zarley
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Posts posted by zarley
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Good article on Tilson and his shutting down of his hedge fund.
Kase Capital was down to $50 million, and the 1 percent management fee on the funds didn't even cover expenses.
A one man shop had overhead of more than $500,000 per year? I think I may see part of his problem.
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@joe
i do not have a handle on blockchain tech. i think i have an emerging handle on the potential uses of blockchain as something that can disintermediate or reduce transaction cost and increase efficiency.
Honest question about efficiency and transaction costs:
Given what I've read about the transaction costs for bitcoin and the amount of computing power needed to validate transactions, it seems like these two points are potential problems, not solutions. Seems like infrequent, high-priority transactions might be well served, but small and frequent transactions would get killed by the transaction costs. Is that a bitcoin-specific issue or a more general block-chain challenge?
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Brilliant. And for those who aren't aware. You can "ignore" the new politics board under "profile".
Can I get an Amen?
Thank you for that tip.
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zarley; I gave some careful thought to you putting your interpretation to my posting a few selected words.
"No Sarcasm was not implied whatsoever"
I just meant to start the above thread and from the responses I and I a
Cheers.
Drzola,
Thanks for the clarification. I'm sorry for misinterpreting your post. Intent can be a little tricky to determine in this medium. I probably should have been more charitable to you in my interpretation.
To be honest, if last week was the near-term top in the market, on the front end of a significant correction, I wouldn't be too sad about it. it seems necessary at this point.
Zarley
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Can't tell if your "words of wisdom" comment implies sarcasm, but to be fair to Jim, I'll link the post in question and add the rest of what he wrote, in response to another poster declaring that today's break was the top:
http://boards.fool.com/brave-man-calling-a-market-top-is-much-harder-32741038.aspx?sort=postdate
Brave man. Calling a market top is much harder than calling a market bottom.I won't call it yet.
Usually (but only usually) there is some sign of weakening breadth as the market tops cyclically.
But things are still boomin' on that front at the moment. e.g., ratio of new 52-week highs to new lows.
Breadth has been pretty strong all year, generally positive since last October/November.
Interestingly, there is usually no particular need to be good at calling market tops, even if you're a market timer.
The great majority of cyclical tops are pretty slow affairs.
Even 4 months after a high, the market is down from the high less than 10% on average. Usually.
In fact, the number of days since the latest recent high is a remarkable predictor of forward returns.
This is simply because a bull market is, more or less by definition, a period of frequent (closely spaced) fresh highs.
If you have had a fresh high lately, you're almost certainly in a bull market. (Either you are, or it *just* ended).
If no recent high lately, then...maybe not a bull.
The longer it has been, the less likely you are still in an ongoing bull market.
The less likely you are to be in a bull market, the lower the average short term market returns.
From a post I did a while back, looking at daily data since 1930.
From each start day, I looked at the forward real total return for six months.I used average price 5.5 to 6.5 months later divided by current price, annualized, as a real total return.
Then, it's bucketed by the number of trading days since a fresh six month high.
(any day of a fresh recent high is day zero, the day after is 1, etc.)
Note the buckets overlap slightly. Each observation is counted twice.
Still, it's an amazingly smooth series.
From 0 to 19 days since fresh six month high, six month forward CAGR average 11.0%
From 10 to 29 days since fresh six month high, six month forward CAGR average 9.9%
From 20 to 39 days since fresh six month high, six month forward CAGR average 8.8%
From 30 to 49 days since fresh six month high, six month forward CAGR average 8.7%
From 40 to 59 days since fresh six month high, six month forward CAGR average 9.3%
From 50 to 69 days since fresh six month high, six month forward CAGR average 10.5%
From 60 to 79 days since fresh six month high, six month forward CAGR average 11.1%
From 70 to 89 days since fresh six month high, six month forward CAGR average 9.2%
From 80 to 99 days since fresh six month high, six month forward CAGR average 6.7%
From 90 to 109 days since fresh six month high, six month forward CAGR average 6.8%
From 100 to 119 days since fresh six month high, six month forward CAGR average 7.9%
From 110 to 129 days since fresh six month high, six month forward CAGR average 7.1%
From 120 to 139 days since fresh six month high, six month forward CAGR average 5.7%
From 130 to 149 days since fresh six month high, six month forward CAGR average 4.5%
From 140 to 159 days since fresh six month high, six month forward CAGR average 2.5%
From 150 to 169 days since fresh six month high, six month forward CAGR average 1.8%
From 160 to 179 days since fresh six month high, six month forward CAGR average 1.4%
From 170 to 189 days since fresh six month high, six month forward CAGR average 0.6%
From 180 to 199 days since fresh six month high, six month forward CAGR average -1.3%
From 190 to 209 days since fresh six month high, six month forward CAGR average -2.4%
From 200 to 219 days since fresh six month high, six month forward CAGR average -2.2%
From 210 to 229 days since fresh six month high, six month forward CAGR average -1.7%
From 220 to 239 days since fresh six month high, six month forward CAGR average -3.0%
From 230 to 249 days since fresh six month high, six month forward CAGR average -6.4%
From 240 to 259 days since fresh six month high, six month forward CAGR average -6.5%
From 250 to 269 days since fresh six month high, six month forward CAGR average -4.6%
From 260 to 279 days since fresh six month high, six month forward CAGR average -3.1%
From 270 to 289 days since fresh six month high, six month forward CAGR average -1.8%
From 280 to 299 days since fresh six month high, six month forward CAGR average -4.0%
From 290 to 309 days since fresh six month high, six month forward CAGR average -6.1%
From 300 to 319 days since fresh six month high, six month forward CAGR average -5.7%
From 310 to 329 days since fresh six month high, six month forward CAGR average -4.6%
From 320 to 339 days since fresh six month high, six month forward CAGR average -3.8%
From 330 to 349 days since fresh six month high, six month forward CAGR average -4.2%
Since we just had a fresh all time high today, there is no *pressing* worry. Probably.
