Cigarbutt

I like the "operating margin" concept that you describe. One quarter does not mean as much as long term trends. So NPW increased by 44.1% and underwriting profit went up (108.4M to 115.8M) by 6,8%. The CR went from 94.9% to 96.1%, seemingly by a small amount but the conceptual number that really counts long term is the difference from 100% underwriting, ie the difference went from 5,1% to 3,9%, a very significant difference if it represents longer term trends. Reserve releases continue to be favorable on an absolute basis but are coming down on a relative basis, a trend I expect to continue at Fairfax and across the board. @petec There is disclosure about the Brit buyback. They report an 88.0% ownership in light of post quarter financial events. I reviewed past disclosures also and cannot figure out how they end up at 88.0% but they are going in steps and your valuation seems to be on the mark.

The story on corporate taxes will be dynamic but will remain an important factor for the bottom line. Link with potentially useful inputs for different industries: http://budgetmodel.wharton.upenn.edu/issues/2017/12/15/effective-tax-rates-by-industry

No, I've already shared way more thoughts on this story than my share. But since you brought it up, I'd love to see your numbers and assumptions on it. I think this specific thread has three levels of questioning. 1-Is the story interesting/of interest? I value your posts (investment and others) and I continue to assume that you filter your posts on necessity and relevance. I thought the reddit story was relatively interesting. Healthy reminder that rare events occur rarely but when it's you, it's a 100%. 2-Is the story true? That's the question you're asking me. As the thread evolved, many fellow members questioned if the story was true. My answer: I don't know. 50% +/- 50%. Maybe 51% at this point given the nature of the alleged crime and given the status of the information available now. The first step is circle of competence but how can one derive a precise conclusion with such a fragmentary and anonymous on-line piece of evidence? 3-How biases can interfere with critical thinking and decision making? That's the question that I find most interesting in this thread when my impression is that conclusions are reached and some steps are skipped. Legitimate complaint or fake news? Trying to balance an open mind with a healthy dose of skepticism.

A "story" can be appraised for its level of interest (true or not) and can also be appraised for its validity. It can be a two-step process. Given the nature of this Board, the fact that the red flag detector gets activated should not be surprising. Imagine you are the investigator taking the complaint. You need to balance an open mind with a healthy dose of skepticism. Some people appear to be very good at it (verbal and non-verbal cues, checklists etc). A lot of work however shows that, in general, we are poor at BS detection and individual auto-evaluations at this show a particularly high level of overestimation of capability. If you read this Liberty, could share a +/- number on your 70% assumption? For those who have time or who are interested, here are two potentially useful links. The first one is from Carl Sagan who offers a version of a baloney detection kit (what to do and what not to do) and the second link draws a nice parallel to business decisions, including the risks involved with emotional tagging. BTW, a lot of related work can be found on Google Scholar :). https://www.brainpickings.org/2014/01/03/baloney-detection-kit-carl-sagan/ http://hansvanelk.nl/uploads/HBR%20Why%20Good%20Leaders%20Make%20Bad%20Decicions.pdf

An interesting message is that a sustained involvement with a solid and convincing story may be sufficient to get constructive pieces of legislation through democratic institutions. From what I've read on this topic, it appears that Russia has put an incredible amount of resources to resist the passage of the Act and associated sanctions. Another interesting aspect is that Natalia Veselnitskaya, the lawyer with ties to the apparatchiks, who, among many interesting roles, actively lobbied against the passage of the Magnitsky Act, was part of the (in)famous June 9th, 2016 meeting where 8 people were present and where (I would guess) there was more to discuss than international child adoption practices. Then some say that War and Peace was too melodramatic. Sometimes truth is stranger than fiction.

Thank you for bringing up the story of Bill Browder. I haven't read the book yet but I've watched the link provided by JanSvenda and did other basic research. Bill Browder seems to be a nagging pebble in the shoes of the big shot Politburo people. If you have an interest in propaganda and counter-propaganda, perhaps worthwhile to surf the web and try to find and visualize: Magnitsky Act: Behind the Scenes. The movie tries to show the other sides to the story. https://www.thedailybeast.com/dissident-director-helped-trumps-russia-comrade-attack-us This story (Red Notice, which I assume to be the true part) helps reminding me how important it is to preserve our institutions.

