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Warren Buffett Warns Inflation is a ‘Gigantic Corporate Tapeworm' That Consumes Investment Capital and Distorts Corporate Earnings
Warren Buffett Warns Inflation is a ‘Gigantic Corporate Tapeworm' That Consumes Investment Capital and Distorts Corporate Earnings

Yahoo

timea day ago

  • Business
  • Yahoo

Warren Buffett Warns Inflation is a ‘Gigantic Corporate Tapeworm' That Consumes Investment Capital and Distorts Corporate Earnings

Warren Buffett, the chairman and CEO of Berkshire Hathaway (BRK.B) (BRK.A), has long been known for his ability to distill complex financial realities into clear, memorable guidance for investors. In his 1981 shareholder letter, Buffett used a vivid metaphor to describe the impact of inflation on corporate America, likening it to a 'gigantic corporate tapeworm' that consumes investment capital regardless of a company's health or profitability. His analysis remains relevant for investors and business leaders navigating periods of high inflation and economic uncertainty. Buffett explained that, in an inflationary environment, businesses are forced to allocate ever-increasing amounts of capital just to maintain their existing operations. Even when a company reports profits, those earnings may be illusory if all available cash must be reinvested in receivables, inventory, and fixed assets simply to keep pace with prior-year volumes. As he phrased it, 'Whatever the level of reported profits (even if nil), more dollars for receivables, inventory and fixed assets are continuously required by the business in order to merely match the unit volume of the previous year. The less prosperous the enterprise, the greater the proportion of available sustenance claimed by the tapeworm.' More News from Barchart It's Never 'Happened in the History of Tech to Any Company Before': OpenAI's Sam Altman Says ChatGPT is Growing at an Unprecedented Rate Ditch 'Basic' Nvidia and Buy This 'Unique' Chip Stock Instead Tesla Earnings, Powell Speech and Other Can't Miss Items this Week Our exclusive Barchart Brief newsletter is your FREE midday guide to what's moving stocks, sectors, and investor sentiment - delivered right when you need the info most. Subscribe today! This perspective is rooted in Buffett's decades of experience as an investor and business owner. Having guided Berkshire Hathaway through multiple economic cycles, Buffett has consistently emphasized the importance of real, inflation-adjusted returns over nominal gains. His warning that 'a business earning 8% or 10% on equity often has no leftovers for expansion, debt reduction or 'real' dividends' highlights the risk that inflation can erode the value of reported profits, leaving little for shareholders after essential reinvestments. Buffett also cautioned investors to be wary of dividend policies that mask a company's inability to generate true surplus cash. He noted that some companies rely on dividend reinvestment plans or issue new shares to fund payouts, effectively robbing Peter to pay Paul. In his words, 'Beware of 'dividends' that can be paid out only if someone promises to replace the capital distributed.' This insight remains pertinent as companies today continue to navigate shareholder expectations for returns amid fluctuating economic conditions. The authority behind Buffett's analysis comes not only from his track record but also from his transparent communication style. His annual letters have become essential reading for investors seeking to understand both the mechanics of business and the broader economic forces at play. The 1981 letter, in particular, stands out for its candid assessment of the challenges posed by inflation and its implications for capital allocation and shareholder value. As inflationary pressures periodically resurface in global markets, Buffett's metaphor of the corporate tapeworm serves as a timeless reminder: real economic progress depends not just on reported profits, but on a business's ability to generate and retain value after accounting for the silent costs of inflation. On the date of publication, Caleb Naysmith did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data

Earnings Preview: What to Expect From Berkshire Hathaway's Report
Earnings Preview: What to Expect From Berkshire Hathaway's Report