Anyone thinking of sidling quietly towards the exits before the party ends can probably do it gradually.
Most parties end pretty slowly at first as people drift out one by one. It's the late-night drunks who stay too long that can stampede.
Jim
Jim is one of the most thoughtful and generous posters at the TMF BRK board. Selectively quoting something he wrote to perhaps use as some sort of I told you so reference later is pretty bad form, IMO.
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As I recall it, Munger's moves at DJCO were somewhat known through the quarterly filings for DJCO. The wording in the early filings was vague, and didn't identify what was being bought, but based on the public comments of Munger and Buffett, alert investors who followed the pair could guess that Wells Fargo was the likely target. From memory, confirmation that it was Wells Fargo (and possibly one or two other positions) didn't happen until much later.
So, "in the know" investors could surmise what was going on. However, that time in the market was so volatile and gut-wrenching that even those who knew, may not have wanted to act on that knowledge. While I knew Buffett and Munger were happy to buy as much Wells Fargo as they could as it slipped under $10, I didn't do the same (for a variety of reasons). It is hard to overstate the emotional impact of what happened in the second half of 2008. There were days I felt sick to my stomach and worried about the possibility of an implosion of the US financial system. The hardest thing to do was to sell something good that was down 50% to buy something else that was even cheaper.
With all that said, the idea of portfolio cloning, or riding coat tails isn't new. Sites like Dataroma (http://www.dataroma.com/m/home.php) are useful for tracking this sort of thing. To me it's useful to see who's buying what as a source of ideas, but wouldn't suggest anyone buy just because someone else is buying.
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So BVPS is now $102.55?
From the consolidated statements:
BRK shareholder Equity = $255,550
A Share Equivalents = 1,643,183
BV per A share = $255,550 / 1.643183 = $155,521
BV per B share = $155,521 / 1,500 = $103.68
Is there something you deduct from the shareholder equity line?
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Edited to clarify share count and to show math on BV per A share
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-9% +/- in my personal accounts. Up a percent or two in indexed retirement accounts.
Easily my worst year since 2008, mostly due to a lot of BRK and little time devoted to managing my accounts. Not terribly worried about it given that BRK is undervalued and I'm not graded by anyone but myself on the year to year performance. I may have missed a few opportunities due to the lack of time/effort on my part, but that doesn't bother me a lot either.
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Usually I look for a meaningful number of reviews and then scan the best rated reviews (rated most helpful) for consistent themes (good and bad) or areas of specific interest to me. I'll often look at the 2's and 4's for the good and bad of the item. I find 1's and 5's can be irrational and unhelpful. A 2 is someone who isn't just blindly rating 1 because something made them angry or sad; there are usually one or two specific things that are negative about the item that makes it not work for them. Similarly, 4's are very positive reviews, but will usually highlight one or two areas where it might fall just short, which is useful. After reading a handful of 2 and 4 ratings something like a consensus starts to emerge about the general strengths and weaknesses of the item. If the weaknesses are related to my particular need, then I need to think about it more, or consider other items.
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I just came across this, the Wall Street Journal has annotated the annual letter. I have only gotten a few pages in, but the first comment from Russo is worth the price...oh right it's free. 8)
http://www.documentcloud.org/documents/1678424-berkshire2014.html#document/p1
Get more than a few pages in and you'll recognize at least one very familiar name. :)
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Interesting that the delivery time varies so much. Perhaps I'll be patient for another week or so.
