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He’s clearly trying to expand internationally. And then also, investing in industries like railroads. The largest investment, by far, he has ever made was buying Burlington Northern, a company where he said, I think at the annual meeting, “We thought railroads were a terrible business
, and it really was a terrible industry for 50 years. But the structure of the industry changed. And it became a much better business.” So he changed his mind set. And then just last week, when he disclosed the second largest investment he’s ever made.Forbes: IBM.
Tilson: IBM. Sort of going into the tech sector for the first time. We view IBM as much less risky than a typical technology company. He’s looking for things that he can buy and hold for decades. I think if you were to pick one tech company that you can say, with a fair degree of certainty, is going to be there earning significantly more money ten years from now than it is today, IBM would probably be near the top of that list. It’s really a surprisingly good business.
So it’s not as big a stretch as you might think. But still, for an 81-year-old guy who’s never invested in a tech company his entire life to write a $10.7 billion check to buy IBM, I think he’ll have the last laugh on that one. So I’m not criticizing him for it.
Forbes: So you feel he still has it, very much so?
Tilson: Very much so. Also, the thing I’d mention is that for the first time in 50 years he’s announced a share re-purchase program for Berkshire Hathaway. We think that makes a lot of sense, as well. Berkshire has become a much larger company. It’s one of the largest companies in the world right now. There are almost as many employees in Berkshire Hathaway as there are in GE, just to give you a perspective of size.
So he’s got to have a different playbook when you’re managing that much money. He has $64 billion of cash sitting there, earning basically zero. When I say cash, I mean the short term bond portfolio he has as well. And so buying back stock, putting money into defense of big-caps – I would put Burlington Northern in that category, IBM – it’s not the kind of thing that’s going to double his money soon. It’s not the kind of thing he really likes do to, like in 2008 when he was putting money to work into a distressed market.
But Berkshire, I think, is going to grind out decent returns for many years. And it’s a good stalwart to sort of be the foundation of a portfolio. We think it’s 35% under-valued today. And it’s probably growing intrinsic value at 10% a year. And you’ve got Warren Buffett running it, so what more can you ask for?
Forbes: Do you think there are more bargains today than even in 2008?
Tilson: Yes and no. In terms of just pure, crazy cheap 20 cent dollars out there, it’s nothing like late 2008, early 2009. On the other hand, the world then was on the edge of Armageddon. Things could have gotten really, really bad.
Fortunately, we were able to avert that. Things were cheaper then, but you were taking much greater risk. Today, if you were to argue on a risk-adjusted basis, we’re finding some stocks that are pretty close to as cheap as then. And we don’t think we’re anything near Armageddon, though there certainly is a scenario that one can concoct.
I’d point particularly to the financial sector. Citigroup, Goldman Sachs aren’t too far above, in terms of a price-to-book ratio, what they were back then. But they’re massively less leveraged.
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Forbes: So you’re still buying financials? Or you’re holding?
Tilson: Well, we were short financials like crazy in 2008. And that sort of saved us on the short side, because our long book got killed, of course. So we made two or three times our money in American Express and Wells Fargo, playing them off the bottom in early 2009. But then we exited those and have only gotten back into financials in August. We bided our time, waited for them to get very cheap. And we think sort of big-cap U.S. financials today are actually pretty cheap.
Forbes: Would you include Bank of America in that category?
source: forbes.com
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