Warren Buffett explains the rationale behind issuing preferred stock
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- เผยแพร่เมื่อ 18 ก.พ. 2019
- Warren Buffett explains the rationale behind issuing preferred stock. From the 1995 Berkshire Hathaway annual meeting.
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a beautiful explanation of how they operate with preferred shares.
these two guys are a great antidote to the nausea i get from listening to other wallstreet people
Man he really dummed it down for me perfectly 👊🏽
It’s definitely smarter to issue new stock or sell your treasury stock than it is to use cash. First of all, it keeps the cash balance untouched. But more importantly, the stock can be sold at a price higher than your perceived intrinsic value of the stock.
Not necessarily, since the value of the common will be diluted that will be taken into account when the market prices the new shares. Since you’re giving away a portion of the business it’s not always smart to issue new stock instead of borrowing cash unless you’re certain that the value of the company is to go very high with the transaction
@@hunchofmateus2422 or you can't get a loan, like all the cannabis stocks which keep diluting
@@hunchofmateus2422 the company will raise the amount of cash that the new shareholders are paying - meaning the value of the business goes up by the value of the new stocks, so the older shares should theoretically remain untouched
This is an interesting way to approach the concept, however, I think the problem is the CEOs often UNDERESTIMATE the intrinsic value of their own shares, and OVERESTIMATE the added value of an acquisition.
I'll put it another way. A typical S&P 500 company compounds capital at about 12%. That is effectively the "cost" of equity. Usually, you can get a loan for MUCH lower than 12%.
That being said, there have a been a select few astute CEOs who have "bought low and sold high" of their own company shares and used the proceeds to fund acquisitions.
Great video, valid questions but great answers from the legend.
Also glad the questioner and the Berkshire execs weren't just looking for "gotchas' but real information and input, and you can tell there is a level of mutual respect.
Thank you for making the playlist available.
Good answers to put in my back pocket for future capital raising experience.
from what i understood from him, basically the shareholders' concern is valid. there is a risk of their stock value getting lower. buffet if i understood correctly is saying the stock may be diluted yes, but the value of the acquired company will make up for this dilution. now its up to the shareholders to believe if buffet's bet is right, otherwise theyd have paid out of their pocket for buffet's transaction. not sure if this is what he meant completely so pls correct me if im wrong.
If he bought the same company with cash and it was worth less than he paid the reduction in performance to Berkshire would theoretically have the same impact on the intrinsic value of the Berkshire shares as issuing the preferred stock and being wrong.
In theory the dilution is of the percentage ownership not the intrinsic value (assuming he is at the very least not wrong) so while your percentage ownership of the pie would decrease the pie would've grown by an amount that should leave you with the same value. Could be better or worse depending on how good or bad the deal is but it would be a very similar gain or loss as if the company was instead bought for cash
You are correct. Most businesses bought are inferior to Berkshire stock. However, cheap and good companies like Burlington Northern are assets to Berkshire even after the dilution effect.
Great video, made the concept easy to understand!
Love this
Thank you for the upload
Worth the watch.
what company were they trying to buy with the preferredes?
That mo 3d best price that i offer american ago 10%
And you know the real price by size.
pong foong that’s what she said
Hmmm kinda like amc
Red suit lol
80's tie too
Mr Buffet really done a good job of selecting the right shareholders judging from how dumb these questions r
and if you show another tpye on tube that seem laos tank form me more work.
Hello im a doctor and i cant formulate a simple question and a sentence
but i know you have to belive me .i cannt living if i work cant berk on by law company
Who buy dad said when i send bill to my dad have to berk cash by law .but dad told me .that number noboby know who .why you have to paid.becoss we chining together i know grand ren more than 5 or 6 year ago .
My nucluar tank white version i comformt you selling it got profit benefit can carm fix ser service.
All old tank you show me that happaned .but when chin sew pong free cartoon tank .you not gonna read what dose it mean.
Kids, drugs are bad.
AMC to the mooon
Heard directly from the horse’s mouth…
can you own by the bill the i making by law to work i working with youtubeber so real
That doctor is not very bright.
He was holding Berkshire stock in 1995 - also asked a question which Buffett said raised interesting points - Id say he was pretty bright ;)