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Warren Buffett knows these are the best investors to follow with your own money



An elite corps of patient, concentrated shareholders quietly underpins corporate America. This group, which Warren Buffett dubbed “high-quality shareholders” back in 1978, contrasts with today’s dominant index funds, which hold for long periods but do not concentrate, and momentum traders or many activists, who often concentrate heavily, but rarely hold for long. Every investor, adviser and manager would benefit from familiarity with these high-quality shareholders.

Quality shareholders (QS) are pedigreed, spanning from the economist John Maynard Keynes and Buffett’s mentor Benjamin Graham, to stalwarts such as John Neff of Wellington Management and Thomas Rowe Price, founder of T. Rowe Price Group Inc. 


Their styles vary — in scope of research, perceptions of value, and policies on selling — but patience and focus set them apart. While a few QSs are behemoths — including Capital Research & Management (American Funds); Fidelity Management & Research; and Harris Associates (Oakmark Funds) — many manage less than $100 billion in assets — such as Gardner Russo Gardner; Ruane Cunniff; and Southeastern Asset Management, for example.

QSs also share a philosophical outlook. They reject the prevailing fashion of comparing their annual return with some benchmark index. QSs shun reference to the relative volatility of the indexes.  They object to the common habit of distinguishing between passive index funds on one hand and all others, tagged “active,” on the other. And they invest for, and measure performance over, many years — not annually as is the obsession of many commentators. 

QSs have large parts of their portfolios invested in sizable stakes of outstanding major companies, which they’ve held for many years, such as Capital Research in Abbott Laboratories
Fidelity in Salesforce

 and Harris in Tenet Healthcare

 .  Other examples are the positions of Franklin Resources

 in Roper Technologies

 , Massachusetts Financial in Accenture

 , State Farm in Air Products & Chemicals

 ; and Wellington in Marsh & McLennan

 and PNC Financial Services Group


Today’s conventional wisdom, and much research, suggests that “active” funds underperform the market after fees on average. Top fund performance doesn’t persist and while some investment managers are skilled, few deliver on that value for customers after fees. But the QS group, both patient and focused, proves an exception, as this group’s members do tend to persistently outperform after fees.  

Each shareholder segment adds unique value: activists promote management accountability; index funds enable millions to enjoy market returns at low cost; and traders offer liquidity.  With such advantages, however, come downsides: activists get overzealous; indexers lack resources to understand company details and traders induce a short-term focus. When QSs balance a company’s shareholder base, they counteract these drawbacks.

As to curbing overzealous activism, QSs can be so-called white squires — a term dating to the 1980s designating a bloc of shareholders prepared, for tactical reasons, to support management.  When a board perceives activist excess, it helps to have a few large long-term owners to consult. As a united front, the company’s hand is strengthened, resisting excess while addressing legitimate concerns an activist may have.   

QSs study company specifics in a way that indexers, stretched thin, cannot.  Indexers may be good at analyzing dynamic issues as they arise, but rarely develop deep knowledge that QSs command. Indexers invest most of their limited resources to develop views about what is good generally in corporate life, not what is best for particular companies. 

QSs also differ from both activists and indexers regarding director elections. While activists often nominate directors whom fellow board members resist, and indexers almost never nominate directors at all, QSs offer a supply of sage directors (often themselves).  

Being long-term, QSs offset the short-term preferences of transient shareholders. A high density of QSs, with their characteristic patience, helps managers operate strategically, with a long-term outlook. Such effects can percolate throughout a company. If less pressure comes from shareholders to produce short-term results, then directors, officers, employees, suppliers, partners and others can operate in the same way. 

Quality shareholders are not sycophants or cheerleaders. They are integral supporters, patient guides and savvy mentors.

 To be clear, quality shareholders are not sycophants or cheerleaders. They are integral supporters, patient guides and savvy mentors. They are invested in a high-conviction, long-term marriage of equals. Management would do well to attract, respect and empower them. 

Performance boost

Company performance benefits, anecdotal and empirical evidence both affirm. From a ranking of QS density in a sampling of 2,070 large widely-followed companies for a recent five-year period (2014-2018), compare a portfolio of the top-25 and bottom-25 companies. The high QS density portfolio outperformed the low QS density portfolio in each of those five years. 

