(WB starting young)
I once went to a Berkshire Hathaway annual meeting. I met a guy who told me how in 1976 he bought 200 shares.
"After a year the stock had doubled so I decided to take some profits off the table. I sold 100 shares and started a restaurant and ran that for the next 30 years," he said. "Made a decent living."
"The other 100 shares I did nothing with at all. Now itās worth over $12 million."
I admit it. I was jealous. I wanted to be him.
After that I got ahold of Warren Buffettās letters. Not his Berkshire letters, which were available to the public. But his hedge fund letters, which at the time were private.
I studied each one. Then I wrote a book, āTrade Like Warren BuffettāĀ (donāt buy it) because when he was running his hedge fund in the 50s and 60s he was a much more active trader than he is now. Much more nimble.
Warren Buffett doesnāt look at P/E ratios. Heās not a value investor in the classic sense. He bets on demographic trends. The most important investing quote heās ever said is, āIf a company will be here in 20 years then it is probably a good investment now.ā This is not always true. He said, āprobablyā.
So what companies will probably be here in 20 years? I have no clue. Nor does he. But I will bet on the companies that are returning cash to shareholders.
As Mark Cuban told me the other day, āa company is only worth the money you get back from it.ā
So letās look at the companies Warren Buffett (or his team) added to this quarter, and highlight the ones that are returning money to cash holders. The ones paying dividends.
USB (US. Bancorp) - paying 2.2%. US Bancorp didnāt raise its dividend in 2009 but it raised its dividend for the 37 straight years before that and has raised its dividend since.
XOM (Exxon). With the US about to become the next Saudi Arabia, Iām always looking for the leader to buy. XOM yields 2.7% and has raised its dividend for 32 years in a row. Itās pretty likely this company will be here 20 years from now.
GSK (Glaxo SmithKline). People are getting old. Old people need medicine. GSK pays a 4.7% dividend and has raised it at least 10 years in a row.
CBI (Chicago Bridge & Iron). What an odd name for a company based in the Hague that builds power plants but the reality is: if we need more energy, which we do, we need someone to build the power plants. CBI has a yield of 0.40%.
WMT (Wal-mart) Buffett added also to his position in Wal-mart, the biggest store in the world. Iām on vacation in South Florida right now. I feel like thereās a Wal-mart every mile. WMT yields 2.5% and has raised their dividend for at least the last ten years straight.
PSX (Phillips 66) - again if you believe, as I do (and Warren Buffett does) that the US is going to be a bigger exporter of oil than Saudi Arabia than the marketing and refining of that oil is key. Buffett added to his PSX position, which has been raising dividends since 2002 and now yields over Ā 2.3%.
IRM (Iron Mountain). In the past ten years, the US has multiplied by ten the regulatory requirements of corporate America. Iām not saying this is good or bad. I donāt really care. But I do care about making money from it. IRM provides all storage management for companies: paper, digital, etc. And yeilds 3.7%. Theyāve raised dividends for at least 10 years in a row and have also been buying back shares.
(I asked a cab driver to take me by his house. Just a simple house on a corner of a suburban block).
Ok, thatās the basic idea.
My rule of thumb is to always invest behind people who are smarter than me. Warren Buffett is smarter than me.
One anecdote from the meeting. Someone asked Charlie Munger and Warren Buffett what was going to happen to the US dollar.
Munger, who barely spoke the entire meeting, said, āyou better start burying all your valuables in your back y-ā
And thatās when Buffett interrupted him with a stern, āCharlie!ā
I donāt know whatās going to happen to the US dollar. Or any of these stocks. Or my relationship with my wife. Or my relationships with my kids. One time a doctor told me we all have cancer cells, we just donāt see them all the time.
Ok, all of this is good to know. But I do think Buffett knows more about all of this than I do.
And if I filter his knowledge with the basic fact that itās good for companies to pay me cash every day, and if I filter that with demographic trends, and if I throw in an added filter that these companies have been raising their dividends for years, and on top of that I say, am I diversified, then I know that I will build an ok portfolio.
And if Warren Buffett is picking all the stocks for me for free (he is my unpaid intern after all), then Iām pretty confident that this is a good start.
Copyright Ā© James Altucher