Buffett’s Personal Account

In his October 16, 2008 New York Times op-ed piece, Warren Buffett wrote the following:

I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.

In a recent CNBC interview, which I posted on November 19, 2010, Buffett said that his total tax rate would be around 16-17% of his income. He then went on to say that he would have “tens of millions” of capital gains.

From this we can surmise a few interesting things about how Buffett runs his personal portfolio.

1. Buffett is happy to be 100% in cash if he cannot find obvious bargains in the market as he was before the market turned down in 2008.

2. Buffett will scale into stocks and continue buying as they go lower. He is willing to go 100% long if the opportunity is compelling. “If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.”

3. He sells some or all of his stocks when they are no longer undervalued and have appreciated, rather than holding them indefinitely. If he had tens of millions of capital gains tax at a rate of 16 to 17%, he appears to have had capital gains in the neighborhood of $200 to $500 million. Buffett does not sell shares of Berkshire Hathaway to the best of my knowledge, so these gains appear to be from his personal account.

This is by no means an indictment of buy and hold which works well if you buy high quality franchises and do not overpay. In this case, your gains are primarily governed by the growth in intrinsic value of the business. Highly skilled investors may be able to do better – even after taxes – if they have the discipline to actively purchase obviously mis-priced securitied and sell them when they appreciate to fair value.

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7 thoughts on “Buffett’s Personal Account

  1. Tony B.

    I don’t think you can assume that his 16% total tax rate means $200 to $500 million realized capital gains. He has a 6 digit salary as an employee of Berkshire, so ordinary income over $80k has no payroll tax, lowering his overall rate, and he could have had a lot of dividend income, which is taxed at 15% and would lower the overall rate compared to someone who has most of their income in the form a salary, which was his whole point about tax inequity.

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  2. Ravi Nagarajan

    It would not surprise me if he had tens of millions in annual capital gains taxes – and that would explain how he drives his average tax rate down to 16%. I think he has opportunities to invest in much smaller companies for his own account. It would be fascinating to know what’s in that portfolio.

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    1. Hester

      Ravi,
      You can see what’s in Warren Buffett’s personal portfolio. He has about $2 billion in it. He files a 13F I think. Just do a google search or a search on SEC for Warren Buffett personal portfolio.

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  5. Girish

    Few years back Buffet made a comment that if he is managing only $1M to 10M kind of assets then he would clock 50% CAGR return on this asset base. It is now clear how he would do so. It is not investing in franchise stocks only but in also in deep value stocks like Net-Net. Remember his investments in Korean net-Net few years ago. In his personal account he is known to still follow his old Graham style investing.
    It is also important to know that in 1950s and 60s he grew his assets at rate of 30%+ by buying in mostly deep value kind of stocks in his partnership.
    Greg,
    My question is…Considering all such facts…Do you think for small individual investors the deep value investing may be more lucrative because they can buy into deep value stocks (often small or micro cap stocks) and realize the gains larger and faster. Or you think they should still stick to Buffets Berkshire kind investing in only high quality stocks and hold forever? Thought I get your views on this debate.

    Regards,
    Girish

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