Warren Buffett And His Shareholders Paid 21 Miles in Taxes

Warren Buffett And His Shareholders Paid 21 Miles in Taxes

Imagine piling 32 billion dollars in a stack of newly printed $100 bills. 

How high would it reach? 

Warren Buffett knows the answer: it’s 21 miles high – or three times the level commercial airlines usually fly at. 

He took the time to figure that out, because 32 billion USD is how much Berkshire Hathaway has paid in taxes over a decade. 

Why is that important? 

Taxes and philanthropy are a theme in Warren Buffett’s shareholder letter for 2022.

I’ll tell you why in this blog post. 

The Shareholders Can Be Proud

Warren Buffett says that everyone who is a shareholder in Berkshire Hathaway can honestly say that “they gave at the office.”

If there were just 1,000 other taxpayers that paid that much, the other 131 million taxpayers in the United States would not have to pay any taxes at all.

Why are taxes a big subject in this year’s shareholder letter? 

By illustrating so graphically what the shareholders are indirectly contributing to by paying taxes through Berkshire, Buffett makes a few points: 

The Deficit is a Big Deal

One important point is that the fiscal deficit is too huge, and it has become a threat that can destabilize the American economy. (Well, he doesn’t exactly say anything about threats, because he is a softspoken and diplomatic man.)  

Over the past decade, the US Treasury received $32 trillion in taxes, but it spent just under $44 trillion.

Buffett doesn’t go into detail – he doesn’t scold any individuals, companies or politicians – but he simply emphasizes that a “huge and entrenched fiscal deficit has consequences.”

He also explains that he and Charlie Munger, as shareholders, mainly focus on the companies, not the macro policy… but that this “attribute is far from perfect.” 

Coming from Warren Buffett’s careful mouth, these are serious words. 

There Would Be No Berkshire Success Without the Success of America

He points out that he’s proud that Berkshire Hathaway pays such a large part of the tax bill and that he hopes to pay more taxes in the future.

That statement would probably make many people clear their throats, but Warren Buffett has yet another point, and he makes it clear. 

Berkshire is like the ivy growing up a tree. 

Berkshire Hathaway has only done well for so many years because they’ve profited from the success of America. 

“We owe it to America,” he says, referring to Berkshire’s tax bill. 

Why? Because the dynamism of the United States has contributed to Berkshire’s success.

“We count on the American tailwind,” he writes in the letter to shareholders for 2022, which was published at the end of February. You can read it right here.

Here are some of his other points from this year’s letter to shareholders:

Foolish Stock Market Prices Made His Success

The stock market has made it possible for Berkshire Hathaway to buy wonderful companies at wonderful prices. 

As Buffett says:

“It’s crucial to understand that stocks often trade at truly foolish prices, both high and low. ‘Efficient’ markets exist only in textbooks. In truth, marketable stocks and bonds are baffling, their behavior usually understandable only in retrospect.” 

His Success Depended on a Few Well-chosen Stocks

He singles out Coca-Cola and American Express as some of the few investments where he has done well, and he explains that without those, Berkshire Hathaway would have achieved mediocre results. 

“Our satisfactory results have been the product of about a dozen truly good decisions – that would be about one every five years,” he writes. 

Berkshire invested $1.3 billion in Coke in the 1990s that turned into $25 billion (year-end 2022) plus dividends. 

AmEx was also a $1.3 billion investment, and it grew to $22 billion (year-end). 

“The weeds wither away in insignificance as the flowers bloom. Over time, it takes just a few winners to work wonders.”

This, of course, also applies to you as a private investor. Learn to pick the winners and let them run. To find out more, read my free e-book Free Yourself. You can download it right here. 

Five Reasons Women Are Better Investors

Five Reasons Women Are Better Investors

Men take up a lot of space when it comes to stock investing, but women are better investors.

Men are equity analysts, equity experts, shareholders, board chairmen, CEOs and financial experts. Men debate in posts and make up 90% of participants in most stock-related social media groups.

But when it comes to generating returns, women actually do better than men.

This has been illustrated by several studies, including, among others, those of Cal-Berkley, Warwick Business School and Fidelity. If you want to dive deeper into the data, I’m sure you can get Google to show you.

