Xerxes

Jeez What happened. Did John Chen buy some bitcoin instead of treasury bond for its balance sheet

Berkshire phone was not going off the hook in March-April, but seem to be getting calls from Japan nowadays .... it is crazy how global these Japanese conglomerate are compared to Berkshire's mostly U.S.-centric set of businesses. "Already, some are unveiling plans for closer collaboration with their new shareholder, perhaps conscious of the opportunity to accelerate changes across their portfolios in an era of digital upheaval. Mitsui would like to collaborate with Berkshire to expand its Asia healthcare business, Tatsuo Yasunaga, Mitsui CEO, told Nikkei Asia in a recent interview." https://asia.nikkei.com/Business/Business-Spotlight/Warren-Buffett-s-Japan-trade-The-changing-world-of-sogo-shosha TOKYO -- At a FamilyMart convenience store in Tokyo, shoppers grab fresh bananas and pay using their smartphones. A familiar scene, but few would know that one company is orchestrating almost the entire transaction -- from growing the bananas to owning the store and even developing the smartphone payment system. The company, Itochu, is one of Japan's venerable "sogo shosha," or trading houses -- a quintessential feature of the country's corporate landscape, sprawling across dozens of business sectors. Itochu not only owns FamilyMart, which it recently took full control of in a 580 billion yen ($5.5 billion) transaction. It also produces bananas and pineapples on Mindanao island in the southern Philippines as the owner of Dole's Asian fresh food business, and ships them to Japan, South Korea and -- an anticipated growth market -- China. CEO Masahiro Okafuji has been determined to strengthen Itochu's non-resources businesses. "I decided to attack areas related to household consumption," he said in a recent interview with Nikkei. Itochu also owns a 25% stake in a unit of Thai conglomerate Charoen Pokphand Group, 10% of Chinese financial conglomerate Citic, 33.8% of British fashion house Paul Smith and 40% of apparel maker Descente, as well as iron ore and coal mines in Australia. Itochu and its sogo shosha peers attracted global attention when well-known U.S. investor Warren Buffett's Berkshire Hathaway announced in August that it had acquired slightly more than 5% of five of them -- Itochu, Mitsubishi Corp., Mitsui & Co., Sumitomo Corp. and Marubeni. Berkshire has said it may boost its stake in each company up to 9.9% and is eyeing opportunities for the trading houses to strike partnerships with its own businesses. It was a rare boost for a sector that has been unloved by investors for whom the conglomerate is out of fashion, and which also runs many "old economy" businesses hit by the inevitable fallout from the COVID-19 pandemic. Itochu is putting its sprawling business network, which spans everything from food to IT, to work at its FamilyMart convenience store chain. (Photo by Makoto Okada) For Buffett, the deal was a bet that the world's third-largest economy can overcome myriad challenges including slow growth and demographic decline. "I am delighted to have Berkshire Hathaway participate in the future of Japan," Buffett said. His interest has spurred more scrutiny of the trading houses' role in Japan Inc. -- and optimistic talk within the sogo shosha themselves. Already, some are unveiling plans for closer collaboration with their new shareholder, perhaps conscious of the opportunity to accelerate changes across their portfolios in an era of digital upheaval. Mitsui would like to collaborate with Berkshire to expand its Asia healthcare business, Tatsuo Yasunaga, Mitsui CEO, told Nikkei Asia in a recent interview. Change is something the sogo shosha are familiar with -- as epitomized by Itochu, which has grown from a 19th-century textile merchant into a diversified business group covering sectors including apparel, foodstuffs, steel, information technology and natural resources. Itochu and Marubeni -- which has its roots in the same linen trader -- are to some extent relative upstarts among the sogo shosha. Their grander rivals are Mitsubishi, Mitsui and Sumitomo -- often referred to as zaibatsu member trading houses. The zaibatsu, once family business conglomerates, dominated the Japanese modern economy and forged strong connections with the government before the second world war. Those structures were broken up by the U.S. and its allies after the war, but while the family holding companies have lost their control, the companies that were once under one umbrella remain tied together, albeit loosely, by their historic bonds. In the postwar era, the trading houses supported Japan's manufacturing resurgence by importing resources and food, and exporting finished goods including electric appliances, cars and machinery. But as manufacturers started to eliminate the trading houses as a middleman, the sogo shosha responded by branching out -- partnering with food processers, oil producers or retailers to make profits throughout the "value chain." Today, they depend more on returns from investment than on the trading commissions that used to be their major profit source. Trading houses "have adapted their business models in an incredibly agile way over the [many] years and have done really well, not just for the economy but also for themselves," said Kei Okamura, director of Japan investment stewardship at Neuberger Berman East Asia. Yet the sogo shosha and their diversified businesses have fared badly in their reputations with investors, lagging behind automakers, telecom carriers, tech companies, banks and drug companies in market capitalization and valuations. And their diversification is no foolproof defense against losses: Marubeni reported its biggest loss ever for the last fiscal year ended in March, and