zarley
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Posts posted by zarley
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Thanks for sharing Ross; obviously a lot of work went into that.
In the past when I've done that sort of thing I find that the format or cell locations on data imports changes from time to time. Meaning I have to readjust all the cell references to get the calcs and charts to work out right.
Have you had that problem, and if so, how did you overcome it?
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I agree this is a really odd move. Reader is one of the top 5 Google services I use. Google just became meaningfully less useful to me.
The feedly ap on my tablet looks fantastic. I'm not entirely sold on it, but it does broaden my perspective on what an RSS reader might be. Haven't look at the browser version yet.
Since I'm a creature of habit, I will probably check out Old Reader as well.
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Greenlight's buying
http://www.bloomberg.com/news/2013-02-14/einhorn-s-greenlight-buys-google-aetna-sells-wellpoint.html
Zarley,
I'm just messing with you, but how do you feel about selling your stock to Einhorn?
Missed this earlier, but I feel fine about it :) . . . given my cost basis and the fact that it's still my second largest holding. I may not get that opportunity to buy back under $40. but that's ok. Plus, the price has moved sideways since I sold.
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A) I have no idea how to value Berkshire. Fact.
B) I know that it is more valuable than book value. Fact.
Given A, how is B true? I suspect that A is indeed not true and you're just trying to be cute. I already regret my participation here. Carry on.
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Because all you need to know that the value is higher than what you're paying for.....but you may not have an accurate estimate of that number. I definitely cannot value BRK, but I (and my pal Warren) think BV is less than what it is worth.
I would actually go far as to say that I don't believe in the concept of intrinsic value. I just think in terms of cash flow or BV return. If I pay X I get Y% return.
Can you see how those two statements are inherently conflicting?
Further, are you saying that even the simple two-column method for valuing Berkshire is beyond your ability? How can you think that value is more than BV is you don't know how to estimate it and even question its validity as a concept? I find your comments in this thread baffling.
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I haven't looked at the deal in detail yet.
Where is Schroeder getting the 6% guaranteed return from?
The annual preferred dividend / total $12 billion investment. Guaranteed is a bit strong, but it does seem like a reasonable near-term floor assuming 3G doesn't kill Heinz.
I made a similar observation in the the original thread about the deal. http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/berkshire-acquires-heinz-for-72-5-ps/msg103947/#msg103947
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For $12 billion BRK gets half the equity and a reported annual preferred dividend of more than $700 million. Barring total collapse of the Heinz business, he's got a floor of 6% annual return on the money.
If the preferred is structured like the other BRK deals with a 10% call-back fee, if it gets bought back, he'd get $9 billion back. So, he'd have half the equity for $3 billion invested, less the cumulative dividends he's received.
So, for example, if the preferred get bought back in 5 years, he'd have all his money back and still have half ownership of Heinz.
Doesn't seem too bad to me. . . maybe not as good as the BAC deal or Swiss Re, but nice enough.
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Back of the envelope analysis, seems like BRK gets the best of this deal. The 9% coupon on 8.8bln in preferred is 800mm, while steady-state FCF before debt payments averaging $1.2bln/year. With around 10bln in debt, after tax interest will be somewhere around 200mm, so very little cash will drop down to equity until the preferred is called away. Looks like the preferred is the value driver here for Buffett, and I'd wager that there is some significant call protection on the preferred (say 5 years?), or a stip the preferred can't be refinanced early with debt.
onyx1, where did you find the info on the preferred. The few links I've read don't mention it or have any detail.
Pieced together from these links:
"Berkshire and 3G will each contribute about $4 billion in cash to pay for the deal, with Berkshire also paying $8 billion for preferred shares. The rest of the cost will be covered by debt financing raised by JPMorgan Chase and Wells Fargo."
"Berkshire will spend about $12 billion to $13 billion on the deal for the maker of condiments and Ore-Ida potato snacks, Buffett told CNBC. The deal will also be financed with cash from 3G affiliates, plus the rollover of existing debt, and is valued at about $28 billion including debt, according to the statement."
Thanks onyx1, here's the part I missed earlier (from the bloomberg link):
"Berkshire and 3G will each have more than $4 billion in equity in Heinz, and Buffett’s firm will also take a preferred stake of $8 billion, which gets an annual dividend of 9 percent, according to three people familiar with the deal. The people asked not to be identified because the terms are private."
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Back of the envelope analysis, seems like BRK gets the best of this deal. The 9% coupon on 8.8bln in preferred is 800mm, while steady-state FCF before debt payments averaging $1.2bln/year. With around 10bln in debt, after tax interest will be somewhere around 200mm, so very little cash will drop down to equity until the preferred is called away. Looks like the preferred is the value driver here for Buffett, and I'd wager that there is some significant call protection on the preferred (say 5 years?), or a stip the preferred can't be refinanced early with debt.
onyx1, where did you find the info on the preferred. The few links I've read don't mention it or have any detail.
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Looks like 3G Capital -- http://www.3g-capital.com/ is not the small value oriented hedge fund 3G Capital -- http://www.3gcapital.com/.
