rb
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Posts posted by rb
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Does anyone know if the meeting has been recorded somewhere so it can be downloaded? I kinda want to put in my records. It turns out to be surprisingly hard to pull the video from the yahoo site.
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Our RE situation scares the crap out of me. It seems like we've learned nothing from the near miss in 2008 and the disaster south of the border.
The Canadian government quietly propped up the banking industry in 2008-10. So yeah, the 'near miss' was more like kicking the can down the road. Haven't read this report yet, but apparently the banks received $114bn in support from gov't and CIBC, BMO and Scotia were all underwater!
Summary: https://www.policyalternatives.ca/newsroom/updates/study-reveals-secret-canadian-bank-bailout
I know it's old news (published in April 2012). If this version of events has since been debunked, would love to hear an explanation.
I've read it. The report is worthless. Yes liquidity programs were used but the conclusions the authors draw are erroneous. At first I thought the authors weren't that much aware of monetary and bank funding operations but as I kept reading I realized that they were just being disingenuous.
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You guys are pretty spot on. Our RE situation scares the crap out of me. It seems like we've learned nothing from the near miss in 2008 and the disaster south of the border.
Oh and the icing on the cake, today RBC removed its $1.25 million loan limit for newcomers with no credit history. I mean what could go wrong with that?
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The reality is that the $ are not coming out of the cash account without being taxed.
Not for everyone, but you may wish to consider incorporating & doing your investing within the corp. Assuming the sums involved aren't massive, dividends & net realized gains will be taxed at the small business rate. Probably less than you are paying now, & it avoids the forced RRSP liquidation starting at age 72. When you need money, the corp. can pay you a tax free return of capital dividend up to your original contribution.
Common practice amongst owner managed business partnerships. Each partner opens & funds their own corp. Each corp. invests in the partnership up to the agreed % ownership. Thereafter, each partners accumulation over time accretes in their own corp., & they pay themselves from that corp. only as/when they need the funds.
SD
In Canada investing in through a corporate structure is very tax inefficient. A business that is engaged in investing activities will be classed an investment holding company and will be taxed at the highest marginal tax rate. There is a threshold I think more than 50% of the company's assets must be used to generate non-financial business income to avoid being an investment holding company. Don't quote me on that figure though.
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Some ideas off the top of my head...
- Borrow money so that the dividend income is offset by margin interest.
- Do a section 85 rollover of your securities into a CCPC than dividend out profits as eligible dividends and capital dividends. If you have RRSP room, you can offset this further with a contribution in the year you do this.
- Use other instruments like single stock futures that are not dividend protected, you would essentially convert dividends into capital gains - and there's no withholding taxes.
A section 85 rollover would be a really bad idea if you don't have a real business lying around. The corporation would be deemed an Investment Holding Corporation and will be taxed at the highest personal tax bracket in your jurisdiction.
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I don't really see how an RCA can help him here since the money has to be deposited in the RCA by his employer.
Also moving the shares anywhere from the cash account will be considered a deemed disposition and will trigger capital gains taxes.
I don't think you should worry about withholding taxes. Based on what you describe you should be able to get all the withholding tax back when you file your taxes. In order to lower the income tax on the dividends you could increase your contribution to the RRSPs. Another way would be to take a margin loan against the cash account and invest that loan in a tax free way - obviously this would be quite risky so handle it with care.
Regarding living abroad when making withdrawals from your RRSP. The government will withhold 25% of the withdrawal upfront. Depending where you are and what tax treaties are in place you may lower that rate but u will also have to pay tax in your country of residence. In addition depending on your particular situation, CRA may deem you a tax resident of Canada even if you're not a physical resident. Then you pay taxes how you normally would.
Lastly a word of caution about using RRSPs too heavily. If you make good returns and grow very large RRSPs you could end up paying more tax because capital gains will be taxed fully. Hope this helps.
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I'm confused about what this has to do with real estate. Also why people this the limit would not be rolled back. It was a proeminent part of the platform.
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What type of IRA account are you referring to? Is it a traditional IRA or a Roth, etc?
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Does anyone think any of these >1x b/v reasons are a bit flimsy? Okay, maybe except Buffett himself. I mean, all the reasons we could think of seem to be a margin of safety of 20-30% right? So buying at 1x book if it ever gets there gets you the safety margin. Perhaps there is something else to it. I can really see how goodwill may be undervalued if Buffett made good acquisitions at the right time, but he'd have to some degree be 'stealing it' from the sellers with the sellers not being fully aware. This is fine with me, after all, asymmetry of information creates opportunity.
Dude seriously, what are you on about?
For stealing goodwill, how can it be stealing if the other party willingly gives it over. If I get a great deal when buying a car by no means did I steal that car.
