KPO

How does the counterparty exit their position without putting significant downward pressure on the stock when the TRS is unwound and if Fairfax decides not to purchase the shares?

No offense, but I’m guessing you didn’t invest during the financial crisis.

In extreme situations they wouldn’t have the cash to buyback stock when making significant TRS payments. I’m likely influenced by the extremes during the financial crisis when everything became correlated, but I’m also not naive enough to think this won’t happen again.

Exactly. It has the potential to become a negative feedback loop if the share price starts to decline significantly, which is a possibility for reasons beyond their control. I’d like to see them slowly unwind it over the next year or two.

Yeah, you can still buy the print editions of these with the long history as you showed here. I buy them every 7-8 years on the promo price as they’re a useful quick reference.

Agreed. I like the idea of a stable company like Berkshire buying highly cyclical businesses that generate significant free cash flow at the top of the cycle, and over earn on average across the cycle. They’re almost uniquely positioned to own businesses like these given the stability of the energy assets, the strength of the balance sheet and the constant need to put float to work.

The buybacks are a significant part of my interest, and they obviously have some very valuable IP. I spent some time looking at valuation (P/E, EV/EBITDA, FCF yield) against their own 15 year history and compared to Hasbro. Hasbro has better gross margins, partially due to product mix, but I’m not sure that supports a 50-60% premium. And MAT is unquestionably cheap against its own history. I could see them being taken out if this valuation holds or drops much further. Also, The Masters of the Universe movie was the disaster I expected, but MGM/AMZN are the financial losers on that deal since it was a mostly licensing financial event for MAT. It’s probably fair to say that merchandise pull-through was a disappointment though. I expect their next couple movies to be more successful and drive more pull-through, but Matchbox and Hot Wheels are actually performing pretty well on their own. Ultimately it’s a similar set-up to Nintendo……great IP, actually much cheaper valuation, but a competent and shareholder-oriented management team. What are your thoughts? And can you link this to the MAT thread? I’m technically challenged!

Doubled up my MAT position

Thanks for sharing. As with the Taylor Morrison acquisition I like this because these cyclical businesses that generate solid free cash flow on average through cycles make a lot of sense under the Berkshire umbrella. At the same time they’re building scale and can exploit cost synergies at the parent level.

https://www.barrons.com/articles/berkshire-weschler-stock-davita-sirius-e9ee54aa DVA & the much maligned SIRI had a great first half of the year, plus Delta up around 50%.

Interesting. Thanks for putting this back on my radar. Have you spent much time doing valuation comps against the OxyChem purchase by Berkshire? On a number of metrics this appears anywhere from 20-50% cheaper currently. I can’t get past why OLN, despite having much more scale, seems to have consistently lower gross and operating margins. Also, thoughts on the Huntsman transaction?

Added a quarter to NTDOY

Add to LEN.B

Adds to CRM and CMCSA

Awesome! Hope you have a great time! Feel free to ping me directly on restaurant, hotel, brewery and/or other recommendations.