thepupil

https://fred.stlouisfed.org/series/SAUPZPIOILBEGUSD I will likely add to my “I’m dumb and don’t want zero energy” basket tomorrow (XOM,MMP, BSM) If we stay down here in the $30’s my biggest fear is the political instability, not the <5% in energy stocks I’ll have.

Agreed, he could lose money on OXY pref if this rate of destruction continues in O&G. I don’t think he will, but it’s still preferred equity, not senior secured (of course it’s possible to lose money in senior debt too, but you all get my point).

Cruises have long (perhaps unfairly https://www.cdc.gov/nceh/vsp/pub/norovirus/norovirus.htm) been associated with norovirus outbreaks aboard. I don't think the cruising public will punish cruise ship operators for covid19 months/years after the coronavirus hysteria is over any more than they have in the recent past for the occasional norovirus outbreak aboard. The lure of a cheap vacation in the tropics is too much for most to pass up. And oil is down big and likely going lower as OPEC+ falls apart so a major cost for cruise operators just got reduced. Honestly I don't think cruises are that cheap and I really really don't understand the appeal. I am not a buyer of cruises, but a simplistic analysis of Carnival says its cheap if you think this does not permanently change the industry's supply / demand/profitability/pricing power. Has made about an average 10%-11% (I did not precisely calc this and just eyeballed it) or so ROE since 2005 and it trades for 0.7x book. If you assume it gets to its historical ROE and is worth book to a slight premium in say 3-4 years (note that the range in the past 5 years is like 1.4x-2.0x pre-corona) then you could make some decent dough. So while I'm not a buyer (I'd rather buy less directly affected stuff for slighlty more expensive prices to "normalized" earnigns/asset value whatever), I can understand the appeal as a mean reversion play. When you compare to other stuff that's down 20% or 30% and may have already been cheap before, I can't be enticed to buy something so directly in the bullseye of this. I can see the appeal in the short term for bears: high fixed costs, probably some construction committments, may even need to raise some capital, etc. etc. Do you think that if this kills 0.2% of infected people under 30 and is gone in a year or 2, that college kids aren't going to go on a spring break cruise? according to my 5 second google, only 30% of carnivals customers are over 55 (this is surprising to me).

I work in healthcare. The only advances that we have come up with in that time that are effective against this are 1) hand washing, 2) contact isolation, 3) mechanical ventilation (but by this point it is already way too late). Also, we severely lack # of ICU beds and resources which will become apparent soon. It is already apparent we lack resources if you look at how testing for this has rolled out. Can someone help me reconcile dalal's (and some others' I've read, including healthcare professionals) view that we haven't really made advances in fighting this stuff and this headline today from Gilead / Seeking alpha. how should one handicap this? Gilead up 3% ahead of expected COVID-19 drug data readout Mar. 6, 2020 1:56 PM ET|About: Gilead Sciences, Inc. (GILD)|By: Douglas W. House, SA News Editor Evercore ISI's Umer Raffat says that preliminary data from a China-based study of Gilead Sciences' (GILD +3.4%) remdesivir for the potential treatment of COVID-19 could be available this month, ahead of the expected release in April. The study began in early February at Wuhan's Jinyintan Hospital, in the epicenter of the outbreak. Health experts believe that the antiviral will show sufficient efficacy to warrant widespread deployment in an effort to corral the outbreak. A little over a month ago, the first confirmed case in the U.S., a man in Seattle, responded well to treatment. All symptoms, except his cough, resolved within a week. Remdesivir (GS-5734), a nucleotide prodrug that blocks a key enzyme needed for viral replication, is also being developed for Ebola virus infection.

I hope you're not. :-[ hahaha, well my wife works at a Washington DC hospital...so probably eventually going to get it

I am paranoid of a permanent impairment in corporate earnings power or value in the real assets I own. For this reason I own puts. I am paranoid of reinvestment risk and not ever being able to buy the great companies and assets that I own at these prices again, given what is an unprecedented rate environment. For this reason I'm fully invested. my first paranoia cost me 100-200 bps / year. my second costs me full beta to the market's swings up to about a 20-30% drawdown, which is more than handle-able. I am paranoid too. i have become a bit of a perma-bull, but I think we all need to keep the upside tail in mind.

on a 0-24 month basis, I completely agree with you.

I don’t work in healthcare but I read Wikipedia The bar for 1918 is pretty high right? Infecting 25% Killing 1-4% of the population. And yet the global economy and markets pressed on, right? Don’t get me wrong, I have some disaster hedges, but I’m also fully infested and corona will certainly not stop that.

