SlowAppreciation

For the record, I love the Semper Augustus letter. But to be fair, in just 2 short years FB has increased profit by 3X, Google has added another 20% in profit, and AMZN has also increased profit by 3x-4x (but FCF is a more accurate measure of their profitability)

I thought I read somewhere that if you had held most of the nifty fifty even at their peak multiples until today you still would have beat the S&P. Not sure where I read this (or if it's even true), but just something to consider.

Full meeting transcription: http://www.slowappreciation.com/blog/2017/5/29/2017-berkshire-hathaway-shareholders-meeting-transcript

Correct. It's easy to beat your competitors on price and grow if you don't need to make a profit. For now Amazon is not a business. It's a non-profit. You're looking at it wrong. For sure I am. After all a company is not supposed to make money. A company is supposed to create value. Reinvesting all your earnings internally is one way to create value. TCI didn't have any earnings either. Since reading Cable Cowboy, I see Amazon in a whole new light...

Been wondering about the same topic myself. It is eerily similar to dotcom times. I started a thread on productivity in the Berkshire section and am wondering if these are the names that enable or somehow foster the promised land of ueber-productivity? If so, which of these names and how much of the 2% we are getting currently is somehow attributable to these names? If it is not productivity what else do they deliver? Competitiveness? Unending pleasure of socializing? When framed in the context of a country's GDP, it does feel weird. My gut reaction is "surely the valuation must be too high". But also remember that these companies are not restricted to geographic borders so their reach is enormous, and they do provide tremendous benefits to society. Just think back to what life was like 40 years ago: If I wanted all the world's information it would cost me $1000 for an encyclopedia If I need to buy something I'd have to spend hours shopping/comparing pricing, hope that a store had something in stock, and then worry about getting to/from the store (whose prices may be a total ripoff) If I wanted a TV, Radio, Computer, Record Player, VCR, and Camera, that would set me back at least $10,000 If I wanted to call someone long-distance—even 10 miles away in a neighboring state—I would have to shell out $.50/minute If I needed to do something at work I'd have to get a typewriter, physically deliver something to someone, wait for them to physically deliver something back to me, etc. Today, I can do work in a fraction of the time on a device—which doubles as a TV, radio, computer, music player, video player, and camera—I can bring everywhere in my pocket. From this same device I can find the cheapest prices on every product in the world and have it sent directly to me. I can access the entirety of human knowledge with the push of a button, and instantly communicate with anyone in the world at any time. All this costs me $100/month, which is probably 99% cheaper than the same functionality would have been in 1977. And everyone in the world has the same access. So these companies have provided huge efficiency and productivity gains at a very affordable rate. I don't know exactly what that's worth. But I don't think current levels are all that unjustified. $2.5T for 5 companies which make ~$.12T/yr in profit (20 P/E), have plenty of room to grow, require virtually no capital to operate, and provide immeasurable benefits to society? Maybe not so unreasonable after all...

That's pretty much 60% of my invested portfolio (but have ~35% cash overall)

Sure thing and thanks for reading it.

I should have presented this more clearly. I'm not saying the rate is 50%, but that BRK will likely pay 50% of the deferred amount currently listed on their BS. In other words, I don't believe BRK's current deferred liability will ever be paid in full; instead, Warren has a bit of a knack for reducing his tax bill (e.g., Graham holdings, Duracell, etc.)

I did a short BRK writeup on my blog http://www.slowappreciation.com/blog/2017/4/16/berkshire-hathaway-brkb for those who might be interested. Probably nothing too new or insightful for those here, as I try to write for a little bit of a wider audience, but thought I would share anyway.

Thought this might be of interest to those here: https://www.nytimes.com/interactive/2017/05/10/technology/Ranking-Apple-Amazon-Facebook-Microsoft-Google.html

Must have a very positive excepted value. Do you mind sharing your sources for info on the deal?

I've got the exact same perception - please also look at the cash flow statement and the insurance gross income - I haven't had the time dive into it - It looks almost unbelievable. - Will do tomorrow. Wow, reserved an additional ~$17b against future losses.

Buffett used to highlight the pre-tax earnings per share in his annual letters, mostly because the marginal rate isn't representative of true economic activity. BRK defers billions of cap gains and BHE/BNSF also let them defer billions more. So pre-tax + ~15% tax rate is probably more realistic of BRK's earning power.

Earnings per share is the one to keep an eye on. Surely you've read this year's annual letter, page 5 has a breakout of operating earnings and capital gains. It has replaced the previous, almost boiler plate section subtitled Intrinsic Value.. This table goes back to1999 which Buffett uses as a marker of the substantial redirection to wholly owning subsidiaries. CAGR is approximately 20%. Last year, Market value was added to the BV table. Buffett is signaling the growing importance of earnings against the diminishing significance of BV in estimating IV. In an oblique way, given MV and IV converge over the very long term, we've to let Mr. Market do his part. No need to calculate IV, ha. But how about the mathematical and accounting minds here, that would be heretical. I'd imagine that some of the hometown boys from Omaha have never calculated IV or anything like that, yet they are billionaires...hmmm. Being a busy body pay well? Alas, the very long term is also boring, especially to us message board posters, ha! How quickly I forgot about the change in presentation :P Much appreciated for reminding me. I'm working on a writeup arguing that that operating piece of the business is quite undervalued at 7x earnings. Berkshire just seems like a flat our no brainer to me here...