I have often used CDC data and have found the methods to be strong and reliable. The reports are not predictive in nature as they tend to focus on observational data and use analytical tools to improve the presentation and reporting of the data. Of course, this can always be improved. In this specific case, the mortality data is obtained essentially from the death certificates. https://www.cdc.gov/nchs/nvss/deaths.htm Other data come from surveys. They describe the limitations of their reports and, for this specific topic, it is likely that the alcohol problem is significantly under appreciated. https://www.cdc.gov/pcd/issues/2014/13_0293.htm

I imagine that instead of stepping down, Mr. Buffett is still looking forward to step up to the plate. From a 1974 article: "I call investing the greatest business in the world," he says, "because you never have to swing." You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! And nobody calls a strike on you. There's no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it." Somehow, I think that Mr. Buffett is moving reluctantly towards buy-backs but maybe I'm wrong. Thought the following from 2017 helps put perspective to today's announcement. https://www.youtube.com/watch?v=TyeHnwxl28I

Interesting exchange between longinvestor and Dynamic. A way to resolve the issue may simply be to apply what Spekulatius said today when commenting on "The Margin of Safety" by Seth Klarman: "I found Howard Marks book unremarkable too. I know he is revered here, but I really didn‘t get much from his book, other than the idea to think about where we are in a cycle. Even with respect to the latter, it might just be better not to think about cycles at all and look at all Investments case by case and forget about the large picture." (my bold) Some suggest (like Mr. Klarman) that there may be value in trying to understand the general context. If found to be valuable, one can decide for himself how to integrate this concept into investment decisions (stay fully invested, delegate the responsibility to a third party (like you eloquently explain in reply #225 of this thread (see quote below) or hold the responsibility yourself). "All in all, I think Berkshire should be very likely to perform at least as well as the index in the long run and likely to outperform it by a percent or two per annum in the long run, partly thanks to the float leverage and partly thanks to rational opportunism." (my bold) Dynamic, I agree that there may be an element of statistical distribution but your fluid dynamics explanation does not take into account human nature. To complement what longinvestor has provided, here's a link: http://integratinginvestor.com/value-investing-is-life-imitating-art/ Value investing means different things to different people but I would not include momentum. I think this aspect is one of the fundamental reasons that Mr. Buffett tends to underperform a little in bull markets but overperforms in bear markets. I really like it when momentum is on my side but try to dissect it out of my investment decisions. To paraphrase Oscar Wilde: what is found in life and nature {and markets} is not what is really there but is that which has been taught to people to find there. Crowds are not always right.

This is a rebuttal to a 2013 publication. To better understand, I would have liked to hear more about the "biases and agenda" of the authors. Submitted as complementary information: http://annals.org/aim/fullarticle/1789253/enough-enough-stop-wasting-money-vitamin-mineral-supplements https://www.aafp.org/afp/2018/0215/p226.html https://cmajnews.com/2018/06/19/trump-administration-shutters-clinical-guidelines-database-cmaj-109-5624/

Thank you for the interesting link (podcast). A light is shone on Purdue Pharma. Constructive criticism: -Contrary to what the podcast suggests, this is not a single variable problem. Even if drug manufacturers such as Purdue Pharma bear a large part of the responsibility (which should be and likely will be assessed), there are many other contributing factors: users, prescribers and government agencies, especially the FDA. -The FDA has been at least partially captured by the pharma industry and poitical ties prevent adequate control. -The fact that there was an eleventh hour settlement in 2007 is only part of the problem. The failure to act (policy) on the information after is very hard to justify. Here is a link that adds relevant details: https://medium.com/@kfrydl/obama-the-opioid-crisis-7910ce57d0b6 IMO, change will occur when the crisis gets large enough. BTW, I find it ironic that the podcast had publicity sections about the "US bank", a housing lender that has the "tools" that can help you "reach your dreams". Not the same degree of harm but nonetheless interesting that an FDIC-backed institution involved in the government-supervised and sponsored area of housing finance for the subprime customers and the like subsidizes a podcast related to addiction. The last time I checked, noboby went to prison after the last housing-fueled debt addiction episode.

