thepupil

I thought it was interesting when he was talking about apple - a $75-80 Billion position for Berkshire - that he characterized it as their 3rd biggest commitment after Insurance and the Railroad. Which indicates roughly how he values those two businesses within Berkshire. BNSF 2019 Pre-tax income: $7.2 billion which is 93% of UNP's pre-tax income. UNP is a $121 billion market cap, so it makes sense (assuming that UNP is not wildly over/undervalued) that BNSF is viewed as a bigger position. he also paid $44 billion for BNSF inclusive of debt and paid $35 billion or so for his AAPL stake so he could mean that too. Either way, BNSF is very valuable and has been a great purchase. I'm a heretic and think it would be good to highlight its value through say a taxable spin-off of 5-10% of the company. it already files K's and Q's (as does Energy) and would require no effort; I also don't know this, but I think insurance regulators would like it being public, but maybe not. it's all optical in that i think it would serve a lot of purposes that aren't economic: highlight Berkshire's diversification (it's not a bank stock!) highlight th degree of transparency offered byt BE and BNSF, etc. the counter would be the stub float of BNSF would trade at a discount to UNP and then people would argue for a congo discount on top of that, so it could be value destructive! i would prefer stub flotations of BE and BNSF and maybe even PCP, but I recognize that's probably not a widely held view.

I don't think we need to see some dramatic tender offer or anything like that for the buyback to be meaningful. of course it would be nice. the S&P 500 total shareholder yield is 4-5%, 1.8% via divvies and 3.1% from buybacks. https://www.yardeni.com/pub/buybackdiv.pdf While there will be some variability, at about $2.2 billion / quarter (1.6% annualized) and rising, Berkshire has started to close the gap with S&P 500 with respect to capital return. The buyback helps slow the growth of excess capital (or eventually reverses it). A 2% buyback yield (hopefully more over time, unless there are better opps) removes the straw man of "what if they just build cash forever". Cash built by $16 billion over 2019, but it stopped building in 4Q as buybacks went up. berkshire's a slow moving beast, but the trend is your friend. one man's "pretty much zero repurchases" is another man's "1.6% annualized buyback yield = 1/2 the S&P 500, perhaps more over time, particularly if stock goes down" media reported cash pile: 4Q2017: $116 billion 4Q2018: $112 billion 3Q2019: $128 billion 4Q2019: $128 billion

Capex outpaces depreciation mostly at BNSF and BE (in dollars, not %). Combined these had ~$5.2 billion of depreciation and $11 billion of capex. Both of these companies had okay to pretty good years. I don't think there's anything too worrying in the reports. In the context of other companies results, Berkshire's earnings are consistent. Anything having to do with China was down, other stuff did okay, and there was a fire at Lubrizol which had a down 50% 4Q and down 14% year. Page K-110 breaks out the capex and depreciation. Not a banner operating year, but a good one consistent with my overall understanding of the subsidiaries quality and earnings power. After-tax earnings of our railroad business increased 5.0% in 2019 After-tax earnings of our utilities and energy business increased 8.4% in 2019 Earnings from our manufacturing, service and retailing businesses were relatively unchanged from 2018. Operating results of our manufacturing, service and retailing businesses in 2019 were mixed, with several of these businesses experiencing lower earnings in 2019 from a variety of factors. Revenues and pre-tax earnings in 2019 of certain of these businesses were negatively affected by the unfavorable effects of foreign currency translation attributable to a stronger U.S. Dollar, international trade tensions and U.S. trade tariffs. PCC’s pre-tax earnings increased 5.1% in 2019 compared to 2018 Lubrizol’s pre-tax earnings in 2019 for the fourth quarter and year decreased 50.5% and 14.6%, respectively, compared to the same periods in 2018. Earnings in 2019 were significantly impacted by costs and lost business associated with the Rouen fire. Lubrizol’s operating results in 2019 were also negatively affected by lower sales volumes, higher manufacturing expenses and unfavorable foreign currency translation effects, partly offset by improved material margins. Marmon’s pre-tax earnings in 2019 increased $12 million (1.0%) as compared to 2018. The earnings increase reflected the effects of business acquisitions, partly offset by lower gains from business divestitures IMC’s pre-tax earnings declined 12.8% in 2019 versus 2018, attributable to unfavorable foreign currency translation effects, changes in business mix to lower margin items and the effects of the U.S./China trade disputes. Pre-tax earnings of Clayton Homes were $1.1 billion in 2019, an increase of $182 million (20.0%) compared to 2018. The earnings increase in 2019 was attributable to home building activities, which reflected the increases in home sales, and manufactured housing lending activities. Pre-tax earnings of the service group were $1.7 billion in 2019, a decrease of $155 million (8.4%) compared to 2018. Pre-tax earnings of the group as a percentage of revenues were 12.5% in 2019 compared to 13.8% in 2018. The comparative declines in earnings in 2019 were primarily due to lower earnings from TTI and FlightSafety, partly offset by higher earnings from NetJets. TTI’s earnings decline was attributable to lower gross margin, unfavorable foreign currency translation effects and higher operating expenses, partly offset by earnings from businesses acquired. FlightSafety’s earnings decline was attributable to significant losses related to an existing government contract that were recorded in the fourth quarter, partly offset by lower training equipment impairment charges. Retail group pre-tax earnings were $874 million in 2019, an increase of 1.6% over 2018. BHA’s pre-tax earnings increased 22.7%, primarily due to the increases in earnings from finance and service contract activities, partly offset by higher floorplan interest expense.