Does anyone have this data handy? I know it's available in all the annual reports, but I won't have time to dig through them until later in the week. This is what I have so far from quick checks: 2000 $918.66 2001 $(47) 2002 $3,903 2003 2004 2005 $2,441 2006 $3,625 2007 $4,093 2008 $3,921 2009 2010 $5,926 2011 $6,990 2012 $8,085 2013 $9,116 2014 $12,400 2015 $12,430 2016 $12,835

FB is different. Because of the unique nature of what Facebook does and what kind of data they collect (and the perceived value of that data), they have had the ability to put more controls around how their data/analytics are validated. There are far more partners in the space who can drop tags on campaigns running through Google (for example) to keep their reporting numbers more honest. To be fair, Google is showing signs of moving towards FB's approach. As that happens more, comparisons will be even more valid between the two. You're right, they're certainly very restrictive of the tags they allow. But on the other hand, I can gripe plenty about the preferred "industry standard" tag system. For example, an impression—which is still the biggest determinant of cost in the brand space—is counted not when someone sees an ad. It's when a request is made from a website to an ad server. But the creative may not render, or the browser may crash, or the ad slot may be off the visible screen, or the user scrolls too fast, or the user isn't really a user but a bot. In all these cases, the advertiser still pays as if someone saw their ad. I just think as a whole the industry is very opaque, with lots of gray areas, shady operators, and questionable ethics. FB is not perfect, but from the sausage I've seen made in this industry, I'd prefer to eat at Facebook over about anywhere else.

I don't disagree with you, but this is no different from any other platform/publisher/ad-tech vendor in the industry. For example, what Google counts as an "impression" is different from ad-tech companies A, B, C, & D, and they give very little insight into how they calculate spam, what browser technology is used, how much and which metrics are based on "predicted" values rather than what actually happened, etc. The list goes on. In no way do I think the opaque metrics/measurement are good, but to single out FB in an industry where a huge number of players are effectively shysters isn't fair.

Do you know if the same FB targeting options are available in Instagram? I noticed that I don't get any Instagram ads anymore, and I suspect it's because I don't have a FB account. So I wonder if it's all built on the same "stack" now. If/when Instagram really puts some effort behind being able to purchase whatever you see in a post, I think it will be a game changer. I tried launching a business a few years ago (now defunct) that was centered on this idea. It got some traction (but I couldn't manage the logistics/inventory) and the operations were a nightmare. But the central concept was "see cool picture, buy whatever you want in it". It definitely resonated with customers, and if you're simply a platform that enables these transactions rather than trying to fulfill them, I think it can be a bonanza for FB/Instagram. I originally scoffed at the $1b purchase price for Instagram. Now I think it was a steal.

Say you get a $10m budget from WeddingCo targeting 25-34F in NYC, interested in wedding dresses, who went to an Ivy League college, and have a dog. Well what if there's only $7m worth of that audience available? You're not going to let that money go to waste, so you reach out to Publishers to see who can spend that extra $3m for you. Oh I agree with this. I'm not arguing the spend isn't there. I'm just saying the ROI on facebook sucks. A big reason people are buying facebook ads is exactly the reason you mention: they have to spend that extra 3M. The low ROI surprises me, though I guess it's high dependent upon the marketer and their objectives. For example, GEICO is going to do way better on GOOG than FB simply because of the way people use each platform. I previously worked for a company that specialized in this very specific type of online advertising. FB kicked the tires for an acq ~2012 but passed (smartly). 8 months later they built pretty much the same product and business model, but it performed 5-6x better plus an insane amount of reach. The gray/opaque policies aren't unique to FB—it's the entire industry. I worked at GOOG and it's no better. And I think FB does a better job of actively weeding out fraud/bots on their network than GOOG. I remember them opting not to build a DSP a few years ago because they found the quality of ads on exchanges was so low. I respect that.

I worked in the industry for 7 years and don't hold the same opinion. Remember, what's good for an agency or buyer is not necessarily good for the advertiser (their client). An agency's primary motivation is to spend as much of their client's money as possible. Say you get a $10m budget from WeddingCo targeting 25-34F in NYC, interested in wedding dresses, who went to an Ivy League college, and have a dog. Well what if there's only $7m worth of that audience available? You're not going to let that money go to waste, so you reach out to Publishers to see who can spend that extra $3m for you. Most ad-tech companies are going to stretch who belongs in that audience so they can get paid. Agencies turn a blind eye to it because it's really in their interest to. The sense I get from FB is that their targeting is good, and they don't play in this gray area as much as other digital advertising platforms/vendors. I think this is partially the gripe with FB in the industry, and the fact that they don't hand hold/manage campaigns for advertisers. They really push self service first, which grates on some who are accustomed to the old model.

I've had AAPL since 2003. Split adjusted I think I'm up something like 1700%. I've added to it over the years. Sold half in 2015 to pay off student loans, but still hold the other half (plus the other shares I've purchased along the way).

Still looks cheap, no? ~$107/share in cash/stock/bonds/warrants and then you get the operating businesses—which have grown at a 20% CAGR over the past 20 years—for something like 7x earnings?

Yep, used to work there. One of the things I miss most

Their letter last year was excellent, and I'd highly recommend reading it

Rationale behind using a10x earnings multiple? Earnings since 1999 have doubled 5 times. It should certainly be higher. But I just always use really low multiples/growth projections for any business. So if it's still trading at a discount based on the low end, I'm way more confident in it being a buy. BRK looks like a buy to me.