Linking up with a Swiss billionaire makes more sense than a couple young value managers.
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Hehe. I actually lightened up a little bit on WDC yesterday. Still my second biggest position, but now more in line with what I see as a "normal" size. The volatility is crazy on this stock, so I wouldn't be surprised to get another opportunity to buy in the mid to low 30's. Between BRK and WDC, it's been a pretty good couple months.
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Or you can become an RIA and manage seperate managed accounts. Check this site out it gives you a good overview http://www.fwallstreet.com/article/170-how-to-start-your-own-hedge-fund/ . Your letter was written so well that I thought you were running a fund. Thanks for sharing.
I was thinking something along these lines as well. What is the benefit of formally starting a fund vs. becoming a RIA and managing accounts? I've read that the Interactive Brokers platform for RIAs makes it very easy to run a collection of accunts in a unified way that really simplifies things.
I think Ben Hacker may have linked to some of that info here in the past.
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Seth Klarman has averaged ~20% per year, is managing >23B, and it is still able to find 20-30 stocks to invest in. It should not be that hard for retail investors.
I think you have your logic backwards here.
Seth Klarman, one of this generations best investors, and his team of managers/analysts is able to find 20-30 stocks to invest in . . . I think a retail investor working part time would be nuts to think they could match that. I might know 20 decent companies well enough to own them, but I don't own them because the right price hasn't presented its self.
I own 5 stocks in my brokerage account because I can't follow 100 stocks closely and I feel comfortable with the safety and future prospects of each. If I'm wrong my returns will be volatile, but I can accept that.
If you buy the stocks in any of Graham screens (net-nets, Enterprising investor, Conservative Investor) you WILL beat the market, guaranteed. The problem is that most of them are companies with <50M capitalization. A retail investor can buy them, but not somebody like Klarman.
I see your point. I personally tend not to use screens of that sort; I'm uncomfortable buying baskets of stocks in that way. That sort of mechanical screening can work, but I'm not sure it's fair to compare that to what Klarman does.
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Seth Klarman has averaged ~20% per year, is managing >23B, and it is still able to find 20-30 stocks to invest in. It should not be that hard for retail investors.
I think you have your logic backwards here.
Seth Klarman, one of this generations best investors, and his team of managers/analysts is able to find 20-30 stocks to invest in . . . I think a retail investor working part time would be nuts to think they could match that. I might know 20 decent companies well enough to own them, but I don't own them because the right price hasn't presented its self.
I own 5 stocks in my brokerage account because I can't follow 100 stocks closely and I feel comfortable with the safety and future prospects of each. If I'm wrong my returns will be volatile, but I can accept that.
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Right - it is correct not to include non-controlling interests and use only Berkshire Hathaway shareholders equity. It is also correct to use the new lower share count (not 1.652m) since he just repurchased 1.2 B. worth of shares. It is also correct to deduct the 1.2 Billion cash he used to do it.
There has been a little bit of this debate (how much adjusting from reported BV is warranted for purposes of determining a more precise estimate of the current buyback price) on the TMF BRK board. Since I'm lazy, I don't view the buyback price as a floor, and roughly right is good enough for me, I land in the 'just use reported BV' camp. Your adjustments would be reductions to overall BV and the buyback price, so they're a bit more conservative and arguably more correct. But, I'd guess the net effect is pretty close to negligible (although I haven't done the math).
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89.40 is much closer to correct than the 91.5x numbers. Remember that large equity holdings are down since the favorable Q3 mark and that he did spend 1.2 billion dollars of that shareholders equity to reduce the share count. Retained earnings are somewhat predictable and GEICO and Re losses for Sandy should be over a Billion dollars.
Although, you seem to mix two separate issues. 1) is it appropriate to include non-controlling interest in the shareholder BV calculation? and 2) how should one adjust the reported Q3 equity to approach a current BV estimate?
My $89.40 BRK.b buyback price reflects a no on #1 and does no adjustment to the reported Q3 numbers. It may be appropriate to make adjustments as you noted to get to a more accurate "current" BV. But, I haven't done that.
straight from the Q3 10Q:
shareholder equity = $184,602 million
shares outstanding = 1.652 million (A equivalents)
BV/A Share = $111,745
Buyback = 1.2 x BV = $134,093
1,500 B shares per A share ==> $89.40
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By the way, does everybody arrive at a price of 91.53 for the buyback trigger?
I used the following numbers:
BV @ 31-09-12 : 189.074B
Economic units (ClassB=1 ClassA = 1500) : 2.478B
BV/Economic Units *1.2 = 91.53
Regards
BeerBaron
I use the BRK shareholder equity of 184.602B that omits the non-controlling interest line and wind up with a buy-back price of $89.40.
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I used to do the same thing but have since moved to using the freeware program KeePass to store the passwords rather than simply keeping them in a text file. KeePass is available for every platform, it's free, it's lightweight & portable, and I find it a much nicer user experience then scrolling/searching through a text file.
