Tio Pepe

According to my friend, people are criticizing the unfair advantage of Tio Pepe over its competitors in the karinderia industry in Philippines. My friend believes that it's wrong to put small businesses out of business.

As a business owner, would you replace a manager who runs your pin factory with 10 people producing 200 pins a day against a manager who can run your existing factory with no additional inputs yet produce 10,000 pins per day? Is it more beneficial for all the participants as a whole affected with this factory such as customers, suppliers, workers, competitors and etc. to have a factory producing 10,000 pins or 200 pins per day assuming ceteris paribus?

From a qualitative perspective, would you replace a manager with another one who can produce better quality pins to run your factory with no additional inputs in your factory? Again, which one is more beneficial for all the participants involved assuming ceteris paribus?

For a nation or society, is it beneficial for the nation as a whole to have superior players in an industry replace the sub par players? Will a nation progress at a faster rate and have higher standards with superior players running their industries or sub par players running their industries?

I don't know about you but I'm obviously for Tio Pepe and Adam Smith.

To my agnostic friend's question on God's goodness

Although there aren't really answers that we can universally accept when it comes to God's goodness, here's one that I have found to be helpful to me.

Agnostic: God has been good to me but that doesn't mean he is good. There's no way for me to objectively say that he's good just because of my personal experience.

Me: It's true that just because your dad gives you candy all the time means that he is a good person. My belief that God is good is because he gives you freedom. Freedom not in the sense that you can do anything you want but in the sense that you are free to accept or reject Him, to acknowledge or to ignore Him, to love or to hurt Him :)

The agnostic being mentioned believes there is a God if i'm not mistaken. he just cannot really define him and prefers not to ascribe Him to any particular religion that we know of for he feels it's too limiting of a perspective.

Question on B Shares of Berkshire

To my Wei Yi,

B shares is equivalent to 1/30th of A shares :) If you cannot afford the A share and can only buy half of it, you buy 15 B shares :) As of this moment, 1 B share is equivalent to around $3600, 1/30th the amount of A share :)

So with 1 B share, you also get the same assets and same proportion as you do with the A share except it's smaller :)

On Berkshire again

I don't quite understand how it's better to buy 1 A share rather than 30 B shares. For me, I would prefer to buy B shares because it gives you more flexibility. For example, since Berkshire probably won't be paying any dividends in the future, when it gains 15% in a year and you want to encash half of the gains, you can do so by unloading a few shares. You won't be able to do that with A shares because you'll probably be only having less than 10 shares. With B shares, at least you can have more than 30. I think the only reason to buy A shares is if you want to have voting rights. 1 A share is equivalent to around 200 B shares in terms of voting rights. That's the only advantage that I see with the A share. In terms of price fluctuations, I don't think B share will be more volatile than A because it's value is pegged at 1/30th of A shares.

I'd still go with Berkshire over any other mutual funds for reasons that I mentioned earlier, especially the leverage part which enables Berkshire to grow at a faster speed. In addition to that, you won't have to worry about investing in different kinds of mutual funds (such as bond funds, equity funds, international funds, currency funds and etc.) when you invest in berkshire because Berkshire do all those asset class diversification for you as determined by Warren Buffett. It's like a one stop shop.

If you buy 1 A share, currently valued around $110,000, you get around $155,000 worth of assets working for you which is composed of the following:

1.) $71,000 worth of private businesses majority owned and controlled by Berkshire. There are around 73 companies here such as Dairy Queen, Geico, Flight Safety International, See's Candies and etc.

2.) $38,800 worth of public equities, such as coca cola, walmart, johnson & johnson, petrochina, procter and gamble, US Bank, Wells Fargo and etc.

3.) $45,290 worth of cash & bonds mostly denominated in USD but also contain mix of international currencies.

I think it's difficult if not impossible to find a mutual fund where if you put $11, you get $15 worth of high quality assets with virtually no interest attached working for you. Because of this, it seems that Berkshire is cheaper than mutual funds.

10 years from now, Berkshire seems likely to perform better than mutual funds even without Warren Buffett.

A Recommendation

My aunt was asking me whether she should put her money in mutual funds investing internationally or Berkshire. My answer was Berkshire. I'm posting it here so that I can look back in the future some of the factors that I had in mind for Berkshire. Here's a reprint of the email...

Aunt _______,


Well if you're too lazy to read, make ________ read it. I'm sure you can force it on him :)
Ofcourse, if i recommend something to you, i can be wrong. So it's your own risk :)


I strongly recommend berkshire hathaway B shares over any mutual funds whether American or international because of the ff factors:


1.) Cheapest expense ratio for mutual funds amount to .25% but with Berkshire, the expense ratio is equivalent to less than .0015%. There's virtually no expense.


2.) Berkshire has a better portfolio of companies both public and private companies than any mutual funds plus they have access (or network) to more investment opportunities than mutual funds. Mutual funds can only invest in public companies locally and internationally, berkshire can invest in both public and private, local and international.


3.) The biggest advantage in my opinion that berkshire has over any other mutual funds is that berkshire has leverage. For every dollar that you put, berkshire gives you about two dollars to invest for you. They "borrow" and use other people's money that they acquire from their insurance premiums to invest. There are many hedge funds that are loaded with debt but with berkshire, the "debt" from insurance premium that they have is "interest" free. It is interest free because the premiums they receive is always greater than the claims of the insurer. If you're a little concerned about Berkshire's credit quality, maybe you can take comfort in the fact that it is one of the 10 companies in the USA to have a AAA credit rating.


4.) Would you rather have a professional mutual fund manager invest for you or would you rather have Warren Buffett and Charlie Munger (who i think is the smarter of the two) invest for you?



5.) Berkshire has lots of tax advantage over the typical mutual fund. The deferred tax along with the insurance premium is another source of Berkshire's leverage. Because of the huge amount of interest free leverage that Berkshire has from their insurance premiums and tax liability, Berkshire has very low debt from banks.


6.) Berkshire is selling at a discount to its fair value at present.
I do believe that index funds or mutual funds with very low expenses and long term focus are good investments. However, I think that realistically, they have a hard time beating berkshire not because of Warren Buffett alone, but because berkshire is equipped with lots of advantages such as the leverage, portfolio and access to more investment opportunities.



A more simple analogy i can give is that mutual fund managers are driving a car to get somewhere whereas Warren Buffett flies an airplane. He is better equipped than mutual fund managers.


I'm putting my money where my mouth is.



Did anything i wrote here made any sense?