Xerxes
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Posts posted by Xerxes
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That is an interesting way to look at:
"Pre-tax operating earnings for nine months (excluding the $10.6 billion pre-tax write-down at Precision, which lowers book
value by $10.4 billion – writing-down goodwill is not tax deductible) amounted to $19.4 billion. So,
Berkshire spent over 80% of operating profit repurchasing shares at an average price 15% below where
they opened the year and at 105% of average book value per share. Right, the guy is washed out."
Given that most folks (in the media, here and myself included) tend to compare the size of the buyback to the size of cash pile.
The way he is saying is that 4/5 of excess cash was being used for buybacks. This view however implies that Buffet does not use the same mental bucket for buyback vs. other large M&A.
Buybacks are "funded" through operating earning.
Any M&As (large or small) are "funded" through the balance sheet.
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Skip his monetary policy/Fed section ("The Point of No Return") - he clearly doesn't understand how any of this works.
wabuffo
Thanks
I can save on my printer
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Just based on how confident he sounded on Q4 call, the complete lack information he provided on BB, and having the mechanics in place to do something, plus a healthy dosage of value investor mentality (must squeeze when overvalued), i think we can be fairly certain that he found a way to squeeze the BB lemon.
What i do want to see is the same TRS treatment on Stelco and Resolute (on the long side), since it is unlikely that he would have added to the shares.
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This a great point of view on BRK 13F.
Personally, I feel that Buffet is doing what he likes best. Reading and investing all with pocket money, none of those moves says much to an outsider looking in, ... but every now and then, he goes back to work, rolls up his sleeves, and knocks it out of the park with an Apple giant-size bet ... but then reverts back to his side activity of medium-term trading.
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I got a silly idea,
Why can DFV not be nominated as candidate for the next edition of the book Greatest Trade Ever.
They even gave a nod I think to B Ackman with a column in Barron's with his shorts.
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What I find a bit suspect is that he obviously knew the stock became way overvalued but still held on and kept cheerleading the stock. He's a smart guy so he must have known the dynamics of what was going on. So while I don't think he went into this trying to engineer a short squeeze he certainly rode it for all it was worth and encouraged others to do so.
I think the short squeeze could have been a lot worse had Robinhood didn't what i did. Looking back now, listening to some commentaries, it seemed that the wobbling in the S&P500 in January may have at least had some relation to the infinite squeeze that didnt but could happen. Like a vortex that what just slightly pulling the carpet (S&P500), due to the hedge fund leverage. Sure, this is a lot bigger than GameStop, but as El-Elrian said today at Bloomberg, market was smelling and was trying front run hedge fund who wanted to make a dash for liquidity. I'll try to find the stat of the out of wack the position where. I realize it is silly to think that such a irrelevant company (GameStop) could cause the almighty S&P500 to wobble.
On DFV, i think due to the unneeded popularity that this caused (and because he is a nice person) he felt obligated toward his Brethren and not just dump his shares.
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This guy is genuine, he deserves every penny of his gain (sorry, should say, he deserves every million of his gain)
I'll trade him for 1,000 Chamath anyday. And other high-IQ all-about-me characters that seem to be everywhere now in the investment world.
If ever retail investor community needed a face as public ambassador, his would be the right one.
Just a working man. I like that.
My only regret he wasn't on this board and decided to be on Reddit.
Opportunity cost for sure, but it is not like I would have invested in GameStop (would have put that in the value-trap pile)
I wonder if he visits here at all. Sanjeev should recruit him ;D
LOL indeed
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This is a great clip that was posted elsewhere. Just watched it now.
Somehow 6 months of discussion in this forum were condensed into 1 hour and delivered superbly.
I think it belongs here.
https://moiglobal.com/jeffrey-stacey-202101/
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Allow Xerxes to reveal to you an new way to measure FFH's rising intrinsic value. In this very forum, there were:
- 50 pages in the 2021 FFH Thread; and we are not even in March
- 88 pages in the 2020 FFH Thread
- 14 pages in the 2019 FFH Thread
- 51 pages in the 2018 FFH Thread
- 16 pages in the 2017 FFH Thread
If this is not a technical bullish signal from the Faithful populating this forum, then i don't know what is.
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This guy is genuine, he deserves every penny of his gain (sorry, should say, he deserves every million of his gain)
I'll trade him for 1,000 Chamath anyday. And other high-IQ all-about-me characters that seem to be everywhere now in the investment world.
If ever retail investor community needed a face as public ambassador, his would be the right one.
Just a working man. I like that.
My only regret he wasn't on this board and decided to be on Reddit.
Opportunity cost for sure, but it is not like I would have invested in GameStop (would have put that in the value-trap pile)
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Was kind of wishing these could be a much bigger part of Berkshire.
