twacowfca

tombgrt, you are right and I always like your posts and find something interesting! But that is exactly true for JNJ as well. During their whole history they have been great capital allocators. And they created the largest conglomerate in the healthcare sector worldwide. Also JNJ could be seen as a collection of much smaller businesses with growth potential. But growth is far from assured! Don’t look further than the last 5 years, during which EPS growth has been negative! My point is simply this: both in a $1 billion company and in a $200 billion company the man at the helm is very important. When JNJ gets “lucky” and chooses an outstanding CEO, growth resumes. Vice versa, when the chosen CEO is not that good, growth stalls. Why should it be different for BRK? There is also another point, that maybe is a little bit subtler: JNJ is much more “impersonal” than BRK. JNJ might be just seen as “the healthcare sector”, or better yet as “the best of the healthcare sector”. BRK, instead, is a very personal collection of businesses. I think it is easier for JNJ to find a new very good CEO, than it is for BRK to find the right person to follow in Mr. Buffett’s footsteps… But then again, I might be completely wrong… just food for thought! As long as return on investment is concerned, what are your views on BRK? I mean, 10 years from now? At which rate do you think BRK can go on increasing shareholders equity? And which multiple of BV do you think BRK deserves? giofranchi Thank you for reminding us about how important it is to have a great CEO. There is a limit to success however that constrains most companies: the returns of their industry. Thus JNJ's returns are constrained by the molecular limitations drug companies are facing when they try to develop new drugs, although their nonprescription business has somewhat better prospects. BRK is different. It's one of the few companies that can go anywhere to pick up a good business in a good industry or a piece of a good business through the public markets. Their culture permits and encourages this. Therefore, having a good energetic younger CEO who understands how BRK does it could lead to increasing success for BRK. Never the less, BRK's size does limit potential returns perhaps to about 30% to 40% above the returns of mega cap companies in general. Time will tell. twacowfca, you know very well that JNJ has 3 divisions: pharmaceuticals, devices, and consumer products. Devices are as large as pharmaceuticals, while consumer products are just a little bit smaller. JNJ is a collection of high quality businesses that encompasses the whole healthcare sector. And the healthcare sector is among the industries with the highest growth prospects for the future. I really like JNJ. It is just that I don’t like to invest in a company that is not managed by its founder/owner… This shrinks my investment universe incredibly, and I am well aware of it! Maybe, it is just a flaw of mine. But I don’t trade, I invest. And anyone can talk about moats, competitive advantages, winning strategies, etc., and have different ideas, and different opinions. Let me give you an example that I find illuminating: When I read “Competition Demystified” by Prof. Bruce Greenwald, I found a comparison between MSFT competitive advantages and AAPL’s. Of course, AAPL was “doomed to failure”, while MSFT was going to keep outperforming… Right?! I guess the only problem with that analysis was that Prof. Greenwald didn’t consider the fact Mr. Gates was leaving, while Mr. Jobs was coming back…! The rest, as they say, is history. When you invest, you are partnering with someone for the long run. If you make sure that the partners you choose are great achievers, you will do very fine. Otherwise… you’d much better trade! giofranchi Forever is a long time. I think BRK has the potential to keep on doing what they have been doing for a long time. The world is their oyster, not merely one industry. Were it not so, being a megacap would severely limit their opportunities. You've got a guy there who has been in the position that Brindle was in before he was tapped to run Lancashire. He has done most of the basic stuff that Warren did before BRK got so big. And, he did those things very very well. Our biggest hit hasn't been Lancashire. It was USG when it was in Bankruptcy. We were passive investors, although we wound up being involved in their reorganization. This gave us a Birdseye view of another company in a similar fix, W.R.Grace. Their situation was much more difficult than USG's. It took much longer to resolve satisfactorily for all parties than USG's Cpt 11. Guess who the main guy was who pulled that off: Ted Weschler. He wants so much to be a part of BRK that he has actually paid to join up. A few million for two lunches with Warren, and then mid double digit millions in a haircut he took to liquidate most of his portfolio at an inopportune time before joining BRK. That is high motivation that goes way beyond being a typical corporate executive.

