benjamin1978

It already is and always has been low margin hardware, particularly on the passenger vehicle side, don't think anyone is making respectful margins BMW, Daimler, Porsche, Audi, Ferrari have pretty good margins, however the value lies either in the brand and proprietary hardware know how. The latter is going to be less important going forward, which I think could hurt the margins of luxury car makers. Who cares about having a sporty car, if they don't drive any more. Maybe not an issue for the super luxury cars like Ferrari, but certainly for the likes of Mercedes, BMW or Lexus. But which one of these you listed is a fair comp to FCA / GM / Ford? That said, Jeep is good.

It already is and always has been low margin hardware, particularly on the passenger vehicle side, don't think anyone is making respectful margins

ummmm, why should we tell you jokers what we're buying TODAY?? Just kidding

I agree with your point and think it's a good yardstick to use to measure and quantify opportunity cost of capital, especially when rates are at 0 which don't provide that anchor anymore. Taking that logic one step further, what about investors who treat concentrated BRK positions almost like a placeholder for cash (which is for sure to lose value over time)? What are the arguments for and against that?

Could you clarify what you said? I read your post three times and am utterly confused. What does it mean that people buying BRK doing poor analysis?... KinAlberta, We discussed on the 6th of August in this topic. Thanks. Also, I couldn't find the right words or example but I'll take a shot. It's not just the idea of a ceiling on BRK specifically, but that a very well thought out "rule of thumb" is being used for a great company that doesn't seem to come close to being applied to many other companies. I.e. If there were two identical companies, twin sisters, out there and solely because of what Buffett said about his, it was trading slightly over his P/BV pronouncement, but it seems that in today's market the twin sister would happily be trading at say 50-100% more expensive ratio. It all seems to throw sand in the face of the efficient market hypothesis. People that would buy BRK instead are doing a poorer analysis on other companies and choosing to pay relatively more for them, all because of the asymmetric information out their which is solely Buffett's idea of a great value. :-) Sorry, for the so poorly expressed thoughts.

Nice. What about the bils they put into it via capex? playing devil's advocate here Return on investment from Berkshire perspective are quite different as you need to factor in initial cash outlay, dividends received, value of the company currently and discount rate. I have developed model to calculate returns on generated based on above assumptions. Returns will vary based on discount rate applied and terminal values but there is sensitivity table to show possible impact. Berkshire actually financed this deal with 10 billion in shares, 8 billion with cash on hand and 8 billion debt. So leveraged returns are even better. With various assumptions we can see that investment is already generated $30-50 billion (range since final value of BNSF is not available) above initial investment of $26.5 billion.

TwoCities, if you dont mind me asking, what are you expecting FCAU's Adj EBIT to be this year and next in light of the new guidance? No specific dollar targets on my end. I'm no expert on the automotive industry and don't really have expectations for this years EBIT other than I anticipate that it will likely continue to improve each year going forward for the next 2-3 years. I'm not really expecting miracles - just organic deleveraging and margin improvement from a continuation of the current sales cycle. It's not a large leap of faith for me to believe that they can make more than 2x the current amount of cash flows via margin expansion in 2-3 years time and I believe the current state of U.S. auto market gives them a long runway to achieve this. Of course, there's the upside optionality of a merger/sale even though no one currently seems interested. The position in Exor is only slightly related - obviously there's exposure to Fiat in there, and I know about from following Fiat, but that's more of a "buying a good management team at a discount to NAV" type investment and will likely to continue to hold that long after I've traded out of Fiat. Interesting, thanks. I actually decided to go for EXO over FCAU because of the management, the add'l layer of discount and also I figure worst case scenario it's better to be totally aligned with the family via EXO equity as opposed to FCAU stock. Do you take their $54 NAV at face value or do you have an adj NAV for EXO?

TwoCities, if you dont mind me asking, what are you expecting FCAU's Adj EBIT to be this year and next in light of the new guidance?

It seems pretty clear to me that the "return on his investment" has been pretty good when it comes to BNSF but what do i know

That is a different point, thanks for bringing it up. I like the quote but I think there's some distinction between a capital intensive business like US Steel and a capital intensive but regulated utility like BHE though where your contractual returns actually have a built-in inflation adjuster. To some extent that is a form of protective / capped pricing power if you will. Whereas cash, yes forget it. Also, while utilities are capital intensive, you'd be surprised that they actually have pretty low maintenance capex. In Berkshire's case their capex is high because they're growing the regulated asset base and any incremental spending over depreciation just gets added to the RAB. Profits next year will be based on RAB multiplied by the regulated rate of return. Is it like See's Candy where you don't even have to spend any capital to grow? Not at all, especially if you consider the fact a box of Toffee-ettes these days will set you back about $22 after-tax before considering the additional distribution cut that third-party POSs can levy on you. But on the flip side, there's only so much scale in that business Utilities’ Profit Recipe: Spend More https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjS2dDD8J3OAhUElh4KHVCsD-cQFgglMAE&url=http%3A%2F%2Fwww.wsj.com%2Farticles%2Futilities-profit-recipe-spend-more-1429567463&usg=AFQjCNHNBY_icNu9q79_5vgXTIlVer4rZw&sig2=I-gzhdGUHP6-qItEhvgDXw&bvm=bv.128617741,d.dmo

If you do what thepupil pointed out and look at the SEC filings for standalone BHE and BNSF (which they submit for the public debt) you actually get to about 17% and 12% returns on tangible equity for the two companies respectively. Links to the filings below. Why are you so conclusive that Buffett "overpays" for these deals? Back in 2009 when BNSF was acquired many pundits came out and screamed that it's not a value investment, he's overpaying etc., but fast forward today the business is earning 2x what it did back then despite meaningful decline in coal related offtake etc. So I think it's been a very shrewd investment and I can make a similar argument for BHE https://www.sec.gov/Archives/edgar/data/71180/000108131616000023/bhe123115form10-kcombined.htm#se3a2c4834e07497c84774767598ef848 https://www.sec.gov/Archives/edgar/data/15511/000001551116000027/bnsfrailway-12312015x10xk.htm

Page 73 of the annual report shows identifiable assets of $67 and $74 bil at BNSF and BHE respectively. Included in these amounts are $15 and $9 bil of goodwill. So $140 - $24 = $116 bil and assume $70 bil of liabilities (most of which is $57 bil of debt on which they pay 5%), I estimate tangible equity of say $50 bil. On $6.3 bil of GAAP income that's low double digit after-tax ROE. We can argue about whether BNSF is under-earning or not but I think big picture these are businesses where you can allocate billions of incremental capital every year and expect to earn reasonable regulated rates of return which probably isn't the worst thing for a company of BRK's size