertise at finding attractive investments. At that point, a dividend may make sense, but we’re not there yet, Mr. Begun says.

    Tony Demarin, president of BCV Asset Management in Winnipeg, is equally skeptical. Initiating a dividend would signal that Mr. Buffett can no longer work his magic, which in turn might clobber Berkshire’s stock because investors would lower their expectations for the company’s earnings growth.

    Even after the market’s double-digit gains over the past two years, “I don’t see why he wouldn’t find value in today’s marketplace,” he says. “He always believes there’s undervalued securities somewhere. He has that ability. That’s what he does for a living. He’s not in the business of placating short-term investors.”

    Meyer Shields, an analyst with Stifel Nicolaus, also threw cold water on the notion of a dividend.

    If Berkshire initiates a dividend, “we expect investors to interpret that as an admission that the company simply cannot replicate its past track record of earnings and book value growth … clearly warranting a below-historical-average valuation,” he wrote in a note to clients.

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    Thursday, January 27, 2011

    WALL STREET JOURNAL: Warren Buffett’s Berkshire: Analyst Reiterate’s ‘Sell’ Call

    He’s sticking with his “sell.”

    Stifel Nicolaus analyst Meyer Shields reiterated his “sell” call on Berkshire Monday, respectfully disagreeing with the Barron’s cover story that helped drive shares of Warren Buffett’s Berkshire Hathaway up about 3% yesterday.

    Shields argues among other things that the story might be too optimistic on 2010 earnings for Berkshire’s insurance businesses. “As we’ve noted … almost 15% of Berkshire’s total operating earnings through September stemmed from notoriously cyclical prior-period loss reserve release,” Shields wrote.

    And he also pours cold water on the notion of a dividend from Berkshire. On that topic, Barron’s had written, that strong cash flows at Berkshire “could prompt Berkshire to finally start paying a cash dividend in the next 12 to 18 months, particularly if the 80-year-old Buffett is unable to find what he calls an “elephant,” or a large acquisition. Locating one could prove difficult, given rising asset and equity values, as well as Buffett’s refusal to participate in corporate auctions.”

    But Shields suggest that investors might be less-than-thrilled to see a legend of capital allocation start to return cash to share holders:

    If, as Barron’s suggests, Berkshire initiates a dividend to “take some pressure off (Mr. Buffett’s) successors”, we expect investors to interpret that as an admission that the company simply cannot replicate its past track record of earnings and book value growth (Mr. Buffett has repeatedly and explicitly made this observation himself), clearly warranting a below-historical-average valuation.

    If you’re interested in more on what prompted Shields to slap the “sell” sticker on on Berkshire, check out this MarketBeat Q&A. For the record, since Shield’s said “sell” the stock has underperformed the market. It’s up 3.3%, versus the 21.3% that S&P 500 saw. But for someone with the long-term investor attitude such as the shareholder base cultivated by Buffett, a six-month stint really isn’t worth worrying about.

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    Tuesday, January 25, 2011

    CNBC: Buffett's Berkshire Gets Big Barron's Boost

    Published: Monday, 24 Jan 2011 | 1:07 PM ET
    By: Alex Crippen
    Executive Producer


    Barron's January 24, 2011 Cover: Mr. Moneybags
    Shares of Warren Buffett's Berkshire Hathaway are up almost four percent at mid-day (Monday) after Barron's suggested the company could pay its first dividend since Buffett took over in the mid-1960s.

    It's also predicting Berkshire's stock price, which "hasn't budged in nearly a year," could top its all-time high this year.

    For Class A, that's about $149,000 a share.

    Any close above $125,612 would be a new 2-1/4 year closing high.

    At 1p ET, they're at $124,982, up 3.7 percent.

    Current real-time price: [BRK.A 124400.0 3874.00 (+3.21%) ]

    In the cover story, Mr. Moneybags, Andrew Bary points out that Berkshire is "piling up cash so quickly that it could be sitting on close to $50 billion at its core insurance operation alone by year end."

    Bary writes, "The flood of cash could prompt Berkshire to finally start paying a cash dividend in the next 12 to 18 months, particularly if the 80-year-old Buffett is unable to find what he calls an 'elephant,' or a large acquisition."

    Late in 2009, Berkshire announced a stock-split for its Class B shares after years of rejecting any suggestion of a split. Just before it was approved by shareholders the following January, CNBC's Becky Quick asked Buffett if there might be more unexpected changes.

    BECKY: Some people are asking if you are completely changing your stance on a lot of different issues.

    BUFFETT: No.

    BECKY: Some people are saying, 'Is this going to mean a dividend's coming soon, too?'