Sumitomo warns of the biggest loss in its history in the current fiscal year. Mitsubishi, long seen as reigning over the other sogo shosha, epitomizes the industry's struggle to transform and move away from "old economy" roots. Mitsubishi first brought liquified natural gas from Alaska for Japanese power plants 50 years ago and now supplies 55% of the nation's imports. The company has been a steady supplier of iron ore and coal for steelmakers, and this has supported Japan's vital auto industry. It owns one of the world's largest metallurgical coal mines in Australia with BHP, and its metals division accounted for 40% of the company's profit in the last fiscal year. "Our clients have confidence in our ability to ensure a steady supply of essential resources," a Mitsubishi manager says. But the company expects profit to drop by nearly two-thirds this year, hit by the coronavirus-induced global recession. Demand for coal, Mitsubishi's cash cow, has slumped while prices for natural gas have slackened. And Mitsubishi Motors, where the trading house owns 20%, is bracing for a huge loss after car sales collapsed. Mitsubishi also faces a longer structural shift away from thermal coal and oil. "Essential energy has been changing from oil to LNG and renewable energy. We have to suit this change," Mitsubishi CEO Takehiko Kakiuchi told Nikkei in an interview. Kakiuchi also emphasized the need to review the business portfolio, doing more using digital technology and artificial intelligence. "With digitalization, it has become possible to quantify demand forecasts and so on that were previously done by experience and intuition," he said. "The knowledge of employees who have raw data can be further utilized and ... new businesses can be developed." A case in point is a recent initiative to use AI to predict day-to-day changes in sales at the Lawson convenience store chain, a subsidiary, to help cut waste. One advantage sogo shosha managers stress is their style of running their portfolio companies. In contrast to private equity firms, investment banks or management consultants, they say they are much more hands-on and accept a longer time horizon to recoup their investment. Mitsui's Yasunaga said their "functions are trading as well as marketing, financial arrangement and business restructuring." Take Marubeni, for example. It manages 290,000 hectares of dense forest on the Indonesian island of Sumatra, making pulp for paper manufactures, mainly in Asia, for 15 years. There, 10 of the company's expat staff patiently wrestle with how to renew the forest's tree species, which have been hit by disease since 2013, dealing with the odd scorpion, snake or tarantula spider along the way. "We find at least one thing to be improved every week," said Terutoshi Fukuoka, the 25-year-old deputy general manager at Musi Hutan Persada, Marubeni's operating subsidiary, who is in charge of quality control and innovation and oversees 100 staff members. After being in the red for five years, MHP became profitable again in 2017. Sumitomo -- which is leading a $4.3 billion smart city project near Hanoi, in Vietnam's largest urban development -- stresses its thorough training. Employees need to pass exams in import-export practice, accounting, project investment and management before being dispatched to a company in which Sumitomo has invested, to learn and practice management. Employees are even taught liberal arts subjects -- unusual in Japan -- on the grounds that such education helps managers to gain respect from their overseas counterparts. Sogo shosha have consistently ranked high in terms of popularity for Japanese graduates, because they offer good pay, job security and opportunities to work overseas. But whatever their attention to management practices, the sogo shosha are not being rewarded in one vital aspect: their share prices. For the past seven years the price-to-book ratio -- a measure of the market's valuation of a company relative to the value of the assets it owns -- has stayed below one for all except Itochu. The persistent undervaluation is often explained by reference to the concept of a "conglomerate discount" -- a recognition that a company cannot gain synergies from a very diverse range of business units. The result, critics argue, is inefficient use of capital. Most investors would rather assemble their desired portfolio themselves on the stock market. Some within the sector acknowledge the point. "We have 1,700 group companies. That is too many and each company is too small," said Kakiuchi of Mitsubishi, who would like to merge many units to increase efficiency. The trading houses still offer one of the best returns in terms of dividend payments among large-cap stocks, points out Hidenori Kusunoki, analyst at Mizuho Securities. He says that sogo shosha have increased their dividends on a sustained basis. "In the last 10 years, their dividend yield, or the ratio of dividends to share price, has stayed around 3-5%," he said. Nevertheless, the key for them to achieve higher valuation will be whether they can keep up with an accelerating pace of change, as the global economy shifts from manufacturing to services and from physical to digital. Investors -- now, of course, including Buffett -- might need patience, suggests Neuberger Berman's Okamura. "We don't think trading houses will be able to change their business model dramatically over the next three to four years," he said. But as Itochu moves to cement its control of FamilyMart -- an extraordinary general shareholders meeting to delist the retailer was held on Oct. 22 -- CEO Okafuji is convinced that standing still is not an option. "We have to understand the changes taking place in the world and follow without delay. And we must change ourselves accordingly," he said.