Corrupt and incompetent are strong words, although self-serving bias is a definite problem. Easy to identify failures after the fact but what if there were no auditors? Do you think Sarbanes-Oxley has been useful? How would you improve the efficiency of audition?

Would you please explain the implications of the new tax law in regards to buybacks? This is an honest question & not an attempt to be inflammatory. I really want to understand, as I am slowly building BRK into my largest position. Wanting to learn is a sign of relative strength. Will risk becoming a strawman and submit that your question is more subtle than it appears. Mr. Buffett has explained that stock should be bought back 1- with excess funds and 2- when the stock is available at a discount to intrinsic value. The 1,2 rule is simply a tool to try to estimate the mismatch between book value and the discounted value that can trigger the buy back. Over time, for a firm, the ratio between intrinsic value and book value may increase. Mr. Buffett has mentioned the emphasis on entire businesses recognized at book value as a potential reason for the growing mismatch. For the tax part (the 2017 Augustus letter is helpful if you want to play with numbers, see below), when enacted, first, book value increases (which should not change the 1,2 multiplier if the market adjusts...) but, also, the future earning power is increased, under some assumptions (see below), so return on capital is increased and therefore the multiplier should increase. https://seekingalpha.com/article/4151002-semper-augustus-investments-group-2017-letter-clients Assumptions: -corporate tax decrease is a good thing, OK -corporate tax decrease will result in higher productivity, probably OK at Berkshire Hathaway -a debt-financed corporate tax decrease is a good thing (don't want to get into politics but that leads to the next big assumption) -the corporate tax decrease will be permanent, IMO uncertain There have been reports circulating on the internet suggesting that the threshold for buy back should be mathematically adjusted to reflect the tax rate going from 35 to 21%, suggesting that the threshold should go to 1,4-1,5, but things are more complicated. First, the effective tax rate adjustment may not reflect the headline numbers. Second, and more importantly IMO, just like with the unrecognized book value aspect of consolidated subsidiary, the new tax rates will result in higher retained earnings (higher book value) going forward so, even if positive, the benefits of lower tax rates will be eventually be recognized in book value, with a lag, so one cannot simply use a rule of three. Reasonable to expect the 1,2 number to go to 1,25 or 1,3. Even if the excess fund argument should be independent from the discount to intrinsic value argument, at some point, the cash "cushion" may start to burn a hole in the pocket and the multiplier adjustment may be used to calm the crowd who keeps yelling: Swing, you bum!

Yes, technology is evolving (longer blades, more efficient turbines etc) and there is more to come but: -this is a reminder of the intensity of capital involved -the decision to repower, like globalfinancepartners explains, in influenced significantly by the tax implications https://www2.deloitte.com/content/dam/Deloitte/us/Documents/energy-resources/us-er-useful-lives-and-assets-to-qualify-for-tax-credits.pdf Don't want to kill the enthusiasm but helpful to remember that the wind energy business, if you compare to learning how to ride a bike, is progressing but the safety wheels are still on.

In terms of low-hanging fruits, interesting to note that the La Crosse significantly improved experience for end-of-life care arose from a simple local initiative (1991) that required the systemic utilization of a simple form including four basic questions. Technology, which actually compounds the problem now, may become a useful tool in the future but, as you may have realized from your noble work, a pair of ears may be the most important piece of equipment.

