JBird
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Posts posted by JBird
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I think the question of cash allocation is a probably a good one if you're trying to get a feel for how many investment ideas a manager has at any given time. I would just posit that being a "value" investor does not preclude having a zero cash balance when the valuation of the general stock market is irrationally high, or there's "economic uncertainty". Similarly, it doesn't preclude having a large cash balance when general market valuations are very low. No matter the environment, the question always is, can I buy dollar bills for 50 cents?
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Berkshire certainly isn't sitting on record cash amounts right now. If it was, it would not be for a concern over the economy, the Fed, or the valuation of the general stock market.
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That's another great post Libs. A great idea to note those numbers. If I remember correctly, Charlie said they weren't reporting look-through earnings anymore because those investee earnings were making up an increasingly insignificant portion of total earnings. But if your numbers are accurate they do seem noteworthy.
But for Berkshire to get 12% growth, #2 and #3 would have to deliver 7% of the 12% in growth (as the other 5% is taken care of by #1) which is around 1.4 Billion AT per year going forward. I don't think that that 7% is sustainable/possible given I do expect some reversion to the mean over the long-term for these high corporate profits in general (I am assuming Grantham at GMO is right on this).I imagine a 30 B acquisition would take care of it. And should they land one, would a decrease in general corporate profit levels slow Berkshire's profit growth? I'm open to reasons why.
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These philosophical types really do irritate me. They are not adding anything of value, what-so-ever. The extent of their contribution to business theory is taking what amounts to a commutative equation, flipping the numbers around, and then acting as though they're disrupting generally accepted business principles. But what they're really doing is being jackasses, pandering to the uninformed.
That was fantastic
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Foolish to think that corporations aren't susceptible to economic collapses...even the best of the best are susceptible when you have leverage, debt, counterparty liability, and in many cases regulatory requirements for statutory levels of capital! Cheers!
So it's not necessarily the overvaluation of the general stock market that prompted Fairfax to hedge, but the possibility of major economic collapse?
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When in 2008 did Buffett say Berkshire was weeks away from going down? AGM?
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It's difficult for me to understand investment behavior based on general market valuations. As the Nasdaq reached an irrational high in March of 2000, Berkshire simultaneously reached an irrational low. Simply ignoring the folly and buying the business would have returned ~12% compounded annually.
Reminds me of the 1994 Berkshire letter, "In our view, it is folly to forego buying shares in an outstanding business whose long term future is predictable, because of short-term worries about an economy or a stock market that we know to be unpredictable. Why scrap an informed decision because of an uninformed guess?"
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Well any rational person would assume this type of behavior is illegal...but apparently not! Cheers!
Why illegal?
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Thanks for posting. That's the first time I've ever heard someone say they use what Charlie calls an iron prescription. Fantastic.
In Part 2 when he's talking about a Russian oil company, is he saying Lukoil? It's hard for me to hear clearly.
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"The riskiness of an investment is not measured by beta but rather by the probability - the reasoned probability - of that investment causing its owner a loss in purchasing-power over his contemplated holding period." WEB, Berkshire letter 2011
"Take the probability of loss times the amount of possible loss from the probability of gain times the amount of possible gain. That is what we're trying to do. It's imperfect, but that's what its all about." WEB, Berkshire AGM
"Munger did enormous trades like British Columbia Power, which wad selling for around $19 and being taken over by the Canadian Government at a little more than $22. Munger put not just his whole partnership, but all the money he had, and all that he could borrow into the arbitrage on this single stock- but only because there was almost no chance this deal would fall apart. When the transaction went through, the deal paid off handsomely." - The Snowball
"While still working this approach, Buffett had had what he would later call a "high-probability insight" about American Express that confounded Ben Graham's core idea." - The Snowball
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For what it's worth, Charlie Munger has said (I'm paraphrasing, but it's close.) "Warren has made this analogy about the 20-punch card to business school students, and I agree. I literally think you would be better off only making 20 investments in a lifetime."
Do you remember if Charlie said this in a meeting or somewhere else?
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"total investor net worth just hit a record low since 2000 at USD106bn."
Huh?
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Care to guess how many times Buffett has punched his card? Saying things in an interview as a public figure is fraught with peril. Almost anyone can be quoted arguing against themselves, even Buffett.
"I've owned 400-500 names, but most of the money was made in 10 of them."- WEB, Berkshire AGM 2013
How can Buffett's 20 punches quote be considered contradictory? He said if you took that approach it would improve your results, he didn't say it was his own approach.
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Here's the latest Tilson / Forbes interview (from end-June.....sorry if it's been posted already).
From this I'd highlight the following:
Forbes: You’re going to bite out of Apple?
Tilson: Are asking do I own Apple stock? I do. I got back into it just before they reported earnings a few weeks ago, a little under $400 a share. Added a little more after earnings. My feeling about Apple is: I’m not sure what to think about it long term, but I think it’s likely to do well in the next six monthsor so simply because I think they’re in a new product launch.
