Many investors view Warren Buffett, the Oracle of Omaha,
with a great deal of reverence. For that reason, most people never doubt his
comments, but we are not most people. In his recent letter to Berkshire Hathaway shareholders (see page 19), Mr. Buffett extols the virtue of dividends
that Berkshire receives from the companies that it owns. In fact, he states
that “we relish the dividends we receive from most of the stocks that Berkshire
owns,” while at the same time steadfastly refusing to pay dividends to
Berkshire shareholders. Does that sound a little like your parents telling you
“Do what I say, not what I do?”
Mr. Buffett justifies his views with an example that is eerily similar to the Modigliani-Miller dividend irrelevance argument, but he makes a mistake as pointed out in this letter to Mr. Buffett from Brad Jordan (coauthor of our favorite textbook). We'll let you know if we get a response.