alwaysdrawing, The answers you’re getting are mostly deserved but I think you raise an interesting point which is related to another question: once you made a stock a core holding, should one refrain from selling whatever the market is offering for it? For example the goal may not be to determine if KO is an “inevitable” or “bad” investment. It’s a price value assessment. Can’t comment in details about all the investments you mentioned but KO still has an amazingly strong franchise (brand and distribution) and will still be around in 20 years earning more than it is now. However, IMO, the moat has been decreasing (retail environment is changing, evolving tastes, private labels, health issues and retailer pricing power against KO) and the price now, IMO, implies relatively low returns going forward. If you look back at what happened to KO and compare your assessment of intrinsic value versus price over time, I conclude, like you, that KO is not undervalued. I suspect Mr. Buffett looks at capital allocation decisions in order to maximize returns but he has, in the past, discussed regrets about not selling Coke in the late 90’s. https://www.barrons.com/articles/SB10670404744196300 “Berkshire has done very well with its Coca-Cola and Gillette stakes, accumulated in the late 1980s. But Buffett says he erred by not selling them at their late 1990s peaks. Coke, at 45, and Gillette, at 30, are about 50% below their highs. "Coke and Gillette weren't the focal point of the bubble, but they achieved bubble prices," the Berkshire chief observes. At their highs, Coke and Gillette traded for about 50 times earnings.” But others are right to point the tax reasons and the opportunity costs as Mr. Buffett, these days, does not seem to be able to compete on price for both stocks and whole businesses but I think that the major reason for Mr. Buffett not selling the “inevitable” stock holdings that you mention is because he considers them to be permanent, pretty much like Geico or BNSF. Do you think that he would sell Geico even if offered an insane price? KO closed at 43.07 today. In the past, I have held Fairfax as a “core holding” but the % exposure varied a lot over the years (giving rise to improved results over time, even with tax accounted for) and I considered doing the same for BRK. I continue to wonder if that’s the “right” thing to do for core holdings.

1+ The more things change… 60 years ago, when reflecting on 1958 performance and previous comments, Mr. Buffett had discussed this contrarian concept: “Our performance, relatively, is likely to be better in a bear market than in a bull market so that deductions made from the above results should be tempered by the fact that it was the type of year when we should have done relatively well. In a year when the general market had a substantial advance, I would be well satisfied to match the advance of the averages.” He also explained how he could benefit from unexpected decreases in prices out of proportion to the decline of intrinsic value of even undervalued securities. In 1958, the 10-year treasury yield was standing pretty much where it is today but the stock market to GDP ratio was depicted differently despite what Mr. Buffett described then as a psychology animated by mercurially-tempered people. Some things change but some stay the same. The challenge is to differentiate between the two. From my humble perspective, the most outstanding accomplishment in this market is not that BRK will outperform going forward, it is that BRK was able to match recent advances in price. Because of its size, BRK is unlikely to hit it out of the park but is well positioned to outperform the S&P in the event that seemingly inevitable profits don’t show up. I guess BRK could be called a sleep well at night modified barbell strategy large market cap stock. A unique combination.

For those with no access to the NYT or who can't stand it: https://abetternc.org/the-strategic-lies-of-oncologists/ Jurgis, Your assessment about the absence of easy solutions is quite reasonable and the article dealing with cancer treatment underlines the difficulties in changing cultures. In terms of low hanging fruits, ER visits resulting in disproportionate bills to average Americans is an interesting area. An opinion (not fact) is that the care given in the last months of life is terrible overall in terms of quality of life. The reasons for this are many but, like most substance of recent posts in this thread suggests, sometimes incrementally added poor incentives result in a very deplorable (is this still a controversial word?) situation. In 2015, in my province (equivalent of a state for you, you know the region of a country you're in a trade war with for national security reasons), legislation was passed concerning end-of-life care (including euthanasia or assisted suicide in selected circumstances, although those words were not used in the legal texts). Some people were against and some people are unhappy with it, but the result came from open and transparent discussions and resulted in a reasonable compromise (IMO). Economic reasons had to be part of the discussions but the bottom line had to do with quality of life. Cultures can evolve and change for the better, even when dealing with tough topics. Contrary to what you suggest, paradoxically, I think that many significant solutions will come from the US even if the system is fragmented and poorly coordinated because socialized systems (despite many advantages) lack the the underlying capacity for innovators to recuperate the value that they produce from creative destruction. Like somebody mentioned before, sensible capitation may become more popular, especially for chronic care which is spreading. Greed was mentioned along the way. I would say that market participants simply react to price signals. I think we can do better in defining rewards and incentives (carrot and stick). http://www.milliman.com/uploadedFiles/insight/2017/capitation-arrangements-nhs-stps.pdf https://www.mckinsey.com/industries/healthcare-systems-and-services/our-insights/why-understanding-medical-risk-is-key-to-us-health-reform