It creates a database of your passwords (in its own internal format) and then encrypts this file with AES-256 using a master password of your choosing. Like you, I store that file on my Dropbox account, so it's available (and updated) everywhere I go.
I should also note that the main takeaway from the KCD comic is that password length generally trumps complexit
+1 for keepass in combination with dropbox. Although, I'd add a suggestion to use multilevel authentication with both a master password and a keyfile. Of course you should never have your key file in any public cloud type service.
Plus, be very careful about your email accounts (e.g., use the gmail authenticator). A hacker won't need to guess or crack your passwords if they get control of your email account and can use it to request password changes to your other accounts. A unique password change account in gmail that you don't use for anything but password change requests is something worth considering (although I haven't gone that far yet).
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Ravi (aka Rationalwalk) on the TMF BRK board linked to this little post about BH:
Bilgari Holdings(BH) Chairman and CEO Sardar Biglari has, on multiple occasions, let us all know that Biglari Holdings is a ‘jockey stock’ and that he is the ‘jockey’. It seems though, that the horse’s owners continue to resist his orders. Biglari first tried to classify the stock in February 2011, but was unsuccessful in that attempt. More recently, Biglari proposed a modified plan on October 5, scheduling a special meeting for November 2.On November 2, the day of the meeting, Biglari abruptly delayed it until December 14. Most recently last night at 9:15, hours before the scheduled meeting, the company announced that the meeting would be delayed once again with no new date proposed.
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In a nutshell:
It’s becoming increasingly clear that Biglari’s inability to work well with others, his narcissism, his dishonesty, and his limitless greed will outweigh his intelligence and operational skills.No matter how smart the guy is, or how good an investor he is, or how rich he'll very likely make himself with BH, I'm pretty sure I wouldn't want to be his 'partner' in much of anything.
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please god let this man into a writing class, a dale carnegie course, humility training, something... Even Buffett uses Carol Loomis and he's an excellent writer naturally. If this guy is going to write letters for a living he has got to learn that he sounds like an idiot.
Amen. I didn't get much past the first paragraph. He's trying way too hard to sound smart. That almost never works.
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The wishful thinking and willful denial of reality in this election and to a certain extent this thread is baffling to me.
A little reading of Nate Silver (538) and Sam Wang (Princeton) was about all you needed to know where the race was.
Back to investing discussion then?
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Berkshire earns close to 5 billion pre-tax each quarter, and it is very unlikely that damages due to Sandy will come close to that number. Buffett has mentioned five percent or so of insured losses as Berkshire's typical share. If that number holds, losses due to Sandy should be no more than a couple of billion and probably much less than that.
I think book value is much more sensitive to equity market levels. With 88 billion in stocks and the equity index puts on the balance sheet, a five percent decline in the S&P from Sep 30 levels could lead to Berkshire's book value going down.
Both good points. All in all, I'm just being cautious in my expectations. If BRK sees $1-2+ billion in losses from Sandy and doesn't see much impact to BV, so much the better. Quite a testament to the BRK model that a storm like Sandy might have little noticeable impact on BRK's balance sheet.
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Any thoughts around how Warren chose 110% of BV to buy back stock?
I'm not an accountant by profession, so a question about BV calculation I have is: As Berkshire continues to buy whole ever more non-insurance operating companies, does this not increase the above (implied) separation of BV from IV? So, five / ten years from now, 130%/150% of BV could be a buy back level?
I'm not sure how WEB came up with 110% of BV as the buyback marker. I guess I'd characterize it as a figure that WEB sees as currently (and most likely in the future) well below a reasonable estimate of IV. It sets a clear signal to current owners, and perhaps future managers, as to what WEB sees as a safe and sensible place for BRK to retire shares (instead of finding other things to buy).
Your second point about the potential growth in the divergence of BV and IV is true, if the acquired operating companies are purchased at prices below IV. If WEB or someone else goes on a binge buying businesses at prices above IV, then the difference between IV and BV will likely shrink, not grow. Although, I guess you could take a bunch of impairment charges, reducing BV. In that case, even if the IV:BV ratio doesn't change, they both go down together.
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^ I was just thinking that as well. The buyback price is 81, it might be a good idea to watch closely, or better yet, sell puts near the target price.
Regarding Sandy, is it really a given though that BV will be lowered due to insurance losses? I would think that BV would grow (from Berk's other operations), but the growth would be offset by Sandy losses. Shouldn't we need an overall loss for the quarter to shrink BV?
I suppose it's not a given that BV must be lower. But, given the magnitude of the sandy related damages, I'd be surprised if BV didn't drop in Q4. Honestly, it's just a mental asterisk I've put on the BV and buyback numbers.
When to Sell?
in General Discussion
Posted
Are there better opportunities to deploy the funds to?
Has anything fundamental changed (other than price)?
If the answer to either of those is no, holding is probably the best course. If both are no than holding is clearly the best choice.
If you're just feeling defensive and want to lighten up, maybe consider a standing limit order to sell part at an acceptable price, or buy some puts.