How are the reasons of Berkshire being worth >BV are flimsy? Several posters here just detailed many very good reasons why that is. Firstly, to argue that Berkshire is worth BV fails the common sense test given the operational and growth characteristics of the business. Secondly, there are many instances where Berkshire got great deals on their acquisitions and yes that creates value in excess of BV. I don't see why that's so hard to believe since businesses (and securities) at times transact at stupid prices sometimes too high, sometimes too low.
Thirdly, good businesses generate goodwill by themselves. That's why they transact at BV multiples >1. Let's use an example, say GEICO, but it works with any other business. When Berkshire purchased GEICO they paid 3x BV for it. Let's assume that it was the fair price. Then at the moment right after the purchase GEICO's IV is worth 1x BV inside of Berkshire because of the marked up goodwill. However due to the business characteristics of GEICO, it generates $3 of value for every $1 of retained earnings. So GEICO's IV starts to exceed BV inside of Berkshire as soon as it starts to retain earnings inside Berkshire. Now GEICO was acquired in 1996 I believe. Since then it retained a lot of earnings and wrote off a bunch of the initial goodwill, so GEICO's IV greatly exceeds it's BV on Berkshire's books. Now you see how you can have IV in excess of BV without "stealing" goodwill?
By the way, Berkshire has a lot of these companies bought at both cheap and fair prices. That's why its IV is well in excess of BV.
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I should also say that with enough QE and ever-increasing amounts of money printing, one would think confidence in paper currency would decrease exponentially at some point. This just seems logical and the value of Gold is one divided by the value of paper currency.
All QE is, is bond buying. That's it. In theory it could be inflationary, if banks were to use their increased reserves (cash) to make more loans. BUT they are not doing that. Anyways the constraint banks face is NOT reserves. Banks are constrained by regulations like Basel which require them to hold a certain amount of equity. The amount of equity they hold is determined by the risk-weights applied to bank assets. Government bonds have a zero risk weight. Right now banks are in fact cutting back on many activities due to stiffer regulation. So you aren't getting any inflation from an increased credit supply. The real effect of QE is not inflation of good/services....its asset inflation.
And the most over inflated asset is treasury bonds. The effect of regulation is very interesting here! Banks are being incentivized to hold more government debt. But market-making has in fact been discouraged. So the liquidity for treasury bond is reduced. Its an asset many institutional investors own but its they will have a lot of trouble exiting the trade. The greatest havoc will be in the treasury market.
Sir, I have no idea what you are talking about but you make no sense. How exactly is QE about holding government bonds if QE takes them off your hands? How is QE about buying government bonds since a lot of QE was focused on buying back long tern mortgage bonds? How is QE not effective if it was able to lower the long term mortgage rate? How will participants in the treasury market have a problem to exit their positions when it's the most liquid market in the world and according to your position extra liquidity is provided by the fed? How exactly is market making restricted by regulation? And how exactly are lending operations for the banks restricted?
Do you have any facts or data backing you positions or did you just feel like firing off a rant?
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Much more importantly, retirees spend savings. Any savings in the forms of deposits are inflationary, as they boost the money supply. As they get withdrawn, the money supply shrinks, and that is very deflationary. The real drivers of inflation and deflation are changes in the money supply. What matters is whether governments, desperate to keep the money supply up via fiscal and monetary means, will win their battle with the free markets, which seem to want to reduce the money supply by paying down loans.
Pease explain why withdrawals from savings accounts will reduce the money supply?
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Agree, will happily take excellent, or even modestly better than the index over 20-30 years.
In some ways, it is not just about the transition. The operating side of BRK is a $200 B and briskly growing business. The question is the hands-off, near abdicated model is such a unique culture, there is little else to compare with. Owner-operator generational transitions seldom work out, it is my curiosity(idle speculation) to think of currently-absent risks. What I'd love to hear is that the subs chiefs have close to 100% of their net worth in BRK shares, following WEB's lead. And the incumbents at the subs..ok,ok, maybe not 100%, just significant holdings. They used to own all of it pre-BRK after all! Nothing beats aligned, strong ownership interest.
Good choice. Even modestly over the index will make you a lot of money. If you can do it with companies like Berkshire it's even better cause you get to sleep really well.
I think that the op side of Berkshire is worth significantly more than 200B but that doesn't really matter. We all have our opinions.
But I think that your standard of the op sub managers to have most of their wealth in BRK stock may be a bit unfair. Honestly if we were to apply that standard in general we wouldn't invest in many names. People may worry about diversification or other reasons. After all they sold the companies to BRK for a reason. With all that said I think that a lot of the operators do have a significant amount of wealth in BRK stock.
But even the above is not really relevant. Despite the folklore, a lot of the op earnings won't come from companies acquired from former owner operators. The railway, energy, PCP, Lubrizol, and part of insurance were all former big public companies. They provide a huge chunk of the earnings and are not owner operator businesses. In addition they are quite old and managed several successions just fine on their own.