Here I’ll suggest some possible reasons as to why women are better investors than men.

Reason 1: Women Are Risk-averse

Women are very aware that they can lose money on stocks.

They think twice before investing, and they tend to choose companies that they recognize from their own lives, companies with products that they know are good, solid products. They invest in things they like. 

Some men tend to have a lottery-like mindset when it comes to stock investing. By that I mean they tend to choose stocks that they believe have a potential to skyrocket – but not necessarily with a sound product in the real world. This could be a biotech company with no revenue but some exciting research and potential medicine in the pipeline.

Reason 2: Women “Forget” About Their Investment

Women make a decision, invest and then move on in life and “forget” to check the share price.

This means that they do not suffer as much from an overactive trigger finger, where they constantly check the share price and act irrationally based on how the price has changed that day.

Studies have shown that women buy stocks nine times a year, while men make new investments 13 times a year (Warwick study).

Reason 3: Women Do the Homework

Because women are a bit more aware of risk, they also hesitate more and spend more time familiarizing themselves with a company before investing in it.

They take some time to learn how to invest in the stock market in general, whereas men tend to toss away the instruction manual and just start by fiddling with the buttons on the platform to see what happens.

This can be both a strength and a disadvantage. Women must be careful that they don’t put off action for too long and never get started.

Reason 4: Women Are Patient

Sometimes it takes time for a stock to start showing results. Women have that patience. They don’t lose heart with a company because the stock hasn’t skyrocketed after a few weeks.

Perhaps it’s linked to the fact that women biologically wait nine months to have a child. We know that good things take time and grow slowly.

Reason 5: Women Accept a Loss and Move On

When shares in a company dive for reasons that reflect some fundamental problems in the company, you can react in three different ways:

1. You can either slam the laptop shut and forget about it (do nothing).

2. You can accept the loss immediately, sell the share and invest the money in something else.

3. Or you can dig yourself further into a hole by buying more stocks in the hope that they will turn around one day. The logic here is that you get a lower average price.

Women are good at taking the loss right away and moving on in life.

This means that they can make a good return elsewhere and that they recover faster from the loss.

On the other hand, if you throw more money at a bad investment because you find it difficult to accept defeat, you can really dig yourself a hole that is difficult to get out of.

I once met an elderly man who had blown his entire pension on a bad investment because he stubbornly kept believing that it would turn around and couldn’t accept that he had been wrong in the first place.

Start Value Investing

These qualities make women particularly good value investors.

They are very good at thinking long-term and buying stocks based on real-world rationale, judging the company’s products as a consumer. Women also patiently wait for better times when the market goes against them. At the same time, they admit it and course-correct if they realize they’ve made a mistake.  

To learn more about investing this way, download my free e-book here

How David Einhorn Made Record Returns in 2022

How David Einhorn Made Record Returns in 2022

For most stock investors, last year was a year of stock market losses. 

But not for the well-known value investor David Einhorn – it was his best year ever.

While the leading stock index S&P fell around 20 percent for the year, David Einhorn had a positive return of over 36 percent.

In other words, he did more than 50 points better than the dominant index, and in hedge fund parlance, this is called being 50 points of alpha.

David Einhorn Bet on a Bear Market in 2022 

David Einhorn describes in a letter to his investors that he has long seen a bubble in the stock market. He says he went from being cautious in 2021 to being bearish in January 2022.

The fund created different baskets of companies that they shorted, and these baskets of shorts have helped to give the fund an extraordinarily good return.

Part of the story is also that he has had some difficult years leading up to 2022, precisely because he shorted while the market was still rising.

Shorting means betting that stocks will fall. It’s a really difficult discipline to manage, because not just your logic, but also your timing has to be right. You lose money when you short if the stock in question goes up – and there are essentially no limits to how much you can lose, as there is no cap on how much a company can increase.

As John Keynes once said: “The market can stay irrational longer than you can stay solvent.”

He Shorted Tesla

David Einhorn doesn’t actually write in the letter to shareholders which companies Greenlight Capital shorted, but he has previously revealed that the fund shorted Tesla. He has quite publicly chastised Tesla and founder Elon Musk.

