Xerxes
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Posts posted by Xerxes
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General Electric is far more possible than Boeing, IMHO.
Larry Culp cut his teeth at Danaher and he is well known name.
Its aviation exposure is an actual positive with the recovery in Aftermarket and 737 MAX pulling its weight on production side. Think about it. The bulk of commercial aircraft flying out there either have engines from GE, Pratt & Whitney, Rolls-Royce or Safran. With the first two + Safran dominating the narrow-body market.
Its health care is a positive as well. The big question mark were on its Power division (they wrote off the bad part of Alstom) and GE Capital, the latter is being dismantled completely except for financing that is needed to supports its industrial operations. Its renewables (which i dont know much about) can only be a positive.
In 2012, GE Capital was 31% of revenues now it is less than 10%.
Aviation was 13% of sales in 2012 and now it is 34%. Long term debt has gone down from $220 billion to ~$60 billion.
I think General Electric will rip and will ride the opening economy and rotation to value trade.
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There is an old one.
not aware of a new one
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Needs to compound 14% per annum to get to that. At a minimum he needs to get there with all the tailwinds that we talked about, theoretically.
If he cannot go over 15% in the next few years to make up for the last few years, the long term growth rate will never average around 15%.
the first few years ought to be easy, given that he is starting off a low base.
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On the question about luck or not.
I tend to agree with the camp says luck is part of the equation.
Prem had a long string of being unlucky in some bets. After the fact, of course we can piece together a story that explain that the initial bet was wrong and has nothing to do with being unlucky and it was so obvious etc. etc.
i see it as he tends to have lumpy results, he also tends to have lumpiness in his luckiness.
If Covid was the pinnacle of bad luck and how it affected almost all of his businesses (even the venerable airport in Bangalore), than he is allowed to have the rising tide of rotation value lifting all of his boats in late 2021-22, and have the rising tide of technology help him out with some of his more tech oriented names (few that are).
Lastly, when one invest, one does need to believe that things will be different. It is an obvious statement to make, i know, but one that i have to say to myself all the time.
On FFH, i am capped by what i can put in my RRSP, i bought what i could with 60% of current shares bought post-March 2020 and 1/3 of my FIH shares bought below $10 USD.
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FFH needs to understand who they and who they are not. They are not an operating business managing the left hand side of the balance sheet of their investments. That is not in their DNA. They are not Brookfield and they will never be. Brookfield came from the operating side and now is in asset management business. FFH' expertise when it comes to investment, is the financial aspect of it. I have seen a lot of engineers that go do an MBA (myself included) but never seen a person with a B.-Commerce go do an Masters in engineering.
I was listening to Brookfield Business Partners conference call for Q4. Brookfield is a complicated beast to understand, but really each of the subs on their own are doing exactly what they need to do, without going too much outside their area of competence. How amazing is that.
"The strong cash flows generated by our largest businesses also provide us recurring distributions that we use to fund our growth. As an example, at year-end, Westinghouse paid a $265 million dividend, of which BBU received $115 million. Later, Denis is going to talk more about what's going on at Westinghouse, but I'll just say this continues to be a phenomenal investment for us. In about 2.5 years, and importantly, with no increase to Westinghouse's debt levels, BBU has received more than $370 million in dividends, which is nearly all of our initial equity investment, just 2.5 years ago. Westinghouse truly is a great cash generator."
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They got to get this on Prime Time either on WSB or ARKK.
Why is it that they cannot disclose how much FFH will have post offering.
"Immediately following the Closing, the Fairfax Shareholders will, directly or
indirectly, have an approximate % interest in our Company through
ownership of, or control or direction over Common Shares. If the
Over-Allotment Option is exercised by the Underwriters in full, the Fairfax
Shareholders will, directly or indirectly, have an approximate %
interest in our Company through ownership of, or control or direction over,
Common Shares. The Fairfax Shareholders will have a significant
influence over us "
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i would be shocked if it was Boeing.
Of all the assets in aerospace that entity is the one you don't want to own. It has the brand, but shareholders will be taking the backseat on that asset for a longggggg while, after being showered by tens billions in the past decade.
