If you don’t believe what we just said about Berkshire companies, take a look at the follow- ing set of “acquisition criteria,” straight from the 2006 Berkshire Hathaway Annual report.
Straight, clear, to the point — and never before have we seen anything like this — including the commentary — in a shareholder report.
ACQUISITION CRITERIA
We are eager to hear from principals or their representatives about businesses that meet all of the following criteria:
(1) Large purchases (at least $75 million of pre-tax earnings unless the business will fit into one of our existing units),
(2) Demonstrated consistent earning power (future projections are of no interest to us, nor are
“turnaround” situations),
(3) Businesses earning good returns on equity while employing little or no debt,
(4) Management in place (we can’t supply it), (5) Simple businesses (if there’s lots of technol- ogy, we won’t understand it),
(6) An offering price (we don’t want to waste our time or that of the seller by talking, even pre- liminarily, about a transaction when price is unknown).
The larger the company, the greater will be our interest: We would like to make an acquisition in the $5–20 billion range. We are not inter- ested, however, in receiving suggestions about purchases we may make in the general stock market.
We will not engage in unfriendly takeovers. We can promise complete confidentiality and a very fast answer — customarily within five minutes — as to whether we’re interested. We prefer to buy for cash, but will consider issuing stock when we receive as much in intrinsic business value as we give. We don’t participate in auctions.
Table 3-3 (continued)
Company Business/Sector Estimated 2007 P/E
Norfolk Southern Railroad 12.8
Comcast Corporation Cable, communications 32.7 PetroChina ADRs International energy --
Gannett Corp Newspapers 10.0
Burlington Northern Railroad 15.0
Tyco International Diversified 21.7
Ingersoll-Rand Industrial 13.9
ConocoPhillips Energy 8.2
SunTrust Banks Financial services 13.0
H&R Block Financial services 14.8
Home Depot Retail 14.7
UnitedHealth Group Healthcare 13.4
American Express Financial services 16.9
Nike Inc. Consumer apparel 16.2
Torchmark Corp Financial services 11.1
Moody’s Corp Financial services 20.8
M&T Bank Financial services 13.6
Pier 1 Imports Retail --
Union Pacific Railroad 16.8
USBancorp Financial services 11.2
Lowe’s Corp Retail 13.9
WellPoint Inc Healthcare 13.7
General Electric Diversified 17.3
First Data Corp Info services 24.4
Sanofi-Advenis ADR Pharmaceuticals 11.3
Comdisco Holdings Industrial --
Wal-Mart Stores Retail 14.5
Company Business/Sector Estimated 2007 P/E
Western Union Technology services 18.1
Anheuser-Busch Consumer beverages 17.2
Wells-Fargo Financial services 12.6
Wesco Financial Financial services 78.8
Johnson & Johnson Healthcare 15.1
United Parcel Service Logistics 18.5
Costco Wholesale Retail 24.8
Washington Post Newspapers 26.7
Coca-Cola Co. Consumer beverages 21.1
Procter & Gamble Diversified consumer 18.9
Iron Mountain Technology security 40.1
For more on Buffett
Entire books can be — and have been — written on Buffett, his personality, humor, lifestyle, experiences, and teachings. We cannot begin to approach the rich material available in other books devoted to him as a topic. Another interesting, though plain and simple to the extreme, place to get information from and about Buffett and Berkshire Hathaway is the corporate Web site, easily accessed at www.berkshirehathaway.com. Buffett’s letters to share- holders are particularly worthwhile and exemplify his deep understanding and sense of humor.
The Disciples
Along the way, the Buffett-Graham school has acquired a good-sized follow- ing, although how few people have really made a name for themselves investing in the Buffett style still surprises us. Perhaps they are as low key as he is; perhaps there just isn’t that much other than sustained long term performance to grab headlines.
Good investors know how to play “follow the leader” — if not to invest liter- ally as they do, at least emulate their style, and better yet, get good investing ideas. We all watch Tiger Woods play golf, not with any real hope of shooting 63 in a major, but with the hope of picking up some elements of his
playing style.
Here are a few well-known value investors to watch:
Bill Nygren:Nygren is Portfolio Manager of The Oakmark Fund and The Oakmark Select Fund, two widely held and admired mutual funds. Since its 1991 start, the Oakmark fund has returned over 16 percent a year, and the Select fund has returned over 20 percent since its 1996 start.
Nygren is a classic value picker, choosing stocks based on a discount from underlying business value based on cash flows, management own- ership, and how cash is reinvested in the business. Successful invest- ment picks include Coca-Cola, Discovery Holdings, and Schering-Plough.
Bill Miller:Miller manages the Legg Mason Value Trust, and became famous for beating the S&P 500 Index for 15 consecutive years until failing badly in 2006 — his fund underperformed by some 10 percent.
Miller buys mostly large cap stocks at discounts to his measured intrin- sic value, and is well known for picking fairly aggressive growth stories like Amazon, eBay, and Home Depot, all three of which did not serve him well in 2006.
David Dreman:Dreman is founder, chairman, and chief investment officer of fund family Dreman Value Management, LLC, and is a regular Forbes columnist. Dreman’s classic approach considers P/E ratios, above market dividend yields, and strong historic earnings growth.
Many picks are smaller companies like Stride Rite, Amedisys, Inc, and SPX Corporation.
George Soros: Known more for his successes as a speculator but also his philanthropy and political leanings, few know that Soros has also done quite well as a long-term, value-oriented investor. His Quantum Fund, started in 1969, has one of the best performance records during that span, with gains of some 1,500 percent from 1969 through 1994.
Today he manages Soros Fund Management, a firm that provides advice to public mutual funds and hedge funds. You can follow his picks, which include Conoco Phillips and CarMax, as well as smaller companies like Bioenvision, Inc.
To find out what stocks your favorite value guru is holding, buying, or selling, you can visit Web sites that track this sort of thing — but they come and go.
The best bet is to Google “George Soros Stock Holdings” or something similar.
Better yet, keep up with the changes by reviewing SEC 13F filings — do that search on “George Soros 13F filings” instead.