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Yahoo
2 days 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
Yahoo
4 days ago
- Business
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Warren Buffett Used These 4 Simple Rules to Acquire 76 Businesses Worth Over $173 Billion
Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK.B) (BRK.A) has long been celebrated for his clear and methodical approach to investing. In his 1977 shareholder letter, Buffett articulated the four key qualities he seeks in any business: 'We want the business to be (1) one that we can understand, (2) with favorable long-term prospects, (3) operated by honest and competent people, and (4) available at a very attractive price.' This simple yet rigorous framework has become a touchstone for investors worldwide, and remains highly relevant in today's dynamic markets. Buffett's insistence on understanding a business stems from his belief that clarity is essential for sound decision-making. He has often avoided industries or companies that are too complex or outside his circle of competence, preferring instead to focus on sectors where he can confidently assess risks and opportunities. This principle has helped Berkshire Hathaway avoid many speculative bubbles and costly missteps that have ensnared others. More News from Barchart Is Palantir Stock a Buy Above $150? Coinbase Stock Just Hit a New 52-Week High. How Much Higher Can Crypto Week Take COIN? This Bullish Catalyst for Nvidia Stock Is Coming in September Stop Missing Market Moves: Get the FREE Barchart Brief – your midday dose of stock movers, trending sectors, and actionable trade ideas, delivered right to your inbox. Sign Up Now! The second criterion, favorable long-term prospects, reflects Buffett's preference for businesses with durable competitive advantages — what he and his late, longtime business partner Charlie Munger called 'economic moats.' These are companies with strong brands, loyal customers, and high barriers to entry, enabling them to generate consistent profits over time. By focusing on long-term sustainability rather than short-term gains, Buffett has built a portfolio that can weather market volatility and changing economic cycles. Buffett's third requirement — honest and competent management — shows his respect for integrity and skill in leadership. He has repeatedly credited the success of Berkshire Hathaway's investments to the quality of the people running its subsidiaries. Buffett's willingness to invest in companies where he is not directly involved in daily operations is rooted in his confidence in the character and capability of their management teams. Finally, the demand for an attractive price is a hallmark of Buffett's value investing philosophy. He seeks to buy shares when they are undervalued relative to their intrinsic worth, providing a margin of safety against unforeseen risks. This discipline has allowed Berkshire Hathaway to achieve strong returns over decades, even as market conditions shift. $173 Billion in Acquisitions This philosophy has helped Buffett acquire an unreal number of businesses over the years. Berkshire Hathaway has completed over 72 major acquisitions and several more minor acquisitions over the years. With Buffett at the helm, Berkshire has expended over $173 billion in capital acquiring these businesses, ultimately creating over a trillion dollars in value for shareholders. While not all of Buffett's acquisitions have been successful, very few other investors even come close to his track record. While few investors will ever acquire a business outright, many will invest in businesses via the stock market, and can use this methodology when looking to acquire companies in their equity portfolios. Buffett's 1977 letter and its guiding principles continue to influence investors, fund managers, and corporate leaders. As markets evolve with new technologies and global challenges, his focus on simplicity, quality, and value remains a steady compass. The enduring relevance of these criteria is evident in the continued success of Berkshire Hathaway and the widespread adoption of Buffett's methods by investors seeking long-term, sustainable growth. In an era where complexity and speculation often dominate investing headlines, Buffett's timeless approach serves as a reminder that the fundamentals—integrity, prospects, and price—are as important now as they were nearly half a century ago. 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
Yahoo
4 days ago
- Business
- Yahoo
58% of Warren Buffett's $292 Billion Portfolio Is Being Wagered on 4 Unstoppable Stocks
Key Points Warren Buffett's track record -- a nearly 5,800,000% cumulative return in Berkshire Hathaway's Class A shares (BRK.A) since the mid-1960s -- has led to investors riding his coattails. One of the prime characteristics of Buffett's investment philosophy is portfolio concentration. Buffett has almost $169 billion invested in four brand-name companies with easily identifiable competitive advantages and hearty capital-return programs. 