Total of $43 billions returned via buyback since 2010.
Total of $25 billions returned as dividend since 2010.
On a cumulative free cash flow of $59 billion since 2010.
Long term debt is up from $9 billion (pre-MAX) to +$60 billion today (yes a whole bunch of its cash on B/S).
Far better, to own tier 1 assets that get their revenues in MRO and Aftermarket, than Boeing which is dependent on production delivery. Aftermarket will recover when the flight returns en masse, production deliveries will still trickle.
Lastly, in this multi-decade zero sum game that is being played between Boeing and Airbus, the former has lost this round big time. I believe the ramification will be multi-decade. As a trade, BA is probably ok, but as a long term pillar of Berkshire, i am not so certain.
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Results of the Poll:
hares/convert not sold and puts to expensive to buy significantly (partially done)
2 (2.1%)
Shares/convert not sold and and no counterparty to sell significant calls to (partially done)
0 (0%)
Redeem the converts and sold; but did not sell any of the original common shares
4 (4.3%)
Was able to buy(sell) ~50 million shares worth of puts(calls) on the position
10 (10.6%)
Sold the common shares partially (~25 million shares); kept the converts untouched; no derivative was used
9 (9.6%)
Shares/convert not sold; Used swapped contracts to lock-in some gains (but not meaningful)
7 (7.4%)
Did absolutely nothing
59 (62.8%)
WILD CARD: bought more on its way up
3 (3.2%)
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Based on John Chen's compensation package, I doubt he will dilute shareholders as his goal is to get this stock in the USD$30 range.
Even if Fairfax doesn't do something directly, BB can do a raise of $1B or something and secure their balance sheet. That would also help Fairfax indirectly. Cheers!
Chen has a fiduciary duty to do what is right for his shareholders.
Doing a giant stock offering is not in those interest, agreed, but i think there is happy medium where he can re-fuel his capital allocation tank and that would serve his shareholder and himself just fine. And that would greatly benefit Blackberry, its sets of optionality, and by extension its long term holder. At current valuation of $7 billion, he can raise $1 billion or less at current price. That would ~60 or so million shares.
I think BB outstanding shares is 562 million. So 622 million post offering. 10% dilution for additional optionality is worth it.
Money needs to be raised when you don't need it (And i think BB needs it) and when cost of equity is lower, ... not when you really need it and desperate for it. If the latter, than Prem Watsa is going to get more good deal with more convertibles. That would make me, a FFH shareholder and no longer a BB shareholder, happy, but at the same time there is limits to that, given that Prem is also a long term owner of the common shares as well. And if he really believes in that, his intention shouldn't be extracting more cash flow in interest payment to the detriment of Blackberry. There is a point i think, the long term ownership comes into conflict with short term ownership. And I think we saw that when the convertibles were re-priced/re-structured in 2020.
Long point made short, and quoting Buffet (perhaps butchering a great quote}: "[bB] should be so well capitalized that it shouldn't even rely on generosity of friends [FFH], let alone strangers [sharks] in times of need"
PS: I think the current support on BB shares are encouraging in the market, assuming it is not a short covering.
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I fully expect the Omaha team to keep buying at a higher and higher price.
The pandemic re baselined pretty much everything, and we are now on a trajectory that will see the world economies (Western anyways) open up late 2021 and 2022. A lot of money has been piling up in the consumer wallet pushing up saving rate to the highest. Supply is expanding given the billions that the Governments is ploughing in aids while demand being pushed to the right with the shutdown. Net effect: very high saving rate and hundreds of billions bubbling up.
Late in the year, those hundreds of billions will come out of deposit accounts and frothy financial assets and will hit the real economy when it opens up. Driving the mother of all GDP rebound, igniting inflation in goods and services and so on and so forward. The longer the shutdown (Western economies compared to Eastern economies), the mightier the rebound and the pent-up demand.
With that logic in mind, that GDP rebound will drive the real economy and its locomotive will start moving, and with it the other 495 companies in the S&P500, while the FANGS take a break as their earning catch up to valuations. Berkshire and Fairfax (more so FFH due to its international exposure) will both do well, which makes their respective pre-"GDP rebound" valuation cheap compared to what is to come.
