buffetteer1984

Is this letter real?

This was Ackman back in November speaking about fnf

I guess my point is we don't know what the outcome will be but when they trade higher (possibly before any resolution) i'd like to get something lower in price that may have more upside as it trades back up. Finally, someone here to ask: Why buy a preferred with a 0% coupon? I know it's slightly cheaper, but you are betting really heavily on the assumption that it will be treated the same as the rest of the preferreds in an exchange/dividend resumption. Are you not concerned that it will be left outstanding at only trade at 50-60% of par while everyone else has cashed out at 100%? So you think FNMAP going from $8 to $30 is just as good as a fixed rate preferred going from $8.50 to $50? Your calculator might be broken.

We really don't know how any of the preferreds will be treated but if they all get something much higher than these prices all i can do is buy the lowest price (as margin of safety) and hope for the best. Price dictates my purchases much more than the speculation of the outcome of each class. But if i were to speculate it wouldn't be that big a difference. Even with a 60% par the returns at this point would still be very attractive especially if a settlement gets done sooner than later. What's really the point of the govt sitting on this now that they can't sweep the profits? Finally, someone here to ask: Why buy a preferred with a 0% coupon? I know it's slightly cheaper, but you are betting really heavily on the assumption that it will be treated the same as the rest of the preferreds in an exchange/dividend resumption. Are you not concerned that it will be left outstanding at only trade at 50-60% of par while everyone else has cashed out at 100%?

Is the risk reward here not the best it's been in some time? We're months away from a potential positive ruling (stocks will likely trade higher in anticipation of a victory), prices at close to 5 year lows and a defined path to recap and release. Even if you've been in this trade for a decade getting out now almost seems like a complete waste of time. People need to remember even the worse companies trade much higher on a turn of sentiment. I see this selloff in the more illiquid preferred as a huge opportunity. Loading up fnmap this morning

Often has been the case when sentiment has gotten this negative (usually due to price decline) the right move was to buy, even for just a trade. This investment was never just contingent on mnuchin so the price is an opportunity if you still believe in SCOTUS

According to Buffett, it isn't trading at a discount to intrinsic value. He didn't buy any in March when it was cheaper than what it is now. If Buffett showed signs of dementia at the 2020 annual meeting, then it would be easy to dismiss him, but he was as sharp as he has been the last 10 years. I think Buffett knows more about intrinsic value for Berkshire than anyone else. I don't mean for that to come across as a criticism of your post, just that the man that created Berkshire and knows more about the company than anyone on the planet disagrees with you. I think you make a very good point, but like Buffett said - Things change. Maybe Buffett considers the worst case scenarios to be far less likely today? I’d argue that Berkshire could be considered cheaper at year-end 2019 than it was around the lows in march, and that Berkshire today is cheaper than it was at year-end 2019 again. Covid aint going nowhere for now, but we have eliminated a lot of the worst case scenarios. If Buffett disagrees we’ll now soon enough. I agree with this assessment. Warren said the difference between intrinsic value and price was not significantly greater during march crash than when he bought in q1 around 220. Now the price is close to the march lows with a few variables that have changed. One, less uncertainty around the pandemic and how the feds and markets would react. Two, some of his bigger holdings have increased substantially in price from the lows namely apple, bnsf (i assume this one based on other rails) while brk stock has languished. 178 today is a better bargain than 178 in march imo and I'd be surprised if he didn't dip his toe into buybacks this time around.

Not that it matters any greater what investors think but for what it's worth Mohnish Pabrai believes the lockdowns are a mistake in his latest podcast

What's more interesting is Chuck Akre never thought Berkshire was worth making a bigger part of his portfolio. That should tell you what he thinks of the company despite prices down into the 160-170. That also coincides with Buffett claiming it wasn't much of a bargain either. He instead added positions like Adobe and Livenation at decent size on top of his other top holdings.

low interest rates (lower discount rate = higher multiples), massive stimulus 1/3 of GDP, quicker than expected reopening (less loss rev vs more stimulus gains), more efficient operations (better margins) from companies due to pandemic, huge cash on sidelines (missed rallies from retailers and funds), index is more service companies that benefit from low cost of capital. These are some of the things that have been mentioned lately. It's been an amazing 3 month ride for sure You don't understand. The fact that revenues are down 20% means that the stock should be flat or up. Since the revenue growth will be 25%+ just to get back to the old revenues! Market is forward looking, duh! Not happy to admit it, but I very clearly do not understand!

