Berkshire Hathaway Report
As a special report for our investment reporting clients, we have managed to get hold of the Berkshire Hathaway Annual General Meeting notes from May 2012. We wanted to send them to you out of interest so that you can see how Warren Buffet and his business partner, Charlie Munger, operate and what they look for in companies for investing etc.
With the recent drop in the share market, it has created a lot of anxiety for clients, and they are concerned that their investments will be worth not a lot. The capital growth from the last 6 months has been wiped off in less than a month, so there is of course a reason for the concern. Most of the companies that we have been advising clients to invest in consist of Banks (the Big 4 mainly), the Big Resource Companies (BHP & RIO), Diversified Companies like Wesfarmers, Energy such as Woodside, Telstra for dividend (although not so much now) and then some other companies. The key has been to look for companies that are paying dividends so that regardless of whether China or Greece or Spain all have hiccups, the dividends of the portfolio have a good chance to continue.
Our motto is that cashflow is king. So, if we can maintain the cashflow (by way of dividends), then the capital growth will come in the longer term. The cashflow then allows for any pension payments, or investing in other opportunities down the track.
I met with a client this week who has been thinking of selling their entire investment portfolio. The portfolio value has dropped from around $300,000 to $225,000. The dividends that the current portfolio earns is around $20,000 plus tax credits of another $6,000 a year, so a total of $26,000 per year. If we compare that to selling the whole portfolio up at $225,000, and then investing in a term deposit at 4%, then that shows a $9,000 per year return. Right now, we are in a position on the stock exchange where a lot of dividend paying investments are nearly twice what term deposits pay.
While it is un nerving to see the red on the screens, and the likes of Channel 7, Channel 9 and Channel 10 continually hammering about billions being wiped off the stock exchange in a day, we liken the stock market to having a for sale sign on your shares every day. If you have an investment property, and the property market drops down (as it has for the majority of property investors), you don't keep considering the selling price, and whether or not you should sell or whatever. So, we like to take that approach to share investing. With the majority of the shares that most clients are invested in, the dividend income is greater than the alternative of selling and investing in Term Deposits.
Berkshire Hathaway Report
In the next review report, we will update you some more.
In the meantime, if you have any queries on your portfolio at all, please let us know so that we can then help you to understand what is happening in the market.
Simon & Sherly