Berkshire may be huge, but a broad-based giant GDP rebound will move needle on that beast and will awaken the sleeping giant.
And what could be a better bet for Berkshire than itself in that type of environment.
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That would probably be few hundreds million of realized gains on shorts and good amount of unrealized on the common and converts if the current price holds up till the end of March 31.
BB next quarterly result will be in March, so more actual data point then.
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Folks, what do you think FFH did with Blackberry ?
You got 5 days to cast your vote.
Don't take it too seriously.
Let's see if the team here know how Prem Watsa & co. think.
I admit it was a difficult hand even though it was to the upside.
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Fear not my 'value' brethren, BB is still up 50% since early Jan !!!
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Agree .... ^^
My question to myself would have been, knowing this is a bubble in the BB name, who would want to take the counter-party risk to those put options and sell those to FFH. But then i figured it must be a market maker that would be short BB at the same time as it would be selling puts to FFH.
And i think this is absolutely way the right way to use derivative for FFH, use them seldom and against individual name that you know deeply well on isolated situations. Precision is the key.
What is always back of my mind is the following nightmare and specifically what happened in 2013, where i think the long bets (J&J, Bancorps etc.) were liquidated to offset the realized losses. Even if the shorts worked, than those gains would have been offsetting the longs that were crushed by a downturn. A broadly applied short on a long portfolio just puts you in a trading range. No gain and no losses either. A precision short can deliver good return on some occasion, more than enough to to offset the times it didn't.
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 (through Q3): ($327) million
Realized Long
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 (through Q3): $371 million
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They also want the sale proceeds from Riverstone in the account so they can buy a significant amount of shares back well below book value. This would be huge for Fairfax....BB win was not even in my look at what Fairfax has coming...Farmers edge IPO...AGT...they could buy 10% of their shares back in the next few months if volumes are there and the share price cooperates (discount to book).
When i am buying something that i really want, but that takes liquidity but has a limited-time deep discount, i use my line of credit, then pay it back a month later when the paycheck is coming. Cash flow management is nothing new.
Nothing stops FFH to do its buyback using its credit line and pay it back when the cash is received from Riverstone's sale, if buyback in Q1 is their intention. If it is not, then it is not.
In exactly 2 weeks time, FFH shares will either get really cheap (i.e. cheaper) (if perceived that management screwed up its diamond-hands when it came on BB) .... or FFH will soar a lot if perceived they put the right trade in place.
It is one thing for Prem Watsa adhering to deep value and not giving up on that framework ... it is entirely another thing for the same deep-value minded person choosing not lock-in profit in some fashion (partially at least). In my opinion, public investors while they can have an opinion, they cannot complain about Prem use of deep-value, after all, they can chose not to buy FFH shares, .... but if Prem would fails to lock in profit in some fashion, than i think public investors have a right to be really concerned. After all they all chose to come to FFH and get a seat in the Deep Value Church, and not the YOLO/#NeverSell Church.
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When a crash happens, it is always (I think) a liquidity shortage event. So that is why all stocks and even gold go down and US Dollar goes up (followed by Japanese Yen due to the carry, Swiss Frank (the haven)). Even Bitcoin will go down, specially now that it has been institutionalized (meaning there is leverage at play). A cross-asset correlation of well diversified portfolio goes straight to 1.
I think one's best bet is to be provider of liquidity in a market crash, but on the way down, i don't there is something that will soar in value (short of a put option that is extremely well times or one of those insurance type black swan product that we only talk about it when bad things happen).
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Last year on Jan 31, it announced the date for Q4 conference call which was in mid-Feb. So tomorrow there will be the date announcement for Q4 results but that is it i think. Not sure if there is black out period before which they cannot say more than that.
