vinod1
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Posts posted by vinod1
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Q1 results are out. Pretty much in line. Trimmed equities by $4 to $6 billion. No big buys.
https://www.berkshirehathaway.com/qtrly/1stqtr20.pdf
Vinod
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Taking a quick look:
Valuing associates at fair value, book value is $390 per share as of Q1. Bigger hit than expected.
How in the world are they able to lose money on the shorts in Q1? Shorted Amazon?
Vinod
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At last... another potential cure!
After a Homeland Security official mentioned the ability of disinfectants like bleach to kill the coronavirus on surfaces, Trump remarked on the effectiveness.
“And then I see the disinfectant where it knocks it out in a minute. One minute. And is there a way we can do something like that, by injection inside or almost a cleaning?” Trump said during his daily press briefing at the White House. “Because you see it gets on the lungs, and it does a tremendous number on the lungs. So it’d be interesting to check that. So that you’re going to have to use medical doctors, but it sounds — it sounds interesting to me.”
Yes, I see it now: intravenous bleach infusion, bombardment with UV rays, gamma rays, etc etc and patients will be straight up cured! And his apologists were out defending hydroxychloroquine because this guy was behind it...
We now proudly celebrate ignorance in our culture--and you see the manifestation here on this forum and in the population at large. The consequences of said ignorance unfortunately does not merely fall on the ignorant, but spreads to the wider population via collateral damage. Oh well.
A really sad state of affairs. When he was just being elected, some smarter republicans argued that Trump's rhetoric was a deliberate case of playing 3d chess to win the election and anger the libs. And that he would soften, that they could right the ship from within, etc. Gradually this line of thinking disappeared and rather than acknowledging their mistake it morphed into something else: tacit and complicit acceptance of utter idiocy.
Very astute observation. I did believe that logic that Trump talks that way but would not act stupidly. But with the way he is responding to Covid it is now glaringly obvious that this is sheer madness.
I do credit Trump, whether for right reasons or not, that he is the only president to address the threat of China and the threat it is posing.
His actions with regard to Covid are absolutely retarded. Who tweets that he might seal off New York ahead of time and then say there is no need? Who retweets that a crucial member of his Covid team (Dr. Fauci) to be fired? Injecting bleach?
Vinod
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It's very dangerous to try to shrug off Munger's and probably Buffett's prudence or conservatism as a consequence of their age or personal financial needs or even legacy.
If the situation would call for it, I am certain they would swing for the fences. Look at what Buffett did in september 2008 or Munger in March 2009. All-in in a very short period of time.
I agree with them that the right time for investment hasn't come yet. The risk/reward just isn't there. A few weeks ago we had a low point, and some traders thought there was a good trade to be made, and they did, but Buffett and Munger aren't traders. They buy to keep. And from that perspective, the time to buy hasn't come yet.
I've lived through quite a few cycles, and have never seen a true bottom with market sentiment as it is right now. I get constantly phone calls from people who have zero experience in the stock market with questions how they can and in what they have to invest. Brokers can't handle the applications from small investors and I read a broker had to cancel 40% of the applications because the appliers didn't have the necessary knowlegde to open an account. At a true bottom, almost nobody, and certainly no amateurs are interested in stepping in.
I mean, look at the S&P500. About 10% lower YTD. I can't comprehend this. The economic damage is real. Talk to a business owner instead of a stock trader and you get a real view of what is happening. There is an enormous value destruction going on, and no Fed or government is going to compensate this.
It's a simple fact that people in lockdown aren't producing any output anymore. That output is gone forever and won't be compensated, no matter how much money they print. Millions of people and businesses are surviving right now by eating up their reserves. These reserves are gone and not available anymore to consume or to invest after the crisis. The compounding effect in the economy is working in reverse at the moment, and it is not that easy to turn it around again. So I think the economic consequences will be felt long after the virus has been contained.
In these circumstances, a 10% correction from the rosy times earlier this year look a little paltry. Besides, I can't image a bull market of more than 10 years stops with a crash of 35%, only to resume 4 weeks thereafter. The imbalances are not cleansed out of the system. Look at Tesla : everything comes to a standstill, but the share price is up 70% YTD?
So we have time to see this thing evolve. There's certainly no need to rush in and the true long term opportunities will come. In this, I am completely on Munger's page.
Good points and I agree with most with one exception.