Here is an interview with Mike Wilkerson for the FAH die hard fans. You directly watch on YouTube as well. https://www.google.ca/amp/s/seekingalpha.com/amp/article/4391791-michael-wilkerson-ceo-of-fairfax-africa-holdings-america-in-danger

In fact to partially answer Petec’ question APR, I would to say at the very least APR had a much higher discount rate as a business within the walls of Fairfax than it has now within the walls of Atlas. Part of that is explained by what you said, giving control of the asset to someone that incrementally knows more than you. That ought to lower the discount rate by a few basis point. Imagine if the small team in Omaha was making all the capital allocation decision within MidAmerican.

That is why I want to own BB through the asset manager than directly as a normal common shareholder. The reality is that BB has just less optionality today when it used its cash pile to buy Cylient and now even less with the liquidation of IP portfolio. I don’t know what will happen, but that is my perception, at least the stock grinding higher as the pendulum is swinging toward sum-of-parts valuation. What FFH needs though is not a pendulum swing that just goes back and undo the mark-to-market gain. It needs a strategic exit.

Can’t wait to dump the rest of my BB shares once it crosses 10 CAD or more, to cover my cost. Small position but eager to clean it up.

Happy thanksgiving to our good neighbours in the south. Please focus on important things, rather than politics or Bitcoin (we don’t want a run up on crypto prices again) If you really want talk politics, how about this => Trump vs. Pompei running for 2024.

Based on Barron's "Repurchases totaled $15.7 billion in the first three quarters of 2020, against $4.9 billion for all of 2019." That is ~$20 billion done; so, $80 billion more to go to meet the $100 billion lofty target and some 10 years to do it.

Ackman on losing money on Berkshire https://markets.businessinsider.com/news/stocks/bill-ackman-pershing-square-warren-buffett-berkshire-hathaway-losses-2020-11-1029800708

Never underestimate a man who built a multi-billion dollar sprawling organization out of nothing. If he sees relative buyback value vs. alternative today he will find a way. The same dogged determination that makes him continuing to short technology names (to my anger), will make him find a way to do his buyback if he see relative value. if needs be, he is going to put the buybacks on his credit card, then roll them over line of credit and then on equity line of credit before matching the liability via an asset sale. Of course i am joking here about credit card, but my point is that if needs be he is going to be jumping through hoops until he gets his asset sale so that he can dividend back to hold-co and get his slug of shares. When it happens it will come out as a surprise. On a different note, on financial leverage, i am not sure if market value is used for calculation or book value, but i imagine an equity portfolio that has done relatively better than last quarter, should slightly tilt the D/E equation in FFH favour.

Great stuff Vikings. I think that is good measure (proxy) of intrinsic value (if not accounting value) and it serves the purpose to showcase improvement. From an accounting point of view, the difference on the biggest mover (Atlas's common shares) can be noticeable. Atlas' earning was $84 million in Q3 2020, take 40% of that which is attributable to FFH, and then remove the dividend paid to FFH by Atlas from that figure, to remove the dividend double-counting, and there you have the addition to FFH book value. A small figure. Doesn't bother me though, i find equity method accounting to be conservative this way as it takes out the mark to market gyration for large position. In fact, i think (though haven't verified) the collapse of Blackberry shares in the past two years had 'damaged' the book value, due to its mark to market accounting. On a different note, I am going to go out on a limb and make an unfounded prediction that Prem Watsa will do some relatively big buybacks in Q4 and Q1. He knows that any market weakness due to the second wave will be his last opportunity to take out a slug of shares below book value and as capital allocator he probably cherishes that. He just has to manage that along with $300 million use of cash for the jumbo-dividend and potential asset sale, while jumping through multiple hoops. My perception of Q3 call was that he was extremely busy, wanted to get the call finish as soon as possible by giving out vague answers while playing everything close to chest as it will be a busy quarter.

Of the big tech, the only one remaining to fit the criteria of relatively cheap for a big buyer is probably Alphabet. Unrelated I was listening to a podcast recommended on this thread, it was from few months ago, in it the commentators talked about how BRK position in Apple can be liquidated in 8 days and it’s position in BAC can take more than a month to liquidate. Goes to show how important liquidity is and how even between the bluest of the blue chips like Apple and BAC there is a huge difference.

Thanks The trailer for Dark Waters looks very interesting. I just hope the trailer didn't give away the story.:-) Cheers folks, we are going to need a lot of entrainment this holiday season.

