rb
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Posts posted by rb
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K-Mart suspended sales of all guns and ammunition on September 11, 2001 a matter of hours after the country had been attacked. I couldn't help ask the question "Who's side are they on exactly?" Even though there was still a K-Mart in the town I lived in back then, neither I nor my wife have stepped foot in a K-Mart since and never will. I have a hard time even thinking about shopping at Sears, simply because they own K-Mart. Luckily there is no good reason to buy anything from Sears either.
Any other stores that permanently stopped sales of guns and ammunition?
I need a list of stores to support.
American obsession with guns is horrifying.
+1 I was going to say something to the same effect but I didn't want to start a gun debate. I'm sure that there were a lot of Americans that were happy that after a tragedy like 9/11 you didn't have a whole bunch of well armed people looking to set things right on their own. Can you imagine the possibilities of what could have happened??
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To add an example take BMW. Once you pass 70,000 km (45,000 miles for my American friends) everything on the car starts to break down and leak. The car is very well engineered and drives beautifully so it looks like they have the engineering know how to not make a car leak or to use better parts. They just don't. So it's engineered for everything to go once you hit 70k.
I feel that way about Blackberry. Over 4 years I had 5 different Blackberry phones and after about 8 months on each and every one of them something failed, usually with the physical phone itself.
Trackball, space bar and of course the battery. I went through a few batteries.
A few people I've worked with use them and have the same or similar experience.
The Target example is a good one here in Canada, I agree.
I've had the complete opposite experience with BBs. I'm on my forth one and every one still works perfectly - and I abuse the hell out of my phone. The older ones sit in a drawer for travel needs, etc. I still take one out after sitting there for a year or two, charge it, works perfectly. Maybe you or me were anomalies.
I guess that's another problem with brands. A lot of them cannot keep the product consistent, or they try to sell to more people than they should. Then the implied promise of the brand is different for different customers which leads to problems.
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Target permanently damaged its brand in Canada through poor execution. When they first opened, they had interesting products not found elsewhere in Canada. I bought a few different baby products (one I bought all they had) which were never restocked. I checked over 20 times (they were in a mall I go to often) and that product never reappeared for years, even though the tag/spot was still there. At some point execution failures do permanent brand damage. I don't believe they could have turned it around, even if they fixed execution, as popular opinion was that they sucked. Maybe they could have, but it would have taken years and years.
That's an excellent example.
I was so surprised that of the massive screwup since they took two years to start opening stores because they wanted to do a lot of research to get everything done right because they acknowledged the fact that a lot of retail companies fail to make it work in foreign markets. I guess they played brick breaker for two years.
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I'm not so sure about that. If that would be the market expectation I don't think we'd see the multiples we have today.
Multiples aren't that high compared to interest rates. If we had those multiples with 8% or 18% interest rate, that would be something else.
Not making a macro call, just saying that what would be much weirder would be to have 10x multiples with almost 0% interest rates...
You're right. If I were to look at it from the efficient market view, based on the current interest rates the multiples imply fair prices if everything stays the same.
What scares me is that you have record high margins, low inflation, zero interest rates, and these multiples. Not much improvement to be had on all those fronts. So if all stays the same then you have fair prices and get something like 7-8% pa returns. If anything changes, the market is overpriced and you'll have bad returns.
To invert the situation, if you're looking at the early 80s you had low multiples, low margins, high inflation, and high rates. A lot of the great returns from 80s and 90s came from improvements in those factors. Now we're in the opposite situation where all those levers have been used up and all the changes can really only go in the opposite direction.
I'm not making any calls either. Just food for thought.
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I guess everyone has a couple of those. I don't know if they're exactly wholesale brand implosions but they're definitely loosing customers. A brand is basically an implied promise of what the product will be. If that promise is broken then the customer is lost.
To add an example take BMW. Once you pass 70,000 km (45,000 miles for my American friends) everything on the car starts to break down and leak. The car is very well engineered and drives beautifully so it looks like they have the engineering know how to not make a car leak or to use better parts. They just don't. So it's engineered for everything to go once you hit 70k.
On top of the hassle of and expense of fixing everything - some of which cannot be reasonably done - I have the extra problem where I drive a $100,000 car but I can't park it on any of my friends or clients driveways because I am afraid that I an going to stain the drive. (I've heard that Audi and Mercedes are the same). To me the brand and the price tag imply a promise that I shouldn't have to deal with things like that. So given their broken promise I guess my next car is a Lexus.