It sounds like David Einhorn is also critical of the well-known rock star portfolio manager Cathie Wood and her ARK Invest, although he doesn’t say so directly. 

He simply writes that Greenlight Capital has shorted parts of an “innovation ETF” – which sounds like Cathie Wood’s project:

“In early 2021, we also identified an actively-managed ETF of so-called “innovation” stocks that appeared to us to have significantly similar characteristics to our bubble names. We shorted a basket comprised of the components of that ETF in February 2021 that we ramped up to 9.0% of capital. It has declined by 76% since our first entry,” he writes.

In other words, his fund has not shorted the entire ETF, but selected companies from it.

Compared to Cathie Wood, his short position in innovation stocks has fared even better.

Cathie Wood’s flagship fund, the Ark Innovation ETF, fell 67 percent in 2022.

When you short, you make money from something falling, so in this regard it is good that the innovation stocks that David Einhorn selected fell more than her fund.

How David Einhorn Defines a Bubble

David Einhorn talks a lot about bubbles in his letter. They’re mentioned around 30 times. 

But what exactly is a bubble? How does he define it?

“We define a bubble stock as one that if we look at the company’s current and projected financials – counting stock compensation as an actual expense – and perform a traditional valuation analysis, it could fall at least 80% and still not appear cheap to us,” he writes.

In other words, he and his team are calculating the value of a company. If the stocks of that company were to drop 80%, and it would still be too expensive for them to consider investing in it – then it belongs in bubble territory.

However, they will only start shorting when it looks like the stock will stop rising and instead start falling.

“The goal is to short when the bubble appears to have popped,” he writes.

He Became Famous When He Shorted Lehman Brothers 

David Einhorn established Greenlight Capital in 1996 when he was just 27 years old. The fund did very well. He got a good return on shorting the dotcom bubble.

He became known in investor circles for providing some very critical and precise analyses of the companies that he shorted.

In 20o2, he accused the insurance company Allied Capital of cooking the books. The next day, the stock imploded. But he really became famous when he publicly criticized and shorted Lehman Brothers – about a year before they crashed and started the financial crisis.

Today it’s got a name. Investors call it the “Einhorn effect” when a stock falls after David Einhorn made a critical comment about it.

Value Investing May Never Come Back 

He writes in the letters to shareholders that the very long bull market from 2009 has thinned out the ranks of his peers. 

These years have been tough for David Einhorn too. He has been predicting a bubble and shorting way ahead of time. This bubble has been going on a lot longer than he expected.

For this reason, his fund has lost money some years, and this has meant that investors have fled from the fund, leaving it decimated.

For similar reasons, most investors like him have folded in this period.

“Many investors that have historically had a value bent either adapted, retired or went out of business,” he writes.

He describes how many of his competitors left the industry because value investing became unattractive when everything boomed.

He also says that it’s unlikely value investing is going to make a comeback. 

“Value investing, as an industry, is unlikely to ever fully recover. The outflows into passive and other strategies were debilitating,” he writes.

However, in his eyes, this is a positive development for his fund. It means fewer competitors.

“We believe this is positive for our strategy, as we face much less competition than we did a few years ago,” he writes.

Here I would just like to add that not all value investors have negative years when the market is going up. David Einhorn’s strategy of shorting stocks makes him more exposed and vulnerable in a bull market.

I do not short stocks, nor do I recommend that you do.

He Foresees More Stock Market Decline in 2023

Last year was a bad year – but it could get even worse in 2023, David Einhorn believes.

According to him, we are still in the middle of a bear market. 

“Although we believe we are in the middle stages of a bear market, we did establish a new medium-sized long position in Tenet Healthcare (THC) during the fourth quarter,” he writes.

What does this mean for you? 

Of course, this means that you have to be careful and calculate what companies are really worth. You have to open the accounts and do the math.

David Einhorn asks if it is worth gambling with your savings and your future.

“This was a year where many of those who rode the bubble suffered losses, raising the question as to whether the risks were worth taking,” he writes. 

I would add that exactly the same applies to 2023 – and all other years… 

Is it really worth taking the risk by gambling? How do you avoid gambling? By familiarizing yourself with your investments, by opening the accounts and seeing what’s under the hood. 

