Motley Fool Hidden Gems Investing - Many Thanks, Mr. Buffett

Episode Date: November 27, 2024

Warren Buffett sends us into the season to be thankful with his philanthropic acts and his poignant words, and gives us all a place to start the conversation with family about money.   (00:14) Asit Sharma and Dylan Lewis discuss: - NBC’s negotiations to extend their rights to broadcast rights to the Macy’s Day Parade, and why holiday live events are turning into an arms race. - The expectations for Black Friday through Cyber Monday, and two predictions on the direction of consumer spend and who will be driving it in future years. - Warren Buffett’s plans for passing his wealth on to his family and philanthropic efforts, and the words of wisdom we should all have in mind as we get together with loved ones this week.  Visit our sponsor: Learn more about the Range Rover Sport at www.landroverusa.com Companies discussed: CMCSA, M, NFLX, AMZN, BRK.A, BRK.B,  Host: Dylan Lewis Guests: Asit Sharma Engineers: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

From morning hockey with a cup of coffee, to Timbits and road trips, Tim's and Canadian Tire have always gone together. Now it's official. You can now earn Canadian Tire money at Tim's. Link your Triangle Rewards and Tim's Rewards accounts to earn twice with every Tim's run. Terms and conditions apply. Visit timhordens.ca slash triangle for details. We're digging into the business of buying, selling, and giving. Motley Fool Money starts now. I'm Dylan Lewis, and I'm joined over the airwaves by Motley Fool analyst Asit Sharma.

Asit, thanks for joining me the day before Thanksgiving. Dylan, I appreciate the opportunity to be here with you and other members right before we all slide into the holiday. It's all about getting together this week. I'm glad we get together at least virtually one more time before we go hang out with our families. We have a preview of some topics that our listeners can bring to the Thanksgiving table. and one way that the world's richest man is going to be paying it forward very in the spirit of the

season. I want to start, though, with the Macy's Thanksgiving Day Parade. It will be on at tens of millions of households around the country tomorrow morning. Asit, will it be on the TV at your house? It probably will, Dylan. It's not something that we consciously tune into every year, but somehow we end up with it either sort of left of center or in the background. I mean, who doesn't, right? It's part of the oxygen of Thanksgiving, I think. It's just kind of there for people. And a lot of people at Macy's and a lot of people at NBC are very happy about that because it means a lot of money for both of them. We saw a headline today that we want to kick around from the Wall Street Journal talking about how execs at both of those companies

looking to iron out a deal that will continue the 70-year partnership that's been at play for the next decade. The sticker price that is being reported is that it will cost $60 million per year to broadcast this event. That is a lot of stuffing, Asit. Totally. And I think this is indicative of how important live broadcasting is. As we look around the landscape. We've seen money going into live sports content. It's just such a premium over content that's already made as we watch more and more of streaming services. The Wall Street Journal, which had this article as an exclusive, I think made this point very well. And something else here too, Dylan, I think this is such a crucial time of the year for companies that want

our eyeballs. We're all at home. We're in relaxation mode. So having those rights, being able to be in front of so many millions of eyeballs in a critical week, in terms of mindshare, I think is so important for NBC. They are willing to pony up what's essentially a tripling of the annual price from $20 million to $60 million. If you're wondering out there, how can they possibly justify tripling the annual price of this deal over time? Well, it turns out NBC sold about $55 million in ads last year against the broadcast. So, it's not hard to imagine how the folks over at Macy's might work to that $60 million number. What I think is kind of interesting here is if you put those two together, you say,

we're probably operating out about break-even, maybe a slight loss with that $60 million sticker figure. And this winds up being a draw, a subscriber draw for Paramount Plus and some of the streaming products and properties that they have. But if you think about a 10-year deal and the trajectory of ad rates, they are probably going to be making money on the backside of this deal, even if they're taking a slight loss at the beginning of it. I like that, Dylan. And I think that this happens, you and I were chatting right before we started taping. I think you were saying you saw it at maybe the middle of the term to the end being pretty lucrative. Who knows? It could be sooner just because of that pressure now