In other words: below normal wind on the top of Mount Washington. :)

If that's the case, reinsurance losses should be minimal.

tombgrt, you are right and I always like your posts and find something interesting! But that is exactly true for JNJ as well. During their whole history they have been great capital allocators. And they created the largest conglomerate in the healthcare sector worldwide. Also JNJ could be seen as a collection of much smaller businesses with growth potential. But growth is far from assured! Don’t look further than the last 5 years, during which EPS growth has been negative! My point is simply this: both in a $1 billion company and in a $200 billion company the man at the helm is very important. When JNJ gets “lucky” and chooses an outstanding CEO, growth resumes. Vice versa, when the chosen CEO is not that good, growth stalls. Why should it be different for BRK? There is also another point, that maybe is a little bit subtler: JNJ is much more “impersonal” than BRK. JNJ might be just seen as “the healthcare sector”, or better yet as “the best of the healthcare sector”. BRK, instead, is a very personal collection of businesses. I think it is easier for JNJ to find a new very good CEO, than it is for BRK to find the right person to follow in Mr. Buffett’s footsteps… But then again, I might be completely wrong… just food for thought! As long as return on investment is concerned, what are your views on BRK? I mean, 10 years from now? At which rate do you think BRK can go on increasing shareholders equity? And which multiple of BV do you think BRK deserves? giofranchi Thank you for reminding us about how important it is to have a great CEO. There is a limit to success however that constrains most companies: the returns of their industry. Thus JNJ's returns are constrained by the molecular limitations drug companies are facing when they try to develop new drugs, although their nonprescription business has somewhat better prospects. BRK is different. It's one of the few companies that can go anywhere to pick up a good business in a good industry or a piece of a good business through the public markets. Their culture permits and encourages this. Therefore, having a good energetic younger CEO who understands how BRK does it could lead to increasing success for BRK. Never the less, BRK's size does limit potential returns perhaps to about 30% to 40% above the returns of mega cap companies in general. Time will tell.

Auction markets are one of the best ways to predict outcomes. Industry Loss warranties ILWs for the NE USA are reportedly bid at 25% rate on line at the $10B industry loss level with no takers. The ask is reportedly 30% ROL at the $15B attachment point again with no takers. Based on this auction market, one might speculate that the market currently thinks that it is a tossup that the $10B level where significant reinsurance losses will start to attach will be breached.