Seems more like the feds pulled the rug out beneath Warren and he's seeing stars instead of value. Buffet is probably waiting for Fed to pull the rug out so that he can go to work. Fine by me. And what leads him or anyone else to believe that they will? People having been saying these same things about the Fed, and the music stopping, and the "stock market doesnt match the economy" for the past decade. For a 90+ year old dude, Im not sure thats a great game to be playing. Or, as we've seen from time to time in the markets, the Fed may in fact do that, and the story doesnt play out the way the pundits think it will. Ive become more and more convinced that the rallying cry of "the markets are overvalued" is just a convenient and pride saving way of admitting "I missed the opportunity".

Pershing also has no leverage to make any recommendations or changes to berkshire. They can buy a qsr at 20x + and still seek margin expansions, buybacks, acquisitions etc and still do better than keeping berkshire which is basically tied to the economic recovery with no alpha so long as buffet is resistant to buying dips or buying back stock. You really need to ask the question, what is berkshire really worth if buffett isn't buying back a languish stock in the 170s if he was willing to do so at 220. How much instrinic value does warren think was impaired? I'd imagine in feb he probably thought it was worth 250/260 at least? What is it now if he isn't pressing the buy button here. No excuses for it moving too fast either considering it was in the 170s for a good 2 weeks

Pershing Square sold out of their berkshire position as per conference call. Likely due to the disappointment in the lack of capital deployment

It's clear there's a secular shift to online marketing and google and facebook dominate that space with youtube, google ads and instagram. Ad spend may be temporarily down this year and next but these guys will only take marketshare for the next 10 years (future cash flows after the first two years matter WAY more anyways) so not buying it cause of "valuation" is the same argument you could've made about Amazon and look how that story turned out. Bill miller also got the memo on Google.

I don't know when you bought it but it certainly took off after valueact got on board and advocated more for shareholders. MSFt never looked back after that. https://www.reuters.com/article/us-microsoft-buyback/microsoft-raises-payout-22-percent-ahead-of-investor-meet-idUSBRE98G0N120130917 BS! MSFT had a large and growing dividend and doing plenty of buybacks when the stock was in the dumps. I know that because I was in the dumpster picking up stock. Kept staying in the dumps for a few years after that.

Both Aapl and msft started to really outperform when they increased their capital allocation to share buybacks and dividends. That alone brought in a new hoard of investors that pushed up the multiple. I feel Berkshire is generally lagging the index as of late mainly due to disappointment that they didn't deploy any capital both into buybacks and equities. It probably held up better pre covid due to belief that cash hoard protected on the downside but would be accretive on the upside. Obviously this could all change if Warren does a deal at some point but I'd be more happy if he would just send more capital to ted and todd or hire a third guy to run another 15-20bil.

Is there any reason (or risk) to get fnmas over fmckn at this point if par is the same? Sorry if this has already been answered.

"I dont' know" doesn't mean I don't know EVERYTHING. Warren clearly has an opinion of america if he once again said don't bet against it. He also has enough of an opinion to hold 200 billion in equities and other subsidiaries. He also has enough of an opinion that if an elephant of 30,40,50 billion came on his doorstep on monday he'd do it. He may not have an opinion on the timing of things or how certain industries will be affected but I feel this "I don't know" message is misleading. In investing nothing is certain, in good times or bad. But if you make an investment you do need an opinion of the future.