+1 cash does not go up/down 17% with a 1% move in rates, like TLT does :)

So this is a weird and potentially outdated answer but if you have smart middle / high school kids, I think the PSAT is an incredibly undervalued test that a lot of high achieving kids ignore or dismiss as a “practice for the SAT”. Because PSAT determines National Merit Scholarship, and becauee many good schools give full rides to National Merit Finalists, in my view the PSAT is the most important test in high school for those in the top 0-5% who have a chance of being the top 0.5% of scorers in their state. I studied for a year for the PSAT with a privat tutor and was recruited like a freaking athlete for honors programs at decent schools because of it. I didn’t end up going to one of those but the point stands. I assume it helped my admission to my school. Many of my high school peers were smarter but didn’t emphasize the PSAT as much. If you have a smart kid, investing a year and a few grand of time into PSAT prep could have huge ROI for the right circumstance. That said think national merit is generally being de-emphasized as its kind of being recognized as an arbitrary thing that benefits privileged schmucks like me who prepped for it and had the guidance to do so. I am aware of the douchiness of this post.

I would recommend against this path where each kid ends up with very concentrated positions in different stocks. there are situations where this ends poorly. I know of a situation where grandparents had given two siblings some stocks for education. one siblings account had a big position in GE; another had a big position in XOM. the financial crisis was far more devastating to GE. unintended inequity was the result. I'd recommend ETF's/indices or berkshire (less likely to have a high variance outcome, but still a single stock) for this purpose.

I am thoroughly confused by the turn this thread took and some of the responses here. Is asking questions and trying to frame the likelihood of something a reasonable thing to do on an investment board? If RuleNumberOne says "where is the growth in the Dow Jones?" is it reasonable to provide the data with recent growth from companies in the DJIA or S&P500? If RuleNumberOne says "companies are overlevered" is it reasonable to provide data for the S&P500 ex financials showing leverage levels and credit spreads to frame that discussion If RuleNumber one says "I made 55% unlevered timing the market", is it reasonable to download the monthly returns of the S&P 500, put absolute value in the column next to it, and ask why RNO's returns are higher than perfect market timing? Is it reasonable to ask for the potential sources of outsized returns? I don't understand why we cannot ask analytical questions on an investment forum? Don't we post things to be challenged and hear others' views? I was curious and skeptical, so I asked for more information, and tried to contextualize my skepticism in the context of data. I didn't scream "RNO's a liar" immediately after he said he had superior investment insight and the best returns on this website outside of cryptomillionaire Fat Pitch I am genuinely surprised that this would inspire someone to not post here.

for a rather raunchy and ridiculous comedy about Vikings, I recommend Norsemen on Netflix.

what do you mean by this?