In Q4, 2008 and Q1, Q2 of 2009, Buffett hardly added 2% or 3% of the portfolio directly in stocks. He did the preferred deals that he got invited, but otherwise nothing much. He did buyout BNI at the end of 2009.
Checking dataroma, from Q4 2008 to Q4 2009 and including both those quarters, Buffett actually sold about 4%-5% of the stock portfolio.
I would not call that swinging for the fences.
Vinod
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I do not think banks are a layup right now. If you line up some scenarios of how virus/economic situation could play out, there is a scenario which involves heavy dilution and/or government bailout to banks. Not likely but a lot more than a zero chance.
I would be really shocked if Berkshire backed up the truck on banks at this time.
Vinod
Banks looking at roughly 2 years of lost earnings (20% fair value loss with a 10 PE) and a couple of years if not permanently lower earnings power . It’s not too hard to come up with a 40% fair value loss. Maybe give back some for lower discount rates,but still. I don’t think the share price losses have been much in excess of the fair value losses.
They area only a bargain when above assumptions are incorrect and we reverse to the mean quicker.
It is going to be path dependent and that is the main problem. Losses are going to be concentrated into a couple of quarters and that raises the potential for dilution.
Vinod
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Take a simple scenario where we do not have a cure or vaccine for the virus until middle of next year and the virus mutates and becomes more virulent. Is this an improbable scenario? Not to my mind.
Then GDP would be at say 70% in Q2, 80-85% in Q3 & Q4. Likely around 90% in first half of 2021. Many banks would have difficulty coming through without severe dilution in this cases.
Vinod
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I do not think banks are a layup right now. If you line up some scenarios of how virus/economic situation could play out, there is a scenario which involves heavy dilution and/or government bailout to banks. Not likely but a lot more than a zero chance.
I would be really shocked if Berkshire backed up the truck on banks at this time.
Vinod
Not directed at you, but the general question you raise:
Well, then what is a good buy? A month ago the entire market tanked. OK - let's say BRK has totally sour views on banking, energy, and anything travel-related.
What about the rest of the economy? Surely there were some bargains in unrelated industries?
I think if they are holding their breath for desperate business owners to call them up, begging to sell out, then they will go blue in the face before that phone rings. If they can't find bargains as investors in public markets during a viral market rout, then go run a PE shop.
My comments are directed specifically at banks. I put 50% of my wife retirement account into BAC in January 2016 at about $12. I would not do something like that now, because the risks are quite different. I did buy a bank but sized the position accordingly.
There are lots of other things to buy during the lows like Booking as its long term survivability is not in doubt.
Would Buffett be buying up stocks at the stock market bottom? I wish he would do it, but it is very likely he would not.
The way I am thinking about it is, Buffett is close to 90 years of age, and at that stage of his life, he is not going to be like a 30 or 40 year old. He has billions and nothing more to prove to anyone. He just not going to be that aggressive. It is not like he is going to be watching the stock market prices, see Citi hit $32 get excited and issue a bunch of buy orders. That is what many of our fellow COBF board members would do.
I do not have much hope that he would ever get aggressive going forward. He had so many opportunities to do so right from 2008 onwards and he did not do so. I think if we expect him to change you would be dissappointed.
Vinod
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I do not think banks are a layup right now. If you line up some scenarios of how virus/economic situation could play out, there is a scenario which involves heavy dilution and/or government bailout to banks. Not likely but a lot more than a zero chance.
I would be really shocked if Berkshire backed up the truck on banks at this time.
Vinod
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Peggy Noonan in a WSJ post
Here’s the part about integrity. Our federal government has to stop making empty and misleading claims about testing.
Leave to history how much the Centers for Disease Control and Prevention and the Food and Drug Administration were allowed to screw up. Since then, White House announcements on testing have been all showbiz. Tests are always coming in 10 days, they’re in the pipeline and being shipped next week, we’re scaling up. Wednesday Mike Pence crowed at the daily White House briefing: “We have conducted and completed 3,324,000 tests across the nation.” That’s barely 1% of the population three months into a crisis. That’s not an achievement, it’s a scandal.
President Trump said, “We have the best tests in the world.” If so, poor world.
There’s a complete disconnect between the numbers with which Washington mesmerizes itself and facts on the ground. Operatives give credulous cable hosts excited reports of new tests: You spit in a vial and results are immediate—it’s like a gender reveal, they shoot cannons with colors! We’re developing a home test that’s a pinprick. Elizabeth Holmes comes to your house; Theranos is on the case!