You can learn how to calculate a company’s value in my free e-book Free Yourself. Download it by clicking here. 

Here Is Bill Ackman’s 9-point Checklist

Here Is Bill Ackman’s 9-point Checklist

Bill Ackman is one of the most successful stock investors of recent times.

He has made some pretty good stock market bets – among others, in the American fast-food chain Chipotle Mexican Grill, which more than quadrupled in value in the few years since he invested in them.

But he has also previously had some years where everything went wrong, such as when he shorted Herbalife.

He lost money, the investors fled, but he turned things around and became successful again. 

The tough years made him analyze what went wrong and return to the old way of investing.

Bill Ackman Rediscovered His Own Checklist

He says he and his team went astray and had to return to classic value investing. In the beginning, he followed a checklist to find good companies – with great success. 

Then he veered from the path, and the problems began to pile up.

“I went back to the core principle that had driven our success for the first 12 years. I had a member engrave them on a stone tablet, not unlike Moses’ 10 commandments,” he said in an interview with Bloomberg.

Today, he and his team go through the checklist for analyzing companies prior to each investment. 

I don’t know about you, but I’d love to get my hands on that checklist. 

Don’t worry, that’s exactly what I’m going to reveal in this blog post. 

1. The Company Must Be Simple and Predictable

It must be a single business with a single structure, operating in an industry you understand and selling a product you understand.

We want to be able to predict the future of the company. 

That means that a lot of sectors will be out of your reach. It’s difficult – for example – to predict the future for a biotech company without a product on the market.

It can also be difficult to predict the future for companies whose turnover or profit fluctuates a lot. 

2. The Company Must Have a Positive Free Cash Flow

You don’t want to invest in companies where money is pouring out the bottom. 

Bill Ackman looks at free cash flow. 

It is a key figure that is usually stated in the accounts. In case it’s not, you can calculate it yourself. You find operating cash flow and deduct maintenance capex from the cash flow statement. 

Why is it important? As Bill Ackman says:

“If we can’t predict the cash flows, we don’t know what it’s worth.”

3. They Have to Be Dominant

Bill Ackman loves companies that have a dominant position within their market: companies such as the hotel chain Hilton, the coffee chain Starbucks, the streaming service Netflix and the fast-food chain Chipotle Mexican Grill.

Why? Because it’s a sign that they have some kind of competitive advantage. 

4. They Must Have High Barriers to Entry 

Barriers to entry mean that it’s difficult for competitors to enter their business, typically because it’s costly to start business at the same level. 

It’s always important that the company you invest in has some kind of competitive advantage that protects them so other companies can’t easily steal their clients. 

Competitive advantages may be that they have a secret ingredient (e.g., Coca-Cola) or a patent. These advantages may also be that they have a direct monopoly (bridges, railways), economies of scale (Amazon, Walmart), a strong brand (Coca-Cola), costs – either in price or time – if you want to switch to another company (banks), or network benefits (Facebook, Microsoft).

5. High Return on Capital

The company must be good at making money on the capital invested in the company.

Here you can look up a key figure such as ROIC (return on invested capital).

6. Limited Exposure to Extrinsic Risks

This could be the threat that the legislators will step in and make restrictions in the area.

An extrinsic threat is something coming from outside and something out of the management’s control.

Like when the EU zooms in on Big Tech and you sense that some crackdown might be in the cards. 

7. Strong Balance Sheet

He only wants to invest in companies that do not require access to outside capital to survive.

In other words, this means that they must have low debt compared to the money they make.

A rule of thumb is that they must be able to pay off their long-term debt with the free cash flow in three years.

8. Good Management and Governance 

The company must be run by management that you trust.

This applies not only to top management, but also to the board of directors.

One way to evaluate them is to go back historically and read their letters to shareholders that you find with each annual report. 

What have they promised in the past, and have they kept it up?

9. A Gap Between Price and Value 

Sometimes it happens that the share price falls to a level below what the company is actually worth.

This is something you can calculate. It may sound big and difficult – but it is not.

I explain how you can do it yourself in my e-book Free Yourself, which you can download below.

