Viking

Interesting that they did not talk about what Berkshire is actually worth. Yes, the market appears to be underappreciating BRK and the share price has gone sideways for a few years. However, the value of the underlying business continues to grow nicely. BRK looks cheap today when compared to the overall market.

Bought a small sliver of FFH. Stock is at 52 week (and 5 year) low. What i like: insurance businesses and large cash position they have in their investment portfolio. Will be interesting to learn over time what new hires in invesmtent team decide to do with portfolio.

Sold my BRK today for a nice quick 3.5% gain. Buy BRK under $200 and sell for a small gain has worked well for me a few times this year. I tend to buy a large amount (10 to 20% position) so am happy to book a small gain. Back to cash and wait for the next shitstorm. The economic news continues to slowly deteriorate.

Here are links to a couple of presentations. Thanks to the original posters for providing the links (i have forgotton who they were :-). I thought it would be good to add these to this thread. 1.) Semper Augustus Feb 2019: https://static.fmgsuite.com/media/documents/9f6a56c7-a1a3-4eb2-94b3-fe89cc110254.pdf - page 72 Semper Augustus Feb 2018: https://static.fmgsuite.com/media/documents/8e6a3c88-859d-483b-bbf0-dda6f5e24fc1.pdf - page 45 2.) Empire (Tilson): https://assets.empirefinancialresearch.com/uploads/2019/08/Berkshire-Hathaway-analysis-Whitney-Tilson-8-21-19.pdf 3.) Check Capital: https://www.checkcapital.com/Research_Reports/BRKB_Report_0819.pdf

Simply put, this line of thinking by Spekulatius, has some merit, to me. Agreed. The Occidental preferred stock deal has just started to pay Berkshire $800 million per year. What i also like about Berkshire is it is likely that Buffett will be a buyer, and perhaps in volume, if shares fall much below $190. That should provide a nice floor for the stock price. I also like that they are not highly leveraged. They are the opposite, with $100 billion in cash which can be used should businesses go on sale in the next year or two. Brk, below $200, is my favourite stock pick given the current environment. Decent value. Some downside protection. $100 billion in cash.

I am re-reading prior letters... BRK has grown nicely in value during 2019. Shares under $200 look cheap :-)

Omagh, thanks for posting the BRK summary from Morningstar. Below $200 it certainly looks like a reasonable buy. It will be interesting to see what Buffett does if the share price falls into the $180’s should we see more selling in the overall market due to economic weakness. Key weakness: a large chunk of the businesses are cyclical (railraod, banking etc) which will slow if the economy slows Important question: how will large drop in bond yields affect the large insurance business. Perhaps this will affect competitors more (who rely on bond yields more than BRK does in their investment portfolio). How Buffett invests the insurance float (equities) may prove to be an advantage versus competitors if bond yields continue to move lower.

BAC, MS, LUV, SU.TO, FFH, WFT.TO Still about 70% cash

Rosenberg has been pretty bearish but he is growling even louder. My concern is i still do not understand what negative bond yields are signaling. Also, how can it be that Italy is able to borrow at the same rate as the US? Or that Argentina bonds are back in demand? Lots of things that make no sense... looks to me like the Greater Fool Theory is alive and well. Everyone knows it makes no sense and that we are likely in the late innings. And everyone thinks they will be able to get out before the carnage hits. https://www.theglobeandmail.com/investing/markets/inside-the-market/article-investors-be-as-liquid-as-possible-these-are-truly-historic-and/ Investors, be as liquid as possible. These are truly historic and dangerous times Conclusion of article: “To cap off, look at all the information at our disposal. Gold prices surging. Bond yields plunging. Central banks in a confused state. The breakdown of the world order. Here we have a trade and currency war going on between the world’s two dominant powers – with no end-game in sight. Think about what I am describing – gold soaring, bonds rallying sharply, an equity market rolling off the highs, deepening racism, and a tariff and currency war. This sounds a lot like the 1930s to me. Back then it became a real war that cost millions of lives. This war won’t cost lives, but it will cost livelihoods. Investment recommendation: cash, gold, silver, long Treasuries – and limit your equity exposure to noncyclical sectors with strong balance sheets and reliable dividend/cash flow streams (even in the Great Recession, Walmart still made you money). Most important – be as liquid as possible for the next several months.” David Rosenberg is chief economist with Gluskin Sheff + Associates Inc. and author of the daily economic newsletter Breakfast with Dave.