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Has anyone received the printed 2014 AR from BRK yet? I usually get the printed copy directly from my brokerage account. I haven't seen the 2014 report yet and am starting to worry that I've somehow missed it (curse you spammy e-delivery!!!). Have I missed it, or am I just being impatient?
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The Omaha World Herald does a good liveblog as well. Also, in the last couple years twitter activity has centralized around a hashtag for the weekend's events. #BRK2015 looks to be the tag for this year.
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I think the intrinsic value is considerably higher than $219,000. I like to take Buffett's advice and use a simple addition of cash/investments and (pre tax operating earnings*multiple). $140,000 + (11,000*10) = $250,000.
A few other observations/questions....
BHE pre tax earnings were $2.7 B in 2014. Buffett has said BHE's renewable portfolio upon completion will have cost $15 billion. During a shareholder meeting a few years back, Buffett said he would be satisfied with 12% returns on capital in the utility business. How much of the $15 billion investment is currently online. This should create an additional $1.8 billion of pretax operating earnings or $1,000/share?
Buffett has twice mentioned in annual letters the difference between what the tank cars are worth and the value on the books. They currently own 105,000 tank cars on the books at $5 billion. Buffett has said these new cars sell for over $100,000. A difference of over $5 billion.
The Heinz preferred and common shares are currently on the books at $11 billion. Once the Kraft/Heinz shares are valued at market the common will be worth approximately $21 billion using the current KFT price. He will contribute an additional $5 billion cash at closing. The Kraft/Heinz investment will be worth $21b + $8 b preferred= $29B. Should increase investments and cash by $13B. $29B - ($11B + $5B cash) or $8,000/share?
How much is the $60 billion of cash worth? If Buffett is able to invest $60 billion over the next few years in operating companies that produce 10% pre tax returns, pre tax operating earnings will increase by $6B or $3,650/share.
What will the numbers look like in 3 years?
Current investments/cash (with Kraft/Heinz valuation adjustment) $148,000/share. Subtract $60 billion cash ($36,000/share)= $112,000/share. Buffett makes 8% annually on investments over 3 years. $141,000/share.
Current pre tax operating earnings/share $10,850. Add $1,000/share as utility projects come on line. $11,850 increases 5% annually organically over next 3 years. Will become $13,717/share. Add $3,650/share as $60 billion of cash is deployed at 10% pre tax return. Total in 3 years = $17,367/share.
Cash continues to build. Even after $60B deployed, cash is approximately $50B or $30,000/share in 3 years.
In summary, Cash/investments/share= $171,000. Pre tax operating earnings= $17,367/share.
$171,000 + ($17,367*10)= $344,000/share
This would be an annualized return of 17.5% on the current $212,000 share price.
Redskin, thanks for your additional comments.
My intent for creating my spreadsheet was to take readily available financials that could be tracked over time to ballpark IV in a simple and conservative way. It's a relatively small adjustment to the two-column approach outlined by Buffett and produces IV estimates that are consistent and not wildly out of line. It seems to work well enough for my purposes. I know it's overly simplified, and probably a bit too conservative. But, seeing how the IV pieces develop over time is interesting, as is tracking that against historical prices.
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What is your interpretation of the conventional two column approach? What about your approach is modified?
I don't just use the value of investments; I look at the equity of the insurance operations instead. Then I add to it the value of the pre-tax operating earnings (annualized pre-tax earnings x 9). It's still a simple order of magnitude measure, that is purely mechanical and partially fitted to the past data.
I don't think this is a good way to value the company. I believe a lot of the operating companies are owned by the insurance subsidiaries, including BNSF. Therefore the book value of BNSF would be included in the insurance equity. You could do this but you would need to exclude BNSF operating earnings and all other operating companies owned by insurance subs.
I'm aware of the odd ownership structure of some of the subs, but if you look at the consolidated balance sheets, Rail, Utilities, and Energy assets are separated from the insurance operations. The insurance assets are almost entirely financial, so I don't think I'm double counting significantly there.
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What is your interpretation of the conventional two column approach? What about your approach is modified?
I don't just use the value of investments; I look at the equity of the insurance operations instead. Then I add to it the value of the pre-tax operating earnings (annualized pre-tax earnings x 9). It's still a simple order of magnitude measure, that is purely mechanical and partially fitted to the past data.
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TL:DR, what is your estimate for IV?
