THE LONAROCK REPORT - ISSUE 20 2022
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The LonaRock Report
Volume 2 | Issue 20
May 15, 2022
“An investment in knowledge pays the best interest.” – Benjamin
Your Trusted Partner.
Franklin
Navigating the World
of Finance and
What Would Buffett Do?
Macroeconomics
A couple weeks ago, Warren Buffett’s Berkshire Hathaway hosted shareholders,
Together! analysts and the media at the company’s annual shareholder meeting.
Berkshire’s annual shareholder meeting has been called “Woodstock for
Capitalists.”
During the event, Buffett and Munger spent time discussing the markets. It is no
wonder that investors listen when Warren Buffett speaks. He has an impressive
track record with Berkshire producing 20% compounded annualized returns
between 1965 and 2020. The S&P 500 returned 10% including dividends over
the same period, according to the WSJ.
With the recent volatility in the markets, Buffett has been putting his cash (war
chest) to work. He had over $100 billion in cash at the end of the first quarter
compared to almost $150 billion in cash in 2021. What is he buying?
Source: Shutterstock.com by Rob Crandall
The LonaRock Report by Rachel Shepard, Chairman and CEO of LonaRock, LLC.The LonaRock Report 2
In the newsletter this week, we will discuss the greatest investors of all time. We
Continued will then focus on the wisdom of Warren Buffett, his portfolio and his recent
purchases. While your investing style may not align with Warren Buffett, there
are always nuggets of wisdom and investing ideas to be picked up from studying
the best. Feel free to do your own research to emulate the style of an investor or
trader that you admire!
In the newsletter this week, we will cover the following:
1.) The Best Investors of All Times
2.) Wisdom From Warren Buffett
3.) Berkshire Hathaway’s Holdings and Recent Purchases
The Best Investors of All Times
What do the most successful investors of all times have in common? They are
disciplined. They have an investment plan. They have patience. They stay
informed but they tune out the noise. They are calm in the midst of chaos. They
can admit when they are wrong and adjust accordingly. They don’t place
uninformed bets; they make educated decisions and know their risk tolerance.
Who are the best investors and what are they known for?
Warren Buffett is known as the “Oracle of Omaha.” He is a value investor that
is known for his ability to grow a relatively small amount of capital into a net
worth of over $100 billion today. We will get into more details later.
Bill Gross is known as the “Bond King.” He is best known for being the co-
founder of PIMCO and was responsible for growing it into one of the world’s
largest mutual funds focusing on fixed income investments. Ben Trosky, the
creator and manager of Pimco’s high yield bond business from the 90’s through
the early 2000’s told Barron’s that Gross was, “a good trader, a good analyst,
and a good salesman, able to distill complex ideas into something simple and
accessible,” according to Mary Childs in a 2019 article.
John Templeton was the creator of the modern mutual fund. He believed the
best value stocks were those that were neglected. He was one of the greatest
contrarian investors. According to several sources including
thecollegeinvestor.com, John purchased shares of 104 companies trading below
$1 in 1939 for a total purchase price of $10,400. Supposedly, 34 of those
companies went bankrupt. Despite 34 going bankrupt, he still sold his remaining
portfolio for $40,000. He went on to create the Templeton Growth Fund.
Jack Bogle is another mutual fund guy. He was the founder of The Vanguard
Group which offered low-cost mutual funds. He wrote the book, “The Little
Book of Common Sense Investing. He has eight rules for investors: 1.) Don’t
own too many funds 2.) Buy your fund portfolio and hold it. 3.) Select low-cost
funds 4.) Beware of star managers. 5.) Past performance should only be used to
determine risk and consistency. 6.) Consider the cost of advice 7.) Don’t rely on
past fund performance 8.) Asset size may be concerning.
The LonaRock Report by Rachel Shepard, Chairman and CEO of LonaRock, LLC.The LonaRock Report 3
Peter Lynch managed a mutual fund sponsored by Fidelity Investments. He
Continued produced an average annual return of 29% and outperformed the S&P 500 in
11 of his 13-year tenure. His assets under management grew from $20 million
to more than $14 billion according to an article by The Motley Fool.
Carl Icahn is an activist investor. He acquires a large position in public
companies to force change. He also looks to unlock shareholder value. In the
early years, he developed a reputation as a “corporate raider” known for his
facilitation of hostile takeovers.
Bill Ackman is the founder and manager of the hedge fund Pershing Square
Capital Management. Ackman gained his massive returns and reputation as an
activist investor. He purchases a large position in public companies when he
believes there is unlocked value. He is known to bring about management and
operational changes in companies. Once the company has reached targeted
value, he typically sells his holdings.
Philip Fisher was the father of growth stocks investing. He founded the firm,
Fisher & Company, back in 1931. He focused on long term growth. He
looked for growth companies with great management, high profit margins,
growth orientation and a commitment to R&D.
Although we named several great stock/bond investors, there are many more
that we did not mention. At the beginning of this section, we mentioned a few
characteristics that they all possess. It should also be mentioned that they all
stay in their lane. They pick their strategy and stick with it. They become
experts within their zone of genius. This goes for investors in other sectors
such as real estate.
Wisdom From Warren Buffett
Over the years, Warren Buffett has spoken many words of wisdom. This is an
amazing feat in itself because Buffett was fearful of public speaking for many
years. He has said many times that his single best investment was developing
himself.