You’re right, 102 years of medicine and healthcare advances may help fight this relative to 1918

Let’s take a less extreme example A company has $100 of equity. It earns $8 and has 100% payout ratio.it does not grow.it trades for $100 A shareholder owns this company in an IRA (or a pension, etc, a substantial portion, maybe even the majority of investment dollars aren’t taxable). In scenario 1, the company pays out all earnings in dividends, and the shareholder reinvests these dividends. In scenario 2 the company buys back stock with all of its earnings. Which scenario will result in the better outcome over 10 years. Is your answer different if in 10 years, the company is valued at 0.5x,1.0x, or 2.0x book? Is it the same?

What do you think it cost to build a hotel in San Francisco, San Diego, Maui, Naples, Amelia, South Beach, etc? The replacement cost (which doesn’t matter if you think Airbnb kills the industry or that corona means no one will travel again) is probably $400-$500K/room across the whole company, higher in many individual cases. If you can rent out a room for $400/night or a wedding costs $60K of F&B at your hotel, or a conference, or can obviously be quite profitable to own one of theses assets. That said, they are cyclical and capital intensive, of course. https://www.bizjournals.com/sanfrancisco/blog/2015/04/hotel-construction-san-francisco-million-per-room.html And this is for Waikiki high rise not Maui on the beach https://www.hawaiibusiness.com/waikiki-construction-refreshes-hotels/ Carey also notes that development in Waikiki – particularly away from the beach – is hampered by cost constraints. “If you want to build a high-rise hotel,” he says, “the rule of thumb is you need to get a dollar of average-daily-rate for every $1,000 of construction costs. In Waikiki, it probably cost, at a minimum, $350,000 to $500,000 a key to build a high-rise hotel, which, using traditional underwriting, suggests you need $350 to $500 a night in average rate to make a pure hotel. There are very few locations that enable that kind of underwriting.” It’s this calculation, he says, that explains the paucity of new hotel projects.

2% for the higher rated tranche, 2.5% for the other one if I’m reading Bloomberg correctly Almost any insurance company in the world would buy it, I presume.

https://ir.hosthotels.com/static-files/da439e04-a444-4d19-b247-8fb6cc7fc639 https://ir.hosthotels.com/static-files/8ad80617-ef9d-41b2-955a-f4c94e529d2d just to follow up here, it's more like $260K / room now. HST has issues pre-corona such as wage inflation due to enhanced border security generally tight labor market, and more secular threats from airbnb and other new hotel type of offerings (the ones where newbuild apartments/condos leas their unsold/leased inventory as hotels for example). it was and is a popular HF short (6% of float) due to its abundant liquidity, presumed lack of takeover optionality (too big, highest median pay in the S&P500, will never sell). HST goes out of its way to highlight that its top 40 assets (63% of EBITDA) are a different animal than the rest of its assets and they are right. these do $37K / EBITDA per room and $362 RevPar. To give an anecdotal example of how things have shifted, they bought 3 hotels from Hyatt for $1 billion ($700K / key), so at the current price you are buying at a very significant haircut to that print. They bought the Don Cesar for $600K / key and have since brought EBITDA/Key up to $50K. they bought a South Beach hotel for $1.4 million a key and $600mm+! Now they probably overpaid for those trophies, but if anyone knows thepupil well, they know he loves to buy trophies for less than what others overpay. Paying $260K for something that in a good year makes $50K of EBITDA isn't half bad (Don Cesar). Paying $260K for a hotel on the beach that does $400+revpar probably works too. If I could buy a condo on the beach in MAui or Amelia Island or NAples for $260K, I'd do that too. Or in San Francisco, or downtown San Diego on the water. the whole company trades for 8.5x EBITDA (which will obviously collapse soon). Given the giant freaking sensitivity and the fact that I'd expect some of their hotels to go unprofitable and revenue to be down 80% for the next q's, I am not interested here, despite what is likely a "good price" over the long term if you think these types of properties have a reason to exist. I do. One can't get married or have a conference in an Airbnb. The Ritz Carlton Amelia Island on the other hand is a great place to do those things. an interesting wrinkle is that HST is MAR's largest partner (their HQ's are located nextdoor to each other, as HST is the PropCo from old MAR from You Can Be a Stock Market Genius). HST is embarking on a big capital program where they invest heavily in a lot of their MAR assets. MAR gave them various performance guarantees that happen to coincide with Corona. I don't think this is that important, but just find it interesting that MAR (as the sexy asset light franchisor) may experience significant costs from this. HST extremely modest IG rated (less than 2x) debt trades for 90-180 bp spread and less than 3% all-in yields. in terms of debt/cost of capital/liquidity, its the SPG of hotels. a starter position is warranted soon.

