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Buffet's Second-Class Buffet
Barron's Online ^ | 27 December 2004 | GARY C. BYRNE and SILAS E. BYRNE

Posted on 12/25/2004 7:17:26 PM PST by shrinkermd

MICHAEL EISNER OF WALT DISNEY may be the most reviled and Warren Buffett of Berkshire Hathaway the most admired CEOs in American business this year. But whose company produces better returns on shareholder equity? Last spring, Eisner was removed as Disney's chairman of the board when more than 40% of shareholders voted against his re-election to the board. Meanwhile, shareholders re-elected Buffett to Berkshire Hathaway's board of directors as the financial press reported details of his comments to an audience convinced of his financial wizardry and panoramic vision for the future. But whose company has been producing better returns on shareholder equity?

Disney's average return on shareholder equity has been 50% higher than Berkshire's since 1997. ROE takes on special significance in this comparison when it is noted that Berkshire Hathaway has never paid a stockholder dividend. A company that doesn't pay a dividend needs to grow at a faster rate than a dividend-payer to maintain its value to investors. Since 1997, Berkshire Hathaway has produced an average return on shareholder equity 25% lower than the yield on AAA corporate bonds.

(Excerpt) Read more at online.barrons.com ...


TOPICS: Business/Economy; Culture/Society; Government
KEYWORDS: beat; buffet; disney; eisner; generalelectric
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To: Betaille
"First of all, GE has about 3 times the market capitalization of Berkshire Hathaway so what you said is blatantly untrue. Secondly, the author of this article totally ignores the fact that Berkshire Hathaway is for the most part an Insurance company, and that business always gets less ROE, its just the way the business is structured. Buffett is idolized not because he is rich, but because of his modesty, honesty, and his beleif that if you are right, and you stick to your guns, you will come out ahead in the end. I probably should have used "shareholder equity" rather than "capitalization." In any case, the only thing I know is what is written in Barron's which is:

"GE and Berkshire Hathaway have nearly equal shareholder equity levels, approximately $80 billion each, as of the end of 2003. But while Berkshire showed a profit of $8 billion for 2003, GE's profit for the same period was a whopping $15.5 billion, nearly double Berkshire's. During the past seven years, aGE has produced an average ROE of 23.9%, dwarfing Berkshire's 5.4%. In addition, GE pays a dividend of between 40% and 50% of the company's profits. Payment of a dividend has the effect of slowing GE's increase in book value, yet GE's book value per share has still grown nearly 20% faster than Berkshire's over the past seven year.

It surely seems GE is a better managed company than Berkshire.

21 posted on 12/26/2004 5:59:43 AM PST by shrinkermd
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To: shrinkermd

GE gets a high return on equity because they are absolutely swimming in debt. Anybody can increase their return on equity by taking on more debt than they have market cap(as GE has done). However, the part about dividends makes a good point. If Buffett isn't producing with the equity that he's reinvesting, he should distribute it to us as a dividend. He has said he would do so when the time came that he could no longer get a higher return than Berkshires individual shareholders could. Unless he has something really big up his sleeve, I think that time has come.


22 posted on 12/26/2004 8:19:29 AM PST by Betaille (Harry Potter is a Right-Winger)
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To: shrinkermd

What company in the US has been better managed than GE ?

Buffet has done very well by his shareholders. Maybe not the best, but very well.


23 posted on 12/26/2004 8:21:45 AM PST by staytrue
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To: RinaseaofDs
I've won the ovary lottery

I think this is a true statement. First, if you want to have the greatest chance to be financially successful in the last 100 years, you should be born in the US, white is better than black, hispanic or asian, and male is better than woman.

Winning the ovary lottery is not all that is required for success, but tell me where the above statement is wrong.

24 posted on 12/26/2004 8:25:52 AM PST by staytrue
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To: shrinkermd

I'm with you. Buffet's best days passed long ago. He has more cash than Gates, but Bill keeps finding new markets... not so anti-republican Buffet.


25 posted on 12/26/2004 6:39:47 PM PST by q_an_a
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To: staytrue

It's wrong because it precludes character from the discussion.

This is what MLK was trying to say.

It's why no great boxer ever came from a middle-class household. It's why overcoming adversity is such a common thread in the success stories of so many Americans.

Buffet would have you believe that its luck, and the field must be leveled for the unlucky. It's why Condoleeza Rice will always be the first black and female National Security Advisor and first female Secretary of State, instead of simply being the best qualified person who had the confidence of the President at the time.

George Washington Carver will always be a great black inventor, instead of a simply a great inventor.

Character is the gene of success, not skin color or race.

The reason why so many young doctors have Indian or Asian names is because their parents emphasize character above socialization.

If you don't have a wolf at your door, then get one.


26 posted on 12/26/2004 11:19:42 PM PST by RinaseaofDs (The problem with socialism is that eventually you run out of other people's money.)
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To: q_an_a
"I'm with you. Buffet's best days passed long ago. He has more cash than Gates, but Bill keeps finding new markets... not so anti-republican Buffet

Buffet's company is based on insurance company earnings. One of their best, and most profitable, lines is selling huge policies to pay inheritance taxes. Imagine if President Bush is successful in killing the "death tax" what will happen to the insurance industry. IMHO, if he does not die soon and changes in our tax structure come to fruition he will have to accept being kicked upstairs, pay a dividend and do something besides currency trading to protect his assets.

27 posted on 12/27/2004 1:55:01 PM PST by shrinkermd
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To: shrinkermd

Buffet will pay a dividend when snowballs are thrown by lifes ultimate losers in a place to hot to handle. What once seemed so good has turned into a sewer. Ask the Magic Chef people if they are glad Buffet bought them out.


28 posted on 12/28/2004 2:50:45 PM PST by q_an_a
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