    BUFFETT: No, I don't think it means that. It made sense in terms of the Burlington Northern acquisition.

    Bary notes that a Buffett-Berkshire dividend would be unprecedented:

    Buffett hasn't paid a dividend on Berkshire shares since he took control in 1965, preferring to invest the company's profits. That's been the right move, given the 6,000-fold increase in Berkshire's stock since then. Buffett's aversion to dividends could change if cash continues to build and he can't find a big acquisition. A dividend also could take some pressure off his successors to invest the company's profits.

    He adds that "Berkshire's initial dividend, whenever it comes, is expected to be modest, at 2% or less."


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    BARRONS: Mr. Moneybags

    By ANDREW BARY

    A flush Berkshire Hathaway is in its best shape ever and piling up cash so quickly that it could be sitting on close to $50 billion at its core insurance operation alone by year end, and might even begin paying a dividend. Berkshire's profit recovery, aided by some smart acquisitions and investments by CEO Warren Buffett -- notably its purchase of the Burlington Northern railroad -- has gone largely unrecognized on Wall Street, where Berkshire's Class A shares (ticker: BRKA), now trading around $121,000, haven't budged in nearly a year. Berkshire's Class B shares (BRKB) trade around $81; each equals 1/1500th of a Class A share.

    Berkshire's operating profits are on track to hit a record $12 billion to $13 billion after taxes in 2011, up from an estimated $11 billion in 2010, buoyed by Burlington and many of the company's manufacturing and industrial units, whose earnings fell sharply during the downturn.

    Combine that with the likely repayment of some lucrative investments in Goldman Sachs (GS), General Electric (GE) and other companies that Buffett made during the financial crisis, and Berkshire's insurance units could be holding $20 billion more by year end than the $30 billion they had on Sept. 30, 2010. (We focus on cash at Berkshire's insurance operations and not in other divisions because insurance cash is readily available for investment. Other units held about $3 billion in cash.) Berkshire's market value is $200 billion, fifth-largest in the U.S. stock market, behind only ExxonMobil (XOM), Apple (AAPL), Microsoft (MSFT) and Google (GOOG).

    The flood of cash could prompt Berkshire to finally start paying a cash dividend in the next 12 to 18 months, particularly if the 80-year-old Buffett is unable to find what he calls an "elephant," or a large acquisition. Locating one could prove difficult, given rising asset and equity values, as well as Buffett's refusal to participate in corporate auctions. Buffett, who declined to comment to Barron's, also hasn't been thrilled by the stock or bond market in the past year, when Berkshire has been a net seller of stocks.

    Buffett's fans think Berkshire shares look appealing, trading for a reasonable 1.3 times estimated year-end 2010 book value of $95,000 apiece, and that the stock could surpass its 2007 record of $149,000 within the next 12 months. Book value, or shareholder equity per share, may hit $105,000 by the end of this year, assuming a decent performance by Berkshire's famed equity portfolio, which was an estimated total of $62 billion at year-end 2010. Thus, the shares trade for just 1.15 times projected year-end 2011 book, providing significant downside support.

    LONGTIME BERKSHIRE INVESTOR Whitney Tilson of T2 Partners pegs Berkshire's "intrinsic value" around $160,000 a share and sees it surpassing $170,000 by year end. To reach that lofty level, the stock would have to shake off investor concerns about Buffett's longevity and about Berkshire's sheer size. Intrinsic value is the discounted cash flow of Berkshire businesses.

    Buffett is in good health, but he may not run Berkshire for much more than another five years -- his actuarial life expectancy is eight years. He probably will keep at it for as long as he can because he loves his job, saying he "tap-dances" to work each day in Omaha and would pay to do it. His pay remains restrained at just $175,000 a year, although his 23% stake in Berkshire is valued at $46 billion. He continues to donate stock annually to the foundation run by Bill and Melinda Gates. Berkshire is due to report its fourth-quarter results in late February.

    Wall Street is lukewarm on Berkshire; no analyst has a Buy recommendation on it.

    David Rolfe, chief investment officer with Wedgewood Partners in St. Louis, the manager of the new Riverpark/Wedgewood mutual fund, considers that a mistake. "Berkshire's earnings are booming, and the Burlington acquisition looks like a masterstroke, yet the market doesn't give a whit about it," he says. Rolfe sees the stock topping $140,000 this year. -- are unlikely to be touched, owing in part to large embedded gains. That will leave the chief investment officer with the job of investing the part of Berkshire's annual cash flow that isn't going toward acquisitions and a likely dividend.

