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Monday, October 19, 1998
Billionaire discusses strategy for picking stocks
Warren Buffett said he buys stakes in companies with management and capability he admires.
By John G. Edwards
Review-Journal
Warren Buffett, arguably the nation's most successful, famous living investor, wouldn't discuss the stock market during his visit to Las Vegas Sunday.
But the billionaire from Omaha, Neb., did offer some insight into picking stocks.
"We look for really wonderful businesses run by managements we admire, trust, think are extremely capable," Buffett said. "It's really that simple."
And successful, at least for Buffett. He is second only to Microsoft Corp.'s Bill Gates in individual wealth in America, according to Forbes magazine. Buffett held $29 billion in Berkshire Hathaway Inc. stock at the time of the magazine survey in September.
Buffett also is chairman of Berkshire Hathaway Inc. and uses the company to buy stock in other publicly companies and sometimes whole businesses.
He participated in a press conference for one of those Berkshire businesses, Executive Jet Inc., as part of the National Business Aviation Association convention that drew 15,000 to Las Vegas.
While many members operate in-house flight services for corporations, Executive Jet dominates the new corporate time-share industry. In fact, Executive Jet Chairman Richard Santulli invented the concept in 1986.
It sells corporations one-quarter and one-eighth interests in corporate jets. It provides a complete crew and will fly executives whose company's own shares anywhere in the world if given six hours notice.
"Berkshire is in a number of very exciting businesses....but there really is none more exciting both at Berkshire and in the world that I know than executive jet," Buffett said.
"How do I know that Executive NetJets (the company's fractional aircraft ownership program) is a wonderful business?" Buffett asked. "Well, for three and one-half years my family tried it out. They didn't try it out with the idea that we might purchase the business," he said, but his family spent about 850 hours on NetJets flights.
Buffett told Richard Santulli, Executive Jet chairman, that he would like to have an opportunity to buy the company if it was ever offered for sale. Santulli called and Berkshire Hathaway bought.
"It clearly is a field that's going to explode for the next decade worldwide as well as in the U.S.," Buffett said. "NetJets clearly has the best operations and the best management and has the lead and frankly in my opinion that lead is going to do nothing but widen over time.
"It's the kind of business that the leader, if it does its job, really it just widens" its dominance over competitors, Buffett said. "It has that nature of critical mass. The operation with most planes in the air will be able to deliver the best service over time. So it's going to be a winner. It's going to be a big winner. And, we like to hold things forever. That's our ideal holding period, and NetJets fits in perfectly with that formula."
Individual investors can't buy stock in Executive NetJets, however. Berkshire Hathaway paid $725 million in stock and cash for Executive Jet, which sells companies time-share in corporate jets, was acquired by Buffett's company, Berkshire Hathaway Inc. for $725 million in stock and cash in July.
Berkshire Hathaway is a public company. It's B shares closed Friday on the New York Stock Exchange at $2,220, down $40.
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