I should probably note that the implied promise is different for everyone. So the guy that buys a brand new BMW every year is probably very satisfied and feels that the brand delivered all I promised.
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I'm not so sure about that. If that would be the market expectation I don't think we'd see the multiples we have today.
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Waiting for a 'normal time' to invest?
https://theirrelevantinvestor.wordpress.com/2015/08/04/waiting-for-normal/
WOW! I know it was bad, but when put in context the 2000s look like a total disaster! I know we starter at a high and finished at a low but still WOW.
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Ed Clark at TD Bank. Recently retired but transformed the whole culture at TD
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I found this surprising correlation (or causation?), between inflation and civilian labor force. A remarkable thing happened in 70's. There was a big addition to labor pool. I'm thinking that this influx of labor caused demand for everything to go up and hence the inflation. As labor growth shrunk, CPI followed suit.
http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1c0j
I'm sorry, but what you found is a statistical coincidence. An increase in labour force is deflationary. That's Econ 101.
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If nominal GDP grows at 5% (say 2-3%real + 2-3% inflation) then over 40 years it grows with a factor of about 4.3.
The 70s inflation was mainly a supply shock. First resources and then labour contracts. Btw, I think the money supply graph you're looking at is real/real, so it wouldn't tell you much about inflation. You may want to look at one that show's rate of change in nominal money supply.
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So outlining a scenario now...fed assets as % of GDP go from 20% (now) to say 5% in 2045. Rates gradually rise from <3% now, to say 6-7% in 2045 as more private money is removed from the system. Can we infer what inflation would be in 2045? Would there be another "breaking the back of inflation" episode in 2045, or are they unrelated?
Fed assets will go from 20% of GDP now to 5% of GDP in 2014 without the fed selling a single bond while reinvesting proceeds from maturing bonds. You are ignoring GDP growth - In 2045 GDP will be about 4 times larger than it is today.
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+1 what writser said.
About the book, usually when someone starts pontificating about the Austrian school, I tend to stop listening as I found that they are more motivated by a certain ideology rater than profit.
Regarding the options strategy, in my opinion it is not very good. With options just like with stocks you want to buy a mispriced (cheap) security. Options with strike around market and with shorter expiry tend to be quite accurately priced. Options tend to get mispriced the further you get from the market price and the further out in time you get (keep in mind that Black-Scholes is an arbitrage model). So that's where you should look if you want deals on options.
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I'm afraid that before the end of this decade we're going to see "the death of equities" (with it the "death of indexing") and the "death of derivatives". My best guess is that the coming bear market has to last for so long that people completely loose faith in stocks – like they did in the 1930s; only that this time government bonds (around the world!) look very dangerous, too.
I would love to see the death of equities so I can buy in bulk for cheap ;D. Man that would make me a lot of money!
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I have a few questions: and pardon my laziness (because I'm sure the answers that I am seeking are all in the K).
Buffett offers a framework for valuing BRK: per-share value of investment securities + pre-tax earnings of non-insurance subs. Throw some multiples on the second metric (and add it to the first metric) and you get a fair value range for the company. From the shareholder letter (the most recent one), these metrics were $140,123 and $10,847 respectively.
My questions are these:
1) Is the $140,123 metric pre-tax (i.e., does not deduct the DTL associated with capital gains over the years)? And if this is a pre-tax metric, why doesn't it make sense to look at this metric on an after-tax basis? I get that BRK is a long-term shareholder and a portion of its positions (KO, WFC, IBM, etc.) are permanent, but to be conservative, does it not make sense to apply some sort of discount to this # (maybe not all of the DTL but maybe subtract 25%/50% of the DTL).
2) Does the $10,847 metric subtract out all corporate OH (I know this # is small; but I am sure Ted/Todd are making pretty good money) and all corporate-level interest charges? If so, is it fair to assume that if I throw a 40% tax rate on this #, the after-tax earnings of BRK's non-insurance subs are c. $6,500 / share?
3) Final question, and sorry again for my laziness, should I add some additional amount to metric 2 (i.e., $10,847) to capture the underwriting profits generated by the insurance subs? They have been profitable for 12 straight years!