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Seeing FFH is shooting up on the same day that BB plunges, i think, in some weird way indicative that the market is looking past all these little noise about movement of equity holdings quarter to quarter and looking at the whole picture.
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I think you're probably wrong about corporate adoption. I certainly think it'll take time for it to become "mainstream", but Saylor just hosted an event where apparently hundreds of corporate executives were in attendance with the sole topic of the event being "how to adopt Bitcoin in your business". Whether as a means of payment, a treasury asset, or as a business plan.
I don't think that the adoption rate will be 0% from that event given that it was self selecting audience with executives already interested being in attendance. You probably won't see $500 million or $1B purchases from most of them, but a handful of $100-200 million purchases would still be meaningful.
And the thing about these companies adding it for their balance sheet means that generally it's removed from supply in the intermediate term - this further squeezes a market that is defined by it's scarcity.
My thesis for the last several months was that prices had to go higher to satisfy even a small amount of corporate adoption - we're now up 400+% since PayPal announced it's adoption 4 months ago. Do I think it goes higher? Yes. Will we see 400% over the next 4 months? Doubtful.
The other consideration is asset management. Asset managers can afford to take a flyer on a 1% position on something that his this level of beta. 1% of AUM at several asset managers would still be representative of billions in demand.
Hard to be as excited today as I was when it was 10k, but historical booms have all been more than 10x events from where they started accelerating. We're only at ~4x from where this one started taking off so I think there's more juice over the next 12-18 months.
Thanks
What i did was to sell MSTR this morning north of $1,000 per share. Wish did that last Tuesday when it soared to $1200.
Need the dry power in my TFSA for other things. Outside my TFSA, i added more to that pile. So sold it at the premium, and bought the underlying.
I prefer the direct exposure. That said, happy about multi-bagger that MSTR was in the past 6 weeks.
MSTR was a very unique case, because it had such a low market cap and an outsize bitcoin position that gave it a high-torque, and with a rich premium to the underlying.
You wont get that with Square' $50 million investment on its balance sheet against its giant market cap.
I just think that there has to be reaction when the capital flows out of "sponges" back to the real economy, when the world re-opens.
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I posted this in the MSTR section. Appreciate any comment/feedback from the crypto-to-the-moon crowd:
"While all the pro-Bitcoin argument are valid, being deflationary and good hedge etc. etc. The reality is that today as it stands, Bitcoin represents the apogee of liquidity excesses. The real test is when the economy open and tens of billions move from financial assets into the real economy. If Bitcoin can hold itself and go up in that re-opening economy environment with the 10-year bond yield marching higher, I would say it past the ultimate test.
The argument that the M2-expanding-money bulls are making is neglecting that key event. Right now, i think it acts as sponge for excess liquidity and in fact maybe the very manifestation of those excesses. That is not to say the bull case is wrong. I just think it is about to get tested. Somehow I tripled that investment over a month and half and in my non-tax account I don't have unlimited capacity. So need dry powder by selling inflated assets. I still hold some exposure outside my non-tax account on BTC, so there is that.
Lastly, while the BTC payment adoption is getting traction, I may be wrong, but I don't see another major corporation to convert its treasury to Bitcoin, unless captained by a maverick like Musk or Saylor. Both UBER and Paypal are happy to have BTC as an interface but have no interest to have balance sheet exposure to it. The one company that I think will do it is Oracle. It has a lost of free cash flow, and the CEO is maverick and a going against the trend like Musk and Saylor.
If anyone has feedback on these thoughts would be appreciated"
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Viking,
We need to give an award to you and the rest of the team here for the very detailed analysis you guys provide.
Some years in the future, I think we can move away from BV as the measure of Fairfax's intrinsic value. I think BV has a purpose as a proxy when looking as a floor, but when it comes to growth potential of FFH' many franchises, I think that proxy understates its potential.
For instance how is India' massive growth potential to the entire Fairfax operations captured in the backward looking book value or for that matter how is the growth in the insurance businesses (the upswing due to hardening cycle) captured in the book value and of course the associates are captured in the BV only when FFH' portion of the associates' earning (net of dividends) flows through its income statement (i.e. you don't register the upswing in the stock price that is discounting future growth). I think these are the elements that makes FFH an interesting holding, cheap compared to its growth potential and disguised as a mere insurance name and valued as such via antiquated accounting book value.
On a different note, let me throw a question to the team here:
You all know what i think about RFP and Stelco from a position sizing and timing point of view when FFH first got in. The pandemic gave a front-loaded energy bar to the technology sector and rear-loaded energy bar to the commodity, financials, energy, insurance etc. The word commodity super-cycle is now being uttered. I am not surprised at all. It all goes hand in hand with low US Dollar, the rise of emerging market, the CAPEX holiday O&G sector had, and the mother of all pent up demand (synchronized at that) etc etc. People are going to LIVE and spend like there is no tomorrow.