    Our guess is that the stock will fall 10% whenever Buffett steps down. But it could appreciate substantially before then and resume its ascent in the post-Buffett era, as book value grows and Wall Street gets comfortable with his successors.

    The Burlington deal looks like one of Buffett's best, done in November 2009, when the economy was just starting to recover and there was little competition from private-equity or other buyers. Berkshire offered a 33% premium, paying $26.4 billion for the 77.4% of the company that it didn't already own. That initially looked overly generous, at about 20 times then-current estimates of 2010 profits. Yet Burlington's earnings -- and those of the rest of the railroad industry -- surged in 2010 and are expected to increase another 15% or so this year. Burlington could earn $3 billion after taxes in 2011 -- it netted $706 million in the third quarter. So, Berkshire paid only about 11 times projected 2011 profits for Burlington. Burlington probably is worth $40 billion to $45 billion now.

    BUFFETT ALSO SCORED with roughly $50 billion of investments made during the 2008-2009 financial crisis. Some are likely to be repaid this year, including $5 billion of 10% preferred stock from Goldman Sachs and $3 billion of 10% preferred from GE. Both companies will pay a 10% premium to get rid of the high-cost preferred. In addition, Berkshire got equity warrants on both stocks. Those on Goldman are worth $2 billion now. Swiss Re, a European reinsurer, just repaid $4 billion to Berkshire from a very lucrative investment by Buffett. These repayments will swell Berkshire's coffers.

    Berkshire also holds $7.5 billion of junk debt and preferred issued by Wrigley in connection with the gum maker's purchase by privately held candy giant Mars in 2008. Berkshire's investment income probably will decline because of the investment repayments, but that could be partly offset by higher dividend income on its equity portfolio.

    Buffett hasn't paid a dividend on Berkshire shares since he took control in 1965, preferring to invest the company's profits. That's been the right move, given the 6,000-fold increase in Berkshire's stock since then. Buffett's aversion to dividends could change if cash continues to build and he can't find a big acquisition. A dividend also could take some pressure off his successors to invest the company's profits.

    Berkshire's initial dividend, whenever it comes, is expected to be modest, at 2% or less.

    INVESTORS GENERALLY TAKE a long view and don't pay much attention to Berkshire's quarterly results, but T2's Tilson has said a strong fourth-quarter earnings report next month could act as a catalyst by highlighting the company's earnings power. Tilson called it the "mother of all earnings reports" in a note to MarketWatch, which, like Barron's, is published by Dow Jones.

    Profits this year could run at $7,500 to $8,000 per share -- or $12 billion to $13 billion -- up from an estimated $6,700 in 2010. Berkshire trades for about 15 times forward earnings, in line with the Standard & Poor's 500, which is valued at 14 times projected 2011 net. It's rare for Berkshire to trade near a market multiple rather than at a big premium.

    Barclays analyst Jay Gelb sees Berkshire's fourth-quarter profit rising 43%, to almost $1,800 per Class A share, boosted by strong gains in manufacturing, Burlington Northern and other divisions. Nonetheless, he carries a Neutral rating on the stock.

    One reason for Wall Street's attitude toward the stock: The analysts who cover Berkshire tend to be insurance specialists, and this may color their thinking. That's because conditions in the property-casualty insurance market are tough, with pricing in many segments under pressure.

    With little revenue growth and soft pricing, most P&C insurers and reinsurers -- including Travelers (TRV), Chubb (CB) and Ace (ACE) -- trade close to book value. To some P&C analysts, Berkshire therefore looks unexceptional at 1.3 times book.

    Yet insurance underwriting is a relatively small part of the company, and Berkshire is on a roll, led by a CEO still at the top of his game. That's why its stock could hit an all-time high this year.


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    Friday, January 21, 2011

    CNBC: Warren Buffett Retiring from Washington Post Board After 'Great 37 Years' .. But Keeping the Stock

    Published: Thursday, 20 Jan 2011 | 1:36 PM ET
    By: Alex Crippen
    Executive Producer


    Warren Buffett will retire from the Washington Post board of directors after what he calls a "great 37 years."

    But he tells the Wall Street Journal that Berkshire will "keep every share of stock we have" in the company. "I would never sell a share of the Post," he says. It has "all kinds of meaning to me."

    In its most recent SEC portfolio filing, Berkshire says that as of December 31, 2010, it held 1,727,765 shares. At the current stock price of $426.02, they're worth $736 million.

    Berkshire is, by a large margin, the biggest institutional holder of Washington Post shares, with a 20.5 percent stake.