For a wider lens, consider the relative performance of the top 69 in QS density in that ranking. Those with higher QS density tend to outperform those with lower, even over longer periods. Consider also the performance distribution of QS attractors over the period from 2010 through mid-2020. For comparison, during that decade, the cumulative return of the S&P 500

 was 181.9% and of the Russell 3000 180.73%. In the following chart, such performance places both indices in the 100–200% performance band (red bar). Of the top 69 QS attractors, 28 underperformed both indexes while 41 outperformed. The hypothetical portfolio outperformed the S&P 500 by around 200%.

In future articles written exclusively for MarketWatch, I will identify scores of companies that attract QSs in high density.  As a sampling, here are some leading QS attractors:  Amerco (U-Haul)

  ; Churchill Downs

 ; MasterCard

 ; O’Reilly Automotive

 , and Sherwin-Williams

 .  An enterprising investor could profitably use the QS ranking as a filter to identify potentially outstanding investments; the less bold could simply use the QS-25+ names I will share to construct a model portfolio. 

How to attract quality shareholders

What unites these and other companies that attract QSs in high numbers? Examining a wide variety of practices of companies that attract QS in high-density, a few themes emerge.

First, companies cultivate this cohort through corporate communications such as mission statements, shareholder letters, and annual meetings.  Such staples of corporate life are ignored by virtually all indexers, most transients, and some activists. But astute managers appreciate them as fruitful vehicles to engage QSs.  

Second, companies attract QS and repel transient shareholders by avoiding quarterly earnings guidance and conference calls in favor of a longer-term focus. They adopt, publish, and discuss honest long-term performance metrics, such as economic profit and return on invested capital, in lieu of popular fixations such as earning per share.  

Above all, companies commit to what QS value most: effective capital allocation. This refers to a simple but elusive idea that treats every corporate dollar as an investment put to its best use, whether organic or acquired growth, debt reduction, dividends or share buybacks.  

QSs are quiet pillars of American corporate finance and unsung champions of corporate America. While not everyone can or should be a QS, the U.S. economy would be better off with more of this patient focused cohort. Here’s a tip to all investors hunting for outstanding investments: search out those companies that attract a high density of high-quality shareholders.

Lawrence A. Cunninghamis a professor and director of the Quality Shareholders Initiative at George Washington University.   He has written dozens of books including the forthcoming Quality Shareholders: How the Best Managers Attract and Keep Them (Columbia Business School Publishing, 2020).

Cunningham also has authored scores of research papers, including Empowering Quality Shareholders and Cultivating Quality Shareholders. Subscribe here for updates.  

Read:This mutual fund may have cracked the ‘Buffett Code’ — Berkshire Hathaway’s secret sauce

Plus: How Warren Buffett is fighting to ‘keep the wolves away’ from Berkshire Hathaway — and winning

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Americans can’t file their income taxes fast enough — but they should brace for some unwelcome news in their 2020 returns




It seems like you can’t get people to file their 2020 tax returns fast enough.

People are filing their taxes at a blistering pace so far this year, underscoring how serious Americans are about getting any tax refund due or any stimulus-check money they missed last year. The IRS began accepting and processing 2020 tax returns slightly later than usual because its systems needed a breather after distributing a second round of stimulus checks in late December.

However, there is some bad news that many Americans should be prepared for when they finally get their return: The average refund so far is $2,880 — as unemployed skyrocketed in 2020 due to restrictions on businesses and shelter-in-place orders due to COVID-19 — significantly less than the $3,125 average refund at roughly the same point last year.

New IRS statistics released Thursday, when put in context, show people are submitting their individual tax returns at a much greater rate than they were early into last year’s tax season. As of Feb. 19, only eight full days into the 2021 filing season, the IRS received 34.69 million individual returns, agency statistics show.

That’s 30.5% fewer returns than the 49.8 million received by Feb. 21 last year — but that was 26 days into the 2020 filing season and weeks before conformation that the coronavirus had really taken hold in the U.S. Simple math, in fact, suggests the volume of individual returns this year.

Simple math suggests the volume of individual returns this year.

When dividing the nearly 34.7 million returns so far this year by eight filing days, the result is 4.3 million returns filed per day. The 49.8 million returns filed last year, divided by 26 filing days comes to 1.91 million returns per day.

Put another way: The IRS has received approximately 21% more individual returns than the agency received last year by Feb. 7, which was 12 days into the tax season last year. Right now, Americans are facing an April 15 deadline to file and pay their taxes (June 15 in Texas), unless they get an extension to Oct. 15, which gives them more time to file their return, but not to pay.

