Libs

Thanks for posting. Can someone explain what Buffett is getting at here? He's equating margin investing with buying, say, SPY calls? ------------------------------------------------------------------------------- And then we came along in 1982, and we, in a sense, opened up leverage to anybody in extreme measures and since that time –- it’s 28 years since then. I and perhaps others –- but I know I pointed out at least 20 times the really nonsense of saying — and still having the Federal Reserve telling people they can only borrow 50 percent against stock or whatever the margin requirements have been at various times, and then at the same time, telling them you can go gamble in S&P futures or something the 2 percent or 3 percent margin or whatever it might be. And to this day -– and I’ve talked to Congress about it. To this day, we sit there, with a system, where the Federal Reserve is telling you how much you can borrow against stocks and we’ve got this parallel system where people can gamble anything they want virtually, in terms of the most obvious one being the S&P futures. And I have seen no attempt by anybody to address that total contradiction.

And it is very sad if 21st century majority of America follow some kind of twisted version of a fairy tale written 2000 years ago in Middle East. You'd think humans would think and be rational. Nice comment...dripping with contempt. You just made Cardboard's point.

Nice comment....dripping with contempt......you just made Cardboard's point. And it is very sad if 21st century majority of America follow some kind of twisted version of a fairy tale written 2000 years ago in Middle East. You'd think humans would think and be rational.

http://www.theglobeandmail.com/news/investigations/the-real-estate-technique-fuelling-vancouvers-housing-market/article28634868/ Nice summary of the shenanigans realtors pull in Canada ( esp Vancouver). A) Realtor sells A's house to B. B ) Realtor invokes the assignment clause, and buys it himself C ) Flips to someone else at a profit. Legal, but scummy. Note the 500+ outraged comments to get a sense of how things are boiling over.

Hasn't demand continued to increase? Seems like cheap easy credit created excess supply (in all materials, not just oil), not that a lack of credit created a lack of demand? Demand is down over the last 5 years in the US, Europe, and Japan combined. It's only up in the aggregate because of the rest of the world. If China (and other EM's) rolls over and demand drops off there, aggregate demand will probably drop. No one is expecting this, but if it happens, look out. The oversupply problem will be far worse than expected.

How easy is it to get in, if you don't own shares ( or didn't as of 12/17, if I'm reading correctly).

Good god, no one is talking about shutting our doors and hiding. This is not an immigration issue, it is a national security issue. ISIS is at war with us and they have already admitted their desire to infiltrate the US via incoming Syrian refugees. Our own National Intelligence Director says he is "very concerned" about the risk, yet we feel compelled to demonstrate our compassion to the world and put our citizens at risk buy admitting 100,000 Syrian refugees? I have zero confidence that government bureaucrats have enough reliable information to complete any background checks. +1

Equity method accounting is for when you own 20-50% of a company. https://en.m.wikipedia.org/wiki/Equity_method So that's the accounting method. Buffett might view it differently for intrinsic value purposes. For example in the 2014 Annual Report, they owned 30% of USG but he lists it in his investments along with KO, AXP, etc and not as part of pre-tax non insurance earnings. Thanks.

The Kraft Heinz transaction is spelled out on page 11. Two questions 1) at the bottom of the page, earnings are shown as negative, but then totaled as a positive $110MM for Berkshire shareholders. Don't get this. 2) BRK is using the equity method yet only owns 26.8% of KHC. What are the ownership guidelins to use the equity method? I would have guessed you needed over 50%? Or in this case since we are partnering with 3G and the combined ownership is over 50% it's ok? Thanks in advance.

Cliff sounds like an amateur - that's not good for Cliff. “For a guy whose reputation rests on his investing in the stock market, that’s not good,” said Cliff Gallant, an analyst at Nomura Holdings Inc. “It’s been a tough year.” It's a fair comment, the stock portfolio has not done well this year. Buffett would be the first to own up to it. Honestly I see the stock portfolio as an anchor. I wish BRK could just spin the whole portfolio off to shareholders. Then the market would recognize BRK's terrific growth as an operating company, and give it a much higher P/E ratio. How many companies are growing this fast, with such low risk, and selling at such a low P/E ratio ( I think ~13X my 2016 estimates, haven't updated it fow a while). BRK's advantages as a hunter for operating Co's seem far greater than what we can do in the stock market. I believe Buffett said he can only look at maybe 300 potential stocks now, given BRK's size. Plus, BRK is stuck with the giant stocks forever. Come hell or high water, if Buffett wanted to sell KO, WFC, AXP, or IBM, it would cause a huge firestorm...could he even sell them without crushing the price? Heresy, all of this, I know.