I am half glass full type of person, so i am thinking he is busy with the buybacks, so he cannot really announce anything on BB that would tip his hand, either way. :-)
Unrelated, i saw on the news that OMERS used the Reddit rally as an opportunity to exit on a shopping mall investment that was underwater. And said: "We’ve been a long-term investor with Macerich and throughout this relationship they have been a valued partner,” Dan Madge, a spokesman for the Teachers fund, said in a written statement. “Moving forward, we are focused on scaling and diversifying our global real estate platform, and growing our existing Canadian real estate business."
https://finance.yahoo.com/news/reddit-fever-ignites-mall-stock-020810263.html
It amazes me the reputation Prem has built, that given the current BB setup, there is significant doubt on whether he will capitalize on this situation.
Right on !
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HODL?!?
;D
Hold the Door, Hold the Door, Holdroor, Holdoor, Hold'or, Holder, Holdor
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Thanks
While i agree with the view that when this happen correlation will go to 1 on any diversified portfolio, i think to your point value should fall less.
How likely it is that FFH, BRK and for that matter BAM or ONEX, will deploy their firepower in a potential prolonged 50% drop in the stock market. That is what i was expecting in the bear market in March 2020; i can understand now why that didn't happen given how the pandemic did/might affected their insurance and some operating businesses.
But a classical market crash with a prolonged bear market with a 40-50% drop is what these capital allocators live for ? would you say equity allocation of say FFH's $40 billion will grew beyond a $4-5 billion that is today ?
How likely to deploy in a prolonged bear market of 50+%? I'd say the odds are VERY high.
Not comparable to 2020 because 1-month of being down only 35% from the peak before a massive recovery despite incredible earnings and balance sheet damage hardly screams "deal of the century" to me.
But in a prolonged 50% draw down over 12-18 months, similar to 2008/2009 or 2000-2002? Yea, I think they have red the time to assess the outlook and who is cheap relative to that outlook, and put money to work.
And i think BRK/FFH shareholders would need to stomach 40-50% drop, but a sharp rebound if and when it deploys its fire power to fuel up on opportunities. But the market has to fall enough.
Just listened to RTX conference call, although their are bearish for Q1, for Q2, Q3 and Q4, they are seeing compounded 10% increase quarter over quarter in the Aftermarket. That tells me that at least for industrial the reflation trade is very real, eventhough some segment of the market has gone crazy.
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Thunder strike twice for FFH
They missed to sell some on Monday .... Today is your day
How do you know they missed on Monday?
apologies; typo
i meant to put "if they missed"
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Thunder strike twice for FFH
They missed to sell some on Monday .... Today is your day
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It will be very interesting to see what Fairfax does or has done.
Given the trading action in BB and other names, who knows where BB's share price will go and how fast. It could be $40 or $50 next week. That would normally seem preposterous, but now, not so much.
So long as Prem and Fairfax have some rational plan and explanation, that is fine with me. It is unlikely that they pick the top. If it goes to $40, it would be hard to complain if they trimmed the position at $15, $18 or $20.
On the other hand, as the price goes higher, the argument for holding the full position grows weaker.
In fact, John Chen will hit his compensation and can retire early without finishing the job.
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Assuming the cost base of $10 USD in 2013 as an approximation for cost (not including convertible), it would take a 10% compounded year-over-year to bring it to $21 USD in the current year.
10% compounded would mean $21 USD by close 2021
15% compounded would mean $30 USD by close 2021
20% compounded would mean $42 USD by close 2021
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Thanks
While i agree with the view that when this happen correlation will go to 1 on any diversified portfolio, i think to your point value should fall less.
How likely it is that FFH, BRK and for that matter BAM or ONEX, will deploy their firepower in a potential prolonged 50% drop in the stock market. That is what i was expecting in the bear market in March 2020; i can understand now why that didn't happen given how the pandemic did/might affected their insurance and some operating businesses.
But a classical market crash with a prolonged bear market with a 40-50% drop is what these capital allocators live for ? would you say equity allocation of say FFH's $40 billion will grew beyond a $4-5 billion that is today ?
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Parsad
we are barely up with FFH and/or other value names, and now you are already expecting a 50% drop from here ! :-)
Mystery Berkshire Investment
in Berkshire Hathaway
Posted
Agreed.
Don't get be wrong, I believe Boeing is great American icon and will survive and do great things.
It is just that i don't see Buffet being interested in a company where shareholders have to take the back seat to bondholders for time being (counted in years).