    In a news release today, distributed by Berkshire-owned Business Wire (of course), the Post says the 80-year-old Buffett won't stand for re-election to the board, but will serve through the expiration of his current term in May.

    Buffett tells the Journal, "A few years ago I wanted to get off all boards ... This was the one I hated to get off." He's been on 19 boards at one point or another.

    Now, however, Buffett says he needs to focus on his own company. "As we get more complicated, I find more things taking up my time related to Berkshire."

    There's no lack of mutual affection in today's news release.

    Washington Post Company Executive Committee Chairman Katharine Graham in a 1997 file photo.
    AP
    Washington Post Company Executive Committee Chairman Katharine Graham in a 1997 file photo.

    Buffett is quoted as saying, "I've loved The Washington Post since I delivered almost 500,000 copies of it as a youth in Washington. That love for the product, the Company and the management continues unabated today. I will always be available to help management in any way they request. It’s been a great 37 years."

    Post Chairman and CEO Donald Graham is ready to take him up on the offer, saying "calls to the 402 area code (Omaha) will not be decreasing." He calls Buffett the "best adviser any company could have had."

    Graham does see one change, joking that Buffett's "pervasive" influence had reached to the menu at board lunches. "Only our cholesterol levels will be better going forward."

    Buffett jokes to the Journal that Graham will still get the same advice, but "he's going to save the $75,000 directors' fee."

    Buffett has been on the Post board since 1974, just after Berkshire began purchasing its large stake in the company. He did take an 8-year break starting in the mid-1980s, while he was a Capital Cities director.

    Buffett had a long-running friendship with Katherine Graham, Donald Graham's mother, starting in the 70s when she was publisher of the Post. Graham died in 2001.

    Current stock prices:

    Washington Post: [WPO 433.25 9.86 (+2.33%) ]

    Berkshire Class B: [BRK.B 80.73 --- UNCH ]

    Berkshire Class A: [BRK.A 121050.0 --- UNCH ]

    Berkshire Portfolio




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    WALL STREET JOURNAL: Washington Post Boosts Dividend; Buffett To Leave Board

         By Nat Worden     Of DOW JONES NEWSWIRES  

    NEW YORK (Dow Jones)--Washington Post Co. (WPO) raised its dividend and said billionaire investor Warren Buffett will retire from its board of directors when his current term ends in May.

    The annual dividend increase of 40 cents a share comes as the company faces the loss of a corporate director whose reputation for value investing and business acumen has boosted its own image as a venerable publisher and for-profit education operator for decades.

    Buffett, 80, has served on the publishing company's board of directors since 1974, with an eight-year break when he became a director of Capital Cities. Early in his tenure on the board, he served as a key adviser to the late Katherine Graham, who steered the Washington Post through labor strikes, the Watergate scandal and the controversial publication of the Pentagon Papers during the Vietnam War.

    Washington Post Chief Executive Donald Graham, the son of Katherine Graham, said his company's association with Buffett will continue after the chief executive of Berkshire Hathaway Inc. (BRKA, BRKB) leaves its board, which held a meeting Thursday.

    "Warren has encouraged us to continue to consult him on Company matters and with the encouragement of our board, calls to the 402 area code will not be decreasing," Graham said in a press release, referring to the area code for Buffett's hometown, Omaha, Neb.

    For his part, Buffett voiced his longtime devotion to the Washington Post, stemming from his childhood days as a newspaper delivery boy.

    "That love for the product, the company and the management continues unabated today," Buffett said. "I will always be available to help management in any way they request."

    Buffett told Fox Business News that he will no longer sit on any corporate boards other than Berkshire's as duties at his own company are taking up all his time. He also told the network that Berkshire will not sell its stake in the Washington Post, which represents nearly 24% of the shares outstanding, according to FactSet Research.

    Buffett has acknowledged that planning for succession is under way at Berkshire, sparking widespread speculation about who will replace perhaps the world's most famous investor at the helm of the holding company and insurance conglomerate he built.

    His decision to leave the Washington Post's board comes as the company's for-profit education arm, Kaplan, has come under scrutiny due to concerns that its programs leave some students mired in debt with few job prospects.

    A New York Times report in November cited a former Kaplan admissions adviser in Chicago who resigned out of concerns about its business practices, who said admissions representatives were trained to "emphasize that Kaplan is owned by The Washington Post, one of the best newspapers in the country, and that Warren Buffett, and Bill Gates's wife, Melinda Gates," were on its board of directors.

