JBird
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Posts posted by JBird
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So, don't take my bearishness as a sign that I'm giving up all hope. It's just that I'm taking it very seriously now whereas before I was brushing off the naysayers.
Interesting. What changed your mind?
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Okay, this is meant to be a joke, not a cheap shot...
But quoting the shareholders' letter, stocks are soaring "particularly those with no earnings".
I jest, I jest... these guys are awesome of course, just poking a little bit of fun.
Hahaha
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The poll results were certainly a surprise to me. Anyone who voted "Yes" interested in making a friendly wager on the correct answer?
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Your 54b number is wrong. Their book equity is 34,612 and goodwill of 14.8b. A ROE of ~12% and a ROTE of ~20%.
A few pages back, I finally stumbled into this and the acquisition finally looks genius. I believe I have seen ROICs listed as approaching 10%. Any amount of leverage will turn this into a very attractive return.
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.
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My initial analysis did not include a breakout of the deferred taxes (BRK reports one deferred tax line item as opposed to by operating segment).
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?
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The headlines immediately following the release of Buffett's annual letter stated that he changed Berkshire's retained earnings test. Do you agree?
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On the topic of 08/09, can anyone explain why Buffett wasn't a more aggressive buyer of common stocks in those days? He spent a lot of money on those preferred deals and of course paid $100/share for BNSF in 2009, but shouldn't he have bought common stocks hand over fist at such discounted prices?
Alice Schroeder said that his hands were tied because of the equity index puts. Is there any truth to that?
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.
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I agree that he should have said he was changing the yardstick, instead of just changing it. Maybe having said last year that he WOULDN'T change the yardstick made it harder, but he in fact has, so he might as well own up to it.
That said, the new yardstick, I believe, is not 6 years, it is full cycle. Time will tell if the end of this cycle is 2014 or later.
This is bonkers. Mark my words-- the yardstick hasn't changed. It's still a five-year test.
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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.
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I'm not sure how exciting a bunch of value investors would be at a pseudo-beach house in May, but it sounds cool at least.
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.
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I appreciate all the comments, thanks.
I've seen many reasons listed for selling: retirement, relocating, health-reasons, interested in pursuing other interests, etc.
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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.
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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.
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The disclosure is “sufficient for his shareholder base at the moment,” said Jeff Matthews, a Berkshire investor and author of books about the company. “Once he’s gone, people are going to say, ‘What’s here? What do I really own?’”
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://arlingtonvaluemanagement.com/
It's disturbing to me that window dressing attracts capital about as well as outperformance.
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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
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"The economics make no sense to those without connections or those with large AUM. You couldn't just get a few people today together and offer the same Buffett partnership scheme. If I'm reading this right, you can't get 5 people to pitch in $100k each and take a performance fee. I can see why innovation is in such short supply."
BUT 100,000 back then is equivalent to how many million now?
Buffett partnership started with $105,000 in 1956. That's equivalent to $856,459 today.
http://www.bls.gov/data/inflation_calculator.htm
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I hear a lot of discussion about how the hedges don't turn out so well.....
i just have one question: If you have a $4B portfolio and the info Prem had 4 years ago.... what would you have done to protect the capital base?
I think it just comes down to: did Prem make good decisions based on the info available?
I think in this increasingly interconnected world the difference between a global recession & "chugging along" is a very fine line... G
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.
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Packer or others who have looked into it, can you tell me what the current dividend is on the Hyundai preferred 005385 and, if possible, how you found it?
TIA
https://www.google.com/finance?q=005385&ei=BOf7Uqj1GofpqAGeiQE
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I hit that point recently and then (after it fell back 10%) I decided that it would just go back up to that level soon enough and I may as well just stop trying to grow it myself. So I turned it over to the pros. I don't manage the Roth anymore (as of two weeks ago).
Whoa. Who did you choose to manage your Roth?
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That's nice
But I suppose you can not put an online order and have to call them to put an order ?
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.
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.
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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.
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Similar to something else I think about, which is to buy out-of-the-money puts on individual companies that you both understand and want to own in the next crash.
Once their stock prices decline to the strike price of the puts, you have enough premium value in those puts to flip them into calls. Then you profit on the recovery as the calls appreciate.
The benefit here is that the premiums for individual names might skyrocket -- this ensures you will be able to afford them without stressing out about the premiums.
Or in taxable portfolio margin account, just keep the puts and load up on the common (hedged by the puts). This way there is no taxable event from selling the puts.
Can you flesh this out in an example?
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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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From VICE
Anybody use lumosity?
in General Discussion
Posted
I used to dabble. I stopped when they required a paid-subscription. It's good, but not that good.