Yahoo

timea day ago

  • Business
  • Yahoo

Earnings Preview: What to Expect From Berkshire Hathaway's Report

Berkshire Hathaway Inc. (BRK.B), headquartered in Omaha, Nebraska, is a holding company that owns subsidiaries in various business sectors, including insurance, freight, rail, transportation, and utilities. With a market cap of $1 trillion, Berkshire's other operations include a railway company, a specialty chemical company, and an international association of diversified businesses. The company is expected to announce its fiscal second-quarter earnings for 2025 on Friday, Aug. 1. Ahead of the event, analysts expect BRK.B to report a profit of $5.24 per share on a diluted basis, down 2.6% from $5.38 per share in the year-ago quarter. The company beat the consensus estimates in two of the last four quarters while missing the forecast on two other occasions. More News from Barchart It's Never 'Happened in the History of Tech to Any Company Before': OpenAI's Sam Altman Says ChatGPT is Growing at an Unprecedented Rate Ditch 'Basic' Nvidia and Buy This 'Unique' Chip Stock Instead Tesla Earnings, Powell Speech and Other Can't Miss Items this Week Tired of missing midday reversals? The FREE Barchart Brief newsletter keeps you in the know. Sign up now! For the full year, analysts expect BRK.B to report EPS of $20.53, down 6.7% from $22 in fiscal 2024. Its EPS is expected to rise 5% year-over-year to $21.56 in fiscal 2026. BRK.B stock has underperformed the S&P 500 Index's ($SPX) 13.6% gains over the past 52 weeks, with shares up 7.2% during this period. Similarly, it underperformed the Financial Select Sector SPDR Fund's (XLF) 21.4% gains over the same time frame. BRK.B's underperformance can be attributed to its Utilities and Energy segment, which, despite being supported by Burlington Northern Santa Fe (BNSF), still faces challenges, including an unfavorable business mix and declining fuel surcharge revenue. On May 3, BRK.B reported its Q1 results, and its shares closed down more than 5% in the following trading session. Its EPS declined 63.8% year over year to $2.13. The company's insurance investment income totaled $2.9 billion, representing an 11.4% year-over-year increase. Analysts' consensus opinion on BRK.B stock is reasonably bullish, with a 'Moderate Buy' rating overall. Out of six analysts covering the stock, two advise a 'Strong Buy' rating, and four give a 'Hold.' BRK.B's average analyst price target is $537.75, indicating a potential upside of 13.5% from the current levels. On the date of publication, Neha Panjwani did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data

Warren Buffett Says a Successful Leader Should Have an ‘Animal Spirit' and ‘Relish Increased Activity and Challenge'
Warren Buffett Says a Successful Leader Should Have an ‘Animal Spirit' and ‘Relish Increased Activity and Challenge'

Yahoo

time4 days ago

  • Business
  • Yahoo

Warren Buffett Says a Successful Leader Should Have an ‘Animal Spirit' and ‘Relish Increased Activity and Challenge'

Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK.B) (BRK.A), is renowned for his candid assessments of corporate behavior and capital allocation. In his 1981 shareholder letter, Buffett offered a revealing observation about the motivations that often drive high-premium corporate takeovers: 'Leaders, business or otherwise, seldom are deficient in animal spirits and often relish increased activity and challenge. At Berkshire, the corporate pulse never beats faster than when an acquisition is in prospect.' This statement reflects Buffett's nuanced understanding of executive psychology and the acquisition landscape. Throughout his career, Buffett has witnessed firsthand how the excitement and challenge of deal-making can influence business leaders. The phrase 'animal spirits' captures the innate drive for action and risk-taking that often characterizes those at the helm of large organizations, and Buffett's admission that anticipation tends to surge during acquisition talks at Berkshire Hathaway highlights the universal nature of this phenomenon — even among the most disciplined of companies. More News from Barchart Insider Trading Alert: Here's Who Bought Nvidia and AMD Stock Before the U.S. Chip Deal with China Dear Tesla Stock Fans, Mark Your Calendars for July 23 Robinhood Keeps Hitting New Highs. How Should You Play HOOD Stock Here? Markets move fast. Keep up by reading our FREE midday Barchart Brief newsletter for exclusive charts, analysis, and headlines. Buffett's perspective is grounded in decades of experience overseeing both outright acquisitions and significant minority investments. Under his leadership, Berkshire Hathaway has grown from a struggling textile manufacturer into a global conglomerate, largely through a series of carefully considered acquisitions. Nevertheless, Buffett has always cautioned against letting enthusiasm override rational analysis. He emphasizes that the primary goal of any acquisition should be to maximize real economic benefits for shareholders, not to expand managerial influence or simply to chase growth for its own sake. In the same 1981 shareholder letter, Buffett also discussed the pitfalls of empire-building, where leaders pursue deals to increase their personal domain rather than to create lasting value. He contrasts Berkshire's approach - which prioritizes substance over appearances, and focuses on long-term shareholder wealth - with the more common corporate impulse to seek activity and expansion regardless of the underlying economics. This philosophy has guided Berkshire's acquisition strategy for decades, resulting in a portfolio of high-quality businesses largely acquired at sensible prices. Buffett's insights remain highly relevant in today's business environment, where mergers and acquisitions continue to play a central role in corporate strategy. The temptation for executives to pursue deals for the excitement or challenge, rather than for sound economic reasons, persists. Buffett's emphasis on disciplined decision-making and clear-eyed assessment of value should serve as a model for investors and managers alike. By acknowledging the powerful role of leadership ambition while advocating for prudent capital allocation, Buffett provides a timeless lesson: successful acquisitions demand both the energy to pursue opportunity, and the restraint to ensure those opportunities truly benefit shareholders. His 1981 shareholder letter stands as a reminder that the best business decisions balance ambition with discipline, aligning leadership's drive with the long-term interests of owners. On the date of publication, Caleb Naysmith did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data

Better Growth Stock: Markel vs. Berkshire Hathaway
Better Growth Stock: Markel vs. Berkshire Hathaway

Yahoo

time30-06-2025

  • Business
  • Yahoo

Better Growth Stock: Markel vs. Berkshire Hathaway

Berkshire Hathaway has an incredible history of performance behind it. Relatively small Markel's business model is fashioned after Berkshire Hathaway's approach. Berkshire Hathaway is so large that future growth could be harder to achieve. 10 stocks we like better than Berkshire Hathaway › Warren Buffett and Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), the company he runs, hold a special place in Wall Street history because of the incredible returns provided to investors. But change is in the air now that Buffett is set to retire. And after a long stretch of strong performance, Berkshire Hathaway is now a very large business. Growth investors thinking about buying the stock might want to consider Markel (NYSE: MKL) instead. Here's why. The Berkshire Hathaway that most people know actually began as a failed investment. Warren Buffett bought into the company in 1962 and took it over in 1965 with the idea of turning the one-time shirt maker around. That didn't work. However, the Oracle of Omaha took that lemon and made fine wine out of it, because he used the Berkshire Hathaway shell to create one of the strongest performing conglomerates on Wall Street. The chart above shows why investors follow Buffett and his investment team's moves so closely. Berkshire Hathaway's returns over time have literally trounced those of the S&P 500 (SNPINDEX: ^GSPC). One interesting feature here is that Berkshire Hathaway doesn't pay a dividend, so it is a pure growth investment. And still, the S&P 500, which includes many stocks that do pay dividends, can't seem to compete. The big story around Berkshire Hathaway right now, however, isn't about performance. It is the news that Buffett is retiring as CEO at the end of the year. While he has likely trained his replacement, Greg Abel, in his investment approach, there is no telling if anyone can really fill Buffett's shoes. Complicating this is the not-so-subtle fact that Berkshire Hathaway is a gargantuan company with a $1 trillion market cap and a sprawling collection of businesses under its corporate umbrella. Buffett himself has warned that growth will be harder to achieve in the future. Markel isn't shy about the fact that it is attempting to imitate Buffett and Berkshire Hathaway. Like Berkshire, Markel owns an insurance company, a portfolio of owned businesses, and a collection of publicly traded stocks. That said, Markel is much, much smaller, with a market cap of "just" $25 billion. Like Berkshire it does not pay a dividend, so the story is all about growth. Markel hasn't performed nearly as well as Berkshire Hathaway of late. But that has resulted in a management shakeup at Markel that the company hopes will lead to improved performance. Given the size differences, it will probably be easier to return Markel to growth than it will be to simply keep growth going at giant Berkshire Hathaway. And this is where a longer-term performance graph comes into play. Markel has actually outperformed Berkshire Hathaway over the long term. To be fair, the share price pullback at Berkshire Hathaway following the announcement of Buffett's retirement has helped on that front. But the real takeaway is that Markel is a fast-growing company that has, like Berkshire, handily bested the S&P 500 index. If you are a fan of Berkshire Hathaway and Warren Buffett, you should consider doing a deep dive into Markel. Don't get too caught up on Markel's recent laggard performance, even good companies go through difficult periods. Given the changes taking place at Berkshire and the size of the company, growth investors may be better off with Markel and its blatant copycat approach. Before you buy stock in Berkshire Hathaway, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Berkshire Hathaway wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $713,547!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $966,931!* Now, it's worth noting Stock Advisor's total average return is 1,062% — a market-crushing outperformance compared to 177% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 23, 2025 Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Markel Group. The Motley Fool has a disclosure policy. Better Growth Stock: Markel vs. Berkshire Hathaway was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data