Interesting on the FXI. Are the banks there as vulnerable as the US? The last time I looked there wasn't all that much exposure to apartment loans and I have heard that China has big down payments which protects the banks if real estate falls. I don't know any specifics about the Chinese lenders, I'm basing this on the tgheory they are constantly rolling over loans and the projects are not going to generate the funds to pay the loan off. Eventually this game ends. Michael Pettis goes into this at some length too.

I own some FXI Jan 2017 30 Puts. FXI is bank - heavy, and I agree with Anne Stevenson-Yang's prognosis that if and when China blows, the banks will lead the way.

TLT puts are still a cheap way to hedge against deflation.

Ummm what about the taxes on those operating earnings? That takes the 26.5bn down to 20.5bn. I think BRK is cheapish at these levels but 15.8x is different than 12.2x Everything in my post was after - tax.

Where are you optimistic - not on Heinz, not on PCP. Probably not on undistributed earnings from a/0 stocks. Is it your $18B up from $16-17 this year? If so, why assume earnings are going to go up? Would the railway not be having issues at this point with earnings given fracking? Should you just be assuming flat earnings? I haven't run these numbers in about 18 months. <Is it your $18B up from $16-17 this year?> Yes, that may be optimistic, as it assumes a modest underwriting profit and organic growth from the existing operating companies. I'm not that worried about Burlington ( assuming no recession) as they are turning around a lousy performance from 2014. They don't have the tough comparisons some of their competitors have.

+1 on the look - through method. Looking to next year, if you add $1.0B in KHC earnings ( 325MM shares X $3.22 EPS) $1.5B PCP earnings $18B Operating earnings from BRK ( up from ~$16-17B this year) 6B Undistributed earnings from a/o stocks 26.5B in earnings next year assuming no recession and normal Insurance results. Today's market cap is 325B So 12.2 X earnings. This may be a little optimistic but it's reasonable.

[ I am looking for an assymetrical bet on long term U.S. treasuries (yield on 10+ year treasuries heading way down). Cardboard TLT calls are cheap. I have some 130's Dec '15. A good deflation / flight to safety hedge. I'm as worried about geopolitical problems ( Russia primarily) as I am deflation. By my calc's you can get 15X+ returns if things get crazy and the 10- year dives under 1%. I think it's mispriced. http://www.optionsprofitcalculator.com/calculator/short-call.html

https://blockchain.info/nl/charts/n-transactions-excluding-popular Check out the increase in transaction volume recently. Greece - related?

Happy Birthday and thanks for all you do.

Cato analysis of Bitcoin, very interesting. Summary: The economics of mining leads to concentration, leading to doom. http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2015/5/cj-v35n2-12.pdf

This is a good subject. I would love to understand how advertisers are calculating their ROI on mobile ads. I hate them as a consumer. I once flew into a rage at Honda, vowing to never buy a car from them, based on one annoying, relentless pop-up ad. I can't be alone in this. Yet, I also can't believe advertisers are complete morons.

Good news: Operating earnings ex investment and derivative gains / losses = $4.2 billion, by far a new Q1 record and up 20% Y/Y. Bad news (?): BV didn't budge. Haven't figured out why.

I agree that Berkshire looks a lot more attractive than other large caps. Berkshire is growing fasterm has a great business model, and is cheaper than the market. I was also struck by Munger's bullish outlook in the letter. Even with mediocre leadership post-Buffett ( which is unlikely), he expects Berkshire will do well. His comment about rising activism driving more companies into the Berkshire fold will prove prescient, IMO.

That's a good point, thank you. I should have thought of that first.

I've noticed cash flow from operations has gone up a lot. What about figuring out free cash flow? Does any one use this as a valuation tool? And am I calculating / thinking about this correctly? Here goes. (Cash flow statement on P. 51:) http://www.berkshirehathaway.com/2014ar/2014ar.pdf Cash flow from operations = $32 B in '14. ( Was $20.9 B just 2 years ago) Purchases of property, plant and Equipment = $15 B last year. Depreciation & amortization was $7.3 B. Let's say that Cap Ex was $8 B, and $7B was for growth. ( Shouldn't we factor in, positively, that $$ spent on Burlington are guaranteed a reasonable return by the regulators? How should I think about that in relation to this calculation?) Thus, free cash flow was something around 32-15+7 = $24 billion. (right?) Furthermore, this doesn't account for undistributed earnings from the equities. It may sound odd to add that to FCF, but then again Buffett used a look-through earnings calc in the past. This would push the number to 27-28 B. Market cap is $342 bilion or ~12.4X "free cash flow." Help :P