Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST, Friday, March 2, 2007: Berkshire
Hathaway continues to do well. From 1965 to 2006, he achieved a compounded annual
gain of 21.4%. Buffet's annual report letter is always worth reading.
Our gain in
net worth during 2006 was $16.9 billion, which increased the per-share book
value of both our Class A and Class B stock by 18.4%. Over the last 42 years
(that is, since present management took over) book value has grown from $19
to $70,281, a rate of 21.4% compounded annually.*
We believe that
$16.9 billion is a record for a one-year gain in net worth - more than has
ever been booked by any American business, leaving aside boosts that have
occurred because of mergers (e.g., AOL's purchase of Time Warner). Of course,
Exxon Mobil and other companies earn far more than Berkshire, but their earnings
largely go to dividends and/or repurchases, rather than to building net worth.
All that said,
a confession about our 2006 gain is in order. Our most important business,
insurance, benefited from a large dose of luck: Mother Nature, bless her heart,
went on vacation. After hammering us with hurricanes in 2004 and 2005 - storms
that caused us to lose a bundle on super-cat insurance - she just vanished.
Last year, the red ink from this activity turned black - very black.
the great majority of our 73 businesses did outstandingly well in 2006.
Hathaway is now mostly an insurance company. He writes:
Limited Partnerships are a new asset class: From
Alerian Capital Management's web site:
Let me focus
for a moment on one of our largest operations, GEICO. What management accomplished
there was simply
extraordinary. As Ive told you before, Tony Nicely, GEICOs CEO,
went to work at the company 45 years ago, two months after turning 18. He
became CEO in 1992, and from then on the companys growth exploded.
In addition, Tony has delivered staggering productivity gains in recent years.
Between yearend 2003 and yearend 2006, the number of GEICO policies increased
from 5.7 million to 8.1 million, a jump of 42%. Yet during that same period,
the companys employees (measured on a fulltime-equivalent basis) fell
3.5%. So productivity grew 47%. And GEICO didnt start fat. That remarkable
gain has allowed GEICO to maintain its all-important position as a low-cost
producer, even though it has dramatically increased advertising expenditures.
Last year GEICO spent $631 million on ads, up from $238 million in 2003 (and
up from $31 million in 1995, when Berkshire took control). Today, GEICO spends
far more on ads than any of its competitors, even those much larger. We will
continue to raise the bar.
For the 38-page piece
(something to read over the weekend), click
Partnerships, or MLPs, are primarily engaged in the transportation, storage,
or processing, of natural resources such as crude oil and natural gas. By
confining their operations to these specific activities, they are able to
trade on public securities exchanges exactly like the shares of a corporation,
without entity level income taxation. More than two-thirds trade on the New
York Stock Exchange. MLPs are regulated by the Securities Exchange Commission
and must file 10-Ks, 10-Qs, and notices of material change like any publicly
traded corporation and comply with the recordkeeping and disclosure requirements
of the Sarbanes-Oxley Act.
the market capitalization-weighted index of MLPs has generated compound annual
returns exceeding 17%, under the radar of the professional investment community.
These strong returns were generated through a combination of current yield
and consistent annual distribution growth of 8%-9% over the period driven
by uniquely attractive business models.
piece, "Master Limited Partnership Primer: Understanding an Emerging
Asset Class", describes the changing dynamics in the energy space today
that are shaping the future direction of the MLP sector, as well as a history
of the asset class and a basic introduction for new investors in the midstream
space. This piece also provides an explanation of the different asset types
within the MLP structure and discusses the different aspects of the midstream
value chain and the transported products.
up a free trial copy of Argus. The Argus software
is the Excel of the commercial real estate industry. Everybody uses it to figure
out if buying that building makes sense. I've never used it but I've seen the
results and heard my friends extol its expensive virtues. For some reason, they're
offering a free trial copy of Argus. Click
here. Be wary. The download is huge -- 132 megabytes. Download at lunch
or in the evening. I don't know how long the trial lasts.
to boost your cellphone: The New York Times
went shopping for ways to boost more bars out of your cellphone. It found three
ways. The first (photo on left) is a $34.95 passive antenna called Freedom Antenna.
You have to have an antenna port on your cell phone which you can plug into.