However, they don’t yet factor in refunds that include payments for the Earned Income Tax Credit, a powerful anti-poverty tax credit geared towards low- and moderate-income working families. Refunds incorporating the EITC and the Additional Child Tax Credit will start hitting bank accounts during the first week of March, according to the IRS.

After the Internal Revenue Service started accepting tax returns on Friday, Feb. 12, the agency took in 55 million returns in the first weekend alone, Internal Revenue Service Commissioner Charles Rettig said this week. These 55 million tax returns were not just individual tax returns. They also included business returns and a variety of other returns, IRS spokesman Anthony Burke said.

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‘Greed is rearing its ugly head and killing brotherly love’: My husband and his brother are at war over an inheritance from a beloved neighbor. What can we do?




Dear Quentin,

When my husband and his only (younger) brother were growing up, a childless neighbor was very kind to them and treated them as if they were her “nephews.” They even called her “Aunt Hilda.” They also treated her like family; my husband has visited her regularly over the years. But greed is rearing its ugly head and killing brotherly love.

When my husband was away in the army 30 years ago, Aunt Hilda gave a house and a piece of property to my husband’s brother when she decided to move to another state to care for her future mother-in-law, with the written legal condition that she had a lifelong ability to return and live in the house as well, should she want to or need to.

The brother decided he didn’t really like those terms, and after living in the house for a couple of years, used the “collateral” of the property to borrow money to buy a plot of land elsewhere and build another house. The “old” house has sat vacant for 20 years, but he does the minimum to keep it from disaster. She does not stay there because it is not maintained. He has stated that he doesn’t want to do anything that will encourage her to move back into the house.

‘At first, she discussed splitting her property 50/50, then she recalled that she had already given the brother the other house and land.’

Recently, the husband of Aunt Hilda died. She is 80, and decided that she wants to write a will to leave her money and property to my husband and his brother. At first, she discussed splitting her property 50/50, then she recalled that she had already given the brother the other house and land (current value is about $400,000, no small sum).

Now Aunt Hilda says since she has already given the younger brother the other house and the land, that should be taken into consideration. The brother is sending lengthy emails to my husband trying to convince him and Aunt Hilda that the previous “early inheritance” should not be taken into consideration “because it cost him so much trouble and work.”

It is of course up to Aunt Hilda how she wants to divide up the property, and whatever that is, everybody should respect her wishes. But if she asks the brothers how to do it fairly, what do you recommend? She is 80, but she might live another 15 years and any value assigned to the brother’s house today would likely change.

There is much more that could be added as to my brother-in law’s attempts to gain more than his brother, none of which reflects well on his character. My poor husband is heartsick over his brother’s greedy behavior, especially when he should be focusing on the welfare of Aunt Hilda — who just lost her husband — and grateful that she considers to leave them anything.

Should we intervene?

The Wife

Dear Wife,

Your brother-in-law is a lot of work and his inherited property is a lot of work. In that sense at least, as God made them, he matched them.

Your brother-in-law could be less self-centered and more compassionate, and it wouldn’t do any harm if he had one charitable bone in his body. But that is not who he is, and trying to wish him to be someone other than himself is an exhausting and ill-advised endeavor. Accept him for who and what he is, and you will both enjoy more peaceful nights as a result.

Remember, if one crazy person wants to have a fight with you, and you finally relent, there are two crazy people in that fight rather than one.

Your husband regards Aunt Hilda as a beloved relative and her estate as a gift, while his brother sees her estate as a lemon that can be squeezed time and again. What would I say to his brother? “The property required a lot of work over the years, and you have benefited from the property over the same amount of time. You chose to accept this inheritance early, and it has worked out very well for you.”

If he continued to make waves? I would feel compelled to tell him that it’s just plain unreasonable to constantly push for more. The love and care he lavished on his own property has been in direct proportion to the lack of care and duty bestowed upon Aunt Hilda’s home, and for all the years he enjoyed this property, she did not. You have to be prepared to stand up for what you believe is fair.

And remember, if one crazy person wants to have a fight with you, and you relent, there will be two crazy people in that fight rather than one. For that reason, advise Aunt Hilda to hire an estate attorney to draw up the papers fairly and squarely. Lawyers are paid well to deal with difficult personalities, and they have a duty to make sure their client’s wishes are upheld.

