Warren Buffett invests in newspapers

Published: Thursday, April 25, 2013 at 04:49 PM.


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. 

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