I'd assume the $150 cost is the cost of the doctor visit. That's correct (including both the basic medical visit and the phone consultation according to rates in my jurisdiction). Also, certain specific aspects of Lyme disease are very controversial and anecdotal evidence may be considered insufficient to judge an entire subset of a population. Respectfully submitted: https://www.amjmed.com/article/S0002-9343(17)30138-9/fulltext?code=ajm-site

Can I try with a simple example (based on a true life experience of mine but adjusted for this discussion)? My 16 yr-old daughter was bitten by a deer tick last weekend during a camping experience (risk of Lyme’s disease). What to do? A- consult a naturopath and get a prescription for local clay application and vitamin E pills, total cost about 100$ B- consult locally (minute clinic or equivalent) and the result could be a large variety of outcomes, with the most likely result being a 1 to 3 week course of antibiotics, total cost about 200$ C- with your Cadillac coverage, obtain first-class medical evaluations and follow-up with specialists, including detailed blood testing (facility owned by…) and a prophylactic (to prevent) 3-week course of antibiotics, total cost about 750$ Right answer: none of the above. For this specific presentation, there are validated criteria: area endemic or not, time of tick inside skin, aspect of the tick once completely removed, time delay after bite and tick removed. The right answer is none of the above and was the one that I “influenced” in obtaining: see a relevant first-line physician who, after completing a telephone or on-line consultation with a microbiology specialist, explains that there are two viable choices after the removal of the tick: either do nothing or get one dose of antibiotics to be on the safe side. My total price about 150$ (10,08$ out of pocket for the 200mg dose of doxycycline and the rest from the single payer). Interesting to note that using this option results also in an automatic sharing of the relevant information with public health who continues concurrently to monitor a data base concerning, among others, the risk of Lyme transmission after a tick bite. I guess you could say that A- is cheapest and likely does not change the outcome but I submit that this option leaves a lot of unanswered questions. The middleman here has the potential for an amazing amount of value-add. Outside the box. Right now, I would humbly submit that there are a lot of low hanging fruits. I remember hearing Jeff Bezos explaining (when his operations were small and when he was directly involved with packaging and delivery) that he wondered how he could relieve knee pain associated with the act of packaging stuff on the floor. As he was considering using knee pads, apparently somebody suggested to use packaging tables and, supposedly, this had a huge impact on productivity. I'm not saying it is going to be easy but it is possible and is there for the taking. Helpful?

https://www.statnews.com/2018/06/25/how-atul-gawande-landed-extraordinary-impossible-job/ https://www.insurancejournal.com/news/national/2018/06/26/493273.htm Some perspective on the new venture. Some suggest high deductibles and health savings accounts. Basically a good idea but there are two problems: 1-there is too much (in the sense of unnecessary and potentially harmful) care for some 2-there is not enough care for others To have skin in the game will work if 1- is decreased and 2- is maintained or improved. Typically, when faced with a cost, people will simply decrease the quantity of care in a non-discriminate way. https://eml.berkeley.edu/~bhandel/wp/Utilization_BCHK_Web.pdf It appears that present cost sharing schemes don't work. Skin in the game benefits may be conditional on changing the rules of the game. Getting there, slowly.

This is nonsense from the point of CPP and Canada. You can see that with some simple excel modelling. Thanks for the time taken to dispel the nonsense. I respect what you describe and understand that CPP funds are "segregated". But the reference provided about the retirement shortfall is based on the three-pillar concept and: -the premise that funds will remain segregated is an assumption that can change (I remember that this was a big issue with excess federal insurance employment funds when rating agencies felt that the books should balance) -the old age security schemes are pay-as-you-go in a historical context of an increasing burden going forward -in 1989, the universal OAS program lost its universality for some with the clawback provision I remember discussing this topic with uncles who suggested that I should not rely too much on the government for retirement since I wasn't born at the right time. Born at the Right Time: A History of the Baby Boom Generation. Owram, Doug Toronto: University of Toronto Press, 1996.