Even in the smaller businesses segment that you could refer to as the owner operator. A lot of this businesses went through at least one succession until now. Given all of this I don't think it's as scary as you imagine it. In addition, if Berkshire continues it's policy of supplying its subs with capital, paying managers well, and staying out of their way I don't envision it would be very hard to attract talent. That's pretty much how you describe heaven for an executive.
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I'm really confused about everyone speaking Buffett passing as this big existential risk for Berkshire. The company is not held together with spit and duck tape. Most of the subs were very successful companies before folding into BRK. Why would they stop being that. A lot of the subs went through leadership changes before. Add to this the 3 Ts, the fact that Todd and Ted are fantastic investors in their own right, and the fact that Buffett has been preparing a transition for years. Given these facts there is no existential risk here.
Now a more plausible argument would be that the future growth rate will be lower than in the past because Buffett is no longer in charge. Maybe. But I think most of us shareholders can live with excellent instead of out of this world.
Furthermore, if Buffett's death is such a massive risk, then how much should Berkshire without Buffett be worth today? Book? 0.8 Book?
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Wow I have a Brier score? :o lol
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Jurgis,
I think you touched on something here. In these threads the longevity of the companies gets ignored. People just project cash flows out to kingdom come. In real life that's not true. One of the big positive points of Berkshire is its resilience. It has businesses for which its clear that they'll be around for many years. It also has regenerative capabilities - Blue Chip Stamps is no longer with us (well... almost) but its cash flow gave birth to other divisions.
Grey's #1 stock is Apple - which no one know whether it'll be around 20 years from now. DCFs look different if you stick a 0 at year 20. This resilience on the part of Berkshire must have some value and I would imagine a not so little one.
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lol I shall continue in the same spirit:
10% chance we have flying cars by the end of 2016
5% chance we have clean energy by the end of 2016
:)
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The 32B he mentioned is the PCP deal.
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I would love it if that's the sound of the elephant gun reloading.
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Just to add that the only actually properly done QE to date has been QE3 in the US. The rest have been quite poor. Japan in particular with fits and starts of smallish amounts. The last one had promise it remains to be seen if BOJ stays the course.
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You cannot say it failed to work. You don't know how much worse deflation would be in the absence of it. Therefore, how do you know?
For example, perhaps it might be a roaring success if you achieved 1% deflation instead of an otherwise 4% number.
+1. Refreshing. A rare sane comment on this topic.
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Wow thanks. Can you believe I read this in a published hardcover book about Warren Buffett? Perhaps I shouldn't list the title :)
Perhaps you should, so people here can avoid wasting time reading anything by the author.
Perhaps I am misinterpreting the quote or likely it's talking about two separate events S&P outperformance vs absolute share price?
"Between June 1998 and March 2000, Berkshire Hathaway's stock price halved in value. In the process, it unwound all of its outperformance versus the S&P500 since 1984 and did much to dim the aura that had come to surround Buffett. He was forced to make a confession to his shareholders: "We had the worst absolute performance of my tenure and, compared to the S&P, the worst relative performance as well...My "one subject" is capital allocation, and my grade for 1999 wmost assuredly is a D."" - The Real Warren Buffett.
You're misinterpreting the quote. It says that after the decline it matched the S&P for the 84-00 period. The S&P went up a lot between 84 and 2000. 800% plus dividends or 14% plus dividends per year. If I get that performance over 16 years :) I won't really care if I outperformed or underperformed. But that's just me.
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Wow thanks. Can you believe I read this in a published hardcover book about Warren Buffett? Perhaps I shouldn't list the title :)
Perhaps you should, so people here can avoid wasting time reading anything by the author.
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While we're at it, Mr. Market getting BRK so wrong is the mother of all value investing opportunities! Just go to the most frequented names in the investments page on CoBF. SHLD, ZINC. BBRY...makes me scratch the head. But it always seems to work that way, the stuff in plain sight doesn't get seen. Cigar butts will always be in vogue.
I wonder the same thing. Why bother with crappy complicated companies when the market is offering such a nice pitch with BRK. I guess some people are just masochistic.
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A thought occurred to me. WEB went on CNBC saying they're buying or bought 32B of securities recently plus the upcoming PCP deal. Now WSJ is rumoring that the Inbev SAB deal may see an infusion from BRK.
Are they going to be lacking dry powder for any buybacks at least in the near term ?
Maybe, maybe not. Likely not. But even if they do I wouldn't see it as a problem. If they can do a deal that has a higher return than buybacks then I'm glad.
President Obama Weighs His Economic Legacy - By ANDREW ROSS SORKIN
in General Discussion
Posted
And for what it's worth, why did you have to make 2 posts about a NYT article? Just wondering....