Recap of Saturday, August 9:Berkshire Hathaway and AFLAC

Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:

David Asman: Mike, give us the names of some funds.

Mike Ozanian, senior editor: Small cap (search) stocks have outperformed big cap stocks two-to-one this year, but big cap stocks are the better value now because of earnings and dividends.

David Asman: Big Cap is short for bigger capital or big companies. It’s that simple.

Mike Ozanian: Legg Mason Value Trust (LMVTX) and Janus Growth and Income (JAGIX). These are long-term, top performers. They’re funds that have very low expense fees.

David Asman: Is there a load fee? Do you have to pay money to get in?

Mike Ozanian: None at all.

David Asman: So you just put your money in. What’s the minimum?

Mike Ozanian: $2500.

David Asman: So, if you have $2500, those are the two. Chana, what do you think of those?

Chana Schoenberger, staff writer: Well, it’s worth noting that you can get almost the exact same returns if you just track the S&P 500 via Spyders (SPY), the S&P depository receipts. That’s an exchange-traded fund.

Bob Lenzner, national editor: Yeah, but by buying the Legg Mason Fund, which he is talking about, you get one of the greatest money managers in America.

David Asman: All right, Bob. Let’s go to you. You have another fund to talk about.

Bob Lenzner: I recommend Capital Income Builder (CAIBX), because since the tax bill was passed 171 companies have raised their dividend, like Wells Fargo (WFC) and Citigroup (C).

David Asman: Because you are not paying as much tax on the dividends that you receive from the company.

Bob Lenzner: Right. Here is a fund that has produced a 10 percent return every year, on the average, since 1987. Half of the return comes in the form of the dividends, they buy stocks where they think they can increase their dividends at least 10 percent every year. On the average you’ve gotten 5 percent capital appreciation. It’s a prudent, steady return of 10 percent a year, better than the market, and you’re not taking a big risk.

Mike Ozanian: I like it because, you know, I’m not a big believer in tech stocks right now, and I think we’re going to go back to the traditional value investing of dividends. I think that’s big, and I think this is a good place to be.

David Asman: Well, Chana Schoenberger, let’s move to you, now you’ve got a very specific stock in mind.

Chana Schoenberger: Yeah, I want to talk about Gillette (G). Now Gillette has had Warren Buffett on its board for many years.

David Asman: Gillette, the shaving company.

Chana Schoenberger: That’s right; razors. Buffett’s just retired from the board, but this is a company that is doing very well after a turnaround. They just announced that in the last quarter they had profits up by 12 percent, and they’re coming up with three new razors for their big families. A “Venus”, which is the woman’s; then they have a “Mach 3”, and also a “Sensor”.

David Asman: And, folks don’t mind replacing these razors all the time, right?

Chana Schoenberger: It’s the classic revenue model. Everybody loves these things. I mean, you’d be hard-pressed to find somebody who doesn’t use a Gillette razor, especially women.

Mike Ozanian: I love the razor, but they just paid millions of dollars for the naming rights of the Patriots Stadium. Traditionally that hasn’t worked out too well for companies who do that. Should we be squandering money here?

Chana Schoenberger: That’s true. I wouldn’t agree with that marketing expense, I would say that was a ridiculous waste of money.

David Asman: And what about the competition? Schick has the Quatrro coming out.

Chana Schoenberger: There are a couple of other things, but razors are like detergent. You use the detergent that you have been using you’re whole life and you don’t switch. People feel that way about razors too.

Makers & Breakers

Berkshire Hathaway (BRK.B)

Guy Spier, portfolio manager at the Aquamarine Fund: MAKER

One share today is around $2400. The most interesting thing about Berkshire Hathaway is that since 1998, when it first hit around $72,000 a share for the “A” share, and a portion of it for the “b” share, the share prices remained the same. Since then, the company has changed remarkably. It’s a very different company to then, it’s a lot larger, they have much larger revenues. Their insurance businesses are much bigger, and you’re paying the same price that someone could have paid in 1998.

David Asman: And you’re firm has 25 percent of its entire portfolio in that one stock. Mike, do you like it?

Mike Ozanian, senior editor: BREAKER

I’m a breaker on it. Since 1997, the stock’s up about 50 percent, but over that same period, the return on equity, which is the percent that they earn on the shareholder’s money, has fallen from 15 percent to 7 percent.

Jim Michaels, editorial vice president: MAKER

Hey, you’re spitting on an American icon; Warren Buffett. Listen, I can’t agree with you. I wish I had 25 percent of my portfolio in Berkshire Hathaway. I do have some money in it, and I wish I had a lot more. Berkshire is a compound interest machine, and I want to own a compound interest machine.


Guy Spier: MAKER

The most important thing about this company is that it is not just a quacking duck. This is a business model, which is very similar to Costco (COST) and to Wal-Mart (WMT). And they will continue to grow through their low-cost operations.

Jim Michaels: BREAKER

That duck quacks off beat. They get over half their profit from selling cancer insurance to Japanese hypochondriacs. I don’t want it.

Mike Ozanian: BREAKER

I’m a maker. They pay a real dividend, raised it twice this year. That tells me their earnings are real. I like the duck and the stock.