You can email The Moneyist with any financial and ethical questions related to coronavirus at

The Moneyist: ‘Warren Buffett and Harry Potter couldn’t get those two retired early’: Our spendthrift neighbors said our adviser was ‘lousy.’ So how come WE retired early?

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Opinion: Higher interest rates could mean more cash for seniors




Here’s a common complaint I hear from seniors all the time: Interest rates are so low that it’s impossible to earn enough cash to supplement Social Security.

“Certificates of deposit don’t earn anything,” writes MarketWatch reader Camille: “Until the mid-2000s, you could easily earn 4% on a certificate of deposit (CD). Today, your money does not earn anything, which penalizes small savers and seniors.”

She’s right. Based on rates as I write this, if you put $500 into a one-year CD, you’d get back about $502.76 in 12 months. Wow! Two whole dollars and 76 cents! Probably enough for a loaf of bread or a gallon of gas, but not much else.

Low interest rates are a double-edged sword. If you’re borrowing money, it’s obviously good, but if you’re trying to make a few bucks, no. And this isn’t likely to change in any significant way, given the Federal Reserve’s recent announcement that it plans to keep its key “Fed Funds” rate low until the economy and jobs market picks up steam.

Since things like money-market funds and certificates of deposits are tied to the Fed, that’s tough news for anyone hoping to squeeze more out of their savings.

Meantime, those paltry returns stand in contrast to things that keep shooting up, like the cost of healthcare. I recently reported that drug prices, for example, are rising much faster than inflation, and much faster than the cost-of-living adjustment that seniors typically get from Social Security.

This one-two punch—more money going out and less coming in—is punishing seniors, pushing many closer to, if not into, poverty.

The need to earn more has nudged some seniors into the stock market, which in and of itself isn’t necessarily bad; financial advisers typically say that given the possibility of decades in retirement, even seniors should have some exposure to equities. But with stocks at nosebleed levels—the price-to-earnings ratio on the S&P 500

 is up 80% from a year ago—caution abounds. As usual, I’ll emphasize that how much a retiree should have in stocks depends on factors like age, risk tolerance and so forth, and is best discussed with a trusted financial adviser.

It’s often tempting when rates are super low like now to put cash into things with fat dividends, but “you have to be very careful,” cautions Andrew Mies, chief investment officer of 6 Meridian, a Wichita, Kansas-based wealth management firm. “Saying I’m going to go buy a high dividend-paying stock or MLP (master limited partnership, an investment vehicle common in capital-intensive businesses, like the energy sector) were disasters in 2020. Buying high-dividend stocks was one of the worst performing strategies you could have had last year, and some MLPs were down 30-40%.”

In other words, what’s the use of buying something that pays a dividend of 8%, 9% or more—only to see the stock itself plunge by a third? One market strategist, the late Barton Biggs of Morgan Stanley, once said “More money has been lost reaching for yield than at the point of a gun,” and he was right. Echoing that is none other than Warren Buffett, who has called reaching for yield “stupid,” but “very human.”

So what to do?

Mies urges something that many people have trouble with: Patience. That’s because rates, all of a sudden, appear to be moving higher, and if you can wait a bit, you just might be able to find safer investments that yield more than you might be able to get now.

He’s right. As of Friday, the yield on the 10-year Treasury bond stood at 1.34%, hardly robust, but up from 1.15% for the week. Two things to remember here: When bond rates go up, bond prices go down; higher bond yields can also make stocks less attractive on a relative basis as well.

Mies thinks rates will continue to climb. “I think you’re going to have a chance in the next 12 months to put money to work at higher interest rates.” Buying or selling are choices, but so is doing nothing, so “I do think that not getting aggressive right now is probably the most prudent action.”

And after rates go high enough, he thinks municipal bonds could become more attractive, corporate bonds could, Treasurys could. “There will be pockets of opportunity that pop up.”

You may want to consider what have long been considered so-called “widow and orphan” stocks: utilities. “Utilities have been trading as if the 10-year (Treasury) is significantly higher than it is. That could be a spot worth dipping your toe in.” Possibilities to consider—preferably in consultation with your financial adviser—include the Standard & Poor’s Utilities Select Sector Fund

and iShares’ Global Utilities ETF
XLU currently yields 3.3%, while JXI yields 2.78%, certainly more than those measly rates found in CDs or money-market funds.

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