I think this is right. He significantly reduced his equity exposure both in 1969 (by closing his partnerships) and in 1998 (via the GenRe transaction), both at/near major inflation adjusted cyclical peaks, and then loaded up later when things got cheaper. Will this be his third time? We shall see... Let’s hope this is true. Bottom line, i think a shitstorm is coming. It this happens it increases the odds that Buffett will find an elephant at a price he likes (similar to his railroad purchase). Perhaps something he already owns a piece of. The fact Buffett has been building cash for years is a positive for investors who are buying stock today at prices under $200.

Now I understand why BRK went up $4 in the last 4 hours of trading... too much buying from people on this board.

Reestablished a position in BRK.

I don't really understand this. There shouldn't be a lower limit for yields if ECB will buy at any price. Yields don't matter anymore if ECB can buy at ever higher prices. Even when yields are negative, expected (nominal) return can be positive because you can sell to ECB at higher prices. I was listening to an analsyst last week; i think it was Bloomberg Surveillance. The analyst was asked why anyone in their right mind would buy European debt that has a negative yield. His reponse was if you believed prices would be going higher (yields lower) then it was rational to buy bonds today even if they have a negative yield. My immediate reaction was to think of the greater fool theory. We are in very interesting times.

Agreed, GOOG at a bit more than $1000 seemed like an obvious value - almost $50 in real earnings run rate or 20x earnings for a 20% grower. I had some from the dips in 2018 and loaded up more, such that it became one of my largest positions on par with BRKB. I take this any day over these money loosing tech stocks that may not grow all that much faster and trade at mind boggling valuations with huge GAAP losses. Same with FB last year. Of course even these things can go wrong, but odds are pretty good they those bets work out. Agreed. What sometimes messes me up is i get too cute with timing. When great companies get cheap you buy and patiently wait. Life is full of good lessons... :-)

RuleNumberOne, i just shake my head at where yields are at today. What i wonder, however, is what if yields fall lower. Instead of a 1% or so move higher, what if we see a significant move lower? I am now wondering not if but when 10 year US treasuries go to a negative yield. The Fed appears to be giving financial markets whatever they want. We are going to get a rate cut shortly, even with the economy doing ok. Should the economic data get worse, the Market will clamor for more and the Fed will oblige. As the US cuts, the $US will go down. Other central banks will then also cut (or engage in more QE). And we will have a race to the bottom. Lots of things going on that i clearly do not understand :-)

