philassor
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Posts posted by philassor
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Web on float:
So how does our attractive float affect the calculations of intrinsic value? When Berkshire’s book value is calculated, the full amount of our float is deducted as a liability, just as if we had to pay it out tomorrow and were unable to replenish it. But that’s an incorrect way to look at float, which should instead be viewed as a revolving fund. If float is both costless and long-enduring, which I believe Berkshire’s will be, the true value of this liability is dramatically less than the accounting liability.
A partial offset to this overstated liability is $15.5 billion of “goodwill” that is attributable to our insurance companies and included in book value as an asset. In effect, this goodwill represents the price we paid for the float- generating capabilities of our insurance operations. The cost of the goodwill, however, has no bearing on its true value. For example, if an insurance business sustains large and prolonged underwriting losses, any goodwill asset carried on the books should be deemed valueless, whatever its original cost.
Fortunately, that’s not the case at Berkshire. Charlie and I believe the true economic value of our insurance goodwill – what we would happily pay to purchase an insurance operation producing float of similar quality – to be far in excess of its historic carrying value. The value of our float is one reason – a huge reason – why we believe Berkshire’s intrinsic business value substantially exceeds its book value.
So if you believe like I do that overtime that Berkshire's float is costless (or better) over time due to their proven obsessive underwriting discipline, one can be bold and look at valuation statically and modify the book value as follows.
Book value on 12/31/2012: 187.6 B
Float : 73.1
Insurance Goodwill : - 15.5
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Net adjusted BV 245.2 (1.3 x stated book value)
Then of course you have to add X amount for the understated goodwill (think Sees Candy) of the wholly owned companies. and you obtain perhaps 1.5 to 1.6 times stated book which incidentally was how the market was traditionally valuing Berkshire ;
No wonder Buffett buys back at 1.2 of book.
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Just out of the oven:
http://www.nytimes.com/2012/11/26/opinion/buffett-a-minimum-tax-for-the-wealthy.html?_r=0
Looks like Buffett is trying to preempt the "lobbyists,, lawyers and contribution hungry legislators" by suggesting a minimum
tax above one and ten million of income regardless wether it is a capital gain, a dividend or pay for labor. Bye bye carried interest scams.
Cant' wait to hear some ranting from the delusional Ann Randists steeped in self serving bias (even though they lost the election).
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Luk is going to become a Handler-Steinberg tango.
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Buffett has statistically 5-7 years more to guide the ship; the ship has another 5-7 years on autopilot. So without any new talent you still have up to 15 years of outperformance. I suggest we resuming this debate in 15 years. ;)
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The company has $34 billion in cash and $31 billion in fixed income securities. Both must be earnings fairly unattractive yields or I would assume a much lower rate than the considered acquisition. You also have the possibility of borrowing some funds for the acquisition at ultra low rates.
While I understand his concept of a fortress balance sheet, I don't think that making this deal would have jeopardized at all his stated mantra of: "Our cheques will clear".
Cardboard
That's not exactly what I understood. I think what he was trying to convey is that the deal wasn't so great that it was worthwhile to sell some of his stockholdings to pay for it, although it would have been a better use of capital in this low interest rate period if they had had enough cash available to close it.
My recollection is that they could no agree on the terms. (maybe they wanted brk stock or too much money?)
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Thank you for the post.
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Regarding NetJets, I don't know if this Sorkin article was posted, but here it is anyway:
http://www.omaha.com/article/20120328/MONEY/703289937
Is this the natural course of bona fide litigation or could it be indirect harassment/payback from the part of an irate group against the Buffett rule? Hum… The amounts are no chicken feed that's for sure. >:(
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No mention at all of Sokol or what happened. He's made it pretty clear that he's completely excluding Sokol from Berkshire, as he credits Greg Abel for the efforts at Mid-American and Jordan Hansell at Netjets. No mention of the turnaround that Sokol actually did at Netjets and the culture he built at Mid-American that now allows those two managers to receive these accolades. Cheers!
I think it was from Dale Carnegie that he learned to criticize generally and praise specifically. This is kind of an extension of that, it seems.
No, I understand that and why he does what he does. He had no choice but to fire Sokol. I just believe he did so much for the company and Berkshire, that you don't simply heave it all away. Buffett should have made mention of what happened, why he made his (or the board`s) decision, and that they obviously had little choice in the decision. As well as indicate that the company still appreciated the years of service Sokol showed.
This guy, for all intents and purpose, was the one who was going to run Berkshire when Buffett was gone. You can't just bury him! ``Lose a shred of reputation for the firm, and I will be ruthless``, just doesn`t cut it here. Cheers!