to grab attention from people who are available and watching something live. Maybe even in year four, it starts to become lucrative. And I think also they've got decades of experience locking in these longer term contracts to look back and say, yeah, we can afford to absorb this price increase because, well, look at 1970 to 1980 when we thought that we were just going to break even and look how much money we made off of that. So this is something that's not only brand share for NBC, but it's so many things. It's also prestige. It's something that you don't want to take lightly to give up to a competitor to walk in and take that deal. So there are many reasons why NBC is ponying up. And I think they're doing the right thing. I would

do the same in their shoes. I imagine that they have probably had a couple other suitors over at Macy's because we have seen a lot of the streamers hop into the live event space, especially around the holidays. As you noted, Amazon dropped $100 million for the first NFL Black Friday game last year, sold out all of its ad inventory. Netflix paid $150 million annually for broadcast rights to two NFL games on Christmas Day over the next three years. The numbers are getting very large here, Asit. Is there a point where we have to start being concerned about how big these deals are? I think for shareholders, you just see this being replayed under different guise, and it becomes a clash between the executives who are feeling the anxiety of getting the rights

and the accountants who come in later and say, guys, no more. This is it. This madness has to stop. We have seen this in content production. There was a time when Netflix, Disney, all major competitors, and Amazon was playing this game a little bit too, just had unlimited budgets for productions. They wanted to grab subscriptions that way. It became unsustainable after a while. And Netflix, the biggest spender of them all, even has pulled back and has a much more rational approach to production these days. So I think we're going to see this come back down to earth, come back down to reality. The accountants always win at the end because they are trying to protect the interests of shareholders. And shareholders at the end of the day,

yeah, they want the market share, but they want profits at some point. You got to make some money in this game. Those that are buying ads on these special streams, whether they be the Macy's Day Parade or those Christmas broadcasts I mentioned, looking to drive customers to sites and to stores over the holiday season. And kind of a nice opportunity for us to check in on some of the expectations for Black Friday, Cyber Monday, some of the biggest retail days of the year. Bain & Company estimating that this year, spending will hit $75 billion between Friday and Monday of this week.

Asit, are you going out to the stores? I probably am not. But the only reason is that I've just come back from a trip abroad. So I'm all spin out and discipline requires that I be rational about this. But I will tell you, Dylan, you know, we budgeted our holiday. We came back and here's Black Friday right in front of me. You start seeing offers in your inbox. You open your phone.

People are showing you enticing stuff that's 30 and 40% off that you've been looking at during the year. I wonder how much willpower I'll have to resist this week. We'll see. We could chat about this after the holiday. I will say I'm getting married in the spring. And so there are some very specific things for our wedding invites and things like that, that we've been waiting for the deals to buy over the weekend.

We've been trying to resist the urge to spend on things that we don't need. But there are some targeted things on our list. What kind of strikes me as I look at the estimates, 5% up from 2023 on that holiday period, I think the period is going to be about 8% of holiday sales overall. It doesn't seem like all of these headlines we've seen about the stretched consumer, a tighter home budget, is flowing in or affecting holiday spend at all. It's strange to see it, but we begin to look at retailer strategy as such a year-long exercise in the years leading up to, for example, Cyber Monday becoming a thing.

This was maybe a, let's take advantage of the moment type of situation for major retailers. And now, the planning for next year's Cyber Week begins sometimes a year and a half in advance. it next year, and then we are also looking at inventory for the year after on the retailer side. The strategizing for major names where we shop, the Amazons, Walmarts, Targets, and then the Best Buys, then going down to specialty companies we all shop at, that planning is pretty formalized at this point. What happens is we get discounts, we just can't refuse, and it's a game. The retailers wait for us to spend, regardless of what's happening in