Nokia and BlackBerry owners are out of luck. For more, click
second (center photo) is the $299 Spotwave Z1900 amplified antenna. It works
only with 1900 MHz services, which include Sprint, T-Mobile and some Cingular
areas. You can check if you're covered by punching your ZIP into Spotwaves
Web site, www.spotwave.com.
The third (far right) is the $399 zBoost from Wi-Ex. This thing works at both
800 Mhz and 1900 MHz and thus works for most US cellphone companies, including
Verizon, but not Nextel. www.Wi-Ex.com.
Don't expect magic from all three. You will get an improvement. If your house
gets lousy receiption, these gadgets are for you. For the amplified boosters
to work, you should be speaking from a cell phone close to their indoor antennas.
For the the entire Times piece, click
Lawyers and more lawyers: Don't get me started.
I bought my dictionary back in December. I signed a distribution agreement with
PGW (Publishers Group West). Within three weeks (my luck), PGW's parent, AMS
(Advanced Marketing Services) went Chapter 11. Then the Judge and the lawyers
took over. It was the 2007 Lawyers' Full Employment Act all over again.
Little of the paperwork they generated made any sense. One document had eight
lawyers from four separate firms draft. You can imagine what it read like. They
had "Whereas-es" and "Recitals" up the ying yang. The book
publishers who were now owed zillions by PGW hired even more lawyers... And
the bankruptcy judge who understands nothing about the book publishing industry
tried to figure it all out. The businessmen were overwhelmed. The lawyers did
their normal "fear" sales act. So the businessmen let the lawyers
take charge. BIG MISTAKE! The end of it all will give "GIGANTIC
EXPENSIVE MESS" a whole new meaning. My favorite: this morning I had to
sign a 10-page document titled (I don't make this up) "Stipulation
providing for Rejection of Executory Contract and Request for Entry of any Order
Approving the Stipulation." The document gave the bankrupt company
my blessing to break their distribution contract with me. As if they needed
my permission. What they (the lawyers) did need was the fees and expenses from
all the paperwork and all faxing -- including Exhibit A which was completely
blank and never mentioned in the document. Go figure!
blondes at the lumber yard
A couple of blond men in a pickup truck drove into a lumberyard.
One of the blond men walked in the office and said, "We need some four-by-twos."
The clerk said,
"You mean two-by-fours, don't you?"
The man said,
"I'll go check," and went back to the truck. He returned a minute
later and said, "Yeah, I meant two-by-fours."
How long do you need them?"
The customer paused
for a minute and said, "I'd better go check."
the customer returned to the office and said, "A long time. We're gonna
build a house."
Two little kids are in a hospital, lying on stretchers next to each other, outside
the operating room.
The first kid
leans over and asks, "What are you in here for?"
The second kid says, "I'm in here to get my tonsils out and I'm a little
The first kid
says, You've got nothing to worry about. I had that done when I was four. They
put you to sleep, and when you wake up they give you lots of Jell-O and ice
cream. It's a breeze."
The second kid
then asks, "What are you here for?"
The first kid
says, "A circumcision."
The second kid replies, "Whoa, good luck buddy, I had that done. Couldn't
walk for a year."
Death do us Part
and wife go to a counselor after 15 years of marriage.
asks them what the problem is and the wife goes into a tirade listing every
problem they have ever had in the 15 years they've been married. She goes on
and on and on.
Finally, the counselor
gets up, goes around the desk, embraces the woman and kisses her passionately.
The woman shuts
up and sits quietly in a daze. The counselor turns to the husband and says "That
is what your wife needs at least three times a week. Can you do that?"
The husband replies,
"Well, I can drop her fat ass off here on Mondays and Wednesdays, but I
play golf on Fridays."
This column is about my personal search
for the perfect investment. I don't give investment advice. For that you have
to be registered with regulatory authorities, which I am not. I am a reporter
and an investor. I make my daily column -- Monday through Friday -- freely
available for three reasons: Writing is good for sorting things out in my
brain. Second, the column is research for a book I'm writing called "In
Search of the Perfect Investment." Third, I encourage my readers
to send me their ideas, concerns and experiences. That way we can all learn
together. My email address is .
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