I respectfully disagree. That happened early last year, and was fully addressed at the AGM. Time to move on.
Cheers! :)
By the way, did you notice that their next CEO has been tapped ( with two backups ). He ( or she if it's J. ) is described as being well known to all members of the BOD. I've got my idea about who it is. What's yours?
All right I'll play the guess game: Matt Rose (for his youth and breadth of experience)
I don't think it will be Ajit since he is too valuable evaluating insurance risk and has less managerial experience than Matt;
What is yours?
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buying a Euro based company with a great Global business is an eminently rational thing to do right now.
I second your opinion;
for what its worth I am posting the follow up link on the "magnificent 7 euro based stocks" (initial link from BargainValueHunter). Just to throw some more euro names in the hat:
http://seekingalpha.com/article/313561-the-magnificent-7-euro-based-stocks-buffett-should-buy
Some like BP and Zurich financial perhaps seem interesting to me but nothing irresistible yet. I guess I am getting greedy.
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That might be true, but IBM isn't growing, revenue has been mostly flat, a large part of growth in earning per share has come from share buy back.
I'm disappointed that he bought that much, maybe he run out of ideas!
about 10.7$ billion of IBM.. has 5.5% stake !
He finally bought after more than 80 years of observation (BG and WEB combined). I guess IBM's long term competitive advantage has now been satisfactorily established after a century of successful operation, as the other long term holdings mostly have a 100 year track record with excellent returns.
Interestingly, my brother in law used to work for IBM. He says that IBM's new CEO is the very best manager he has ever seen.
The lukewarm reaction of the market based on Brk's price decline today seems to indicate that there is more a sense of disappointment than excitement on the IBM purchase. It reminds me ( at a smaller scale of course) of the BNSf purchase. Plenty of doubters (He lost his mind was some of the chorus). It did not take long to prove them wrong. All the naysayers then are wishing we are forgetting who they were. I guess Buffett is used to it and enjoys it. I certainly do. Such is the life of a contrarian.
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One prerequisite for writing clearly is knowing the subject very well.
I agree as well;
There is a french saying that goes: ce qui se conçoit bien s'énonce clairement
What is fully understood can be expressed clearly.
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That there is a "national conversation" is testimony to the efficacy of the constant brainwash that moneyed interests and their favorite corruptees (republican congressmen) hammer on the public. Something as evident, simple and logical (though very mild ) as the "Buffett Rule" should be immediately accepted not discussed. Fortunately the generally naive public is no dupe on this one as the polls show.
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Thanks for the slides; great data.
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Looks like The Cumming/Steinberg duo are at it again:
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thanks for the link; interesting presentation.
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Awesome Saumil!
Thanks.
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As you probably have noticed a series of some of Ben Graham's lectures are being posted on the gurufocus site by CanadianValue.
The featured lecure posted today is about "Valuing Future Earnings":
http://www.gurufocus.com/news.php?id=115320
There was a lot of debate on this board the last year or so as to wether to commit funds when we did not know wether the market has reached a bottom or not. Here is a quote from Ben extracted from this lecture on this topic.
"Our opinion is that for the investor it is better to have his money invested than it is to feel around for the bottom of the securities market. And if you can invest your money under fair conditions, in fact under attractive specific conditions, I think one certainly should do so even if the market should go down further and even if the securities you buy may also go down after you buy them. That is rather a long answer to this question, but it is an interesting one."
(note that the question he refers to was based on a Securities Analysis quote: "Judging from observations made over a number of years, it would seem that investment in apparently undervalued common stocks can be carried on with a fair degree of over-all success, provided average alertness and good judgment are used in passing on the future prospect question, and provided also that commitments are avoided at the times when the general market is statistically too high." )
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My impression after a quick read of this interview is:
1) Schroeder does exhibit her significant intellectual horsepower.
2) She is changing her tune a bit by emphasizing WEB"s unique qualities.
3) Perhaps she has come to the conclusion (or has been advised) that after all it is not in her best interest to use excessive vitriol against one of the best role models of "good" capitalism?
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Here is the latest Whitman interview:
He starts off head on admitting his MBIA blunder
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Does it strike anyone as strange that:
Prem and Fairfax have bought 4 or 5 insurance companies in the last few years
The Buffet wannabe Biglair is trying to buy an insurance company
Meanwhile the man who started the trend of buying insurance companies so that you could invest the float hasn't bought an insurance company in years and is instead buying railroads and financial stock.
just strikes me as a little strange that if there are such bargains out there in the insurance field and companies that are ripe for taking over that buffet has been a none player in the field.