Warren Buffett Has Put Almost $78 Billion to Work in His Favorite Stock Over 7 Years, and It Recently Fell 10% -- Is the Oracle of Omaha a Buyer?
Warren Buffett Has Put Almost $78 Billion to Work in His Favorite Stock Over 7 Years, and It Recently Fell 10% -- Is the Oracle of Omaha a Buyer?

Yahoo

time27-06-2025

  • Business
  • Yahoo

Warren Buffett Has Put Almost $78 Billion to Work in His Favorite Stock Over 7 Years, and It Recently Fell 10% -- Is the Oracle of Omaha a Buyer?

Warren Buffett's track record -- a greater than 6,000,000% return in Berkshire Hathaway's Class A (BRK.A) shares since the mid-1960s -- has made him a popular follow on Wall Street. Though Buffett has been a net seller of stocks for 10 consecutive quarters, he's purchased his favorite stock with some degree of regularity since the midpoint of 2018. A 10% correction in Buffett's top stock may not be enough to entice him to purchase more. 10 stocks we like better than Berkshire Hathaway › Wall Street is full of successful money managers -- but few if any can command the attention of professional and everyday investors quite like Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett. The Oracle of Omaha's track record does the talking and explains why investors wait on the edge of their seats each quarter for the release of Berkshire's Form 13F, which allows investors to see which stocks he's been buying and selling. In the six decades Buffett has held the reins as CEO, Berkshire's Class A shares (BRK.A) have climbed by more than 6,000,000%! Comparatively, the benchmark S&P 500 has roared higher by around 41,000%, with the aid of dividends, since the mid-1960s. Though mirroring Buffett's trading activity has been a seemingly surefire investment strategy for decades, you might be shocked to learn that Berkshire Hathaway's 13F doesn't tell the complete story regarding which stocks the Oracle of Omaha has been buying. With Buffett's undisputed favorite stock to buy over the last seven years declining by 10% from its recent all-time high, the question has to be asked: Is Berkshire Hathaway's billionaire chief a buyer, once more? While quarterly filed Form 13Fs help lay out the specifics of the stocks Buffett has been buying and selling, Berkshire Hathaway's quarterly cash flow statements have been even more telling. For instance, the company's March-ended quarter shows that $3.183 billion in equity securities were purchased and $4.677 billion in equity securities were sold. Some simple subtraction yields net selling during the first quarter of $1.494 billion. This has been a common theme for Berkshire Hathaway, with the Oracle of Omaha being a net seller of stocks in each of the last 10 quarters (since Oct. 1, 2022). The cumulative total of this net-selling activity equates to $174.4 billion, through March 31, 2025. Despite selling far more than he's been buying, Buffett and his top advisors have added to or opened select positions during this 30-month stretch. For example, shares of Domino's Pizza (NASDAQ: DPZ) have been bought by Berkshire Hathaway for three consecutive quarters. Buffett tends to be a big fan of businesses that can earn the trust of consumers. Domino's mea culpa advertising campaign in the late 2000s, coupled with its transparent marketing in the wake of this campaign, helped the company hang onto existing customers while still appealing to new people. Domino's Pizza also has a knack for delivering on its five-year growth plans. The latest of these plans, which was introduced in late 2023 and dubbed "Hungry for MORE," relies on technology to improve output and make the company's supply chain more efficient. Further, franchisees play a key role in Hungry for MORE by continuing to build up the Domino's brand domestically and in overseas markets, where the company is working on more than three decades of annual same-store sales growth. But Domino's