We know that Fairfax did not add to its existing RFP and Stelco positions because they were already large enough and they didnt have the dollars. But I bet they are savvy enough to see the same trend that might be in fact powering these two dormant positions. Knowing what we know about their use of Total Return Swap on their shares, is it not inconceivable that they also entered TRS positions on these two commodity related names, using minimal outlay by getting extra juice ?
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This was posted before, but best to be posted here.
Druckenmiller comment about this is not 1999 makes it related and no can accuse Druckenmiller of not seeing many cycles as he is more a bear.
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I listened to this interview on Friday.
At that time it was called "King of SPACS, Chamath wants you to know that he is the next Warren Buffet"
Today the title is changed to "All things Chamath"
My guess is Bloomberg got a call from Chamath that went like this: "Hey guys, the point of this interview was to make me look more like human and less of an a-hole. Can you please change the video title to something more humble"
Btw, Erik, the Bloomberg interviewer, is an amazing interviewer.
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I get a feeling that OMERS got diamond hands when it comes to holding on those limbs
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Hard to say.
My way of explaining that to myself is that Prem and his close associates probably have a limited bandwidth with all the stuff and operations that they are managing. Afterall it is a company and not a nimble investment fund so perhaps it all happened to fast (same for Markel and BRK), so their gut reaction was survival, as oppose to profiting on the downside.
I am ok with that and can understand. My issue is post-crash, the only shorts that were losing money were anything related to technology. So if you lost money on shorts, that could only mean you were shorting technology names.
In any case, water under the bridge.
Good news is that while the OTHER segment shows a realized loss of $542 million, it also shows a unrealized of $449 million. Which means they capped their losses at $542 million, but carrying the upside into Q1.
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Time to update these tables:
REALIZED LONGS
2011: $703 million (equity) + $424 million (bond)
2012: $470 million (equity) + $566 million (bond)
2013: $1,324 million (equity) + $65 million (bond)
2014: $596 million (equity) + $103 million (bond)
2015: $818 million (equity) + $26 million (bond)
2016: ($184) million (equity) + $648 million (bond)
2017: $200 million (equity) + $419 million (bond)
2018: $1,326 million (equity) + $106 million (bond)
2019: $792 million (equity) + ($55) million (bond)
2020: $392 million (equity) + ($102) million (bond)
REALIZED SHORTS
2011: zero
2012: $6.3 million
2013: ($1.350) billion
2014: $13 million
2015: $126 million
2016: ($2.634) billion
2017: ($553) million (almost all of it in Q4 2017!)
2018: ($248) million
2019: ($20.7) million
2020: ($311+$542*) million *included Other which I believe are the TRS
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Q4 2019 results shows:
An unrealized short of ($154 million).
That tells me that was the snapshot of how the year ended.
In a market, which largely plunged in mid-Feb, they somehow ended up closing Q1 with a ($248) million realized lost in shorts. While having still $122 million unrealized short position open. So that unrealized short of ($154 million) at the end of Q4, somehow exploded into ($248) realized shorts by close of Q1 and with some left over.
There is also the THE OTHER segment, which i think captures their total return swaps. I think when Prem says shorts, he means direct shorts as well as when he uses TRS to short.
Q1: The Other segment had a ($116) realized losses
Q2: The Other segment had a ($249) realized losses
Q3: The Other segment had a ($74) realized losses
Q4: The Other segment had a ($102) realized losses
Total for the year:
($703) million in realized shorts
($542) million in realized losses in the Other segment
That is far cry from where the picture started in at the beginning of 2020.
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Good day folks,
i listened to the conference call and here are my comments. Apologies if i am repeating some stuff already mentioned, i did not read all the posts yet.
Tone of the conference call
Q2 2020: the tone was defiant and bullish; we will survive. I like that conference call.
Q3 2020: the tone was complete nervousness; very cryptic, playing close to the vest
Q4 2020: very cryptic, playing close to the vest but very bullish and confident
Investment return
While folks are focusing on the mark to market bounce back, for me the real jewel was this statement in the conference call. Although not captured in the book value (so not talked about greatly here), this is the market validating Fairfax estimation of these associates' intrinsic value. I think that is great.
At December 31, 2020, our investments in associates had an aggregate fair value that exceeded the carrying values by $712 million. And due to the equity method of accounting for these investments, this excess of fair value over the carrying value is not included in our book value per share. This is a significant positive change from the March 31, 2020, when the aggregate carrying value exceeded the fair values of the investments in associates by approximately $400 million.