In my free e-book Free Yourself, you can learn a lot more about the style of investing that we call value investing. You can download it here. 

To learn more about my style of investing, you can download my e-book Free Yourself here. 

When Should I Sell Shares in a Company I’ve Invested In?

When Should I Sell Shares in a Company I’ve Invested In?

When turmoil hits the stock market, it can be tempting to throw all positions overboard like unwanted rats on the ship.

Many beginners are focused on learning what to invest in and when to invest – and at some point, it hits them that they also have to decide when to sell the shares.

When Do You Actually Sell a Share?

When is it time to sell? That’s a good question.

Unfortunately, I’m going to be a bit annoying and say that it depends a lot on what kind of company you’ve invested in.

Not all investments should be treated the same way.

I’ll explain briefly…

In my upcoming 8-week value investor course, we divide companies into different categories. To make them easy to remember, we group them by different animals: the snail, the elephant, the cheetah, the bear and the wolf.

  • The snail is a very slow-growing company.
  • The elephant is a large company with even, stable growth.
  • The cheetah is a fast-growing company.
  • The bear is a cyclical company.
  • The wolf is a company with a turnaround case.

These companies shouldn’t be treated the same way.

We sell cyclical companies before a recession.

We want to hold on to the elephant and the cheetah.

The snail is a bit boring, and I only invest in it if it’s extremely undervalued due to some event – and then I plan to sell when the stock price has straightened itself out.

The important thing is that you get clear on what kind of animal you’re investing in – and think about when you plan to sell, even before you buy the share.

Have you done that? Few private investors do.

Why not? Because few people have a proven strategy they use to invest.

Most people just throw themselves at it.

In a way, that’s also fine – because you gain experience, and experience is important.

But I wouldn’t want to get into the driver’s seat of a car without getting road theory and driving lessons. There’s a higher risk of getting into an accident if you don’t know the traffic rules and don’t have some basic knowledge.

The same goes for the stock market.

The more knowledge you equip yourself with, the easier and more fun it will be for you – and there’s less risk of losing money.

Choose Companies You Want to Keep

I prefer to invest in companies that I see a long runway for – and that I plan to keep.

In other words, my “favorite animals” are the elephant and the cheetah. There are several reasons for this.

First, wonderful companies give a good return.

Second, there is less work in a long-term strategy because you don’t have to constantly find new investments.

Third, you don’t pay taxes before you sell. That means it’s more tax efficient.

When Should I Sell Wonderful Companies?

So let’s say you’ve invested long-term in a wonderful company with a long runway. When do you sell that position?

You only sell if something goes wrong.

What could that be?

  • If management is replaced by bad leaders with cloudy judgement or questionable characters with hidden priorities.
  • If something changes in the story (or the hypothesis you have built) about the company.
  • If a competitor sneaks in with a superior product.
  • If there’s innovation that threatens the company’s product or service.

If any of the above happens, you should consider pulling out.

Of course, this also means that you must always keep an eye on what is happening with your companies in the market.

How Do I Practice the Art of Not Selling?

The trick in the vast majority of cases is not to sell the shares. The question becomes: how do I avoid selling?

And that, actually, is a true art.

It can be tempting to sell when the mood in the market turns negative.

How do you avoid panic selling?

First, you need to have a solid strategy that you use to invest. I recommend value investing. This is the proven method that I invest by. You can learn about this in my e-book, in my webinars and in my upcoming 8-week course that will launch later this winter.

Second, you must get absolutely clear on why you are investing in the company you choose. You need to go through a checklist and build a small investment hypothesis about the company.

Third, if possible, bounce your hypothesis up against another wise value investor to test whether it holds up. It’s good to have an investment partner to discuss with – but it must be someone you really trust and whose mind you admire.

When in doubt, go through the hypothesis and the checklist again to evaluate whether anything has changed since you made the decision.

If nothing fundamental has changed, then you hold on.

Do you have any shares that you are unsure whether to sell?

How about entering the Managing Money Freedom Facebook group. Every week, I make a discussion post to match this week’s blog post.

You can write your question there.

To check out the Facebook group click here.

How to Read an Annual Report Like Mohnish Pabrai

How to Read an Annual Report Like Mohnish Pabrai

How do you read a company’s annual report?