How about Munich Re in addition to Swiss Re in addition to Sunlife….
http://dealbook.blogs.nytimes.com/2010/10/19/buffett-increasing-stake-in-munich-re/
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Here is a good recap of Buffetts heavy weights:
http://online.barrons.com/article/SB50001424053111903904904575560182172162948.html
He did mostly great with the foreign stocks like BYD and POSCO in the recent past, but the "domestics" have been stagnating so far, maybe yet an other indication that the next wave of outperformance is here in sluggish USA...
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I'm a WFC owner, both common stock and the TARP warrants, so I'll try and avoid any bias as defender of my idea here. But I do think WFC is undervalued right now, despite undoubtedly having some short term issues to still work through while we work through this contained deleveraging process over the next few years. They pay less for deposits by a good bit than most banks. They execute cross selling far better than most banks. They avoid troublesome activities far better than most banks. They allocate capital better than most banks (see Wachovia, which doubled their footprint but only cost them about 20% stock dilution). They wrote down a boatload of the problem loans from the Wachovia acquisition, and still have room left on those write downs.
The mortgage crisis will delay things a bit, but for now they have more confidence in their processes than the other banks have shown. Time will tell here. As a lawyer, my sense is that there are technical problems, and political momentum wants to "help the poor underwater unemployed person stay in their home" -- fair enough if you disregard the moral hazard. But legally, there is no dispute that 99.9999999% of the people being foreclosed on are correctly losing their homes because they are not paying the amount they decided to borrow. The law will not let these people off on technicalities forever - perhaps it delays things a bit and drives house prices lower for longer and delays recovery. My guess is Wells will come out of this stronger and quicker than most, because of an ongoing culture of more conservative banking and good execution that they did not lose and still have. When that happens, the earnings come with it and the stock should be valued as a financial stalwart at 12-15 P/E on a big earnings base, with greater market share due to decimated competition. I'm very comfortable holding for the long term and buying mroe if it drops much more.
As many of us on this board, I also own some WFC and bought some more on friday. I agree with you that this entry point is good and I hope this new wave of bankophobia keeps pushing the stock down to get some more. wfc has a wonderful moat due to its ability to retain customers by selling multiple products ( their goal is 8 financial products per customer I believe and they average 6 products per customer now); of course its key advantage is the spread between its cost of funds and the interest rate their charge which is substantially wider than its competition ( one full percent over BAC for example). Anyway lets see what the next few weeks bring; maybe we'll be lucky and it will go down to 20 ;)
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Pretty funny twacowfca :)
More on the saga of dueling views of St. Joe, this one from barron's:
I think this is going to be enjoyable (from the sidelines) to watch those two trying to outdo the other.
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Well, I would consider his investment in ACF to be "active." I looked at JOE briefly a long time ago and quickly filed it in the "too complicated" heading. That Einhorn presentation was interesting. It is pretty rare to have two investors using "value" techniques arrive at such divergent conclusions. Even if BB is right that would still be a big red flag for me. At this point it seems like BB's position will either be a "value trap", or take 5+ years to start seeing returns. But, I really have no idea. I much prefer situations where most people agree on an approximate value, but the stock is cheap for other reasons. Just my .02
Same here, I also looked at that investment a while ago (got the idea from Martin Whitman) but thankfully it did not make it in my top 10 best ideas and I discarded it.
I happen to live in Florida and I have seen it boom beautifully and crash even more spectacularly. I live in the " desirable" segment of the state (South Florida) and the real estate debacle is much worse here than it is nationwide to put it mildly. I think the remark by Opihiman2
about Hawaii's real estate in the 90s has validity here… It is going to take a long time in popular South Florida to recover.
As to the Panhandle, it's attraction is substantially inferior as the winters for example are a lot less appealing; if you fly from Tampa to Tallahassee you will notice undeveloped land for hundreds of miles along the panhandle. Will this land ever be exploited? undoubtedly; will it be soon? I bet you it will take decades therefore making St. Joe a probable value trap and bringing me to the Einhorn camp.
On a side note, I am not as enamored with Berkowitz as a few on this board are (yes I know his record); He is a "shameless imitator" as he himself puts it in one of his reports; nothing wrong with that, most of us are. However when it comes to pure research and his ability to uncover undiscovered gems I have some reservations.
Buffett Outlining Dividend Plan May Ease Successor’s Path
in Berkshire Hathaway
Posted
Very true;
Brk is like a BNSF train in motion (with 70 cars and an insurance locomotive) ; it would take a lot of years and screw ups to stop its momentum. Culture and talent in place will insure it won't derail. ;)