Ha ha, kidding, not true I think.
Testing is a national responsibility because a pandemic is a national problem. From the beginning it needed to be priority No. 1. It was never priority No. 1. If it had been, we’d have tests.
The federal government’s lack of integrity has been destructive. No opening of America will be sustained until it’s got right.
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Net losses on investments of approximately $1.5 billion will reflect unrealized losses on the Company’s equity and equity-related holdings and bonds.
Is my understanding correct that the $1.5 billion loss in equities/FI is understated by about $0.5 billion loss on the Eurobank?
Yesterday, I was going through the portfolio to size up the losses and I approximated to about $1.5 billion decline, so the above would be a much bigger hit than I expected.
Who would have imagined in 2009, the come the next major crisis, a dot com stock (Amazon) would be a pillar of strength while Fairfax would be tapping the credit lines?
Vinod
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We are still getting drive through food. Put the food bag in a trash bag immediately. We make sure none of the containers touch anything and are in the trash bag while we take the food out and put them into plates. Then we bake or microwave the hell out of them.
If Covid still manages to infect me, it is a deserving victor.
Vinod
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The Chinese Consul General in Sydney sent a letter to Australia's Daily Telegraph, upset about its coverage which highlighted China's role in the pandemic.
The newspaper decided to respond and publish the whole exchange.
The Daily Telegraph this week received a letter from the Australian Consulate General of the People's Republic of China, who took gentle issue with our excellent coverage of the coronavirus crisis.
Following is a point-by-point response to the Consulate General and China’s communist dictatorship:
Recently the Daily Telegraph has published a number of reports and opinions about China’s response to COVID-19 that are full of ignorance, prejudice and arrogance.
If a state-owned newspaper in China received this kind of complaint, subsequent days would involve journalists waking up in prison with their organs harvested.
Tracing the origin of the virus is a scientific issue that requires professional, science-based assessment.
Sure it does. How professional and science-based was the claim published on March 12 by China’s foreign ministry spokesman Zhao Lijian that “it might be US Army who brought the epidemic to Wuhan”?
The origin of the virus is still undetermined, and the World Health Organization has named the novel coronavirus “COVID-19”.
The World Health Organisation also appointed Zimbabwean murderer Robert Mugabe as its Goodwill Ambassador and declared on March 2 that the “stigma” of the coronavirus “is more dangerous than the virus itself”.
Vinod
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The vice president of Taiwan is a Johns Hopkins trained epidemiologist.
https://en.wikipedia.org/wiki/Chen_Chien-jen#Early_and_personal_life
Vinod
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This reminded me of Jeremy Grantham quote: When he was asked what people would learn from the whole financial crisis of 2008-9, Jeremy Grantham said, “In the short term a lot, in the medium term a little, in the long term, nothing at all. That would be historical precedent.”
Vinod
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After hearing the White House say critical supplies are going to commercial distributors who are then selling them to the states which are begging for help, I called
[General] @ltgrusselhonore who commanded federal troops after Hurricane Katrina to get his reaction. Watch this:
Yea. Logistics is hard. Who knew? ::)
Wouldn't it be nice if the US actually had a government? Like people who knew what they were doing?
These guys are managing a national emergency, the only way they know how. Tweets, changing websites, checking their ratings. Shit show.
You have the Pats flying masks from China on their team's 767. Oh and they can't bring as many as they're available cause the plane can't carry it. Wouldn't it be nice if the US had some sort of organization who's job it was to carry shit from one place to another. Something that may resemble this for example:
https://en.wikipedia.org/wiki/Air_Mobility_Command
What? You do not want to give credit to Trump for this? He need not have given them landing rights for the plane.
Vinod
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Looks like thousands of American citizens are going to be crucified at the alter of one persons narcissism. A "war time" president who should be facing war criminal charges of epic incompetence.
https://www.washingtonpost.com/world/2020/03/31/coronavirus-latest-news/
The White House coronavirus task force on Tuesday presented a grim picture of where the U.S. could be heading over the next couple of months, even with interventions like physical distancing. The task force projects 100,000 to 240,000 deaths from the virus, with mitigation.
Deborah Birx and Anthony S. Fauci, the leaders of the task force, emphasized that although the projections were likely based on the data that they have seen from the hardest hit locations so far, they were hopeful that they could prevent such a high number of deaths.