    Kaplan denied the account. For her part, Melinda Gates resigned from the Washington Post's board three days after that report was published. Gates runs a multibillion-dollar foundation with her husband, Bill, co-founder and former chief executive of Microsoft Corp. (MSFT). She had been on Washington Post's board for six years, and she and her husband have deep ties to Buffett, who has become a major contributor to their foundation.

    A Washington Post spokeswoman said Gates' resignation, as well as Buffett's decision to leave the board, were unrelated to the New York Times story. Gates and Buffett couldn't be reached for comment.

    Kaplan's business has been the main profit engine at the Washington Post for years as its publishing businesses have struggled along with the broader industry because of the weak economy and the rise of digital media. In October, the company reported its third-quarter earnings surged on improved performance at its Kaplan education and publishing divisions, while the namesake newspaper's advertising revenue climbed for the first time in four years.

    Other directors at the Washington Post include IAC/InterActive Corp. (IACI) Chairman Barry Diller and G. Richard Wagoner, who was ousted in 2009 as chief executive of General Motors Co. (GM).

    Washington Post didn't say why it was increasing the dividends. Many companies have looked to return value to shareholders in recent quarters by boosting or reinstating their dividends once the need to hoard cash waned thanks to an improving economy.

    It lifted its annual dividend to $9.40 a share. The dividend for the first quarter, which was increased by 10 cents to $2.35 a share, is payable on Feb. 11 to shareholders of record on Jan. 31.

    Shares of Washington Post were recently up 2.9% at $435.69.

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    NEW YORK POST: Buffett's backing off

    Last Updated: 1:54 AM, January 21, 2011

    Posted: 12:27 AM, January 21, 2011

    Billionaire Warren Buffett, 80, is retiring from the board of Washington Post Co., in the latest sign he is paving the way for his departure from day-to-day control of Berkshire Hathaway.

    Last year, his company announced the addition of money manager Todd Combs to help oversee investments.

    "He's making the steps for the transition at Berkshire, and that's going to take more of his time," said Paul Howard, director of research at Solstice Investment Research in Glastonbury, Conn.

    Buffett, who joined the board in 1974, will remain a director until the end of his term in May and won't seek re-election, Washington Post Co.said yesterday. He'll continue to consult with the company. Berkshire Hathaway is its largest shareholder.

    "I will always be available to help management in any way they request," Buffett said in the statement.

    The Oracle of Omaha stepped down from the board of Coca-Cola Co. in 2006, and the soft-drink maker said in December that his son Howard Buffett was becoming a director.

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    Thursday, January 20, 2011

    BUFFALO NEWS: GEICO seeks to hire 300 at Amherst center

    Updated: January 19, 2011, 11:01 AM

    Auto insurer GEICO Corp. plans to hire 300 people in Amherst over the next four to six months, as the company replaces some local staff while responding to significant customer growth in New Jersey and New England.

    GEICO, the nation's third-largest auto insurer and No. 1 in this state, is hiring for entry-level positions in sales, customer service and claims at its Northeast Operations Center.

    The jobs include both replacements for people who have left the company or moved out of the area, as well as to handle the insurer's expansion, said Steve Cunningham, regional vice president and general manager of the facility, located in CrossPoint Business Park.

    "We're a growing organization. People always need insurance," Cunningham said. "We're saving people money, and in these tough economic times, people are trying to save every dollar they can."

    Currently, the company employs 1,900 at the 250,000-square-foot site, built in 2005 -- with great fanfare and significant government tax breaks -- to ultimately handle as many as 2,500 workers. The $40 million facility has been ramping up its employment gradually over the last few years.

    "We have a great work force in Western New York," Cunningham said. "We have a nice facility here, and we're taking an opportunity with that."

    The Northeast center, one of 12 primary locations for Washington, D.C.-based GEICO, handles sales, service and claims for New Jersey and New England, while assisting the company's Long Island office in covering New York State.

    It also hosts one of two offices of GEICO Insurance Agency, which sells homeowners and other non-auto personal insurance policies underwritten by other insurers.

    Cunningham said the company grabbed the No. 1 market share in both New Jersey and Connecticut last year, and is growing in Massachusetts after entering the state for the first time in May 2009. He declined to give specifics.

    GEICO, the largest direct marketer of auto insurance, now operates in all 50 states. It employs 24,000 nationwide, and serves 10 million customers with 16 million vehicles.

    In all, GEICO offers car, motorcycle, all-terrain vehicle, recreational vehicle, boat, homeowners, renters, condo, co-op, mobile home, personal umbrella, life, flood, overseas, commercial auto and identity theft insurance.

    GEICO is owned by Warren E. Buffett's Berkshire Hathaway Inc., which also owns The Buffalo News. Buffett is the newspaper's chairman.