Pizza isn't the stock Warren Buffett has spent nearly $78 billion of his company's capital purchasing since July 2018. For that matter, it's not Berkshire's largest holdings -- Apple, American Express, Bank of America, or Coca-Cola -- either. For a detailed breakdown of the Oracle of Omaha's buying activity of his undisputed favorite stock, you'll need dig into Berkshire's quarterly operating results. On the page immediately preceding the executive certifications, you'll find to-the-dollar details of how much Buffett has spent buying the stock he holds nearest and dearest to his heart... Berkshire Hathaway. Prior to mid-July 2018, repurchasing shares of Berkshire Hathaway stock could only be undertaken if shares fell to or below 120% of book value (i.e., no more than a 20% premium to listed book value, as of the most recent quarter). Since Berkshire's stock never fell to or below this threshold, not a dime of the company's capital was put toward buybacks. On July 17, 2018, Berkshire's board amended its share-repurchase program to allow Buffett and then-right-hand man Charlie Munger the liberty to deploy their company's cash for buybacks as they saw fit. As long as Berkshire has at least $30 billion in combined cash, cash equivalents, and U.S. Treasuries on its balance sheet, buybacks can be made with no end date or ceiling. From July 17, 2018, to June 30, 2024, Warren Buffett spent close to $78 billion repurchasing his company's stock. This absolutely dwarfs the amount he's spent buying any other individual stock over this timeline. But between May 2 and June 17, Berkshire's Class A (BRK.A) shares entered correction territory by declining 10.4% from their all-time high. Is this dip enough to entice Buffett, who's sitting on a record treasure chest of $347.7 billion in cash, cash equivalents, and U.S. Treasuries, to buy even more of his favorite stock? Interestingly enough, the answer is likely "no." If there's one unwritten rule the Oracle of Omaha finds unbendable, it's the idea of getting a good deal. Regardless of how dominant or well-positioned a company may be, he won't chase after a stock that isn't trading at what he perceives to be a fair price. This includes shares of his own company. Over the previous three quarters (July 1, 2024 to March 31, 2025), Buffett has gone cold turkey and not repurchased a single share of his company's stock. This broke a streak of having bought back shares for 24 consecutive quarters. Berkshire Hathaway's price-to-book value tells the tale of why the company's biggest cheerleader is no longer buying back shares. Between July 2018 and June 2024, Berkshire's stock consistently hovered around a 30% to 50% premium to book value. Over the prior three quarters, this premium has been vacillating between 60% and 80%, which is too rich for Buffett. Even accounting for Berkshire Hathaway's recent 10% correction, its price-to-book hasn't dipped below a 60% premium. Unless shares get closer to a premium of 50%, it's unlikely Buffett will deploy any of his company's record-breaking capital for buybacks. Before you buy stock in Berkshire Hathaway, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Berkshire Hathaway wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $687,731!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $945,846!* Now, it's worth noting Stock Advisor's total average return is 818% — a market-crushing outperformance compared to 175% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 23, 2025 Bank of America is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, and Domino's Pizza. The Motley Fool has a disclosure policy. Warren Buffett Has Put Almost $78 Billion to Work in His Favorite Stock Over 7 Years, and It Recently Fell 10% -- Is the Oracle of Omaha a Buyer? was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data

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