Thanks again. I am not sure that BRK represents great absolute value at current levels. On a relative basis, it seems OK: 10-year average P/B relative to the S&P500 is 0.61x and current P/B relative to the S&P 500 is 0.55 (low over the last 10-years relative the S&P 500 is 0.51 and high is 0.85).
If you want to figure out BRK's intrinsic value I would suggest that you do read the K and then read it again. When ur done read the past 15 Ks, then read the last 4 again. BRK is a massive company, you're not going to value it without even reading the current K.
Now to your points.
1. What Buffett did was provide some guidelines about how to think about BRK's valuation he didn't sit down to do all the calculations for you. So yes the value of the securities is pre-tax. There is a deferred tax liability associated with it which you adjust as you see fit and subtract it. There's also another liability attached to it called float. You want to account for that one too, since you know they have to pay out for insurance losses.
2. For the earnings of the operating subs you may want to apply an appropriate pre tax multiple to that. Of value mid-American and bnsf separately then apply a multiple to the rest (14x seems reasonable). BTW why would you apply a 40% tax rate when they don't pay that and moreover nobody pays that? Headquarters O/H is meaningless.
3. You should value the underwriting profits as you see fit based on your estimation of what they will be going forward. Be careful not to double count them when you value the float.
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If I recall from Alice Schroder's Darden University talk, she states that WEB wants a 10% day 1 return.
The 10% day 1 return was from a while back. Pre 0% rates. Though I don't think he is much below that. I also think that the way WB's 10% return is different than an accounting 10% return.
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I'm in the 15% club too, it's been my standard. Except recently been feeling I should lower it as all my calculated Intrinsic Values are so far below current prices. That got me googling on what most value investors use. Found several references to Buffett saying 13% (early 2000's), 15% (mid-90's), and Wally Weitz at 12% (2014).
I think that Buffett's hurdle is 10-12%. You can deduce that based on how he and Munger talk about different valuations they arrive at more generally. It gets more obvious when they talk about the investments in utilities.
I also think 15% is a bit on the high end. That's what? 13% above 10y treasuries? Keep in mind in mid 90s when WB was looking for 15% the treasuries were yielding 5-6%.
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I have a tremendous respect for Buffett and have done very well by holding BRK. So I'm sorry to say but I think that he is way of the mark here. I also find myself disagreeing with most people in this thread (again unusual). But let's look at this more objectively.
Firstly, the Coke situation has nothing to do with David Winter's performance. Ok he's underperformed and his fees are maybe high (I've seen waaay higher). Fine. Don't invest with him. But does it mean that it's ok for KO to steal from shareholders (disclosure: I'm long KO)?
Secondly, Winter's wasn't trying to pull any of the usual activist antics... no greenmailing, no request for board seats, just shining a light on management trying to pull a fast one. Also keep in mind that his fund is quite small, so to shine a light on KO he would have needed to use a very big light and make a lot of noise on top of it.
Thirdly, WB has many faults on this one. KO has long had very generous compensation for its management and for many of those years he was the largest shareholder and on the board and did nothing - while complaining in the AR about the compensation consulting firm of Ratchet, Ratchet & Bingo. Now KO wanted to take that generous compensation to a new level (yes Winters' math was wrong, but that doesn't change the fact that the plan was still absolutely atrocious even with the correct math) and WB didn't want to vote the proxy! Are you kidding me? Oh I didn't want to upset mgmt so I had a private conversation with them instead.
Well sorry, you want to be the paragon of integrity, the aww-shucks guy? Well then you gotta vote the proxy like the rest of us plebes. Besides how are you going to stop the decay in board and management responsibility (that WB himself complains about so much) if you don't vote the proxy and send strong messages to management? Why should they change their behavior when it's working so well for them? At the very least don't pick on the guy who's trying to do the right thing.
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From what I read about your situation you are ok to claim your capital gains and losses as capital gains and losses. Also you should go ahead and claim the interest paid on margin loans - nothing wrong with that. It goes on the "Carrying Charges" line. A few things to keep in mind that may apply to you though:
-gains and losses from short sales are always income
-gains and losses from naked options are always income
-gains and losses from covered options normally get the same treatment as the underlying shares do
-if you hold a security for less than (I think it's 30 days - double check) then the gain or loss is income
-if you hold a security, sell it, and the buy back into it after less then 30 days (again check), then you must claim the capital gain if it was a gain, but you cannot claim the loss if it was a capital loss. In that case you go back and adjust
rb
rb, To clarify, When you buy call options or put options on an underlying security it is treated as capital gains or loss, as the case may be, not income. Line 127 of T1
See bolded line above
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Possible short opportunity?