And later he talks about JC Penney.....
Tilson: I actually am back in it just in the past month or so......I think the stock is a quick ride into the mid-$20s. And then again, then I’ll have to decide if I believe in the long-term turnaround or not.
And then the interview ends with this:
Forbes: Finally, what’s the best money advice you ever got?
Tilson: I would say Warren Buffett, years and years ago (he’s repeated this many times when he meets with students) has always said, “The best way to think about investing is you’re coming out of business school or you’re coming out of college now. And you have a card, and it has 20 punches. And every time you make one
investment, you have to punch that card, and that’s all you get for your whole life. Not for the month, not for the year. That’s your life. You can make 20 investments.”
20 punches, eh?? ::)
Hahaha! Post of the week
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Thanks for posting this link
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This is one that would go right into Charlie's collection of inanities. What a sad result.
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If the shares were repurchased at a 25% discount that would add 1/2% to the total IV [.02 (the # of shares retired) * .25 (the discount to IV) = .005 or 1/2%].
This is a formula that I was merely guessing Buffett used. I wasn't correct. The math happened to work out in that example, but if you check it for other examples it won't work. I'll illustrate:
Company IV of 20.
5 shares outstanding
Per-share value of 4
Repurchase 3 shares at 50% discount ($2)
Company spends a total of 6.
Therefore each of the 5 shares spent 1.2. That's $6/5 shares.
This reduces per share value by 1.2, to 2.8.
There are 5 shares outstanding with 2.8 per-share value.
Now the repurchased shares disappear and the 2 remaining shares absorb the value of the other 3 shares worth 8.4 (3 x $2.8 )
This increases per-share value by 4.2
Per-share value is now 7 (2.8 + 4.2)
The way simpler way of doing that is saying the company IV started at 20. It spent 6 to repurchase 3 shares. So company IV went down 6, to 14. Shares outstanding went from 5 to 2. Therefore new per-share IV is 7. ($14/2 shares). Per-share value increased 75%.
The formula you used there would say the answer is 30%, and I promise that's not the case.
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It might be best not to impute arbitrary formulas to Buffett. :-)
Agreed- and I think I got it wrong on my guess.
I think Global's math is correct.
Thanks
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In my example 1/5 of shares outstanding were repurchased (20%) x 50% discount from per-share value
.2 x .5 = .1
The "Buffett formula" says 10% and your math says 12.5%, no?
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"A repurchase of, say, 2% of a company's shares at a 25% discount from per-share intrinsic value produces only a ½% gain in that value at most -- and even less if the funds could alternatively have been deployed in value-building moves." - WEB
It appears that Buffett's formula (I could definitely be wrong) is: % of shares outstanding repurchased x % discount from per-share value.
How do we calculate the change in per-share IV due to share repurchases?
Company IV of 20. 5 shares outstanding. Per-share value is 4. Company repurchases 1 share at a 50% discount. What is the change in per-share intrinsic value? What is the change in Company IV? Show your workings!
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Palantir, are you now a naturalized citizen?
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They would risk tremendous amounts to get here, they would work hard to get it...
Mexicans are still dying every day trying to get across the border.
Republicans would like it as it might put a brake on illegal immigrationA ten foot wall and the risk of death hasn't stopped them, I would be surprised if asking for thousands of dollars they don't have will.
If the USA just hands out citizenship to MILLIONS of people for basicallynothing,whatis it worth?
The U.S. has handed out citizenship to millions for basically nothing since 1776.
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http://m.bizjournals.com/denver/news/2013/05/07/warren-buffetts-berkshire-hathaway.html?r=full
I thought this meant Berkshire won't acquire Davita?
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I see nothing special about day 1. Why wouldn't the IV change on day 2? Given an appropriate discount rate (separate discussion), present value is a function of time.
You've pointed out a nuance which I think is correct. It's a different point than Eric and I are trying to make, so I'm worried it will confuse the discussion.
If we stick with my 1 year note example- what we're trying to say is that from the perspective Day 1, the IV of the note is set in stone- because the future will only have 1 outcome.
What I think you're pointing out is that the IV calculation changes depending on which Day you look at the note. Clearly the NPV figure of the note is much higher if you're looking at it on Day 364-- its almost 100.
And you could say, Ah-HA! IV has changed! But then you've missed the whole point.
What we're saying is that if you're calculating the NPV of the note Day 1, there can only be one correct answer. Likewise- if you're calculating the NPV of the note on Day 364- there can be only one correct answer.
Taxes on performance fee in POA account
in General Discussion
Posted
How about within a limited partnership? You're the general partner (not an investment advisor) and she's a limited partner. Any law against the partnership having a performance fee structure when it has non-accredited partners?