The Genius Of Warren Buffett

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In their latest episode of the VALUE: After Hours Podcast, Morris, Taylor, and Carlisle discuss The Genius Of Warren Buffett. Here’s an excerpt from the episode:

Tobias: It’s interesting to watch someone like Buffett with Berkshire, because Berkshire has gone through lots of different cycles where it’s been loved and hated. When it was loved– When it was loved last? Probably, in the late 1990s, do you think, JT? More recently than that?

Jake: Yeah, I would say like the real hard love, I would say probably 1998 when he did the January swaparoo. That was pretty genius.

Tobias: Yeah, that’s what I was going to raise too. That’s the last time he used overvalued stock to do an acquisition, where he overpaid, but he was overpaying with an overblown stock anyway. So, from his perspective, he was like, “That is a bargain. That is cheap.”

Jake: Maybe BNSF a little bit too. They used stock for that one, I think. If you look at the profitability of that company versus probably the growth and profitability of Berkshire shares, which is how you should think about when you’re trading your company for someone else’s company, that was probably a pretty savvy move as well.

Tobias: [unintelligible 00:48:05] was just hated for a long time there. Buffett just picked that up at the perfect moment because there was a great blog post that came around afterwards and I don’t know who did it because it’s too long ago now, but they pointed out how much money he pulled out in that initial period. He basically got back a third or a half or more in cash over the first few years of that acquisition, kind of amazing.

Alex: Yeah, speaking of Buffett and what you were saying before about the Australian company, OXY is a really interesting example of the company, very clearly spelling out capital return policy and growth expectations. My read on the situation when I look at it is that certainly played a big part in– They have to actually hold themselves to it now, which is the hard part. Everybody can say in a down cycle what they’re going to do when there’s opportunities to grow again. So, we’ll see– [crosstalk]

Jake: That’s the genius of Buffett though, is that he points it out publicly and he calls out the slide.

Tobias: Yeah, that’s it.

Jake: High-end management to the math.

Alex: [laughs]

Tobias: That’s it.

Jake: Genius.

Tobias: It’s interesting though, possibly that’s what attracted him to it. He was like, “Well, we’re at this point where they’re going to be returning capital.” I think that’s an interesting model to think about. He doesn’t like the super high growth. He likes it where they get to the point where they’re like, “We don’t need capital anymore. We’re going to be returning capital. We built it all up.”

Alex: Yeah, not only that. They specifically put a cap on production growth. There are no ifs, ands, or buts about what the capital allocation policy here, JT’s or to your point. Buffett wants people to know that and management to stick to it, I assume. [laughs]

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