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【is asbestos in all popcorn ceilings】Warren Buffett: Know When to Cut Your Losses

来源：j.a.p.a.n. kappa alpha psi meaning 编辑：Comprehensive 时间：2024-09-29 12:26:34

Despite being one of the greatest investors of all time,is asbestos in all popcorn ceilings

Warren Buffett

【is asbestos in all popcorn ceilings】Warren Buffett: Know When to Cut Your Losses


(

【is asbestos in all popcorn ceilings】Warren Buffett: Know When to Cut Your Losses


Trades

【is asbestos in all popcorn ceilings】Warren Buffett: Know When to Cut Your Losses


,


Portfolio


) has made his fair share of mistakes. Investors can't expect to be right 100% of the time - in fact, you'd be lucky to be right 60% of the time.


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BRK.A 30-Year Financial Data


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Peter Lynch Chart of BRK.A


A core aspect of value investing is finding cheap businesses that are unloved by the market, but at the same time, you have to respect the fact that you will often be wrong. The trick is to know when to throw in the towel on a business or investment. Here's what Buffett had to say on the issue in an interview with Fortune.


Bad economics trumps good management


Buffett stated that one of the biggest warning signs to an investor is when a business deteriorates even when it is run by competent people:


"When you really know you have a bad business is when you have a good manager and bad results. When you get bad results with a bad manager you still have to examine the question of whether you can get better results with a better manager. When a management for a reputation for excellence encounters a business for a reputation for bad economics, it's the reputation of the business that remains intact - and I've proved that many times!"


He then talked about a deal he did in the early 1990s buying a shoe company called Dexter Shoes. This turned out to be a disastrous business decision because even though the company was profitable and well-run before being acquired by Berkshire, it could not survive the fact that clothes manufacturing as an industry was leaving the United States. The bad macroeconomics overwhelmed the good management of the company.


By his own admission, Buffett usually cuts his losses later rather than sooner. He pointed to his experience acquiring the original Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) textile business as evidence of his desire to turn around a struggling business rather than throwing in the towel early. Now, while it is certainly true that Buffett stuck with his textile businesses for longer than he probably should have, recent events have shown that he has no qualms about cutting a position that he no longer believes in.


During the most recent Berkshire annual investor conference, Buffett disclosed that he and his team had sold Berkshire's stakes in the four biggest U.S. airlines - United (NASDAQ:UAL), Delta (NYSE:DAL), Southwest (NYSE:LUV) and American (NASDAQ:AAL), due to deteriorating macroeconomics. I think this is a good example of how Buffett's folksy public attitude of "buy and hold forever" is somewhat at odds with his keen business sense and willingness to protect himself against losses by selling out early.


In fact, as I


wrote in a previous gurufocus article


, this is a trait that great investors shares with great traders.


Story continues


Disclosure: The author owns no stocks mentioned.


Read more here:


Jack Bogle: Don't Attribute Certitude to History


Bill Ackman on the Importance of Free Cash Flow


The Value Investor's Handbook: Shiller Price-Earnings Ratio


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This article first appeared on


GuruFocus


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Warning! GuruFocus has detected 5 Warning Signs with BRK.A. Click here to check it out.


BRK.A 30-Year Financial Data


The intrinsic value of BRK.A


Peter Lynch Chart of BRK.A


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Energy Fuels Inc.'s (TSE:EFR) Intrinsic Value Is Potentially 96% Above Its Share Price5%, led by a 17% increase in average ticket and a slight decline in traffic. Growth in the quarter reflected the impact of households stocking up on essentials like paper goods and cleaning supplies as the pandemic became a nationwide concern, along with strength in discretionary categories as the quarter came to a close and stimulus dollars and tax refunds were disbursed.As shown below, the results in the quarter materially changed the trend in two-year stacked comps for each of the banners, along with a significant acceleration for consolidated comps.The increase in consolidated comps was the primary driver of an 8% increase in revenues to $6.3 billion. The company ended the quarter with 15,370 locations, up less than 1% year-over-year. This reflects a 7% increase in Dollar Tree units, offset by a 4% decline in Family Dollar units.The top-line results at each banner flowed through to their respective income statements, with Dollar Tree gross margins and operating margins declining year-over-year while Family Dollar gross margins and operating margins expanded year-over-year. On a consolidated basis, gross margins contracted by 120 basis points in the quarter to 28.5%, reflective of a shift to lower-margin consumables, tariff costs and the impact of markdowns from the Easter headwinds at the Dollar Tree banner. The company saw slight operating leverage on SG&A from higher comps, with the net result being an 80 basis point contraction in operating margins to 5.8%, with operating income declining 5% to $366 million. This is not adjusted for $73 million of pandemic-related costs, such as PPE supplies.In the first quarter, the company opened 85 stores (net of closures) and completed 220 Family Dollar renovations to the H2 format. Importantly, comps at renovated Family Dollar stores continue to outpace the chain average by more than 10%. On the call, management indicated that they plan on reducing both the number of new store openings (from 550 to 500) and the number of H2 renovations (from 1,250 to 750) in 2020.Personally, given the fact that Family Dollar is seeing material benefits to its business from the pandemic with new or lapsed customers coming into its stores, I think the company should try to get more aggressive with its renovation plans, not less. On the other hand, you could argue that renovations cause short-term disruptions and limit their ability to fully capitalize on the business momentum they are currently experiencing.As a result of fewer new stores and remodels, management now expects 2020 capital expenditures to total $1.0 billion compared to previous guidance of $1.2 billion. In addition, the company has temporarily suspended share repurchases. At quarter's end, the company had $1.8 billion in cash on its balance sheet compared to $4.3 billion in total debt.ConclusionIn recent years, Dollar Tree has been a tale of two cities. While its namesake banner has generally delivered impressive financial results, Family Dollar has been a persistent underperformer. This quarter, those results flipped, and given what we've seen in the weeks since quarter's end, there's a decent possibility that we will see something similar in the coming months. As the CEO noted, the second quarter is off to a very good start at Family Dollar.Here's the important question: how useful is that information is in terms of making future predictions about the business? Will recent success at Family Dollar translate into long-term success for the banner? The optimistic take is that new or lapsed customers, especially those visiting the renovated stores, could become recurring business for the banner. The pessimistic take is that they have experienced short-term success out of necessity as people went to any store that was open to try and find essentials like toilet paper and hand sanitizer that were largely out of stock throughout the retail landscape. From that view, many of these customers could abandon the retailer when life returns to normal. As Philbin noted on the conference call, early on [during the pandemic], folks needed us. Will people still shop as much at Family Dollar when it's no longer a necessity?Personally, I do not place too much weight on the recent results. I will need to see incremental data points that indicate that Family Dollar has truly won sustained business from these new customers. While I still believe that the Dollar Tree banner is a well-positioned retailer with attractive unit returns, I'm not yet willing to say the same thing for Family Dollar. For that reason, along with the recent run-up in the stock price, I plan on staying on the sidelines for now.Disclosure: NoneRead more here:Under Armour: A Tough Start to 2020Walmart: Continued Omni-Channel ProgressMatch: An Impressive Start to 2020Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.This article first appeared onGuruFocus.Warning! GuruFocus has detected 4 Warning Signs with DLTR. 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