Since 10/2013, the S&P 500 has returned 13.1% / year. If one had perfect monthly market timing and only invested in the up months (meaning if you were able to know in advance that a month was going to be a down month and then went to cash (0.0%) for that month, and knew when to get back in for the positive months), one would make 24.7% / year. If one had even more perfect timing and knew when a down month was going to happen and shorted the market at the beginning of the month basically take S&P returns and use the Absolute value function, then one would make 36.8% / year since October 2013 There's obviously benefit to market timing if it can be done well; making 24.7% is a lot cooler than making 13.1%, and making 36.8%/year is even cooler. But do you see why people are having trouble not concluding that false or misleading statements are being made? The stated strategy is unlevered, no options, market timing based on feel. When we do a simple compounding of s&P returns where one had PERFECT hindsight, we are still waaaay short of the claimed returns. If I'm being a member of the dreaded "forum police" or "going out of my way to be a jerk" by countering someone who is claiming that market timing is the road to compounding at ridiculous rates, then so be it.

Only you know your returns. I find the July post, the stated strategy, the stocks mentioned, and the various explanations when questioned to be at odds with those returns. If you are truly compounding at that rate, you need Not pay one iota of attention to me or anyone else. You can ignore this hater or you can provide a morenpotentially satisfying explanation Others can draw their own conclusions

Well that makes things more interesting. Mr 55% CAGR regularly stopped his compounding machine to shave an 1/8 or 1/4 off his mortgage? And made 4-5x in the past few months to beef that CAGR from a shitty 30% to a respectable 55%. C’mon RNO, I was really trying to give you the benefit of the doubt and explain your strategy. Now explain the giant factual discrepancy here. That’s some serious track record endpoint sensitivity you’re working with. Also how did we go from a lack of precision (25-30%) to having 5 year CAGR’s to the precise percentage point, particularly with your assets spread across all those accounts

RNO has mentioned nothing of his concentration or exposure levels (feel free to chime in: are you holding one or two of these stocks at a time, or a combinatino of all of them). IRA's can't use margin and he said no options, which makes this even more of a herculean feat. I understand the benefits of piling in and out and using vol to your advantage...but this is more than that. 17x in 7 years is some serious moneymaking and deserves a little more exposition on RNO's part, for the benefit of the class here.

and you "regret not benefitting from FAANGM" Well shouldn't you be happy to know that your IRA has beaten the best performing one (Netflix) by about 20% / year since October 2013? NFLX was dragging its ass at a mere 38% / year CAGR in that time frame.

no, he specifically said CAGR. On an unrelated note, I think you are joking, but dividends can't go negative because stocks don't mature or have par values*. Again, I think you are joking about negative dividend yields, but no one has commented on the degree to which that isn't possible. *well actually they have par values in a very technical sense but you know what I mean.

RNO, I'm still struggling to get there. Help me out a bit. I'm embarrassed that I just took half an hour off work to run this in excel, but whatever. From 10/2013 to today, here is the buy and hold price return (no divvies) of those stocks: BAC: 15.4% BRK B: 11.5% BRKR: 14.8% CSCO: 12.1% IONS: 7.6% MRK: 9.2% USB: 6.5% WAB: 3.1% WFC: 2.3% DVA: 5.5% PRGO: -10.9% BIIB 6.6% A few complicated ones (not 10/2013 start): PYPL: 29% / year from July 2015 ANET: 34% / year from June 2014 GoPro: Very bad from June 2014 So very broadly, you are correct, the buy and hold return on these (excluding Paypal and ANET, BAC and BRKR to a lesser extent) has not been amazing and your returns obviously have a signficant timing component to them. With absolute perfect timing, you could have made some big returns on these names. A rough approximation of "the perfect timing return" on each name (buying at min, selling at max, over that time period) is below (don't have time or desire to do something like "perfect 6 month annualized return"). There's also quite a few names that have not been that volatile or offered huge timing driven gains or compounded at very high rates (Berkshire, Wabtec, Merck, USB, WFC, Davita). and there's two stinkers (Go Pro and Perrigo). In the end, your IRA returns are no one's business and have no effect on my life, but I can't seem to square the stated results with the strategy. The inception date is 10/2013 so that's actually 6.5 years of making 55% / annum for a cumulative return of 16.9x one's initial capital. Even if you doubled your money in the first year and a half (none of the stocks listed doubled in that time fram) and then put your entire account into ANET on its first day of trading @ $43 and sold at its maximum of $330, it wouldn't quite get you there. What am I missing? Was there hyperconcentration in something? Or were options used? Teach us your ways of making 17X in less than 7 years I'm part skeptical, part curious, and part amused. You joined in MAy 2019 and its been an onslaught of random macro commentary about the Europe and the Fed, but apparently are the WORLD'S greatest stock trader and market timer. It's fascinating. ANET: +664% BRK/B +111% IONS +317% BRKR: +230% BAC: +220% CSCO +186% MRK +100% PYPL +296% USB +70% USG +164% WAB +89% WFC +63% DVA +94% BIIB +212%