In March, aggregate carrying value > fair value by $400 million
In December, aggregate fair value > carrying value by $712 million
13F
I would classify the equity portfolio into two portions. The Atlas, Blackberry, India investment etc (otherwise known as concentrated positions) are the ALPHA investments of Fairfax, while the rest of stock portfolio, which are made of host of random names (to me) as the BETA of the portfolio. I would argue that a good chunk of the mark to market accounting in Q3 and Q4 were due to the BETA portion of the portfolio bouncing back. I think if they were to replace BETA portion of the portfolio with S&P500, they would probably get the same return.
What makes Fairfax so interesting as an investment, is that basket of ALPHA, which makes them at least to me uncorrelated to S&P500, which in turn gets its alpha from its 25% allocation to the FANG names.
I feel that investors need to understand that and need to bear with the captain of the ship. You are here because of the dissimilarities that this name has with the rest of the market. Today, any clown (including yours truly) can make the statement that Amazon is a must have in a portfolio.
Shorts
I, Xerxes, will continue to reserve the right to complain about the shorts. Simply because the captain of ship promised and committed to a set of action in 2016, yet felt seduced by the short-casino again in 2020, and of course doing all of them wrong. I don't believe the shorts in 2020, were all remnants of previous shorts that were somehow unclosed. They were seduced by the dark side. Thank god they got burned. Being right on the shorts in 2008, on one hand provided FFH with a big boost in its book value pull forward from the future but on the other hand gave it the kiss of death, paralyzing them for a decade, in their thinking.
For the year, the amazing return that the fixed-income and the rest of portfolio had was largely undone by the casino-shorts. What is so frustrating is lack of explanation that makes it looks like they lost their mind and mindlessly shorting high growth names because their valuation offends them etc. I don't like shorts, and specially don't like them when the investor is not using the short as a hedge, but as a complement to their base-line thinking. If your company is sensitive to the economy (i.e. cyclical), you will do well if your shorts is against your peers, as oppose to shorting technology names, that had the mother of all tailwinds unleashed by the pandemic.
FFH didnt need to sell one its limb to get some cash for buyback if it didnt lost so much in shorts.
The Rude Gentleman
About the gentleman on the conference call asking for Prem resignation, I would say that his comment were mostly assertion. He should have, instead, challenge why Prem Watsa made a commitment on shorts in 2016 only to go back to it. That would have been a good criticism. To say that an institutional investor doesn't do analysis I think is mostly a guess work. Now, the institutional investor can have poor judgement on some investment, and therefore poor results.
I will add this. Like any other investor, when you have one or two good winners, that tends to expand your set of optionality, with your equity expanding. When you have one or two investment gone bad that tend to limit your set of optionality. That is what happened with FFH, their oxygen was cut off, compounded by weird shorts and therefore unable to act neither in the bull market nor in the bear market in 2020. Watching mostly from the sidelines.
Blackberry
I am ok if they didn't want to disclose anything. I trust that they have the same economic interest as the rest of their shareholders in ensuring that they capture some gains from the recent rally. It would have been nice to know. But I can wait.
That said, that last exchange about how Wade Burton and Roger Lace liquidating their position and the whole insider thing doesn't square well.
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Boeing started its corporate restructuring with the ejection of Muilenburg, a bit more a year ago. Way to early.
GE started its corporate restructuring with the ejection of Immelt, I think about 3 years ago, so few years into the restructuring.
Larry Culp is immensely respected for the work he did at Danaher, and by removing the GE Capital, the last of Jack Welch legacy, General Electric can really go back to its industrial roots.
On MSFT, putting aside Gates & Buffet thing, MSFT alongside AMZN are the two of the FANGS (maybe Netflix too) that have the highest multiples on earning, due to them being leaders in the Cloud category. Why would Buffet invest in a high-multiple MSFT. When he got into Apple late 2016, the multiples was pretty low. If anything it could be Alphabet.
But my guess, is that two months from now once the mystery name is revealed, it will be a name that people cannot really relate to and everybody would be shrugging their shoulders, and the discussion dies. Wasnt Philipps 66 at one time one of the mystery bet he made. No one is taking about it now.
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Parsad
Interestingly, the cure to the valuation gap could be new listing in NYSE.
FFH is no longer the minnow that it was during the hedge fund bear raid, so it might very well benefit from it. Prem might not want to do it due to the history but once all is said and done with the asset monetization, and restructuring and buybacks ... if the discount doesnt narrow to zero considerably that could be the bitter pill to swallow that could fix the discount.
PS: we need to bring in the Americans to close the gap. Always can count on them with their animal spirits unleashed.
But before that, it needs to get ready.
Semper Augustus
in Berkshire Hathaway
Posted
The only authority worth learning from on the Decline penned a total of six volumes on the topic.
I read all six something like 20 years ago, unfortunately as great historical work that was, it was not easy to pin down one element.
As a side note, Asimov's Foundation Trilogy was partially based on Edward Gibbon' work.
Perhaps there is a gem worth exploring in the Foundation Trilogy that can be linked to Fed M2 expansion.