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    Monday, January 17, 2011

    CNN MONEY: A new contender for Buffett's job

    By Mina Kimes, writer

    FORTUNE -- Warren Buffett's still-unrevealed succession plan is a subject of obsessive speculation in the financial world, where it receives a level of scrutiny that's typically reserved for Oscar nominees and presidential candidates. The latest shortlist of contenders comes courtesy of Vanity Fair, which, in a recent profile of Buffett, homed in on four CEOs of Berkshire Hathaway companies: Ajit Jain, who heads Berkshire's reinsurance business; David Sokol of NetJets; Greg Abel of MidAmerican Energy Holdings; and Matthew Rose of Burlington Northern.

    Longtime Buffett watchers will recognize all of those names as successor candidates -- except one. Abel, described by Vanity Fair only as "Sokol's number two," is a new addition to the field.

    Like many Berkshire leaders, the 48-year-old Abel, who declined through a spokesperson to comment, keeps a low profile. Schooled in Canada, where he became a chartered accountant, Abel is based in Des Moines today. There he oversees MidAmerican -- a group of utilities, natural-gas pipelines, and a real estate brokerage with combined revenues of $11.2 billion last year. He also sits on a number of boards, including the Mid-Iowa Council Boy Scouts of America; Kum & Go, a Midwestern convenience store chain; and the American Football Coaches Foundation.

    Abel got into the utility business in 1992, when he left Price Waterhouse to work for CalEnergy, an independent power producer run by Sokol. When CalEnergy bought the U.K. utility Northern Electric in 1996, Sokol asked Abel, then the company's chief accounting officer, to move to Newcastle to handle the takeover. Walter Scott, a Berkshire Hathaway (BRKA, Fortune 500) director and major shareholder in MidAmerican, says he was impressed by Abel's handling of the task.

    "Greg is the kind of person that, whenever he's been asked to do something, he's willing to go and do it," says Scott. "He picked up his family and he moved to England. He did an outstanding job."

    Sokol-Abel team

    When CalEnergy acquired Iowa-based electric and natural-gas utility MidAmerican Energy Holdings for $4 billion in 1998, Sokol again turned to Abel. He moved back to the States to become president of the combined entity, which took MidAmerican's name. A year later, Berkshire Hathaway joined forces with Sokol and Scott to take the entire company private.

    In 2008, Sokol stepped down as the CEO of MidAmerican in order to take a more strategic role at Berkshire, leaving Abel as the utility's CEO. The following summer, Buffett asked Sokol to run NetJets, Berkshire's struggling fractional-ownership plane company. The move spurred many to hypothesize that Sokol, dubbed Berkshire's "Mr. Fix-It" by Fortune for his aptitude at turning around troubled companies, was Buffett's top candidate for the top spot at Berkshire.

    But while Abel has long operated in Sokol's shadow, he has impressed the person who matters most: Buffett. In every shareholder letter since 2002, Buffett has praised both Sokol and Abel as "brilliant managers" and "huge assets" to Berkshire. Over the past decade, MidAmerican has grown at a healthy clip, mainly through acquisitions, and has boosted its net earnings more than 10-fold, to $1.2 billion.

    One of Buffett's well-known skills is his ability to integrate companies into Berkshire's portfolio. Abel has shown a similar aptitude, according to Scott. When MidAmerican bought the regulated utility PacifiCorp in 2005 for $5.1 billion, Abel, then MidAmerican's president, was charged with dramatically reorganizing the company, says Scott. Since 2006, PacifiCorp, which is MidAmerican's largest holding, has more than doubled its earnings, to $788 million.

    Scott praises Abel's ability to build relationships with state officials, who set the rates of return for regulated utilities like PacifiCorp. "He does an outstanding job of managing [MidAmerica's assets] and doing it in a way that people feel good about," he says. "When I say that, I'm talking about the regulators, his employees, the people he has worked for -- Dave Sokol and Warren."

    Abel's involvement with Constellation

    Abel's first test as CEO came in September 2008, when MidAmerican attempted a takeover of Baltimore-based Constellation Energy (CEG, Fortune 500), a diversified utility whose commodities-trading business was whacked during the financial crisis. When Constellation's debt was downgraded, investors feared that the company would go bankrupt, and its stock plunged. Desperate for financing, Constellation accepted a buyout offer from MidAmerican that valued its shares at $26.50 -- a discount of more than 60% from where they were trading just three months before.