“Whenever you’re having an effect, it’s not time to take your foot off the accelerator, and on the brake, but to just press it down on the accelerator,” Fauci said of the mitigation efforts. “And that’s what I hope. And I know that we can that do over the next 30 days.”
Spot on. The lack of basic understanding shown in early stages of this is beyond belief. I still believe they are downplaying the true possible numbers here. Two more weeks and we will know, by tomorrow US will likely have 200K+ infections.
Question for the Hindsight Geniuses on this thread:
Which one(s) of the anti-pandemic measures in the following article should the President have done in January? Which ones should he do now?
https://www.nytimes.com/2020/03/30/world/europe/coronavirus-governments-power.html
I understand you think Trump is a genius. Anything and everything he does must be really great. Why argue?
Vinod
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To answer the original question of things that are going to make us gazillionaries:
To me it looks like it is going to be heavily influenced by the shape of the recovery (a) a quick dip down and back to normal by say end of this year (b) a quick dip down and slow/long recovery (1-2 years) and © a deep dip down and a slow/long recovery (3-4 years).
The opportunities, especially the ones that go up 3x, 5x or 10x in each of the cases are going to be very different.
Cruise lines for example in case © would likely be in restructuring or heavily diluted. If it is case (a) and even if people take a very long time to come back to current levels, then at current prices they are a bargain. So I think you need to have a view of how things are going to play out if looking at multi-baggers.
Vinod
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For the USD - the benefit of being the reserve currency is a huge and persistent investment surplus that finances a huge and persistent trade deficit. So Americans as a whole can consume more than they produce because their biggest export is reserve currency status fiat money.
I would highly recommend reading (because I find it fascinating):
https://carnegieendowment.org/chinafinancialmarkets/56856
"The role of the U.S. dollar as the world’s global reserve currency has been regarded as a great advantage to the United States but actually it is a destabilizing burden rather than an “exorbitant privilege.”
and
https://carnegieendowment.org/chinafinancialmarkets/79641
"Taxing capital inflows is a far better way to balance trade than imposing tariffs. This would address the root causes of trade imbalances, improve the productive investment process, and shift most of the adjustment costs onto banks and speculators."
and
https://carnegieendowment.org/chinafinancialmarkets/77009
"A recent article by Joseph Stiglitz suggests that the United States runs a current account deficit because its people save too little to fund domestic investment. In fact, he may have it backwards: Americans may save too little precisely because the United States runs a current account deficit."
IMHO, Michael Pettis is one of the very few that is able to have a systemic view on the level of Soros and Druckenmiller.
"Michael began his career in 1987, joining Manufacturers Hanover (now JP Morgan) as a trader in the Sovereign Debt group. From 1996 to 2001, he was at Bear Stearns as a managing director-principal in Latin American capital markets. Pettis also served as an advisor to sovereign governments on topics regarding financial management, including Mexico, North Macedonia and South Korea"
What's great about him, is that he is able to simplify complex issues with the use of logic and accounting identities while avoiding political biases so many economists have.
+1
I highly recommend reading anything from Michael Pettis. By far the most intellectually honest economist that I know.
Most economists slot themselves to theories. Pettis is the only one that I know says something like "Under these certain set of conditions" this theory is likely applicable. And if the theory is "true" then we should expect "these things to happen/not happen". Damn few economists think like that.
Vinod
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I was watching an interview sometime in 2001/2002 with a Taliban terrorist. He said something like "doctors cure people, police arrest people, we are terrorists and we kill people, why do you hate us?"
How can you argue with someone like that? I feel the same way with Trump supporters.
If 100K were killed, it is because Trump must have done a really good job, if 1 million or killed it must be because Trump must have done a really fantastic job.
So my rule is: Never ever argue with a Trump supporter.
Vinod
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Looks like thousands of American citizens are going to be crucified at the alter of one persons narcissism. A "war time" president who should be facing war criminal charges of epic incompetence.
https://www.washingtonpost.com/world/2020/03/31/coronavirus-latest-news/
The White House coronavirus task force on Tuesday presented a grim picture of where the U.S. could be heading over the next couple of months, even with interventions like physical distancing. The task force projects 100,000 to 240,000 deaths from the virus, with mitigation.
