valueinvesting101

https://www.fairfaxindia.ca/news/press-releases/press-release-details/2018/Fairfax-India-Announces-an-Agreement-With-Sanmar-Chemicals-Group/default.aspx As a result of this agreed transaction and positive operational developments at Sanmar, in the third quarter of 2018 Fairfax India will record investment gains of approximately $252 million (INR 18.3 billion), comprised of approximately $190 million (INR 13.8 billion) from common shares and approximately $62 million (INR 4.5 billion) from bonds, an increase in book value per share of approximately $1.62.

Kempegowda international airport sees 32.8% jump in passenger traffic Read more at: http://timesofindia.indiatimes.com/articleshow/65295980.cms KIA has also reported a record 98,869 passenger arrivals and departures on June 30, making it the busiest day since the airport commenced operations in 2008. KIA recorded a footfall of 26.9 million passengers in 2017-18. Domestic and international passengers grew by 35.8% and 16.8%, respectively, between April and June this year. As many as 6.94 million domestic flyers and 1.08 million international travellers passed through the airport. Fairfax India has paid for $653 million so far for 54% stake in the airport but currently carrying on the book at $643. I believe this significantly undervalues the airport which is growing at such a high rate and expected to grow with addition of new terminal and growth in Indian economy and especially Bangalore.

Buffett talks about buying even at 1.25 or 1.27 of the book value. https://buffett.cnbc.com/video/2018/02/26/buffetts-health-care-partnership-is-determined-to-contain-costs-full-interview.html?&start=1115 Original rational for buying above book value was that there are two liabilities viz. float and deferred tax liability were completely deducted as they were debt or accounts payable but economic nature of these liabilities are vastly different. With tax reforms deferred tax liability has actually gone down but multiple for buying at 1.2 times book remains. Assets are definitely more valuable with tax reforms as their after tax earning power goes up but part of misrepresentation of deferred tax liability is fixed so in a 1.2 times multiple has been extended. Another argument made was with passage of time, underperforming assets are mark down but outperforming ones are never marked up. This causes difference between carrying value of the asset and their economic worth. Initial buyback was announced at 1.1 time in 2011 and increased to 1.2 in 2012. It has been almost 6 year since 2012 so just divergence between carrying value or economic value will justify buyback at 1.27-1.3 times book which is current price.

S&P returns for last 5 years are higher than long running average. Berkshire returns are lower than longer running avg. I am buying Berkshire as I believe there is less downside. Actually with more than $100 BN of cash, things turn favorable for Berkshire with every downturn or even in increasing volatility. This enables Berkshire to pick up common stocks or whole companies. Berkshire is very likely to double over next 7-9 years. Can’t say same about S&P.

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IIFL demerger and CSB purchase may be precursor to merging both businesses. Based on conference call discussion of IIFL demerger, regulatory approval was cited as one of the reason. Looking failed merger of IDFC Bank, IDFC and Shriram group, it is likely that merger failed partly due to conflicting and onerous restrictions of RBI about bank ownership. Simplified structure of the IIFL will be easier to merge lending focused NBFC and a bank. CSB acquisition failed initially due to price difference. Getting listed via merger with IIFL NBFC would be good way to exit for financial owner of CSB who got involved with the bank during last couple of years and who balked at initial deal last year. High P/B ratio of IIFL will be good currency for IIFL owners to get converted into bank and possibly build good banking business in the long run. IIFL did apply for banking license in 2013 but failed to get it. It again applied for Small Finance Bank License in 2015.

https://economictimes.indiatimes.com/industry/banking/finance/fairfax-to-buy-51-in-catholic-syrian-bank/articleshow/62964948.cms IIFL's demerger makes more sense after this news. https://economictimes.indiatimes.com/industry/banking/finance/iifl-holdings-to-demerge-capital-wealth-finance-business-in-one-year/articleshow/62776055.cms During IIFL conference call, they did mention one of the motivation was easier regulatory approval. Could this be step along with demerger of IIFL to create bigger bank by merging Catholic Syrian Bank and IIFL?

Did Buffett mention during last AGM that he will buy stock at higher multiple of 1.25 or 1.24 if large block of share were available? I feel like I heard that but could not find it in the transcript.