Here is where I believe you are mistaken. BRK already has these outstanding managers. They are the ones that truly run the firm, they broadly report to WEB, but he gives them total freedom in their operations. I feel you have not given his lieutenants enough credit. I confidently feel that if one of his lieutenants like Jain, Abel, Nicely, or Weschler became CEO, BRK would continue to prosper. I do not know anything about FFH, so I don't have an opinion vis a vis BRK. Palantir, of course you might be very well right! I have never actually managed something as big and as complex as BRK is today! Not even something that is 1/1000 of BRK! So, I cannot be sure… All I can do is to try an educated guess with my business knowledge and experience. To paraphrase Mr. Munger, BRK’s success lies in their abilities (his and Mr. Buffett’s) to constantly shift capital from failing businesses to thriving businesses. And I tend to believe it is true. Mr. Schumpeter’s “creative destruction” is becoming more and more relevant in today’s hyper-competitive world, and the best way to deal with this reality is to embrace and to apply Mr. Munger’s lesson. I see those outstanding managers you referred to as a part (maybe the most important part!) of each thriving business Mr. Buffett acquired. But neither Jain, nor Abel, nor Nicely, nor Weschler have ever applied Mr. Munger’s lesson. At least, not to such a complex organization as BRK is today. Each one of them knows extremely well his own business… but what about the remaining 74 businesses of the BRK family? Can you be sure whoever succeeds Mr. Buffett will be able to take the right decisions in shifting capital among 75 different businesses? And among all the other acquisitions that will come in the future? It will be a collection of businesses studied and put together, during the course of a lifetime, by an extraordinarily gifted individual… his successor’s task won’t be an easy one! Most of all, the more I study the performances of outstanding business founders/owners the more I realize that each one of them achieved extreme success in his or her own way. Each one of them did what really worked for him/herself, what most fitted his or her own personality. Not one of them copied another, and was as successful! They were all originals. So, I cannot believe in replicating Mr. Buffett, or in finding someone who will be so intimate with BRK in the future, as Mr. Buffett is today. Please, remember that I am not talking about a good and safe business: BRK will always be a good and safe business! I am talking about outperformance (very, very, very tough!). As I said at the beginning, I might very well be completely wrong! But it is a long time that I have been studying the lives, the habits, and the achievements of outstanding business founders/owners, and I hope my perspective could at least be some food for thought! giofranchi Losing the founder's edge is alway's a risk, but this risk is probably less with BRK than with almost any other company. There is perfect age staging in the Headquarters staff. Marc Hamburg has been managing the routine capital transfers between the operating units and the Holdco for some time and holding the managers accountable. He's now onthe BODs of BNSF, Mid Am & Lubrizol. If a busness starts to decline, the surplus cash flows will be redirected to the Holdco or Holdco directed investments. There is a high hurdle the operating businesses have to jump over before they are allowed to reinvest. Agit reports directly to Warren. I suspect there may have been a little friction between him and Marc several years ago, and this may be why Warren always goes out of his way to praise Ajit. If something should happen to Ajit, there are people like Tad Montross or perhaps others who could do very well. Perhaps Joe Brandon might come back to BRK. Marc is 62. Ted is about 50 and Todd is 38. Ajit is about 60, I think. This is merely the HQ leadership. The managers of the major operating units are some of the best in the world. Ted works very well with people, but likes to spend considerable time reading annual reports and 10Ks the way Warren does. I wouldn't be surprised to see his taking on more responsibility if something happened to Warren. The BOD and the shareholders understand BRK. BRK's future leaders will be protected from the institutional imperative that makes the managers of other companies do stupid things.

Sandy appears to be likely mostly to affect insurers and those reinsurers that have lower attachment points on the coverage they write. Storm surge may cause the most damage followed by less than extreme but widespread windstorm damage. Extensive snowfall away from the coast should also produce claims. In summary, primary insurers should be affected the most, followed by reinsurers with relatively low attachment points on coverage with reinsurers with high attachment points affected least. Ed Noonan says that very little reinsurance will kick in until losses reach $10B, substantially above most estimates. He says that the largest claims could come from the low lying industries in NJ south of Manhattan.

Sandy appears to be likely mostly to affect insurers and those reinsurers that have lower attachment points on the coverage they write. Storm surge may cause the most damage followed by less than extreme but widespread windstorm damage. Extensive snowfall away from the coast should also produce claims. In summary, primary insurers should be affected the most, followed by reinsurers with relatively low attachment points on coverage with reinsurers with high attachment points affected least.

i think the investments per share question misses the point gio was trying to make. which is simply that, ex the short hedges & the associated short term unrealized losses & ex the rimm losses fairfaxes long only equity portfolio has appreciaTED ABOUT 20 ANNUALIZED FOR THE 9 MONTHS ENDED 9-30-12. not too shabby on the long side. timing on the short side has obviously hurt. ( and my kitten just stepped on my CAPS key, which i'm not inclined to edit... :-\ Ugh...I can't stand this type of argument...it's like saying, "Well if I didn't have a large portion of my portfolio in Enron, I'd be up 40% for the year!" My original point was actually a little bit different: I wanted to point out how the RIM investment had been over-publicized. I started saying that a 14% annual return was achieved by FFH on the long side, RIM included. So, anyone who was too worried about the losses incurred with the RIM investment, just missed the whole picture. On the short side, maybe the timing wasn’t perfect. But I really couldn’t care less… I agree 100% with Mr. Watsa’s strategy and I am willing to be patient together with him. I am sure I am in very good company! :) giofranchi Giofranchi, you have a good point. This view on the investing side is similar to tallying up an insurance company's losses into two columns: attritional and catastrophe. The cat losses will be lumpy, but a negative trend in attritional losses is much more cause for concern than an occasional, but manageable catastrophe loss. :)