    Sokol has been credited with initiating the offer -- he placed the first call to Constellation, Fortune reported, after receiving a green light from Buffett. But a proxy report filed by Constellation that October shows that Abel, too, was involved in every step of the negotiating process. Immediately after Constellation agreed to be bought by MidAmerican, the company received a significantly higher counteroffer from French power company Electricite de France. Constellation's CEO, Mayo Shattuck III, asked Abel to waive their exclusivity agreement so that Shattuck could get more information about the offer, but Abel refused, the proxy says, and the deal was finalized that evening.

    Three months later, Constellation backed out of the deal, and MidAmerican walked away with a breakup fee of $175 million plus investment profits of $917 million, according to Berkshire Hathaway's 2008 annual report.

    Given his relatively short tenure as CEO, Abel is still a long shot to run Berkshire. But he does have one significant advantage: his age. At just 48 years old, he's the youngest candidate on the list. Since Buffett has no plans to retire in the near future (he cheekily told Vanity Fair that he has a life expectancy of 12 years), Abel's youth makes him all the more likely to succeed. To top of page

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    Thursday, January 13, 2011

    REUTERS: Berkshire Hathaway's Richline to buy Italian jeweller

    Fri Jan 14, 2011 4:16pm GMT

    * The deal is expected to be completed by end of February

    * Berkshire Hathaway jewellery unit aims to expand in Europe (Adds further details)

    MILAN Jan 14 (Reuters) - U.S. jewellery manufacturer and distributor Richline Group, a unit of U.S. billionaire investor Warren Buffett's Berkshire Hathaway (BRKa.N: Quote), has agreed to buy Italian jeweller Rosato, the companies said on Friday.

    "Rosato (acquisition) represents a fundamental step in a new expansion project aimed at creating a European platform," Richline Group's director general, Dennis Ulrich, said in a jont statement.

    The deal is expected to be completed by the end of February, the companies said, without disclosing financial details.

    Founded in 2007, Richline's brands include Andin, Alarama, Aurafin, Auragem and Bel-Oro.

    The deal would inject much-needed cash into privately owned Rosato which was hit hard by the global economic crisis in the past couple of years.

    In 2009 Rosato had to buy back a 50 percent stake in the company from debt-laden fashion group Mariella Burani for an enterprise value of 7.7 million euros ($10.35 million). ($1=.7436 euros) (Reporting by Svetlana Kovalyova; Editing by Greg Mahlich)

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    INVESTOPEDIA: Warren Buffett: How He Does It

    by Investopedia Staff, (Investopedia.com)
    Did you know that a $10,000 investment in Berkshire Hathaway in 1965, the year Warren Buffett took control of it, would grow to be worth nearly $30 million by 2005? By comparison, $10,000 in the S&P 500 would have grown to only about $500,000. Whether you like him or not, Buffett's investment strategy is arguably the most successful ever. With a sustained compound return this high for this long, it's no wonder Buffett's legend has swelled to mythical proportions. But how the heck did he do it? In this article, we'll introduce you to some of the most important tenets of Buffett's investment philosophy. (For more on Warren Buffett and his current holdings, check out Coattail Investor.)

    Buffett's Philosophy

    Warren Buffett descends from the Benjamin Graham school of value investing. Value investors look for securities with prices that are unjustifiably low based on their intrinsic worth. When discussing stocks, determining intrinsic value can be a bit tricky as there is no universally accepted way to obtain this figure. Most often intrinsic worth is estimated by analyzing a company's fundamentals. Like bargain hunters, value investors seek products that are beneficial and of high quality but underpriced. In other words, the value investor searches for stocks that he or she believes are undervalued by the market. Like the bargain hunter, the value investor tries to find those items that are valuable but not recognized as such by the majority of other buyers.

    Warren Buffett takes this value investing approach to another level. Many value investors aren't supporters of the efficient market hypothesis, but they do trust that the market will eventually start to favor those quality stocks that were, for a time, undervalued. Buffett, however, doesn't think in these terms. He isn't concerned with the supply and demand intricacies of the stock market. In fact, he's not really concerned with the activities of the stock market at all. This is the implication this paraphrase of his famous quote : "In the short term the market is a popularity contest; in the long term it is a weighing machine."(see What Is Warren Buffett's Investing Style?)

    He chooses stocks solely on the basis of their overall potential as a company - he looks at each as a whole. Holding these stocks as a long-term play, Buffett seeks not capital gain but ownership in quality companies extremely capable of generating earnings. When Buffett invests in a company, he isn't concerned with whether the market will eventually recognize its worth; he is concerned with how well that company can make money as a business.