In your initial post you mentioned: Basically America throws away 20% of its GDP and yet somehow its still incredibly prosperous and innovative. I don't think it is complete throw away. Lot of Americans are employed and providing good services. There are huge externalities such as Internet coming out of DARPA. If you look at last fifty years technology has had huge impact but given unpredictable success rate in technology having US military as buyer (which is not available to lot of countries and companies in the world) is huge advantage too. Even healthcare spending benefits technology advancement and innovation. Improvements in the healthcare are also related to advance in semiconductor. Here is list of largest 30 companies in S&P: Apple Inc Microsoft Corp Amazon.com Inc Facebook Inc Exxon Mobil Corp Johnson & Johnson JPMorgan Chase & Co Berkshire Hathaway Inc Alphabet Inc General Electric Co Wells Fargo & Co Bank of America Corp AT&T Inc Procter & Gamble Co/The Chevron Corp Pfizer Inc Home Depot Inc/The Verizon Communications Inc Comcast Corp Merck & Co Inc Philip Morris International Inc Intel Corp Visa Inc Cisco Systems Inc Coca-Cola Co/The Citigroup Inc UnitedHealth Group Inc PepsiCo Inc Walt Disney Co/The I guess you can go through the S&P list of companies assigning them 2-3 factors from list of 10 contributing to their success. Analysis over 500 top companies would be good analysis of American strength.

He would sell to invitation home if they were going to buy it above fair and market value. It will depend on price. I think keeping overvalued business in not likely to be a good idea. Going by his example and comment he made in recent interview, he invests because he likes that asset deployed by American companies produce remarkable results over time. I see less of that with real estate unless you add financial engineering or leverage. There is very less scope of innovation in real estate compared to other companies. In aggregate real estate underperforms stock market. But definitely there are time when you can take advantage of certain opportunities to earn better return. If I can own a commercial building in NYC or own a Sees candies for a billion dollar valued, See's candies is better asset to own than building in NYC. Of course there are risk involved in both but at least from Buffett perspective he prefers later.

I thought his comments about airline were interesting as he mentioned supply side issue. He seem to be eluding to supply of new planes cannot be increased which should prevent price competition due to excess capacity. With increasing air travel in Asia it will be difficult to increase number of flights in US dramatically given constraint on plane and possibility pilot availability. This view would be more visible with ownership of PCP.

I guess those entire portfolio available for sale comments would be more meaningful for large holding such as AXP especially given Munger's comment about AXP during DJCO meeting and earlier comments about COSTCO account. Most likely that comment about all position available for sale is signal for Management and Boards of the companies. It can even true for IBM. IBM stock had dipped below avg. purchase price of $170/share but there was hardly any buying by Berkshire which seemed bit odd to me. Considering size of the Apple position it looks to be initiated by Buffett himself. Todd and Ted managed combined $21 billion but $7.6 billion of that is from Pension portfolio so only $13.6 billion were invested in portfolio listed in AR. So Buffett is buying $6.7 billion worth of Apple but didn't add IBM. It could very well be on the chopping block. There are more details about Duracell in the MD&A section: The earnings increase reflected increased earnings from Forest River and apparel and footwear businesses, partly offset by pre-tax losses of Duracell. From its acquisition date, Duracell incurred approximately $109 million in transition, business integration and restructuring costs. Tone seemed less celebratory in this year's letter: there were no mention of Powerhouse Six, Big Four/Five or no picture in the end. Less/no discussion about bolt-on acquisitions or their aggregate number.

Jobs getting outsourced to India doesn't necessarily involves high IP. It typically involves menial work which companies see as their non-core activity. Most of these skills can be learned from books and process know-how from people who have worked in the field. I think it is wrong notion that IP was developed because of trained employees and US infrastructure. Lot of IP was also developed outside US and some by people migrated from less developed parts of the world to more developed economies including immigration to US. It is also wrong notion that Xerox is maximizing ST profit without ST or LT benefits to US society. Doesn't society benefit from more efficiency and lower cost? Either Xerox passes on benefits of this cost advantage to its customer which results in lower costs for them or it increases Xerox's margin which encourages more competition in their product line. It is difficult to stop spread of information and knowledge and process now-how. It has been happening for centuries and only getting faster with spread of technology and internet in particular. Edwards Deming and others helped Japan improve manufacturing quality which enabled Japan to grow faster. Model was later emulated by Singapore and Hong Kong on a smaller scale and finally by China on a larger scale. Trump understanding and execution of business resembles more like crony capitalist of Asia. I doubt Trump has fundamental understanding of creating best possible environment for business to thrive but he is supporting populist policies which are at odds with creating economic prosperity. For this reason many people in Republican establishment and from Business world were wary of showing support for him. It is easy to paint that Obama doesn't understand basic business principals but of lot of other business leader definitely do. There has been lot of thought leaders including business publications, political and business leaders who have rejected Trump's ideas. I believe financial market went up with the hope that it is not just Trump presidency but also Republican Senate and Congress which will lead to more business friendly environment. But we can already see clashes emerging with president-elect such as going on Russian Hacking saga.

https://www.sec.gov/Archives/edgar/data/1067983/000095012316022377/xslForm13F_X01/form13fInfoTable.xml Airlines!!!