Life360 is a great app to help friends and family keep track of where you are. Not sure about outside of N.A. though.

Is it a crime against humanity or otherwise morally repugnant to own them all? Hell, I mean someone could actually have 4 or 5 positions. Ok, ok, that's crazy talk. We love to pick up deep valued bargains. But our greatest success has been investing with owner/founder CEOs who have most of their fortunes in their companies, great long term records, and a history of treating other shareholders fairly. This narrows the field.

Well, if it really is so, then I don’t like it. When I invest, I want to know exactly whom I am partnering with. If Mr. Buffett is no longer essential to BRK, then I like BRK much less than I used to. I just don’t believe in sustainable outperformance, without an outstanding manager who achieves it. Look, for instance, at JNJ: it is probably the large cap company with the best historical track record in the world, and yet it is clearly underperforming (I am talking about revenue and earnings growth, not share price). Compare it, if you want, with NVS, whose Chairman Mr. Vasella is one of the most accomplished individuals in the pharma industry today. JNJ is trailing NVS both on a revue growth and on an earnings per share growth basis, both on a 5 year and on a 10 year basis. My problem with BRK is only one: to make a $200 billion company grow at a very good rate, an outstanding underwriter is not enough, an outstanding stock picker is not enough, an outstanding businessman is not enough: you need all three. Mr. Buffett is that extraordinary individual, no doubt about that. But he is 82. I know that you all disagree with me, but I prefer FFH, which is an $8 billion company, is led by Mr. Watsa, who is 20 years younger than Mr. Buffett, and is selling at book value. giofranchi Giofranchi, you have nearly persuaded me to reconsider my allocation to FFH. Let me recap the history of about 80% of our portfolio for the last six years. This great majority has been in shifting proportions of LRE, FFH, and BRK. The proportion of LRE has been rising with their price and reinvested dividends while the combined value of FFH and BRK has also risen nicely, especially as we have shifted the allocation between them opportunistically. Most of the time, that allocation has favored FFH. However, for the last 15 months, almost all has been in BRK for reasons that have been discussed. Thanks to your comments, the time may be drawing nigh to reconsider our allocation to FFH. Thank you very much.

berkshiremystery, I sincerely hope all the best to your friend and I applaud your willingness to give him support, in his time of need. You are a caring person. God bless you, giofranchi Yes, may God bless you. I had a dear friend in our local running club who was dying of an incurable illness several years ago. There was someone with him every day, friends or family. It must be awful to die alone.

I believe BRK is easily worth 30% more. price/BV is closer to 1.2x atm, maybe 1.25x. The market has underappreciated the excellent safety and high quality this gem offers. Everyone seems to believe BAC will go up to $20 in a linear way in the next 2-3 years. It might but things rarely go as expected. Given the current market level, uncertainty and lesser quality of BAC and others (nothing can compete with BRK after all...), it can definitely make sense to be heavily positioned in BRK (or FFH for that matter). Not that BAC, AIG, ... aren't great value atm, they just bear much higher risk so they require a higher potential return. I don't think that the road to $20 will be smooth, but it will get there sooner (2years) or later (4 years). Comparing that with BRK's steady 8% growth, you'll double your money in less than half the time. The only thing that holds me back is about paying taxes of the gain on BRK. Now you're thinking like a banker of the Lewis school -- taking money out of something that almost certainly will go up at a satisfactory rate over the next several years and very likely will not lose a significant amount, in order to put your money into something that might appreciate at a higher rate for a while, but is in a mediocre leveraged industry that chases yield every decade or two, a business with much more risk of principal loss. Your idea would have been a better one a year ago when the upside to BAC was greater. Why Now? Is it because you are kicking yourself that you didn't buy it then?