RNO, so we are clear, you are saying that your IRA’s have returned 56% per year for five years (9.5x cumulative return) from buying out of favor domestic stocks and then dodging the market correction, correct? Can you give examples of these stocks? The thing I’m having trouble with is you seem wired against holding the types of stocks that have generated crazy returns in this environment (like say SAAS for example, I am too) but have clearly been doing something right. So what have been say the top 3-5 contributors over that time frame? What maximum leverage (if any) have you utilized? Any notable outliers in there? Again, just trying to understand how you invest as it’s not clear from the posts I’ve read

Okay, so when you are long, are you long futures? Or individual stocks? If so, how many? What types of companies (GARP, value-y stuff? Domestic?) you don’t have to go through your whole portfolio month by month or anything, I just generally have a feel for the frequent posters investment biases and styles, and I can’t say I understand yours. *for example, thepupil post about asset plays that are at a 20-50% discount and unlikely to have hard catalyst or be great ideas, but are unlikely to permanently impair capital. He doesn’t generate a lot of new ideas and trades around positions on a small number of names because their stock vol tends to be higher than intrinsic value vol. he isn’t the guy to ask about a compounded or get ahead of a company transformation.

RuleNumberOne, Can you discuss your investment style/philosophy/process a little bit? (Past major investments over this period for example) I didn’t go through your whole post history, but saw some earlier discussion of WFC and V but everything else seems to be negative macroeconomic commentary. I’m not questioning the numbers put forth, but am curious how they were generated/what you do (or used to do when you were less bearish) to generate those eye popping returns.

Tempted to buy some MMP. I unwittingly made a spectacular stock pick when I suggested my parents buy this in 2010 or so. The pitch was “these MLP thing seem cool. , sell side says this one is high quality”. I sold it in 2013 at a sub 4% (maybe even sub 3% yield) and a huge gain and a huge tax bill. After going nowhere stock wise for 7 years but raising distro’s It’s almost at a 7% yield with 1.25x coverage , very low cost and long term debt. No IDR’s, pretty much self funded through its history, some long term secular concerns (refined products pipeline), not at a discount to space or relatively cheap though. I bought a dumb money starter position in XOM to start my “i kind of don’t want to have 0% energy” allocation, may buy similar dumb money starters in DMLP and BSM as my “ooo cool royalties down a lot but no idea how to value this” allocation

Just for you RuleNumberOne Caterpillar -1% seeing continued sales pressure Jan. 31, 2020 7:12 AM ET|About: Caterpillar Inc. (CAT)|By: Yoel Minkoff, SA News Editor Adjusted Q4 profit per share of $2.63, compared with $2.55 in the same quarter a year ago. Sales by segment: Construction Industries -12%; Resource Industries -14%; Energy & Transportation -5%; Machinery, Energy & Transportation -9%. "We expect continued global economic uncertainty to pressure sales to users in 2020 and cause dealers to further reduce inventories," said CEO Jim Umpleby. "We will continue to invest in services and expanded offerings to advance our strategy for long term profitable growth, while achieving our Investor Day targets." Outlook for 2020: Profit per share of $8.50 to $10.00. CAT -1.4% premarket

At what valuation do you all think stocks should trade? https://www.msci.com/documents/10199/4af921f5-0bbc-470b-ad69-19a177fad9cf Is 20x too expensive for a collection of high quality stocks? Is it expansive at a 2% tsy? 3%? 4%?