I have a simple spreadsheet that does a modified two-column valuation based on the current financials. The current, imo conservative, IV estimate is:
Per A share = $ 219,000
Per B share = $ 145
Somewhere in the neighborhood of 1.5 x BV
I would say BRK is, at best, only modestly undervalued at current prices. You might say it's in the low end of the range of fair value.
My little spreadsheet goes back to around 2001 with its calculations. By this measure, BRK was clearly undervalued in 2011 and 2012 and has moved towards fair value since then. Not a huge revelation given the buy-back activities around that time and Buffet's own discussion of BRK's valuation. In mid to late 2012 you could buy BRK between $70 and $80 (per B share) while my simple estimate of IV was slightly above $100. It was around that time that some people (including myself) were going long BRK Leaps, which turned out pretty well.
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Go through Costco and get a no-haggle fleet price from a local dealer. My last purchase was for a couple hundred $$ over invoice. On a car with an MSRP of $36,000 I paid something like $32,000 and was out the door with tax and title around $35,000.
Perhaps not the best deal in the world, but it took virtually no time, didn't need to deal with a salesman, and I know I didn't get totally ripped off.
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Seagate and Western Digital in the HDD space are pretty close. Those two control a little more than 80% of the HDD shipments with Toshiba at around 15%.
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Wtf does Buffett's appraisal of Berkshire have to do with Fairfax? They're not even close to comparable.
Also, it's not clear why a fair to mediocre insurance operation that has hedged away hundreds of millions (billions?) in investment gains over the last five years should be worth much more than BV. Certainly not because Buffett thinks Berkshire is.
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I know the ball park net-worth and the general trajectory. That's enough. The idea of tracking monthly or quarterly in a spreadsheet seems weird to me. I closely track thing's I directly control (bank accounts and investments), but leave the rest (pension value, home equity, retirement accounts, etc.) in the roughly right pile. I look at them from time to time, but I don't specifically account for them in a spreadsheet or other calculation.
To me the number doesn't matter, it's the trajectory and the implications of where it ends by the time I need to retire.
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Lightened up again on Western Digital (WDC). Down to just a few hundred shares now. Was the second largest holding for me, but that's harder to justify at $97. Cash position up to 17%
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INTP; not an engineer. Not detailed enough to be an engineer. I'm very much a "roughly right" kind of guy. ;D
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A long time Berkshire owner and former Sequoia fund manager shares an interesting perspective on Berkshire and life after Buffett:
Let’s assume that Mr. Buffett is no longer the CEO. Several changes will be made over the ensuing year or so, with some immediately and others taking longer, but which will inevitably take place.First, a new CEO will be appointed. I believe that will be Ajit Jain with two backup candidates. Second, the Board of Directors will be reconfigured over time. Third, several of the CEO’s of subsidiaries will retire. Fourth, new CEO’s and leaders will need to be chosen to replace the departing CEO’s. Fifth, a dividend will most likely be instituted to reduce the need to invest the prodigious cash flow coming into headquarters. Sixth, while historically, divisions were managed to generate excess free cash flow to send back to Omaha, going forward some of that free cash flow will be redirected toward building the enterprise via bolt-on acquisitions and internal growth. Seventh, the stock price will probably decline 10-20% or more, which, in my view, will present an extraordinary buying opportunity.
It's a good read and I tend to agree with it in broad strokes. It may reflect a sort of conventional wisdom of long-term Berkshire owners.
He does hit on one issue that is among my big concerns about Berkshire after Buffett. Not succession at the CEO level, but succession at the one or two levels below that.
My biggest concern relates to the new generation of operating subsidiary management teams and keeping them in place. Many of the original managers that sold their companies to Berkshire Hathaway were in unique positions, very different from those the next generation of leaders will face. These original managers sold their firms to Berkshire Hathaway for many reasons: avoid going public, avoid private equity which would need a liquidity event in the years ahead (going public or sale), liquefying their wealth from the firm for cash to diversify and for estate tax planning purposes, maintaining autonomy, finding a permanent home, and being “knighted” by Mr. Buffett an enormous honor. These original managers love Mr. Buffett for these as well as other reasons. However, the new generation of managers will likely not feel the same loyalty or, frankly, love for the new CEO that their predecessors felt for Mr. Buffett. We are concerned as to whether the new management teams will remain as loyal to the new Berkshire Hathaway as the prior leadership.Although I'm not sure he fully answers what this might mean for Berkshire going forward, it is certainly an issue, directly related to the importance of Buffett to the organisation. He does lay out one vision of Berkshire, with Ajit as CEO that seems quite plausible and ruminates a little bit on the durability of the Berkshire culture and the history of conglomerates. All in all a very good read.
Semper Augustus
in Berkshire Hathaway
Posted
Awesome. Thanks for the heads-up.