There are people saying the price wasn't low long enough for berkshire to buy back it shares and that makes no sense. I can understand that for a fund trying to build an entire position in a company that would require more time but that doesn't explain why you're not at least buying on that day. Even if berkshire was only in the 160s for 2/3 days it makes no sense not to buy some for those 2/3 days. They don't need to retire 10% of float to take an initial action. My only understanding of why he's not buying back any is he doesn't believe berkshire is as solid a company as he thought. There's clearly companies buying back stock now does that mean they have better moats than berkshire and can withstand even the most violent economic environments? You can make some money in one scenario and lots of money in other scenario without assuming that one scenario will play out. Knowing that interest rate will remain near zero for 10 years is lot different than interest being low at any given time. I don't get the logic of not doing buybacks in small amounts when stock was in 160-170. Intrinsic value has not declined by that large margin and even he made it clear that it was down so much for a small period as explanation, but why not buy on those small periods. It's not as if buying will take out 50B cash. If small buying is not going to work then why even buy at 220 with similar discount. You don't know how long 220 will last. I think he dodged the question. Anyway, Buffett is human and he can make mistakes. He has been mostly consistent with how he operates. Investors can make up their own mind about risk reward and invest appropriately.

I completely agree it's impossible to forecast exactly but it's still necessary to have some opinion of it otherwise how are people valuing companies if they don't include some kind of discounting rate in their valuations? I see so many professionals go on tv and just throw out a p/e number for a current year to determine if something is cheap or not without other variables. That to me is myopic and a horrible way to invest millions if not billions of dollars. The problem with anchoring valuation on interest rates is that stocks are a long duration assets and while you know rates are low now and perhaps for the next 2 years, you do not know what they will be in 15 years. If rates go up I due time any owner of stock or real estate for that matter to looking at significantly compressed valuations upon exit.

This seems to contradict what he said is one of the keys to investing and that is rates are like gravity to valuations. So i think he means he can't predict exact rates but more or less ie 1.25 vs 1.5, which doesnt change the valuation all that much but 1.25 and 3.5 makes a huge difference when discounting present values.

My takeaway in terms of value 1. buffett believes the s&p index is likely a better investment than berkshire moving forward 2. Berkshire at 185 is now equally as valuable as at 220 a few months back therefore impairment of actual long term value of 15% more or less so far from corona. 3. at 160 or 30% lower from its peak he MIGHT have bought back shares but it wasn't there long enough to make any moves.

Yeah I don't get this as well especially if he wants that "fortress" balance sheet. It basically sounds like he wants to just get a whole business and get the cash flows, not necessarily equities that just go up in value with low/no dividends. Maybe still holding out for those preferred deals with high rates with warrants

Berkshire as an investment has been fine. But I think as a shareholder it's constructive to see what buffett could be doing better. It's not unfair to ask, would the company have been better off if buffett heeded to his own advice and just incrementally retired shares or even bought the index into his portfolio over the years instead of doing stuff like ibm, khc, airlines and oxy. We shouldn't applaud him for cutting airlines (he still owns it by the way) when it was HIS mistake to begin with. There was no moat there so why buy it. So he plays around and makes these mistakes but when a fat pitch like his own stock tanks (meanwhile intrinsic value doesn't go down by much) he just sits there thumb sucking again, while having the liquidity to be greedy when others are fearful. The question is, just how good of a company is berkshire and is it because of the durability of the companies or is it because its always sitting on large sums of cash. If the latter is the case, an index fund is probably a better buy at this point

Buybacks are implemented to extract value for long term shareholders. If buffett thought it was good to buy berkshire at 220 then why not 160? I would have less concerns if he just didn't buy at all. If markets fell to 2000, what would brk/b fall to? 150? 140? If he didn't buy back shares at 160 why would you think he'd do it at 150? As a long time shareholder i'd be equally happy if he buys at 170, 180, 190, 200 cause he clearly thought the price at 220 was less than intrinsic value. The other thing to ask is liquidity issues. I would have no issues if berkshire stood pat cause of that. But 25% of market cap seems excessive. Why not just flip the airline equities into buybacks at the least.