for the 4th quarter, revenue went from $2,896 to $2,690, a decline of $206 million, half of which can be attributed to a drop in coal revenues (which dropped by $94 million). For the full year, revenue declined by $162 million and coal declined by $152 million. Operating income was flat. net income per share grew by 8% as they take in shares. Cash paid for interest went from $496 to $555. They make $3.9 billion a year in operating profits and $2 billion in free cash flow (after interest). Even in 2009 this company generated $1 billion of net income and $500mm of free cash flow on $ 8 billion of revenue. that all time high debt seems more than manageable. I don't think NSC is cheap. I wouldn't want to own it at 20x or whatever it is*, but does a decline in volumes driven by coal and commodities in a year in which coal continues its inevitable death and there was a trade war that likley affected agricultural commodities, indicate that the end of the economy is near? that's tough for me to conclude. NSC trades for 21.5x trailing relative to 17.6x average since 2000 and 18.6x over the past 5 years. a bit toppish, sure? crazy? not in my view Railway operating revenues of $11.3 billion declined 1 percent as overall volumes were down 5 percent, reflecting carload declines in all major commodity categories. A common theme with the companies you are pointing out is links to petrochemicals or coal or other commodities: DOW, CSX, NSC, etc *I do own BNSF indirectly for far cheaper via Berkshire

SPX is at 21.3x PE. Since 1953, here are the quartiles using quarterly data. We are in between the 75% and the Max of 29.8. We are not near all time high valuations using earnings. I know you like to use sales or GDP to normalize for corporations overearning, but I still think it's important to keep in mind that the SPX yields 4.7% in earnings in an environment where the 10 year is 1.7%. One doesn't need crazy growth to justify valuations; one also can't have precipitous declines like DOW or BA's earnings. Why does the fed need to buy stocks for these valuations to be justified? They are justified as long as they grow at inflation or so. they are justified by people/savers/institutions needing to preserve and growth their spending power through investment in equities. Min 25% 50% 75% Max 0 1 2 3 4 7.15 13.3 16.9 19.0 29.8 Stocks for the long run! by the way RNO, as you probably know, I consider it my duty to act as your bullish foil and this is all in good fun. it doesn't really affect how I invest (other than generally being comfortable taking a lot of equity risk. I wouldn't be if rates were 4 or 5% and we had similar valuations/growth. I can only invest in today's or tommorow's opportunity set and that points me to invest in stocks and real estate rather than cash or bonds. I am doing what the fed has told us to do for the past decade. I'm also 31 and a working net saver so my time horizon may be different than yours

Okay, so we only want to use those 30 and the most recent 12 months. Median and Average growth of 2.6% and 2.9%. Weighted by market cap its 4.5%. Why are you focusing on the 7 negative ones and not the 23 positive ones. Again, I'm not super bullish, but I think you are selective with your bearish data points. Maybe some of the below doesn't incorporate the most recent quarter so it's actually worse. You asked where the growth was. it appears to be in the ones you didn't point out. Why is DOW more important than DIS? Why is PFE more important than MRK? BA more important than CAT? Is MSFT late in the cycle of its product cylce. It's supposed to end 6/2020 with $140 billion of revenue, up from $110 billion in 2018. It's a Dow component, thats 20x the size of DOW. AAPL US Equity 2.3% BA US Equity -24.3% UNH US Equity 7.0% GS US Equity 2.7% HD US Equity 5.1% MCD US Equity 0.2% V US Equity 11.5% MMM US Equity -1.9% MSFT US Equity 13.0% UTX US Equity 15.9% JNJ US Equity 0.6% IBM US Equity -3.1% DIS US Equity 17.1% CAT US Equity 3.2% JPM US Equity 9.3% TRV US Equity 4.3% AXP US Equity 8.6% PG US Equity 4.0% WMT US Equity 1.8% CVX US Equity -4.9% NKE US Equity 7.1% MRK US Equity 10.2% INTC US Equity 1.6% XOM US Equity -5.6% VZ US Equity 0.6% KO US Equity 3.4% WBA US Equity 2.1% CSCO US Equity 3.4% DOW US Equity -13.5% PFE US Equity -3.5%