Deborah Birx and Anthony S. Fauci, the leaders of the task force, emphasized that although the projections were likely based on the data that they have seen from the hardest hit locations so far, they were hopeful that they could prevent such a high number of deaths.
“Whenever you’re having an effect, it’s not time to take your foot off the accelerator, and on the brake, but to just press it down on the accelerator,” Fauci said of the mitigation efforts. “And that’s what I hope. And I know that we can that do over the next 30 days.”
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Terrific response Dynamic. Wish there is a way to pin the thread so everyone who is starts out researching Berkshire reads this first.
Perhaps the only thing I would change is not to go 100% on any one investment. Two reasons (1) many of us mortals cannot think of all the possible risks that are likely to come up. I think Buffett said something to the effect that even BRK would have failed or at least severely impacted if the Govt did not intervene in 2008/9. (2) one investment can remain out of favor for a while. So if you have all your money in one investment and you need it for some reason, you might be forced to sell it at an inopportune moment. Whereas if you have say even 4-5, potentially one or two might be closer to fair value and you can monetize that.
Vinod
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I had thoughts of calling Dalal some choice names earlier in the thread. I had expected fewer than 5000 deaths based on how quickly US has stopped passengers from China. I had a large cash going in and put 10% in many stocks and got a quick 30-40% hair cut on many in a few days.
But I think it is abundantly clear for a while now, that he has been right for the right reasons. As has Viking and a few others. A terrific piece of analysis. Take a bow!
"Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said a new federal advisory announced Saturday night urging New York City area residents not to travel to other states would help slow the virus’s spread. But he said projections he has examined showed the disease would kill between 100,000 and 200,000 Americans and infect far more, “looking at what we’re seeing now.”"
Now let us move forward. Keep the analysis going.
Vinod
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Relax guys. Some relief on the way. A drive through strip club.
While much of Nevada has closed in compliance with Gov. Steve Sisolak's 30-day shutdown order to fight the spread of COVID-19, a Sin City strip club called Little Darlings remains open with a new menu of coronavirus-inspired options.
“We’re going to offer drive-up window strip shows,” Ryan Carlson, director of operations for Little Darlings, told the Las Vegas Review-Journal and KSNV-TV. “Guests can drive up to the front door and we’re going to have dancers separated by the 6-foot separation rule and they can enjoy a totally nude show right from the seat of their car.”
The drive-up shows last 10 minutes and cost $100. They will begin at 8 p.m. Saturday, according to the Review-Journal.
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If someone had told me 3 years ago, that the economy is where it is right now and the SP500 at almost 2600, I would have thought this someone would be crazy.
Not wanting to sound super bearish , but that’s how I see it.
If you assume zero SP500 earnings this year, 163 earnings 2021, 5% earnings growth for 9 years, 15 terminal PE in 10 years, and discount rate (return to investor) 10%, SP500 fair value would be ~2400.
IMO these are not unreasonable assumptions, so expecting SP500 drop much below 2400 is not very probable. It could in a panic, but it would be quite a good buy there.
Of course, you are welcome to change the assumptions above. If you want 15% return on SP500 with the rest of assumptions above, then fair value drops quite a bit to ~1680.
It is helpful to get an idea of what the fair value of the market is. As it would give us a benchmark to evaluate the opportunity costs.
The above needs a few adjustments
1. Everyone knows this but still want to make it explicit. We can discount free cash flow not earnings and the assumption that earnings equals free cash flow is likely aggressive.
2. We want to really get to the long term normalized owners earnings i.e. free cash flow, not this year or next. To me normalized means, we already take into account a recession or two over a 10 year period. And also take into account profit margins.
Profit margins might decline slightly from the last few years for various reasons. So taking all of these into account, I would posit that normalized earnings are closer to $110 to $130. If I had to pick a number probably $125.
Assuming 2% GDP growth and 2% inflation gives nominal GDP growth rate of 4%. Assume corporate profits grow at this rate long term. Use an equity premium of 5%. Thus fair value for S&P 500 would be 2500.
If we assume 0% GDP growth, 0% inflation and 0% corporate profit growth, fair value would still be 2500.
Vinod
Q1 2020 Results
in Fairfax Financial
Posted
How are you getting 15% with portfolio investments returning 2.5%?
I understand you are using $255 stock price as your capital base, but are you taking into account interest expenses, corporate expenses, preferred dividends? Even 3.5% pre-tax return does not get me to 15%.
Vinod