Alternatively, they can choose to receive 450 million shares without paying anything which will be equivalent to $9 billion ~ Berkshire's profit for the transaction. These 450 million shares will have cost basis of 0 and then purchase additional 250 million shares for $5 billion which will have basis of $20/share. This will achieve same effect of getting 700 million shared for $5 billion but with different cost basis. This is useful for tax purpose if they ever need/want to sell these shares. But then question become should be buying additional BAC at $20 or WFC at $53.22 or something else. I feel Buffet has indicated preference to buy more WFC or PSX or nothing rather than BAC at prices below current level.

Nice 20% move in common stock for BAC. So Berkshire preferred go up in value by about $2.5 billion pretax. Current dividend for BAC is 30 cents/year. With higher ratio likelyhood dividend going above 44 cents /year is higher. At that threshold it is better for Berkshire to convert preferred into common and get higher dividend than 6% on $5 billion. Is there any other consideration for holding preferred? Is interest on preferred tax advantageous over dividend? Also do you think Buffet will convert this position into zero cost shares similar to GS and GE situation or convert all 700 million shares at $7.14?

As a result of this action, equity hedges currently represent approximately 50% of the company's equity and equity-related holdings (a reduction from 112.7% at September 30, 2016). Fairfax will continue to evaluate the post-election U.S. economic indicators and may determine to reduce those equity hedges further. http://www.fairfax.ca/news/press-releases/press-release-details/2016/Fairfax-Financial-Holdings-Limited-Reduction-in-Defensive-Equity-Hedges/default.aspx

Could it be Phillip 66? Berkshire has been buyer around current price. They already own 15% of the company. So remaining 85% should cost around $37-40 billion similar to PCP deal size. I think refining might not be the optimal business for Berkshire to get into but they do seem to like the stock. I am wondering why there hasn't been any fresh buying after 6/13 even though price went dipped around 74 few times in July.

https://www.sec.gov/Archives/edgar/data/1067983/000119312516673492/0001193125-16-673492-index.htm The cash pile climbed to $72.7 billion as of June 30 from $58.3 billion three months earlier. That is above December level before acquisition of PCP. It is only going to swell going forward. Any guesses about next acquisition?

BNSF Railway is owned by BNSF LLC. You can find their 10K here. http://www.bnsf.com/about-bnsf/financial-information/form-10-k-filings/#%23subtabs-1 Looking at 10K. BNSF LLC has equity of $34.5 billion and net income of $4.3 billion. So ROE looks much better when you consider LLC which owns 100% of BNSF Railways. Return on investment from Berkshire perspective are quite different as you need to factor in initial cash outlay, dividends received, value of the company currently and discount rate. I have developed model to calculate returns on generated based on above assumptions. Returns will vary based on discount rate applied and terminal values but there is sensitivity table to show possible impact. Berkshire actually financed this deal with 10 billion in shares, 8 billion with cash on hand and 8 billion debt. So leveraged returns are even better. With various assumptions we can see that investment is already generated $30-50 billion (range since final value of BNSF is not available) above initial investment of $26.5 billion. BNSF_returns.xlsx

Fairfax investment in India was also bet on election of new prime minister in India with thesis of him ushering new reforms and bringing in economic growth. But latest decision not to continue reserve bank governor seems motivated by political rather than economic reasons. Does it call into question thesis for Indian investment? There are investment opportunities in India irrespective who is governor of the RBI but decision to launch fund and make India focus destination also seem to be motivated by confidence shown in execution ability of Mr. Modi rather than just fundamentals.

See's candy was available at Macy's during Christmas season. With their own store, they will be able to sell more product variety. But location choice seems odd to me. I think it would have better fit in midtown but then rents would be higher in Midtown.

Quote from the letter: So last 9% cost them $234 million but total investment stands at $347 million. Is this investment carried at purchase price instead of reflecting current valuation for entire stake based on latest purchase price? Based on price paid for latest purchase, value of the 35% stake should be $910 million.

Buyback were introduced at 1.1 times book value and then increased to 1.2 times book value. For reasons discussed in the annual report and Berkshire's preference for acquiring whole businesses compared to market securities, it is only matter of time when 1.2 is increased to 1.25 or 1.3 or higher.

Was there any recording done by previous meetings but never released? If it is there it could also be released in future. I wonder if they recorded previous events for security or some other purpose.