- vertek
I don't think so. The article is a bit sensationalist with the long term compound projections. I don't think the loss to AVIVA gets higher than 1 Bn USD, an that would take years. Aviva's mkt cap is 16 Bn GBP.
Is it sensationalist? The compounding numbers were just for Max. He can't be the only one left with such a contract. While it said his father's was no longer active, it noted that Max was only 1/15 of the family's funds in 2007. There could be five or ten others. So the current hit to earnings could be multiples of what they showed.
If you are Aviva how much do you offer to settle? If you are Max how much would you require to settle?
The reason I said it was sensationalist is because from what I recall from reading the article the number for the payout tops out at around 230 Bn EUR. That's obviously never going to happen if Aviva's mkt cap is 16 Bn GBP but newspapers love printing large numbers.
You are correct that there are also other policy holders, which makes the problem bigger. But I also think that if Aviva recognizes this as a massive issue, they'll start defunding their French sub. Another poster mentioned that by law they may have to fund the French sub, I wish to know how. I can't figure out a way how a French regulator may force a British parent to fund the local sub if they don't want to. They could seize Aviva France and refuse an insurance license for Aviva in France. But between that and giving the company to Max, I think the choice is simple.
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Hey all:
Google moving into auto insurance in MI would be a good thing!
The state of MI is breaking down in so many ways...Auto insurance is one of them.
I went to buy a low end SUV. Negotiated the deal, and was set to sign & pick up the next AM. JUST HAD TO GET INSURANCE.
I have a perfect driving record. I am in my 40's. I DO NOT LIVE IN DETROIT! I live near it though...
Insurance was over $400/month. That was with a $500 deductible.
I thought it was a mis-quote. The insurance agent explained it was not. If I had tickets, OR lived in Detroit, insurance would be substantially more.
I went to several other agencies, but the lowest was $380/month. In the end, I did not buy a new vehicle.
No wonder a lot of people in Detroit Michigan can't afford to drive. Auto insurance is simply too much.
From what I understand from your post the situation is quite bad over in MI. I can relate as we have a pretty crappy car insurance in Ontario. But how exactly would Google moving into auto brokerage do you think would lower premiums? What you describe sounds more like an underwriting or costs issue.
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Bound and determined to find way to piss away their S/H capital, I mean grow into new areas. Awesome thing is dual voting structure means its even easier for them to tell outside S/H to go get stuffed.
I thought this board loved owner operators... ::) ;)
I really like to partner up with owner operators. I get serious doubts when those guys tell me that I can't have the same standing as they do. Why exactly does their capital have more rights than mine?
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Spinoff that division and let it go bankrupt?
I think that's probably the best course of action.
However, I think that the same arrogance and hubris that made them sell those contracts is now telling them that they can probably beat this and keep their franchise as well... or something along those lines.
this would not be allowed
google the term fraudulent conveyance.
I know there's a ton of laws and regulations around this stuff. You seem to be more knowledgeable on this topic than I am. I guess I am wondering how could the French regulator force the British parent to provide more capital to the sub if they don't want to.
I am genuinely interested if you can provide more colour.
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Possible short opportunity?
- vertek
I don't think so. The article is a bit sensationalist with the long term compound projections. I don't think the loss to AVIVA gets higher than 1 Bn USD, an that would take years. Aviva's mkt cap is 16 Bn GBP.
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Bound and determined to find way to piss away their S/H capital, I mean grow into new areas. Awesome thing is dual voting structure means its even easier for them to tell outside S/H to go get stuffed.
+1
Yes it's easy to say let's piss away some capital I have plenty anyway. You do that enough times and you won't have that much anymore. The dual voting structure comes back to their attitude that shareholders aren't smart enough to understand the amazing stuff they are doing and they're gonna hurt themselves by voting on stuff they don't understand.
Blow Up the Tax Code and Start Over
in General Discussion
Posted
I think you don't really understand what socialism is. Just because the US spends a lot of money on a large military and the adjacent agencies doesn't make it socialistic in the least. The US is probably as far away from socialism as you can get in the developing world and much further away from socialism than it has been in the past.