Oh My Goodness! A double Buffett put! And the winner is . . . Not the hedge funds . . . Not the S&P 500. . . . The winner is . . . BRK! :)

BRK is the main part of the defensive "security blanket" part of our portfolio. We'll stick with BRK, or some combination of BRK and FFH, our other potential defensive pillar, unless Mr. Market coughs up some extreme bargains such as we saw in 2008 or 2009. :)

I don’t agree. “We continue to maintain our equity hedges and have cash of approximately 33% ($8.1 billion) in our investment portfolios as we are not being adequately paid to take risks with markets at current levels.” In the meantime, the combined ratio has fallen to 95.4%. While not being adequately paid to take risks with markets at current levels, my own firm is focusing on improving its operations. Staying very defensive with its investments and hoarding up cash. The same is true with FFH, and obviously I like this policy. I don’t judge a quarter by the amount of earnings declared, but by the strategy put in place. giofranchi As Tom mentioned, it was a bit of sarcasm on my part Oh… How stupid!!! I completely misunderstood! The fact is, if you compare Q3 2012 with Q3 2011, net earnings of $34.6 million compared to net earnings of $973.9 million, the quarter just ended might actually be labeled “terrible”… Anyway, I should have understood the sarcasm… It is just not a fine day for me… Too many people who don’t do what I ask them to do… or do it superficially… I pay them to solve problems, not to give me problems, right?... Sorry, my mind right now is somewhere else… giofranchi You might profit by reading a book, The Toyota Way, that describes the way Toyota became transformed into a problem unearthing and problem solving organization. I'm wired this way, but most people are not. One of their principles: genchi genbutsu, emphasizes getting up out of one's desk and going to see for yourself what's wrong at the source. That's often the first step to begin the problem solving process. :)

I would suggest baseball, football, basketball and hockey cards. They are an excellent investment for any situation that might befall us. Unopened cases and boxes from the late 1980s are particularly good. I like the ones that are bundled with a stick of gum which could be used as barter in an end of the world scenario no? Those sticks of gum could be used to build a shelter that I am virtually positive that no weapon yet developed could penetrate. Laughed out loud at that one! I've got an even rarer investment: a sealed box of Gulf War cards in mint condition. They were so special, the boys decided to let the investment compound, instead of trading them. :)

Thank you for posting, Sanjeev. We all too often take for granted the blessings and freedoms we enjoy.

Why not be more selective. Let's say you have the opportunity to put 4% of your capital into ten bargain stocks that appear to have a margin of safety. Why not pass on all of these untill a few of them drop much more. Then you might be able to buy a couple at a much greater discount if they are unimpaired. Then load up on those two. I think this will give better results than buying the group at a higher average price.

Last I checked, their funds had positive returns, but not nearly as good as the screens would predict from their back testing as is always the case because of transaction costs, etc. What is interesting is to watch what falls into their lists and cherry pick the rare great company. That has worked very well. :)

This makes sense, but at the same time, Schroeder says that Buffett literally quantifies the option value, and that he assumes no strike price and no expiration date. If we assume a certain CAGR we believe we can achieve over a lifetime (say 10%), is there a way to use binomial option pricing or Black Scholes to actually quantify the option price relative to the opportunity cost? Or am I thinking too much about this and it really is a simple comparison between the opportunity cost now and what I believe I can generate over time? No. This is a most important topic. I agree with what you have both said. The same questions apply to the Buffett Put on BRK stock: not the absence of a strike price, but one that adjusts to 110% of BRK's BV over time in perpetuity. I think that transforms BRK stock into a quasi zero coupon bond with a very high yield to maturity which never comes.