I'm sorry for double posting here in this topic. Now back to Viking's starting post here, ref. the quote above. I think it's important here to distinguish with regard to geographical areas. [For my part : Between US banks and European banks - I own both.] US Banks : There seem to be a general sentiment as of now, that US interest rates will be lowered [also here on CoBF - at least partially] - perhaps even so the steering interest rates may end up near zero, or even negative. With regard to that, I'm in the same camp as Jurgis [posted by Jurgis somewhere else here on CoBF recently] : Why should the FED lower interest rates, when USA is running at low, but still a fairly steady & positive clip, combined with a public deficit? [i don't get it, but then again : What do I know.] European Banks: I can here only speak as Danish citizen, what I can say is that the pressure on Net Interest Margin in Danish banks is very real, and as a Danish bank customer, I can feel & see it as being very real. The consequences are already here and visible : The reach for non-interest earnings in Danish banks has become more aggressive, and to me it has already crossed the line of sound, healthy, prudent & most of all : honest banking. [To me "honest banking" is in the interest the customer, not the bank.] I'll document it here, with anecdotal stuff, based on personal experiences and documentation. Stuff about Danske Bank however will go to the topic I started about Danske Bank A/S in the Investment Ideas forum today. - - - o 0 o - - - This naturally matters for investing in both US Banks & European Banks. I may be wrong about the future development of US interest rates, and what's going here may be relevant for a judgement about what will happen with the behavior of the US Banks. “There seem to be a general sentiment as of now, that US interest rates will be lowered [also here on CoBF - at least partially] - perhaps even so the steering interest rates may end up near zero, or even negative. With regard to that, I'm in the same camp as Jurgis [posted by Jurgis somewhere else here on CoBF recently] : Why should the FED lower interest rates, when USA is running at low, but still a fairly steady & positive clip, combined with a public deficit? [i don't get it, but then again : What do I know.]” John, i really enjoyed reading your post, especially the part i quoted above. It looks to me like the globe might be slowly slipping into a deflationary spiral. What will stop the slow spiral we are seeing? China seems more constrained in options than in 2010. Japan to the rescue? No. How about Europe? They look to be following down Japan’s path. US? Trump has already slashed taxes and is running very large deficits so spending more (and running even bigger deficits) is likely not an option. The Fed can cut rates. Which is wherevwe are at. I am watching to see if the global slowdown continues or if it improves in Q3/Q4. If we actually get a recession in the US in 2020 we will be in unchartered waters in terms of what central banks will do and the impact those actions will have on the larger economy over time. I think we also could see a shift from Trump from a focus on tarriff war to currency war. It this happens we will get a brand new layer of instability. Interesting times :-)

Is this where North America is headed. Do we care if negative rates are here to stay? How does this change the investment process? https://www.ft.com/content/09360f2e-98b4-11e9-9573-ee5cbb98ed36?ftcamp=traffic/partner/feed_headline/us_yahoo/auddev&yptr=yahoo Beginning of article: “This summer, Germany’s housing market has turned into Alice in Wonderland: the yield on five-year bonds issued by mortgage banks slid to minus 0.2 per cent, compared to a level of plus 5 per cent a decade ago. That means investors are essentially paying for the privilege of lending money into Europe’s largest property sector. Economic logic — or gravity — has been turned on its head. If that were not bizarre enough, consider this: in Denmark, some financial institutions are offering borrowers “negative” mortgages that pay interest; treasurers of major German companies are muttering about their bonds trading with negative yields; and yields on 10-year government bonds in France and Sweden have fallen into negative territory too, joining Germany and Japan. Overall, the global pile of negative yielding debt has swelled above $12.5tn, breaking the record set in 2016. Even in America, the yield on 10-year Treasuries recently fell below 2 per cent. That might not look dramatic since it is still positive in nominal terms. But when adjusted for core inflation (about 2 per cent) it equates to a near-negative real rate. This is remarkable given that the US just notched up an economic growth rate of 3.1 per cent in the first quarter.”

US bond yields have fallen precipitously so far in 2019. Some are now forcasting a move in the 10 year to 1.5% in short bond yields are cratering. Today the bond market is forcasting the Fed will be cutting 3 times this year with the first cut coming in July. The bond market is freaking out about something. The stock market is hitting all time highs. One of the reasons is because the Fed will be cutting and many times. The elephant in the room is the US economy. Are bond yields cratering because the bond market sees economic growth in the US slowing dramatically (below current expectations)? What will cause the Fed to cut 3 times in 2019? What does the stock market see that is pushing averages to all time highs? Bad news has now become good news. And the badder the better! I really do not understand what is going on :-)

I was likely one of the people who voted back in 2009 :-) The lesson for me is as follows: - you make decisions (and projections) based on the facts you have on hand at the time - when the facts change you may need to change your mind After 2009 FFH made some very big bets with the investment portfolio that proved to be flat out wrong. These bets were plain for all investors to see. The lesson for me is not that projections often do not work out as expected (this is kind of obvious). The lesson for me is the important over time of processing new information and acting on it (if it is important). The opposite of thumb sucking.