+1. CPP is an exceptional success story! Surprisingly it is a clone of some union's work. CPPIB is part of what I like to call professional government. Where you leave politics out of things and you run things professionally for the people. In Canada we have implemented this approach in several areas to great success and I would like to see more of it. One thing in particular I like aside from the performance of the CPPIB team is the segregation fact where it's obvious how much money there is. Thus as CPPIB continues to perform and the coffers fill the government can't obfuscate behind a veil of bullshit. They'll have to lower payroll taxes or increase CPP payout. I favour increased payout btw. One other particular area I'd like this to be applied is health insurance. I'd like health taxes to be segregated from general revenue and handled like CPP. When you think about it health insurance is not that different that life insurance (pensions). Lastly, it's worth mentioning that our retirement system was a complete basket case similar to the US 2 decades ago when the government decided to reform it. Basically retirements are not a lost cause - mission impossible style. Your governments just have to get off their ass and do the right thing. Short version: For the CPP part, Canada is slightly ahead but in the grand scheme of the underfunded retirement liabilities, this will be a marathon and we've barely scratched the surface. Long version: It is true that the CPP program was improved, starting in the 1980's, through a collaborative effort. Interesting to remember that the concerted effort involved many steps including setting aside funds and incorporating an arm's length aim at improved returns but also included policies to increase immigration with a priority to young independent immigrants. In many countries, retirement liabilities are significantly underfunded and the challenge is set to increase. Reference: http://www3.weforum.org/docs/WEF_White_Paper_We_Will_Live_to_100.pdf Figure 4 on page 7 summarizes well. "Steady-state" funding for CPP or not, developing and developed countries will need a lot of "bipartisan" compromises to meet presently unrealistic objectives and to prevent funds set aside to be used for "general government purposes". And, proportionally, Canada is in the same kicking the can down the road scheme. I think it is reasonable to expect: increasing retirement age, increasing contributions and decreasing benefits. And for the people participating on this Board, it is reasonable to expect zero retirement contribution fom public sources. In this era of polarization, also interesting to see how global financial literacy may be lacking. From the reference (p.5): "Levels of financial literacy are very low worldwide. This represents a threat to pension systems which are more selfdirected and which rely more on private savings in addition to employer- or government-provided savings. Research indicates that most people are not able to answer questions on basic financial concepts. This is increasingly important in pension systems that require individuals to make key decisions. The lack of awareness of the basics on how interest and returns will compound over time, how inflation will impact savings, and the benefits of holding a broad selection of assets to diversify risks means that many individuals are ill-equipped to manage their own pension savings." More specifically on this literacy question, there was a report recently published dealing with many interesting aspects of household finances including literacy (relevant section pages 55-58): https://www.scribd.com/document/381804906/2017-Report-Economic-Well-Being-Us-Households-201805#from_embed If you remove the good answers provided by those who answered the five basic questions right, one has a better understanding as to how this growing problem has been ignored and how painful it will be when recognized (probably forcibly). Not mission impossible but some headwinds expected. We may eventually find out that we were collectively poorer than we thought we were. Definition of shortfall: a deficit of something required or expected.

Firstly, ... Secondly, ... Thirdly, migrations do actually happen for reasons outside of a country's control. This is why we have asylum and refugee programs. In those areas Canada punches above its weight and above the US. This is despite the Unites States' larger income and wealth. If the US was to proportionally take in as many refugees and asylum seekers as Canada, the US should take in 300,000-450,000 per year. That number is greater than the US's refugee quota plus the illegal immigration into the US. So I'd say that Canada does enough. First, asking shalab to clarify the premises was useful. I agree with most of what you say but would like to add the following. The number of refugees coming in varies from year to year and the numbers you chose do not reflect the reality over the years. Also, even if felt to be more "compassionate", the process is long, complex and can end up with deportation. https://www.thestar.com/opinion/star-columnists/2018/03/01/canada-vastly-unprepared-to-process-migrants-and-refugees.html Numbers are imprecise but estimates show that the number of illegal immigrants in Canada is about 1% that of the US. With hard-line policies being promoted south of the border, I can tell you how disruptive the process can become at the border and after. Illegal immigration is a tough problem but, in relative terms, Canada has been a spectator and I hope that the US can come up with some kind of constructive compromise as there must be room between a wall and open borders. Some problems have a tendency to persist when not dealt with.