I don't think most posters have studied Graham's life thoroughly. His pre 1929 period used a lot of leverage which was gradually pared down as the depression ground everybody down. His arbitrage, long/short and special situation plays worked OK during that time, but the others didn't. By 1936 his funds were back to even, and he made up the losses of those few of his investors who weren't able to stay with him through the cycle. He quotes very specific results for his unleveraged funds from 1936 through 1946 of 17%+ net to his investors or 20%+ gross returns to Graham and Newman. However, if one reads carefully what Graham states in his memoirs, it is evident that his gross returns were significantly higher than that because those returns were after large salaries had been paid to the principals. I guesstimate that Graham's gross returns were 22% or higher during that time when the DJIA returned @ 10%. Graham testified before the US Senate in 1955 that the returns of his fund had been about 20% since his business had been reorganized in 1936. Therefore, it seems that his average return to his investors had by then increased from about 17% from 1936 to 1946 to 20% for the entire 19year period, apparently net to his investors. His gross returns may have averaged something above 24% including salaries for the entire 19 year period and above 27% for the 1946 to 1955 period. This is all taken from his own writings and congressional testimony. He testified to Congress that investors occasionally sold their interests in his fund at a substantial premium to other investors. :) He testified before congress that almost all his operations consisted of reorganizations, recapitalizations and special situations that weren't readily available to the public or to other funds. Apparently the vaunted net nets were a small, but profitable part of this, during a time when good companies sometimes sold for net net prices. That was the heart of his career, careful analysis of special situations for the most part.

Perhaps. I did not have the chance to interview Ben Graham at that stage in his life and analyze him to see whether he meant what he said, or whether he actually was old and tired, and just rationalizing his distaste for reading balance sheets. But we should also consider the possibility that perhaps we are the ones rationalizing. The facts are that he was making 20% a year with real money, using a basket of net-nets, and that those same net-nets apparently keep generating similar performance nowadays. There are very, very few, pure Graham and Dodd value investors which match those numbers. So maybe he was on to something. Specially if making 20% for decades left him time to enjoy other pursuits. I think you are reading something in to my post that wasn't there. The point wasn't that he didn't believe what he was saying, but that his interests had changed over time. He was at a different place in his life. I am not sure that one needs to have interviewed him and analyzed him. This can all be ascertained from various writings. If required, I am sure that your assertion that he made 20% a year "for decades" was made by auditing his financials for each of those years, yes? Note too that by the time he left the investment business in the mid 1950s he held few to no stocks other than his shares in GEICO which he held into his later years (and perhaps died with, it's not clear to me). While he made a few stock investments in his later years (this was in fact how he met Charles Brandes who at the time was just a young stockbroker in La Jolla, CA), he basically held his entire wealth in munis. Graham's statements may very well be good evidence for formulaic investing. But the truth was there were 2 major stages in Graham's life. So did his views on investing change because he felt there was a better way, or did they change because his interests and stage in life changed? I believe the latter, you clearly believe the former. There is no right answer, but it is a fact that when he spoke at his 80th birthday party and reflected on his life he didn't even mention his investing career. In my view this does not provide much support for the notion that he had considered all the angles and believed that formlaic investing was preferable to fundamental analysis. Those are the words he said of course, but said while jet setting between CA and France mistress in tow. Much earlier in his career, Graham advocated somewhat similar screens for "the defensive investor", for someone who didn't have the time or inclination to do security analysis. In his later years, Graham himself had become a defensive investor. :)

Realize that the US theory of justice goes far beyond the idea of punishment toward the object of true repentance and ultimately restoration as a reformed member of society. From what I've read, Rajat Gupta, appears to have led an honest life until recently, when he fell under the power of greed and envy. Thus, his crimes may have been a sad anomaly. Therefore, his background and good deeds should be weighed appropriately by the judge in deciding the term of his incarceration because complete restoration may be likely as he does not appear to be an habitual criminal, unlike individuals such as Madoff.