JBird

I used to dabble. I stopped when they required a paid-subscription. It's good, but not that good.

Interesting. What changed your mind?

Hahaha

The poll results were certainly a surprise to me. Anyone who voted "Yes" interested in making a friendly wager on the correct answer?

I must have been unclear. I know their equity isn't actually $54 billion. My point was, if the deferred tax liability is actually an asset-- then move it to the asset side of the balance sheet to get a better idea of what they're earning on assets. Thinking about it a bit more--- there is already a corresponding dollar of assets for every dollar of recorded tax liability. If the recorded tax liability is actually an asset-- it should just be dropped from the liability side. I think the same would go for insurance float. Every dollar of reserves has a corresponding dollar of assets earned through premiums. If the reserves are an economic asset, and you want to illustrate that on the balance sheet, they should just be dropped as a liability rather than added to assets. I may just be talking nonsense.

You can find the growth / change in deferred taxes for BNSF using their filings. I've found that many people quickly grasp how Berkshire's deferred taxes on its stock holdings represent an interest free loan from the gov't. They see that the present value of this deferral is unknowable because we don't know when the underlying stock holdings will be sold. Still, they see that this deferral has significant value at Berkshire because many of the stock holdings which represent the bulk of the unrealized gains have been held for a very long time -- especially Coke and AXP and to a lesser extent Wells Fargo. However, when it comes to discussing the deferred taxes for BNSF, they don't seem to see the value. These deferred taxes -- as I read it -- are even MORE valuable than those generated by the stock holdings because they are likely to be permanent. I mean, Buffett has made it clear that they plan to hold BNSF "for 100 years", etc. Second, it is clear to me that because of inflation, the total amount invested in PP&E at BNSF is likely to grow and, as well, Buffett has made it clear that BNSF is spending well above depreciation in any case. So, therefore, as long as the total invested in PP&E doesn't shrink AND the rules regarding BNSF's benefit from accelerated depreciation don't change, this deferral is effectively permanent and the cash it currently provides BNSF in excess of reported earnings is a substantial number. Because of the regulated return on capital nature of BNSF, I don't think Buffett will go to pain to highlight this situation if it is correct. The filings for BNSF can be confusing. They keep two current with the SEC: "BNSF Railway Co" and "Burlington Northern Santa Fe, LLC" I believe the second one, the "LLC", is the one you want to use. It shows, for example, the distributions to Berkshire while the former one doesn't. Using the second filing, we can see that in 2012, deferred income taxes went from $15,637 to $16,319 for an increase of $682 million in 2012 alone. The cash represented by this increase is not reported in earnings but, I'm arguing, it is real cash flow for BNSF (as long as the requirements I described above are met -- I think they are and they will be indefinitely, and that's key). If that's correct the deferred tax liability is not a liability, it's an asset. If that's the case why not adjust the balance sheet (for our purposes only) to reflect the economic reality? We want to know what BNSF is earning on tangible equity. Ok, so drop the goodwill altogether. Now move the deferred tax liability to the asset side. We get $54 billion. Last year it earned $5.9 billion pre-tax. Recorded $2.1 billion in income tax expense, less deferred income tax of $583 million, and therefore paid $1.5 billion in tax. So it therefore earned $4.4 billion after-tax on $54 billion, an 8% RoE. Thoughts?

The headlines immediately following the release of Buffett's annual letter stated that he changed Berkshire's retained earnings test. Do you agree?

He said if he knew stock prices would continue to fall, he would have just waited and invested in the general market. Basically-- he pulled the trigger as soon as he saw a good opportunity, and in hindsight it happened to be a little too soon.

This is bonkers. Mark my words-- the yardstick hasn't changed. It's still a five-year test.

I was disappointed to see the rolling 5-year comparison page not included in the annual letter. I was puzzled that Buffett didn't acknowledge failing the test. Other than that, was pleasantly surprised at how well Berkshire is doing.

That'd be pretty fun! I have several friends with homes in Omaha (I graduated from college there in '10), and could probably sort out a good deal. Something to consider for next year at least.

I appreciate all the comments, thanks. I've seen many reasons listed for selling: retirement, relocating, health-reasons, interested in pursuing other interests, etc.

I've seen a lot of small businesses ($500k- 2 million price tag) selling for 3-4x owner earnings. At those prices it seems like if the business and industry is sound and the manager is able and honest you're bound to make above-average returns. But I'm suspecting there are as many horror stories from these situations as there are happy outcomes. If that's actually true, what separates the two? I've never wholly-owned a business myself, absentee or otherwise, so I'm just trying to figure out how much I don't know.

Has anyone here bought a privately held business and run it absentee? Curious to hear about any experience or perhaps lessons learned along the way.

That is hilarious. As an aside, the article cites Richard Cook, founder of Cook & Bynum. I find that firm's story interesting. It began on July 1, 2009, when the S&P 500 traded at 879. He and his partner couldn't have dreamed of a better time to start with 100% cash. Today the firm lags the performance of the S&P 500 since inception by 5.84% compounded annually. And yet today they are managing ~$290 million. I contrast that to a firm like Arlington. Their AVM Ranger fund started exactly 1 year prior to Cook & Bynum's, when the S&P traded at 1,262. The Ranger fund, between '08 and '12, outperformed the S&P 500 by 25% compounded annually, net of fees. Today they are managing ~$350 million. Both espouse Buffett and Graham principles. Now compare the websites of the two firms. http://www.cookandbynum.com/ http://arlingtonvaluemanagement.com/ It's disturbing to me that window dressing attracts capital about as well as outperformance.

Four years ago, Brian Acton was looking for a job. Twitter and Facebook said no. So he and Jan Koum, a colleague from Yahoo, set out to do their own thing. Today, they sold that thing to Facebook for 19 billion dollars. http://techcrunch.com/2014/02/19/how-things-change/?utm_campaign=fb&ncid=fb

Buffett partnership started with $105,000 in 1956. That's equivalent to $856,459 today. http://www.bls.gov/data/inflation_calculator.htm

Clearly he didn't need to protect the entire capital base. But for whatever level of wealth he truly needed to protect, he could have bought a commensurate amount of out-of-the-money puts on the indexes. I think that even today it's a better strategy than total hedging.

https://www.google.com/finance?q=005385&ei=BOf7Uqj1GofpqAGeiQE

Whoa. Who did you choose to manage your Roth?

Yes. It is an $80 commission. The Fidelity broker routes the trade through a Korean broker. The Korean broker charges an additional commission of ~10bps.

Fidelity has access to the Korean market including the preferreds. They don't show it on their site but I called and confirmed with them.

Can you flesh this out in an example?

There are a lot of really attractive preferreds in Korea right now. I'm interested mostly in Nexen Tire, Hyundai, and Daelim Industries. I haven't been able to invest yet but I plan to within the month. Fidelity is the only broker I've found with access to that market. As a side note. I read a blurb in the WSJ a few months back on Andrew Weiss. He gave a lecture to some students and talked about Korean preferreds being the most attractive investment he's seen since the 08/09 panic.

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