10 stocks we like better than Apple › There isn't a money manager on Wall Street who commands more attention than Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett -- and there's a good reason why. Since ascending to the CEO chair 60 years ago, the aptly dubbed "Oracle of Omaha" has overseen a cumulative return in his company's Class A shares (BRK.A) that's approaching 5,800,000%, as of the closing bell on July 14. This is nearly 140 times greater than the return of the benchmark S&P 500 over six decades, including dividends. Given Buffett's unwavering desire to secure a good deal and his love of businesses with sustainable competitive advantages, some investors choose to ride his coattails to long-term success. Although Buffett, who's set to retire from the CEO role at years' end, and his top advisors are overseeing more than three dozen stocks in Berkshire's $292 billion investment portfolio, this portfolio is quite top-heavy. This is to say that Buffett has concentrated a significant portion of his company's invested assets -- 58%, or almost $169 billion -- in just four unstoppable stocks. Apple: $62.6 billion (21.5% of invested assets) Although Apple (NASDAQ: AAPL) has been Warren Buffett's top investment holding at Berkshire Hathaway for years, the gap between it and Berkshire's second-largest holding by market value has shrunk considerably. This likely has to do with Berkshire's billionaire chief selling 67% of his company's stake in Apple (more than 615 million shares) since Sept. 30, 2023. Don't get me wrong -- Warren Buffett still appreciates Apple for a variety of reasons I'll touch on momentarily. But with the peak marginal corporate income tax rate affixed at its lowest level since 1939, Buffett viewed locking in some of his company's substantial gains as a smart strategic move. While Buffett can't explain how Apple iPhones work, he does have a good bead on consumer behavior. Apple has a rich history of building trust with the purchasers of its products, and consumers have tended to be particularly loyal to the Apple brand. Since a 5G-capable version of the iPhone was introduced during the fourth quarter of 2020, it's had little trouble maintaining a majority of U.S. smartphone market share. Berkshire's chief has also heaped praise on Apple CEO Tim Cook for his leadership. Though net sales of physical devices have been relatively stagnant in recent years, Cook is overseeing steady growth in Apple's subscription services. This segment should enhance customer loyalty and bolster the company's margins over time. However, Apple's not-so-secret weapon is its world-leading capital-return program. Since initiating a buyback program in 2013, it's spent $775 billion to repurchase more than 43% of its outstanding shares. Buying back stock has had a decisively positive impact on its earnings per share and made its stock more attractive to value-seeking investors. American Express: $48.7 billion (16.7% of invested assets) Billionaire Warren Buffett's No. 2 holding is credit-services provider American Express (NYSE: AXP). Though Berkshire Hathaway hasn't purchased shares of "AmEx" (as American Express is commonly known) in quite some time, a 130% increase in AmEx's stock over the trailing-three-year period is giving Apple a run for its money. The reason American Express has made for such a rock-solid long-term investment -- it's been a continuous holding for Buffett's company since 1991 -- is its ability to benefit from both side of the transaction aisle. On one hand, it's America's third-largest payment processor by credit card network purchase volume. Facilitating transactions generates AmEx fee revenue from merchants. The key for American Express is that it also acts as a lender to businesses and consumers via its credit cards. This allows AmEx to reap the benefits of annual fees and/or interest income. Though being a lender does expose the company to potential credit delinquencies and loan losses during recessions, the U.S. economy spends a disproportionate amount of time expanding. Further, AmEx has a knack for attracting high-earning clientele. High-earning cardholders are less likely than low- and middle-income individuals to alter their spending habits or fail to pay their bills during economic hiccups. There's a reason American Express is one of eight stocks Warren Buffett considers "indefinite" holdings. Bank of America: $29.7 billion (10.2% of invested assets) In similar fashion to Apple, Berkshire Hathaway's billionaire investor has been notably paring down his company's stake in Bank of America (NYSE: BAC). Since July 17, 2024 -- we know this specific date thanks to required Form 4 filings with the Securities and Exchange Commission -- Buffett has green-lit the sale of more than 401 million shares of BofA stock. Nevertheless, it's still Berkshire's third-largest holding by market value. Buffett's selling activity in Bank of America likely boils down to a mix of profit-taking with an advantageous peak marginal corporate income tax rate, and the expectation that interest rates will further decline with the Federal Reserve in a rate-easing cycle. Among money-center banks, BofA is the most sensitive to changes in interest rates. When the nation's central bank boosted the federal funds rate by 525 basis points from March 2022 to July 2023, no large bank benefited more, in terms of interest income, than Bank of America. But when interest rates decline, it might feel more pain than its peers. Berkshire Hathaway's investment lead also tends to pack his company's $292 billion portfolio with companies that can take advantage of the nonlinearity of economic cycles. As alluded earlier, the U.S. economy spends much more time in the sun than under the proverbial clouds. Whereas the average U.S. recession has resolved in 10 months since the end of World War II, the typical economic expansion sticks around for roughly five years. Lengthy periods of expansion have allowed BofA to prudently expand its loan portfolio over time. Coca-Cola: $27.8 billion (9.5% of invested assets) Lastly, the Oracle of Omaha has close to $28 billion invested in consumer staples giant Coca-Cola (NYSE: KO). Like AmEx, Coca-Cola is a longtime holding of Berkshire Hathaway (since 1988) that Buffett considers something of a "forever" stock. The foundational talking point of Coca-Cola's operating model is that it sells a basic need good: beverages. No matter how well or poorly the stock market or U.S. economy are performing, consumers need food and beverages. This means Coca-Cola's