At a point, I will probably buy HST. All hospitality REITs trade cheap to NAV. HST is the most liquid, least levered, only IG rated one (it’s blue chippy REIT to the core), and owns some very high quality assets that they recently overpaid for. Trades like $300K / key when a lot of their asset base is worth much more. Unless things improve much more quickly than I expect, i will wait a while. Not that much cheaper than when I took a look at it a few months ago and passed.

they are the same (ignoring taxation at the shareholder level). Buffett says so himself. in both cases $100 of equity pre-dividend or buyback -$2 from dividend/buyback $98 of remaining equity subject to the market's valuation thereof. you are subject to the market's whims on the remaining equity no matter what, whether you sell or not. In the case of buyback this $98 is divided over fewer shares. In the case of dividend, the same amount of shares, but shareholders have $2 less taxes and/or transaction cost to buy the shares to have the same amount as if a buyback occured. .

The fundamentals of the U.S. economy remain strong,” Powell said in a four-sentence statement Friday. “However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.” Powell Put.

hey assholes, please stop and let my greedy $43.5 order get filled. ;D

https://www.cornerofberkshireandfairfax.ca/forum/general-discussion/wilshire-5000-market-cap-gdp-exceeds-dot-com-peak/msg392360/#msg392360 My view on this is as follows: publicly traded investment grade corporate america is in great financial shape and poses little credit risk or systemic risk. debt is primarily fixed, well termed out, and interest is covered many times. this isn't universally true, but I think if you go through the data it is tough to conclude otherwise. I have some data in the linked thread on this. worry about public valuations and sustainability of earnings (taxes, margins, etc) NOT credit risk. private equity/sponsor backed companies are in worse shape and vulnerable to a decline in operations, an increase in the cost of financing, or a simple decline in valuations. they are more expensive on an EV basis and more levered than their public counterparts and the structure of the leverage is worse (leveraged loans with floating rates, leveraged loans have grown at the expense of HY market, because investors want floating rate). the worst positioned are those who are mezz lenders to these companies, as they don't really get the upside if things go well, and are taking impairment risks. all else equal, i think you see lower default rates (no covenants), but much higher loss given defaults in leveraged loans and CLO's. I don't think this really proposes systemic risk in that I think those who own the risks are unlevered institutional investors rather than banks. Japanese banks love CLO AAA, but I think AAA is going to be totally fine. I think comparisons to subprime are difficult to make in that banks are in far better shape and you don't have anything truly going on with ratings wackiness that is comparable to back then. I think WB is mostly talking about who he is competing with for add-ons: Private Equity. things I'd avoid because of this view: BDC's, CLO mezz/equity (I do own TFG which has significant exposure to this), Junk bonds, mediocre private equity funds and their sponsors/GPs (I don't think a few dissapointing funds will hurt the big guys franchise), CRE CDO's and BDC's that own them, CLO issuers like Jefferies (which I also own). Most of these are very easy to avoid. again I think the bulk of the risk lays in a sliver of a pension's allocation to "direct lending and private credit" or "alternatives" allocations of me-too institutional investors who've strayed too far afield. my word is not gospel and there are more negative and positive interpretations of the data, but I've put a fair amount of work into forming this view (mostly with data from LCD to which I no longer have access). Data: Covenants: https://finance.yahoo.com/news/cov-lite-fight-leveraged-loans-110012689.html https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/leveraged-loan-news/leveraged-loans-another-new-record-for-covenant-lite Leveraged Loan/CLO Growth (lots of good data here) https://www.financialresearch.gov/frac/files/OFR_FRAC-meeting_Leveraged_Lending_CLOs_07_09_2019.pdf

I think all that he is saying is that Berkshire's liquidity is low relative to its float and market cap. For example, just to use a stock that potentially has more "speculation" in it, ServiceNow trades about $560mm / day. Berkshire (adding A & B) trades $880mm / day. Berkshire Hathaway is a $540 billion company. ServiceNow is a $63 billion company. NOW trades 0.88% of its market cap / day. Berkshire trades 0.16% / day. all else equal its easier to buy (on a percentage basis) 5% of NOW than BRK/A/B. AAPL trades about 0.5% / day (but mind you that's $6.4 billion average value traded), it's easy to buy oceans of apple shares. TSLA trades 2.7% of its market cap / day and traded $54 billion (1/3 of its market cap, higher percent of float) in one day at the height of TSLA-mania there are only about 250 trading days / year, so it's very easy to see why Buffett is "complaining" about his pesky hold forever ownership base. I don't think it's any more complicated than that.

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.