    Buffett's Methodology
    Here we look at how Buffett finds low-priced value by asking himself some questions when he evaluates the relationship between a stock's level of excellence and its price. Keep in mind that these are not the only things he analyzes but rather a brief summary of what Buffett looks for:

    1. Has the company consistently performed well?
    Sometimes return on equity (ROE) is referred to as "stockholder's return on investment". It reveals the rate at which shareholders are earning income on their shares. Buffett always looks at ROE to see whether or not a company has consistently performed well in comparison to other companies in the same industry. ROE is calculated as follows:

    = Net Income / Shareholder's Equity

    Looking at the ROE in just the last year isn't enough. The investor should view the ROE from the past five to 10 years to get a good idea of historical performance.

    2. Has the company avoided excess debt?
    The debt/equity ratio is another key characteristic Buffett considers carefully. Buffett prefers to see a small amount of debt so that earnings growth is being generated from shareholders' equity as opposed to borrowed money. The debt/equity ratio is calculated as follows:

    = Total Liabilities / Shareholders' Equity

    This ratio shows the proportion of equity and debt the company is using to finance its assets, and the higher the ratio, the more debt - rather than equity - is financing the company. A high level of debt compared to equity can result in volatile earnings and large interest expenses. For a more stringent test, investors sometimes use only long-term debt instead of total liabilities in the calculation above.

    3. Are profit margins high? Are they increasing?
    The profitability of a company depends not only on having a good profit margin but also on consistently increasing this profit margin. This margin is calculated by dividing net income by net sales. To get a good indication of historical profit margins, investors should look back at least five years. A high profit margin indicates the company is executing its business well, but increasing margins means management has been extremely efficient and successful at controlling expenses.


    4. How long has the company been public?
    Buffett typically considers only companies that have been around for at least 10 years. As a result, most of the technology companies that have had their initial public offerings (IPOs) in the past decade wouldn't get on Buffett's radar (not to mention the fact that Buffett will invest only in a business that he fully understands, and he admittedly does not understand what a lot of today's technology companies actually do). It makes sense that one of Buffet's criteria is longevity: value investing means looking at companies that have stood the test of time but are currently undervalued.

    Never underestimate the value of historical performance, which demonstrates the company's ability (or inability) to increase shareholder value. Do keep in mind, however, that the past performance of a stock does not guarantee future performance - the job of the value investor is to determine how well the company can perform as well as it did in the past. Determining this is inherently tricky, but evidently Buffett is very good at it.

    5. Do the company's products rely on a commodity?
    Initially you might think of this question as a radical approach to narrowing down a company. Buffett, however, sees this question as an important one. He tends to shy away (but not always) from companies whose products are indistinguishable from those of competitors, and those that rely solely on a commodity such as oil and gas. If the company does not offer anything different than another firm within the same industry, Buffett sees little that sets the company apart. Any characteristic that is hard to replicate is what Buffett calls a company's economic moat, or competitive advantage. The wider the moat, the tougher it is for a competitor to gain market share.

    6. Is the stock selling at a 25% discount to its real value?
    This is the kicker. Finding companies that meet the other five criteria is one thing, but determining whether they are undervalued is the most difficult part of value investing, and Buffett's most important skill. To check this, an investor must determine the intrinsic value of a company by analyzing a number of business fundamentals, including earnings, revenues and assets. And a company's intrinsic value is usually higher (and more complicated) than its liquidation value - what a company would be worth if it were broken up and sold today. The liquidation value doesn't include intangibles such as the value of a brand name, which is not directly stated on the financial statements.

    Once Buffett determines the intrinsic value of the company as a whole, he compares it to its current market capitalization - the current total worth (price). If his measurement of intrinsic value is at least 25% higher than the company's market capitalization, Buffett sees the company as one that has value. Sounds easy, doesn't it? Well, Buffett's success, however, depends on his unmatched skill in accurately determining this intrinsic value. While we can outline some of his criteria, we have no way of knowing exactly how he gained such precise mastery of calculating value. (To learn more about the value investing strategy of selecting stocks, check out our Guide To Stock-Picking Strategies.)

    Conclusion

    As you have probably noticed, Buffett's investing style, like the shopping style of a bargain hunter, reflects a practical, down-to-earth attitude. Buffett maintains this attitude in other areas of his life: he doesn't live in a huge house, he doesn't collect cars and he doesn't take a limousine to work. The value-investing style is not without its critics, but whether you support Buffett or not, the proof is in the pudding. As of 2004, he holds the title of the second-richest man in the world, with a net worth of more $40 billion (Forbes 2004). Do note that the most difficult thing for any value investor, including Buffett, is in accurately determining a company's intrinsic value.

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