personal budgets, we also have items that we're waiting to buy this week. It's so weird, Dylan, I have the same sensation. You think like, could this really go on? Could this season be bigger than last season? But somehow it seems to because on both sides of the transaction, the parties are waiting through the year for a little bit of spend that they're both expecting and year after year it grows. I did want to point out, you and I both look at the Adobe report. Adobe puts out their projection each year and they are looking at an 8% increase for the season, which they define as starting at Thanksgiving and going all the way to the end of the year. That is just nuts when you think about, as you point out, how stretched we all are,

how much inflation has been a factor, but we have this ability to just place our spends during the year. I'm going to make a prediction. Next year, it's going to slow down. It's got to. That is dangerous because we are recording, Hassit, so I will hold you to account on that prediction. I guess I'll have to have you on the Wednesday show again next year. Looking at that Adobe report, I think one of the things that jumped out to me, they have an intense focus on digital channels with what they look at. And no surprise, paid search is the main driver of sales on the e-commerce side. It makes up about a quarter of all sales. But the channel that is fastest growing in digital is a little bit surprising

to me. It is affiliates and partners, which makes up 17% of digital sales. Do you know what fits into that category, Asit? Tell me. Influencers. And I feel like we are slowly seeing the creep of the parasocial relationship, the attachment that people have to influencers, and this sales channel that is new and is kind of being explored. And I feel like if you're looking for indications on retailers that are maybe a little bit ahead of the game or are skating to where the puck is, this is something that's very visible for consumers and people that are online. It's a spot to pay attention to. I think it is. And it's so weird because you used a term parasocial, which for those of you who don't know, for those of you who read books and don't spend

time online. You're giving me a lot of credit there. Yeah. So a parasocial relationship is where you start to identify with a public figure and maybe even feel that you know them on some level. And maybe in the back of your mind, maybe feel that they know you as well. And this is a very human impulse. There's nothing that strange about it. It's been there throughout history. It's just elevated now in a digital world. But I think even with a parasocial relationship that we may develop with different celebrities, at the end of the day, so much of this is transactional, right? So an influencer, someone you follow, let's say on Instagram, who you love to see their content and their suggestions. Actually, you're giving them something. You're

giving them your time and your attention. And they are also taking something. They're telling you what to buy. They're getting compensated. The retailer's getting compensated. So no matter how much we try to fool ourselves in some way, and I'm not denigrating influencers. I think there are lots of influencers out there who impart things that their followers really love and enjoy and gain from. But I am saying, yeah, you're absolutely right. This is money. This is transaction. This is commerce. And we should watch where this puck is going. It is fascinating to see the trends that we've all paid attention to. Like, okay, there's more e-commerce over digital channels. We said this a few years ago. Now there's more going towards mobile devices. This is a trend that

I think is very interesting because it shows like the human brain is wired for connection and you can do a lot with that. I don't mean to sound cynical here as we're headed into what's going to be, I hope a wonderful holiday season for everyone. But just as major companies who make devices and apps got very savvy at exploiting our attention spans, I think the best influencers really know which buttons to press to get our attention and to get us to buy things. And the most successful of them, I think are going to have very lucrative careers. I don't think this ends anytime soon. You made a prediction a little while ago about the general direction of spend. I will make one on this category. We are locking down the next year's Wednesday before Thanksgiving.

We're going to revisit these predictions. That's right. And my prediction is that I think we will continue to see this sales channel expand for a lot of major retailers. I think we will see much more intentional influencer strategies. And I would not be surprised in the coming years to see specific management commentary about those strategies over time. Because as we see them grow, they're going to become more and more relevant. And I think the people who can harness that are probably going to see some rewards in the form of holiday spend, Asit. Very much so. Last point on this one. Just like we see things like prompt engineers gaining prominence in our society and making money, just building a prompt for AI. I think

that the ability to identify an influencer in his or her or their early stages before they have huge audiences is going to be very important to corporations and they will hire that talent. The people who can find the next big influencer before they get big and blow up is something that marketing organizations and retailers will place a premium when they talk to their executive of hiring coaches and firms. From morning hockey with a cup of coffee to Timbits and road trips, Tim's and Canadian Tire have always gone together.