operating cash flow tends to be highly predictable in virtually any economic climate. Another sustainable edge for this company has been its geographic diversity. With the exception of North Korea, Cuba, and Russia (the latter has to do with its invasion of Ukraine in 2022), Coca-Cola has ongoing operations in every other country. This provides consistent cash flow in developed markets, and organic sales growth potential in faster-growing emerging markets. The Coca-Cola investment story is a reflection of its ability to connect with consumers. It's been able to rely on more than a century of history to engage with mature audiences, and has leaned into artificial intelligence (AI) as a means of tailoring its advertising for younger audiences. Few companies have more consistently crossed generational gaps with such ease. The icing on the cake for Warren Buffett is the delectable yield Berkshire is netting annually from its Coca-Cola position. With a minuscule cost basis in Coca-Cola of $3.2475 per share, Berkshire Hathaway is securing a nearly 63% annual yield on cost. There's no reason for Buffett or his team to ever sell this stake in Coca-Cola. Should you invest $1,000 in Apple right now? Before you buy stock in Apple, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Apple 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 $674,281!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,050,415!* Now, it's worth noting Stock Advisor's total average return is 1,058% — a market-crushing outperformance compared to 179% for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of July 15, 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, and Berkshire Hathaway. The Motley Fool has a disclosure policy. 58% of Warren Buffett's $292 Billion Portfolio Is Being Wagered on 4 Unstoppable Stocks was originally published by The Motley Fool
Yahoo
4 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
Yahoo
4 days ago
- Business
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Warren Buffett's Berkshire Hathaway Earns $93,150 Every Hour from Coca-Cola Dividends Alone
Warren Buffett, the legendary investor who currently serves as chairman and CEO of Berkshire Hathaway (BRK.B) (BRK.A), has built a fortune on bold, long-term bets. Among his most iconic and profitable investments is his decades-long ownership of Coca-Cola (KO) stock. The quarterly dividend checks flowing from this one holding have become the stuff of financial legend. But just how much does Buffett's Berkshire Hathaway make from Coca-Cola dividends every single hour? The Numbers: Over $93,000 Every Hour Currently, Berkshire Hathaway owns 400 million shares of The Coca-Cola Company. According to their latest numbers, Coca-Cola is paying an annual dividend of $2.04 per share, paid out on a quarterly basis. That means Coca-Cola sends Berkshire roughly $816 million every year in dividends — without Buffett having to lift a finger. 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? Tired of missing midday reversals? The FREE Barchart Brief newsletter keeps you in the know. Sign up now! Breaking it down even further: Per Year: $816,000,000 Per Day: $2,235,616 Per Hour: $93,150 This staggering sum means Warren Buffett's Berkshire Hathaway earns more every hour in dividends from just one stock investment than the majority of Americans earn every year. The Backstory: Buffett's Coca-Cola Stock Acquisition Buffett's love affair with Coca-Cola began in 1988. Reeling in the aftermath of the 1987 market crash, Buffett identified the company as a classic value opportunity — a dominant brand with global reach, steady profits, and the ability to weather economic storms. Between 1988 and 1994, Berkshire Hathaway steadily accumulated approximately 400 million shares at a total cost of about $1.3 billion, a position that amounted to over 7% of Coca-Cola's outstanding stock at the time. Berkshire has never sold a single share. That $1.3 billion investment is worth tens of billions today, not to mention the cash earned through decades of rising dividends. Why Buffett Loves Coca-Cola Buffett's rationale for buying — and holding — Coca-Cola stock reads like an investing masterclass: Durable Brand 'Moat': Coca-Cola's global presence and brand loyalty make it nearly impossible to displace. Buffett once quipped: 'If you gave me $100 billion and said 'take away the soft drink leadership of Coca-Cola in the world,' I'd give it back to you and say it can't be done.' Consistent Profits & Dividends: Coca-Cola has increased its annual dividend for over 60 consecutive years, making it a 'dividend king.' This perpetual stream of growing income is precisely the kind of reliable return Buffett covets. Simplicity and Predictability: Buffett favors businesses he can easily understand, with products that are universally in demand regardless of economic cycles. Shareholder Friendly Management: When Buffett invested, Coca-Cola's leadership was focused on profitability, share buybacks, and steady dividend increases — a combination that signaled alignment with long-term investors. A Model for Patient Wealth Creation Berkshire Hathaway's Coke stake has been a symbol of Buffett's investment philosophy: buy outstanding businesses at fair prices, then let time and compounding work their magic. Through market booms, busts, and the ever-evolving business landscape, Coca-Cola's checks have rolled in, providing a living example of the power of holding great companies for decades. What started as a $1.3 billion bet is now one of the most effective dividend cash machines in history. As of 2025, Warren Buffett is earning more than $93,000 every single hour from Coca-Cola alone — a testament to discipline, patience, and the timeless allure of a cold Coke. 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