It’s a question I often get.

The renowned value investor Mohnish Pabrai was recently asked that exact question in a YouTube video. Luckily for us, he answered.

This is obviously very valuable information, as he is a gifted value investor and any insight into how he invests is a gem of wisdom.

Most people think that “reading an annual report” boils down to calculating the intrinsic value of the company.

 Mohnish Pabrai’s approach shows that this is far from the most important thing.

Here are five things he looks at before even diving into the financial numbers.

1. He Checks If Any of the Gurus Have Invested in It

Mohnish Pabrai admits to copying other value investors shamelessly.

He considers himself to be a good “cloner”.

The first thing he does when he gets a curious about a company is to check who has already invested in it.

“Hopefully someone smarter than me already who owns shares in the company,” he says.

This is a funny statement, as I think it’s hard to find anyone more intelligent than Mohnish Pabrai.

You can check whether some of the big value investors have invested in a company at www.gurufocus.com, www.dataroma.com or www.whalewisdom.com.

2. He Reads the Writeups about the Company

If the large value investors have shown interest in the company, there are probably also writeups online.

You can look up other value investors thoughts on a company at www.seekingalpha.com or at

What do they say about the company? Do you agree with the analyses? These are good places to start forming an opinion

3. He Reads All the Shareholder Letters

At the beginning of an annual report (or sometimes as a separate document) you will find a letter from the management to the shareholders, also referred to as the shareholder letter.

In this letter, the director and/or chairman of the board gives a broad overview of the year that passed and talks about what they are working towards in the future.

It gives a great bird’s eye view of the company’s development and future.

Mohnish Pabrai’s assistant collects all the previous shareholder letters in a PDF file, and then he starts reading them chronologically. I imagine that he reads them from a print-out.

I know he has his assistant print out all emails in the morning. He doesn’t seem keen on reading off a screen.

What should you look out for?

First of all, it’s important that the letters are honest and understandable.

It’s important that these letters are not written by a PR agency, but written in the management’s own language.

How can you tell the difference? You can tell from the style.

Does it sound like something someone would actually say, or does it sound like clichés?

If the letters are not intelligible, it’s a blinking warning light.

Maybe they’re hiding something from the shareholders?

Management must communicate honestly and in simple and straightforward language.

Secondly, you should look at whether the management can keep its promises to the shareholders.

Mohnish Pabrai investigates how the management and the company have performed in relation to what they promise in the letters.

Here you have to remember that they don’t know the future. For instance, the companies knew nothing about coronavirus and shutdowns when they filed accounts before COVID-19.

4. He Reads a Transcript of Their Earnings Calls

Shortly after a report, management answers questions from investors and analysts. You can find this on the company’s website under investor relations, with the header webcast or earnings call.

Mohnish Pabrai reads the transcript of all the earnings calls. He doesn’t say, but again I imagine that he has his assistant collect all of them in a PDF and print them, so he can go through them chronologically.

He browses through the initial presentation – which is mostly management’s repetition of the financials – and pays more attention to the Q&A part.

What does management say about the future and how honest are they when answering questions?

Does management tend to overpromise and underdeliver? Or underpromise and overdeliver?

It says a lot about what you can expect in the future.

5. He Looks at the Company’s Proxies


Mohnish Pabrai recommends that you read the company’s proxy statements.

In the proxies you can find the shareholders’ proposals for changes. 

These documents give you an idea of whether the company operates in a shareholder-friendly way.

You can usually find the company’s proxy statements on the company’s own website on the investor relations page.

Sometimes you find them under “other announcements” and other times they call them “proxies”.

For the US companies, you can also look them up on SEC.gov as DEF14A and DEFa14A notices.

And Then?

Only then does Mohnish Pabrai dive into the annual report itself to look at risk and competition and run through the numbers.

You can read much more about what to look for in an annual report in my e-book Free Yourself.

There I show you, among other things, how you can work out whether the company is worth more or less than what it is traded for on the stock exchange.

Don’t forget to download my e-book Free Yourself where you’ll learn to invest as one of the best – super charge yourself through the plateaus. You can download it here.