Now it's official. You can now earn Canadian Tire money at Tim's. Link your Triangle Rewards and Tim's Rewards accounts to earn twice with every Tim's run. Terms and conditions apply. Visit timhordens.ca slash triangle for details. Okay, a little bit less in the spirit of buying, a little bit more in the spirit of giving.

We got an update this week by way of a formal letter from Warren Buffett on his planning for his family wealth and also his philanthropic contributions. And we can talk about the money side of things a little bit, Asit. But I think what I was really struck by reading the letter is he is 94. We have for a long time speculated about the future of Buffett, the future of Berkshire. And pairing this with his recent annual letter, I think we see him more and more kind of coming to terms with his own mortality. I think so, Dylan. There are references to Father Time. He expresses gratitude for having made it this far and acknowledges that maybe that's a function of some luck. In fact, the letter talks about his luck in just being born at the time he

was being born and being a male in this society. So many things that contributed to him being able to have the success he's had. But here we have a reflection as all of us do, as we reach the end, we reflect on life, we reflect on our legacies, many of us, and the choices that we made. And Buffett shows here that he's one of the wealthiest people on the planet, but he's no different at the end of it. You can't take it with you when you go. So I love that this letter, which purports to talk about the choices for his charitable

foundation is also a reflection on his career and the choices that he's made about money in many places. We are a money show, and so I will hit the money side of it so that we can get a little bit more into the softer, more holiday-oriented themes that pop up there. He lays out his plan for giving away essentially 99.5% of his wealth. He will do that by converting 1,600 A shares of Berkshire into 2.4 million B shares. Just a reminder, those are voting shares and non-voting shares there. And those will go to four different family foundations, the Susan Thompson Buffett Foundation, the Sherwood Foundation, the Howard G. Buffett Foundation, and the Novo Foundation. And he is really putting the future of his wealth and the

places that it will go to in the hands of his children. Yes. And it's not without a lot of thought and foresight. This letter makes it clear that he's spent a lot of time contemplating on whether his children are the right vessels to distribute that wealth. And he talks about how they've each managed teams of people, started small with managing a little bit of philanthropic money, and they've grown into the roles. And then he also says something so interesting, which is, hey, look, I'm past 90 and my kids are no spring chickens either. He has three kids and they are all either approaching their seventies or in their early seventies. So he names some unnamed successors. He says there are three people who can take over the reins from

my kids. But basically this is something that's been in the works for a long time. And there's an effort here to explain it to shareholders and whoever else is reading that this isn't some sort of nepotism, and he's just handing the keys over to his kids without them having been to driving school. This is something that they want to do. They have the experience now, and he has a lot of faith that they will sort of execute his desires and his wife's desires as they dole out this money. And it's a lot of money, Dylan. They have to disperse billions for the next several years, it seems like it would be easy, but we know that the opposite is true. As is often the case when it comes to a Warren Buffett letter or interview, there is the tangible

takeaway for Berkshire shareholders. And then there are the insights and advice that I think almost anyone can take and bring to the way that they look at money, the way that they look at the people around them. And there was a piece of financial planning advice in there that I want to highlight, because I know a lot of people will be getting together with loved ones over the next couple days. Maybe this isn't the most appropriate Thanksgiving dinner table conversation, but if you find yourself with some time with the people you love, I want to give this quote some airtime. He writes, when your children are mature, have them read your will before you sign it. Be sure each child understands both the logic for your decisions and the responsibilities they will

encounter upon your death. Asit, I don't have children, but you do. And I'm curious, reading this as a parent, what did you think of it? I thought it was golden advice, Dylan. Talking about money is one of the hardest things to do. So, you know, you and I talk about money every day, but the serious conversations are the ones we tend to keep to the end when we should be talking about them along the way and having frequent conversations with the ones we love. One of the things that Buffett brings up here is that if you don't really talk to your kids about what you're leaving them, there's no way to answer back if they have a question at the end. If they feel that one sibling got more and they don't understand it, he says, you know, perceived

