What’s more, this misconception becomes even more apparent each time Buffett uses Berkshire to acquire new businesses. Sure enough, financial pundits around the world wondered whether Buffett had lost his marbles in 2009 when Berkshire spent $26.3 billion to buy the remaining shares of Burlington Northern at a 30% premium to their value at the time.
More recently, the world thought Uncle Warren went crazy again when Berkshire and 3G Capital acquired H.J. Heinz Company (NYSE:HNZ) in a $23 billion dollar deal last month — and at a 20% premium to it’s all-time high and nearly 21 times the company’s estimated 2013 earnings.
As I noted last week, however, we need to give Buffett some credit considering he has repeatedly shown he knows a thing or two about getting the most bang for his buck over the long haul.
Myth No. 3: Buffett never invests in technology
Call the man old-fashioned, but it’s been reported that Buffett refuses to carry a cell phone and doesn’t keep a computer at his desk. Instead, he subscribes to his own now-famous advice on how to become rich: “Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”
While most of us would be unwilling or unable to follow suit, what better way is there to “close the doors” and form your own opinions than to shun the noise from these popular communicative technologies? Still, that doesn’t mean Buffett is entirely unwilling to invest in technology. Instead, he simply refuses to invest in businesses he doesn’t fully understand — a stance any investor would be wise to follow.
Take enterprise technology stalwart International Business Machines Corp. (NYSE:IBM), for instance, in which Berkshire currently holds a $15 billion stake. As fellow fool Andrew Tonner recently pointed out, this shouldn’t come as a surprise considering International Business Machines Corp. (NYSE:IBM) trades at under 15 times trailing earnings and less than 12 times forward estimates, has taken advantage of it’s reasonable share price with $12 billion in share repurchases over the past year, and has increased its dividend by around 17% each year since 2008.
That brings me to the next myth…
Myth No. 4: Since Berkshire doesn’t have a dividend, it must mean Buffett hates dividends
Once again, it’s understandable why investors mistakenly think Buffett hates dividends. After all, under his watch, Berkshire has only paid one dividend at $0.10 per share in 1967, and Buffett himself once joked he “must have been in the bathroom when the decision was made.”
Sure enough, in his 2012 shareholder letter, Buffett also commented on this confusion:
A number of Berkshire shareholders — including some of my good friends — would like Berkshire to pay a cash dividend. It puzzles them that we relish the dividends we receive from most of the stocks that Berkshire owns, but pay out nothing ourselves.
That doesn’t mean, however, Buffett despises dividends. In fact, the opposite couldn’t be more true: Buffett has long said dividends represent one of four great ways to reward patient long-term investors. However, in Berkshire’s case, Buffett just so happens to wield an unrivaled ability to create even greater value for his shareholders by using a combination of the remaining three ways in acquisitions, reinvesting capital in his business, and share repurchases.
That said, Buffett has stated they would be willing to “reexamine [their] actions” if the day ever comes that Berkshire’s dividend-free approach consistently fails to provide adequate long-term returns for shareholders.
In the meantime, I suggest you sit back and enjoy the ride.
The article 4 Warren Buffett Myths Debunked originally appeared on Fool.com.
Fool contributor Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway and H.J. Heinz Company. The Motley Fool owns shares of Berkshire Hathaway and International Business Machines (NYSE:IBM).
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
