It amuses me when financial advisors tout owning individual stocks and living off the dividends.
That strategy goes against retirement guru Bill Bengen’s Safe Withdrawal Rate and smells like a marketing ploy. It also means you bought Apple just in time to watch it free-fall. The same approach means avoiding a stellar American company like Berkshire Hathaway since it pays no dividends. Only nine times in the last 48 years has Berkshire’s book value failed to outpace the annual percentage gain of the S&P 500; case closed.
Capital gains spend just like dividends but with capital gains you decide the tax liability.
An ancillary benefit Berkshire ownership brings is Mr. Buffett’s letter prefacing the annual report. Most annual reports are stultifying collages of numbers and graphs interspersed with mind-numbing legalese, not so with the Sage of Omaha. You never know what you are going to get. Buffett succinctly explains what owning stock (stock mutual funds) encompasses. A Berkshire subsidiary owns United Tank Car, which in America manufactures rail cars. He reminds shareholders they own all cars with a UTXL (United Tank Car) logo and they should “puff your chest out a bit and enjoy the satisfaction” when they roll down the line.
Buffett always talks about his miscues and confesses he will do it again. You learn from mistakes and we all make them. Years ago, I wrote for The Motley Fool (www.fool.com). After record insurance losses in 2006, I stood by my man Warren with a pair of March 2007 Bull versus Bear columns. Given Berkshire’s quadrupling of the S&P, I should have put my money where my mouth was.
He explains why reinvesting earnings inside Berkshire leads to increased wealth for shareholders versus dividend distributions. Since 2005, Buffett gifts slightly more than 4 percent of his stock annually. Despite his generosity, the value of his remaining Berkshire shares continues to grow (2005 and 2012 values, $20.8 billion, $40.2 billion respectively). Retirees needing income can sell shares while those in the accumulation mode can sit by the lazy river and watch their investment grow.
It was a pleasant surprise to learn Berkshire recently acquired 28 daily newspapers around the country. Included in the mix are the Jackson County Floridian and the Dothan Eagle. Mr. Buffett’s letter spent almost three pages explaining his newspaper strategy.
He and co-manager Charlie Munger “love” newspapers and will buy more “if their economics make sense." In fact, they shut the presses down on one paper. They believe papers can make it if they couple a sensible Internet strategy (to be determined) with comprehensive and reliable information to local communities.
Social media like “Third Cup of Coffee” or “Walton County Ideas for Visioning and Quality of Life” on Facebook can fill voids, but there’s also drunkenbrawlers.com. Benjamin Franklin published under a pseudonym but Dr. Franklin was unique. Skeptically view news and investment advice (especially) from anonymous internet message boards.
Many studies indicate humans comprehend text differently than online or E-readers. We kept Motley Fool columns purposely short because people skim online. On the evolutionary path, reading pops up 6,000 years ago versus the Internet with less than two decades of widespread use.
Buffett likes businesses with wide moats; I’m glad the government funded Internet research and not him or Steve Jobs.
Buz Livingston, certified financial planner, has the only investment management firm in the entire world headquartered in Blue Mountain Beach. He helps clients along Florida’s Emerald Coast and around the country with financial decisions. For more information, call 850-267-1068 or visit www.livingstonfinancial.net.