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Business, Finance, Occupation & Industry

One Word You'll Rarely Hear on Wall Street

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By Buck Hartzell, The Motley Fool

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I recently had a fascinating discussion with Lawrence Cunningham, author of The Essays of Warren Buffett: Lessons for Corporate America. The 3rd edition of this business classic has just been released.

Cunningham, professor of law at George Washington University, is one of the sharpest students of Warren Buffett in the world, and his insights are potentially quite valuable for investors and business leaders alike. Below is perhaps the most important lesson from my discussion with professor Cunningham.

A common Buffett word is unpopular on Wall Street
Cunningham actually put all of Buffett’s Berkshire Hathaway shareholder letters into a word cloud, and discovered that the word “mistake” was one of the most common ones used.

Curious, I searched several annual reports from some other leading financial firms for the word “mistake” and guess what I found?

  • AIG‘s 2008 annual Report: 0 mentions.
  • Bank of America‘s 2009 annual report: 1 mention in boilerplate text over 600+ pages in.
  • Citigroup‘s 2008 annual report: 0 mentions.
  • JP Morgan Chase‘s 2012 annual report: 1 mention on page 315 of the PDF in relation to legal disclosures.
  • Fannie Mae‘s 2008 annual report: 2 mentions in a section on pension plan administration saying that no committee member is personally liable for even mistakes of judgment and the corporation will indemnify and hold harmless any employee, officer, or director. This feels like the opposite of admitting a mistake. Instead, the company is saying that it is going to protect its employees regardless of how poor their decisions are.

I think it’s fair to say that these companies could have used the word “mistake” just a bit more regularly, when writing about their recent history. Then again, it shouldn’t surprise us all that much that they didn’t use that word.

A word cloud created from JP Morgan’s 2011 shareholder letter.

The best organizations can admit to and learn from their mistakes, while poorly led firms will avoid mentioning them no matter what. If a company is unwilling or unable to acknowledge a mistake, how could it possibly learn from it?

Click here to read the entire transcript of my fascinating interview with professor Cunningham.

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The article One Word You’ll Rarely Hear on Wall Street originally appeared on Fool.com.


Buck Hartzell owns shares of Berkshire Hathaway, Berkshire Hathaway, and American International Group. The Motley Fool recommends American International Group and Berkshire Hathaway. The Motley Fool owns shares of American International Group, Bank of America, Berkshire Hathaway, Citigroup Inc , and JPMorgan Chase & Co. and has the following options: Long Jan 2014 $25 Calls on American International Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

3 Things Buffett Likes About Health Care

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By Keith Speights, The Motley Fool

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Warren Buffett knows what he likes — and he gets what he likes. While he is widely known for investing in consumer product companies, another industry has also captured his attention and his money. Here are three things Buffett really likes about health care.

1. Keep it simple
Buffett likes to keep things simple and understand the business before he buys. DaVita Healthcare Partners is a great example of this desired simplicity. The company provides dialysis services for patients with chronic kidney disease or end stage renal disease. Patients with these diseases can’t survive without dialysis. DaVita provides the service. It doesn’t get much more simple than that.

Buffett’s Berkshire Hathaway owns 14% of DaVita, valued at more than $1.9 billion and growing. The stock has a one-year return of nearly 34%.Keeping it simple can pay off.

2. Investing for the long run
Some might look at a company like GlaxoSmithKline and run for the hills. Just last year, the British pharma lost an estimated $35 billion in sales due to generic competition as key drugs lost patent protection. But Buffett first bought the stock in 2008 — with full knowledge that the patent cliff was coming. Why? Buffett looks at the long run. His ideal holding period is “forever.” 

His position in GlaxoSmithKline isn’t huge — just 1.5 million shares valued at around $71 million. And the stock hasn’t done much over the past year, with shares up only 2%. However, remember that Buffett is looking at the long run. Patents may come and go, but obviously Buffett still views Glaxo as a good long-term buy.

3. Buying businesses
Buffett doesn’t buy a stock. He buys a business. His aim is to buy a “wonderful company at a fair price.” Sanofi seems to have hit that mark. Berkshire Hathaway bought shares in the French pharmaceutical company back in 2006 and added to its position each year through 2010. Even through Sanofi’s share prices were declining during much of that period, Buffett kept on buying. As with Glaxo, he saw the long-term potential for the business and cared less about how the stock was performing in the shorter term.

The short term has looked pretty good for Sanofi lately, though. Shares are up nearly 30% over the past year. While they’re not up by nearly that much compared to 2006 levels, remember that Buffett kept adding to his position when shares were dropping. By focusing on buying the business, he has done quite well with his investment in Sanofi.

Liking with open eyes
Just because Warren Buffett likes an investment doesn’t mean that he’s blind to problems. For example, he cut back most of his position in Johnson & Johnson  after J&J recalled products and encountered legal problems related to misleading doctors and patients about medication risks. Buffett commented that J&J still had “a lot of wonderful products and it’s got a wonderful balance sheet” but that the company had made …read more

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Will Warren Buffett Ever Buy Apple?

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By Andrew Tonner, The Motley Fool

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In this video, Fool tech/telecom analyst Andrew Tonner talks about whether Warren Buffett would ever buy Apple.

While Buffett can arguably be called the greatest investor of all time, he hasn’t made his money by investing in technology companies. In fact, the only tech company that Buffett’s Berkshire Hathaway owns is IBM. His IBM purchase fit Buffett’s strategy of buying great companies he understands and holding on to them, Andrew says.

But now there’s another great tech company selling at a low valuation: Apple. Does this company fit Buffett’s style? Since its pullback, Apple is trading at around 10 times earnings, and 6.5 times enterprise value to EBITDA — a classic value stock, Andrew says. And over the past year, Apple has made the return of money to shareholders a priority, both through a dividend and stock buybacks — something Buffett also looks for.

And although it’s a tech company, Apple’s business model is relatively simple. The company makes great products that make consumers’ lives easier.

Although it may not fit into Buffett’s understanding, it should for more tech-savvy investors. So while Buffett isn’t a buyer, Apple has many of the characteristics he looks for in a company, Andrew says.

Whether Buffett‘s a buyer or not, there’s no doubt that Apple is at the center of technology’s largest revolution ever and that longtime shareholders have been handsomely rewarded, with more than 1,000% gains. However, after the company’s major backslide recently, there is a debate raging as to whether Apple remains a buy. The Motley Fool’s senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

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Source: FULL ARTICLE at DailyFinance