In my household, I would say that 99% of circulating photos, clicks, likes, searches, videos watched (the number of which has been growing sequentially and quasi-exponentially) should NOT be counted in GDP. Unless we made it to the leisure society but I think the economic possibilities are not quite there yet. I like the anecdote (which seems reasonable for him) when he decided to sell all long exposure and buy treasuries instead, on the spot, while playing golf. He says it was a tweet and I guess he felt the wind change. That's a good point. So, let's say you don't have these free services anymore. Are you not going to print pictures and would it not cost money? How much information are you getting now free that would have cost you money before? How many times have you looked up some info and used it, instead of relying on paid experts? How many free youtube videos? Email? What would be the alternatives and would they be free? etc. Even if you somehow not spend any money if all of these are turned off tomorrow (unlikely) it would not negate the fact that they added value and increase productivity, for free. Transportation: much, much more efficent with Google maps; how is this economic and life improvement captured in GDP data? Education: much, much better with the internet; how is this economic and life improvement captured in GDP data? Software is transforming every aspect of life. Banking is a great example of this transformation. Not that long ago i used to get paid with a paper check that i would then have to go to the bank, stand in line and deposit. Need cash to buy something? Go to the bank, stand in line and withdraw cash. I would write a check to pay someone (who would then go to the bank, stand in line and make a deposit). Need to pay your utility bills? Go to the bank, stand in line and pay. Want a second account? Go to the bank stand in line and open. Investing was pretty much impossible for most people; so they bought Canada Saving Bonds or left their money in a savings account at their bank (my monther-in-law still does this). If you did have investment accounts, most people paid big fees. This was life a few short years ago. Today everything is done electronically. Much, much quicker. Much more accurate. Much, much cheaper. Much more selection. Quality of life is much, much better. How are all of these improvements captured in GDP data (maybe they are .... not sure)? And for banks, their cost structure has to be way, way lower. All the people they no longer need must be a big drag on GDP (layoffs or separation or someone leaves and are not replaced). And we are just getting started with software improving pretty much every aspect of ones life...

Sold my BAC that i just bought (big position and up over 4% in less than a week). Happy to lock in the gain. Also sold most of the smaller positions i just bought on the big pop today. I have been very defensive this year. Capital preservation is my focus. I am happy if i can hit a couple of singles this year :-) The economic news is getting worse. Happy to get back in cash and wait for the next down draft.

Reestablished a position in BAC. Bought more BRK. Also started very small positions in West Fraser Timber and GM.

Imo this is a common misconception. Perpetual lower bond yields/growth lead to HIGHER stock multiples. I guess one could argue over whether growth will be perpetually lower or just temporarily lower. I think with the low inflation target, and lower population growth going forward, that we indeed will have lower (nominal) growth going forward and that stock multiples with therefore be higher than they've been in the past. As Buffett said: "if you had zero interest rates and you knew you were going to have them forever, stocks should trade at 100 or 200 times earnings". Lower interest rates = Higher P/E ratios Would also add that, in general, QE leads to higher interest rates not lower interest rates. Europe has low rates because they haven't done enough money printing...ECB monetary policy has been much tighter than US, hence Europe has lower rates Jim, i agree that generally speaking lower bond yields should support higher PE multiples. Given the abrupt and large move lower in US yields i am wondering if the bond market is forcasting slower global growth moving forward; this will result in lower earnings for companies and usually leads to lower equity prices. I am just surprised at the abrupt pivot in the thinking of bond investors. 12 months ago all the talk was how 10 year yields in the US would be pushing 3.5% and perhaps even 4%). Today we have 10 year rates below 2.3% with some saying they may fall below 2%. I am just trying to understand what is driving the pivot. The stock market looks oblivious to what has been going on in the stock market and i find this interesting.

Rulenumberone, how does QE explain the rapid decline in long bond we have seen in the past 8 months? My guess is the Fed is pretty predictable over time with its actions. Are non government players are responsible for driving yields much lower recently? It looks to me like the stock market is getting the message a little later than the bond market.

Does anyone have any thoughts on what the bond market and the stock market are currently telling investors? In the US long bond yields have been coming down for the last eight months. They certainly seem to be forecasting much lower growth moving forward. The stock market on the other hand is 5% from its highs and seems to see solid economic growth moving forward. The two perspectives do not seem to line up. My view is the bond market tends to give investors better information than the stock market over the short to medium term.