slights from childhood can come right back. There can be misunderstandings and you really don't want to leave that for a kid who has a question and you can't answer back. And I thought that was such sound advice. Leave aside all the rest. And it's just common sense that, wow, tell your kids what you're going to do. Then they can discuss with you and maybe make suggestions. He says, be receptive. They may have some advice for you to do things a bit differently. And there's nothing wrong with that. I mean, he had that relationship with his father. But the fact that money is so sensitive and it's emotional. Dylan, it's not abstract. It's an abstraction, but there's something very real about money that can affect the way that we think and feel about past events

if we get a transfer of assets from someone we love. So I thought that was just amazing advice. And it was stated in a very pithy manner as always. Anything you read by Warren Buffett just doesn't have a superfluous word in it. And as a writer myself, I'm just always insanely jealous to see how he can communicate so many things with so few words. It's like just seeing that person who's good at everything. He's better at managing money than us. He's better at writing than us. It just doesn't seem to matter to us that he has us across the board. True. So what did you think of that, Dylan? So perhaps in the future, you'll have kids. Was Was there anything in that advice that stood out to you that, you know, made you reflect on, you know, maybe your future actions?

You know, I think for me being the child in this dynamic or in this hypothetical, it was a good reminder that I have some ideas about what I think my parents value and what I think their wishes would be, but that I need to clarify them. Uh, you know, we've had bits and pieces conversations over the years when it's come to the way that they want things to be handled. I'm kind of in the lucky unlucky position of being an only child. And so I don't have to worry about having two other siblings like the Buffett children, but that, that kind of comes with its own set of problems as well. And so I think for me, it's, it's just a golden reminder, take advantage of the time that you have with people while they're alive, make sure that you can do your best to live

out their wishes. And if there's anything that might get in the way of that, try to clear that air as soon as you can. I agree that that's a lot of great wisdom as we're headed out towards the holiday weekend. And I have just a piece of practical advice for anyone listening. If you're thinking that you need to have this conversation, either with your kids or your parents, use Warren as your entry point. Just say, hey, I read this great piece by Warren Buffett.

This paragraph made it seem so logical. We don't have to do it now during Thanksgiving, but maybe, you know, in a few months we can talk about these things. And, you know, just show them even that piece that you read is, I think, maybe is a conversation opener for many people. That is the perfect advice to head into Thanksgiving weekend. Asit, thank you so much for joining me today. Now go enjoy some time with your family. Same with you, Dylan.

Thank you so much. I'm so grateful to be able to do Motley Fool Money with you. And I hope you have an awesome Thanksgiving as well. Listeners, we are thankful for all of the time that you spend with us, listening to the show, writing to the show. So sharing the show with the people that you love, I'm going to bring us home today with some final words from Warren Buffett's letter that felt true to the spirit of Thanksgiving and what I hope people have in their minds as they're spending time with family this weekend.

We shared a view that equal opportunity should begin at birth and extreme look at me lifestyles of living should be legal, but not admirable. As a family, we've had everything we needed or simply liked, but we have not sought enjoyment from the fact that others have craved what we had. It also has been a particular pleasure to me that so many early Berkshire shareholders have independently arrived at a similar view. They have saved, lived well, taken good care of their families, and by extended compounding of their savings, passed along large, sometimes huge sums of money back into society.

Their claim checks are being widely distributed to others less lucky. Listeners, we hope you have a wonderful Thanksgiving wherever you are, and whoever you're lucky enough to be spending it with, and thank you for spending your time with us. We'll be off tomorrow for the holiday and for the weekend, but we'll have our usual annual Thanksgiving radio show special on Friday. As always, people on the program may have interests in the stocks they talk about, and Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Motley Fool only picks products

and personally recommends friends like you. I'm Dylan Lewis. Thanks for listening. We'll see you soon.