Thanks i ll check out. I spend my 20s reading all kind of history books. A lot on WWII and then spend my 30s catching the investment 'bug'. Now in my very early 40s, i am thinking i had those in reverse. I could have capital working for me a decade sooner and reading my history books in my 30s instead. It is not like the historical event changed. I finished Bosch's last season earlier today, so went to watch Masayoshi Son's 3rd Quarter results. its like a movie with multiple cliffhangers.

Bluedevil I think that is an excellent guess and reasoning.

If true this could mean that one of Blackberry revenue drivers will take a hit as they have been collecting royalties on some of them.

From CNBC “Confidential information has been omitted from the public Form 13F report.” BRK has building a position in secret

From Brookfield Infrastructure Q3 investor call: "Naji Baydoun Okay. That's very helpful. And just maybe going back to the airport or air travel sector. How comfortable are you pulling the trigger on, let's say, an airport or an airline at this point. Would you say you're still in the early stages of looking at these types of opportunities? Or would you be willing to make an investment right away if the right opportunity came up tomorrow? Sam Pollock I guess, I mean, there's a number of considerations that you have to take into account. Obviously, value being the most important one, but the short answer is we would execute tomorrow if the right opportunity came up. The right asset for the right price. So we're not waiting to see what happens with air travel."

https://www.insurancebusinessmag.com/ca/news/breaking-news/fairfax-financial-and-allied-world-to-offload-stake-in-vault-238990.aspx "Following the transaction, Vault co-founder and former Allied World Assurance Company Holdings chairman & CEO Scott Carmilani will continue to serve as chairman of Vault’s board. Vault’s leadership team will continue to operate under the guidance of co-founder and CEO Charles Williamson. "The market demand for premium personal insurance is growing rapidly," said Carmilani. Carmilani commented that there are more than 12 million US households in Vault’s target market, up from 6.8 million in 2009. He also said that nearly 80% of those households do not currently utilize the services of a high net worth insurance specialist – this presents Vault with a large market, the co-founder noted. “With the investment by Cornell Capital and HSCM, we see significant growth potential for Vault in the underserved high net worth insurance market,” Carmilani prefaced. "I'm extremely confident in Vault's future and the balance-sheet flexibility this transaction provides," said Williamson. "Our team brings significant experience partnering with and growing leading insurance companies, and we look forward to working closely with Scott, Charles, and the Vault team to execute on our shared vision for continued growth,” stated Cornell Capital founder and senior partner Henry Cornell. "We were a founding investor in Vault, and our additional investment is a testament to our confidence in the Company's business model," added HSCM founder and managing partner Michael Millette."

Thanks for posting that great discussion and the podcast. Didn't have the podcast on my list. I like his speculation on the Q3 $12 billion common stock buy looking at the energy patch and the clues in the filing. i guess we'll know tomorrow AM as 13F are posted. On Apple, i always held the view that its outperformance in 2020 had increased Buffet's margin of safety and pushed the envelope on the upper end of his perceived intrinsic value, thus Buffet is and will be more aggressive on buybacks. I think that it is evident listening to Bloomstrain how he was explaining that Berkshire buyback's are at increasingly higher costs (latest batch in October). Not mentioned in the podcast, the hardening of the insurance cycle that gets talked about a lot in the Fairfax threads, applies to Berkshire as well. if the corporate Omaha is seeing that in the same way, than more the reason to buyback shares before that tailwind fully develops.

Fair enough, but investment is not only about going with the right business and getting management right. There is also about position sizing. If Berkshire can average-up on Apple or average-down on Bank of America, overtime, there is no excuse for FFH. I understand this might have been a direct sale from previous owner and then a buy from the market. Surely the downside of one big buy on a highly cyclical business overwhelm the upside of any savings that might come from buying direct from the seller in this case.

Not unhealthy from the outside from where i am sitting, but in someways, i see Prem taking a big chunk of the stock in summer, as a validation that Fairfax is him, and he is Fairfax and he is going to right the ship and that it will be his strategy. I don't see him buying the stock that big (no matter how under valued it was) if other 'rising star(s)' was slowly taking over the going forward corporate strategy.

Maybe it is a name that folks here are familiar. "Bosch" on Prime. From producers of "The Wire" and some of the same actors. Great detective show. It was good enough in stopping me from watching The Boyz, which itself was great.

Pete, I am going to immortalize this quote. 11/13/2020 I admit, and I dont know the name, very well, but just the fact it lost +50% of its value, before the pandemic puts the whole 'margin of safety' thing about that framework of valuation into great doubt, in my opinion.

In my opinion they will sell Vault Insurance. Wild guess