He is exceptionally proud of his Diploma/Certificate from a Dale Carnegie
public-speaking course. It cost him $100 in 1951 but it has returned
incalculable value. Thanks to that course, we now have record of some of
Warren Buffett’s most famous spoken and written words. Here are a few:
“I always knew I was going to be rich.” I don’t think I ever doubted it for a
minute.”
“What we learn from history is that people don’t learn from history.”
“Speculation is most dangerous when it looks easiest.”
“I just sit in my office and read all day.”
“I insist on a lot of time being spent, almost every day, to just sit and think.”
The LonaRock Report by Rachel Shepard, Chairman and CEO of LonaRock, LLC.The LonaRock Report 4
“Never invest in a business you cannot understand.”
Continued
“Somebody once said that in looking for people to hire, you look for three
qualities: integrity, intelligence, and energy. And if you don’t have the first,
the other two will kill you. You think about it; it’s true. If you hire somebody
without integrity, you really want them to be dumb and lazy.”
“Honesty is a very expensive gift, don’t expect it from cheap people.”
“Only when the tide goes out do you discover who’s been swimming naked.”
“Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1”
“Price is what you pay; value is what you get.”
“Whether we’re talking about socks or stocks, I like buying quality
merchandise when it is marked down.”
“I’ve seen more people fail because of liquor and leverage—leverage being
borrowed money.”
“Most behavior is habitual, and they say that the chains of habit are too light to
be felt until they are too heavy to be broken.”
“Invest in as much of yourself as you can. You are your own biggest asset by
far.”
“Someone’s sitting in the shade today because someone planted a tree a long
time ago.”
“Risk comes from not knowing what you’re doing.”
“Cash, though, is to a business as oxygen is to an individual: never thought
about when it is present, the only thing in mind when it is absent.”
“Be fearful when others are greedy and greedy when others are fearful.”
“The most important thing to do if you find yourself in a hole is to stop
digging.”
“No matter how great the talent or efforts, some things just take time. You
can’t produce a baby in one month by getting nine women pregnant.”
“There comes a time when you ought to start doing what you want. Take a
job that you love. You will jump out of bed in the morning.”
“If you’re in the luckiest 1% of humanity, you owe it to the rest of humanity to
think about the other 99%.”
“Only buy something that you’d be perfectly happy to hold if the market shut
down for 10 years.”
The LonaRock Report by Rachel Shepard, Chairman and CEO of LonaRock, LLC.The LonaRock Report 5
Berkshire Hathaway’s Holdings and Recent Purchases
Continued
Back in the ‘60’s, Buffett purchase the textile business, Berkshire Hathaway.
He soon expanded into the insurance industry. From the beginning, Buffett
has used insurance float (upfront premiums) to make investment gains.
Berkshire’s holdings now include insurance, financials, utilities, railroad,
energy, service/retail operations and manufacturing. Berkshire’s biggest
holdings are Apple, Bank of America, Chevron, and American Express.
Other major Berkshire holdings include Dairy Queen, Kraft Heinz, Lubrizol,
Duracell, BNSF Railway, Coca-Cola, Benjamin Moore, Fruit of the Loom and
Geico. It also has a stake in Activision Blizzard. Buffett has acquired another
insurance giant, Alleghany Corp for $11.6 billion. It has also increased its
stake in Occidental Petroleum and disclosed an 11% stake in HP. It should be
noted that Buffett believes the oil industry is a good thing for the U.S.
Most of Berkshire’s businesses reported growth in the first quarter although
the insurance underwriting business took a hit. Warren Buffet’s company
reported a decline in net income in the first quarter due to volatility in the
markets and rising insurance claims.
Warren Buffett has been putting his cash (war chest) to work. At the end of
the first quarter, cash/liquidity was $106 billion compared to $146 billion at
the end of 2021. He stated that the recent volatility is creating opportunity. He
has purchased an insurance company, increased his stakes in oil companies,
purchased a significant share of HP and has a stake in Activision Blizzard.
Berkshire is still buying back its own shares. Although, as the holding
company has increased its investments in other companies, it has purchased
less of its own shares. Buybacks were about $3.2 billion in the first quarter
compared to $6.9 billion in the fourth quarter of 2021.
Buffett has compared the last two years in the markets as a gambling parlor.
Risky behavior can be blamed on many things including greed, the Fed, ultra-
low interest rates, the financial industry, etc.
Greed is one of the root problems resulting in the gambling nature of the stock
market. The Fed has encouraged risk taking by increasing the money supply
and keeping interest rates at record lows for too long. Investors were looking
for returns and turned to riskier assets for better returns.
Over the past two years, Buffett has been cautious as others have been greedy.
He created a significant cash pile (war chest) which he is starting to put to
work. He is always looking for a good deal and is not afraid to be greedy
when others are fearful. He has become one of the richest men in the world by
buying significant holdings during recessions and market declines. What will
he buy next? It could be any industry as long as he believes it’s a great
company offered at a great price!
The LonaRock Report is strictly an informational publication. The information does not provide individual, customized
investment or trading advice to its readers. All of the information provided above is based on publicly available data and
the author’s opinions. Readers should be aware that investment markets have inherent risks. There are no guarantees of
future profits and it should be mentioned that past performance does not secure future results.
The LonaRock Report by Rachel Shepard, Chairman and CEO of LonaRock, LLC.You can also read
