Xerxes

I got to remind myself, with meaningful share buybacks, you don't need to double market capitalization to double the share price. Not to say that it will get there, but just saying.

On the comments about letter being rather empty given the eventful year we had, i kind of felt that aspect of the letter, given all the stuff that happened in 2020, made the Berkshire actually look timeless and durable for decades to come. Not to say that the tragedies were just a blip. Just my impression. I bet neither Bruce Flatt nor Prem Watsa could get away by writing a letter like that. They are still in prove-me mode. On BHE, me too, don't know much about it, other than it is gobbling cash flows for god knows what. Sounds like they are building the next Death Star.

Had a read through it just now. Good letter. I like the bits about middle America. I view the buybacks to be more a testament on the directionality of the economy, and less so on BRK itself being cheap. Said differently, no matter how cheap BRK would be, they would not go in significantly and consistently with buybacks quarter after quarter if the worse was about to come on the macro front. I had maintained the view that (1) the pandemic provided a re-baseline view, from which Omaha now has an economic vector to work with, which it didn't have back in 2018, when first the buyback limits were lifted; (2) unrealized gain on Apple, provided a mental equity base and a much larger margin of safety No doubt, sceptic would point to March-April 2020, and how BRK is buying back at higher highs but it didnt buy en masse then.

A pack of cigarette could be a medium of exchange in a prison (i.e. currency), but it cannot be used to pay taxes. Outside the prison, the pack of cigarette has competition and alternative in its role as a medium of exchange, so it looses its 'shine' and reverts to only being something to be consumed. Fiat currency (be it digital or paper) is just the most convenient use case because everybody accepts it. I see BTC as the digital commodity. I am in that camp as oppose to the currency camp. Anybody has good suggestion on books on the topic, please let me know I finished reading Digital Gold (came back in 2015 i think) and bought Blockchain Revolution.

So, it's good if FFH can IPO these outfits and book a gain. It pushes up their equity number and gives a bit of slack on the revolving credit facility covenants. It might even enable some of the insurance subs to increase their underwriting volume. It also gives a higher profile to those companies which might turn them into acquisition targets in the future (ie, it could facilitate an exit). However, while this will increase reported earnings, it looks like there will once again be a bit of a quality of earnings issue in 2021. If all four IPOs come to fruition during 2021, it will likely give the appearance of high earnings, but clearly this is not something which is repeatable every year, nor do the "earnings" from these exercises result in any cash that can be used by the holdco for debt repayment, dividends or share buybacks. While the gains are a credit to management and reflect good decisions made in the past, when thinking about the longer term valuation of FFH, it might become important during 2021 to use some sort of adjusted income number. It's a good outcome, but it will definitely muddy the accounting numbers for the next year or two. SJ Stubble, i like many things about what Fairfax is doing with the IPO process: 1.) additional disclosure provided on companies and their business models 2.) significant funds raised from IPO will help companies be successful in future 3.) timing of IPO’s is very opportunistic (given high demand) and look to be at premium valuations 4.) significant funds raised from IPO will hopefully eliminate need for Fairfax to provide any further funding in future. This is a big deal and should help cash flow at Fairfax moving forward. 5.) with shares publicly traded Fairfax will have mechanism to exit more of position in future if that is what they want to do 6.) post IPO, with shares publicly traded, investors will have much better visibility into valuation of Fairfax’s many equity holdings (and reported BV) Absolutely right. The point about cash flows is huge. These things can now grow without imperilling Fairfax's ability to do the same. It's true that earnings are overstated when there is a gain. But equally they are understated when there isn't one (hopefully). Personally I think it's wiser to value this using book value and a sense of what X% CR + Y% investment returns - holdco costs could yield on average over time. I no longer worry about cash at the holdco. Prem has proven that whether it is outright (Riverstone UK) or via the discount window at his personal LOLR (OMERS) he can access cash by selling stakes pretty much whenever he wants. And crucially, he can do it well above BV, which "underwrites" the goodwill at the holdco. Disagree on #4. Prem had mentioned during the depth of the Covid crisis that holding company had no need to fund/finance non-insurance operations and businesses. If those assets didnt need funding in the worse of time, surely they dont need funding from FFH's balance sheet in the best of time. So, based on this, i don't think there is significant saving on cash flow usage because of the IPOs. The most signifcant operational use of cash flow at holding company level was the capitalization of the insurance company, which Prem declared it to be compelete in the Q4 call few weeks ago. That said, the IPO will allow these companies to fund their growth from a new avenue (capital market) than just internally. As far as book value one-time gain in Q1, so be it. It is an insurance/investment firm, the lumpiness will always be there even if it is paper gain.

I CANNOT recommend Yellowstone enough ! (on Prime) I like midwestern folks, my type of people, even though i have a liberal tilt

Great we are going to have some "hot air" being marked-to-market on March 31. As long as it stays hot, i am all good.

Yes, this is good. They definitely needed to get some cash into the holdco and stop relying on revolving credit to fund the company's operations. It is noteworthy that this is a relatively large debt issuance for FFH and the interest rate is considerably lower at 3.95%. I have expressed misgivings in the past about FFH failing to deleverage, and this does not really change the fact that they are more leveraged than I would like and their risk management has been disappointing at times. But, it's a positive step towards at least managing their maturities and reducing the routine reliance on that revolver. SJ i think the proceeds are going entirely to refinance old debt .. and not pay back the revolver. i think Prem did mention that the revolve will be paid via proceeds from asset sale

Great discussion with J. Currie https://www.bloomberg.com/news/videos/2020-12-17/goldman-s-currie-sees-tell-tale-signs-of-commodity-super-cycle-video Going back to the reasons as to why we had such a long bull market in bonds, economist typically point to three major points: 1 - deflationary nature of technology 2 - changing in demographic, the baby-boomers hitting peak salary in the past few decades, therefore in aggregate creating a surplus of capital at about the time when the demand for capital was diminishing (point below) 3 - last couple of decades most of the investment has been in information technology sector that doesn't require as much capital as CAPEX heavy old economy. Therefore less capital was needed, putting downward pressure on rates. I think going forward, (1) still is in play more than ever, but (2) will flip as old economy + infrastructure that have been starved for capital need major investment

Awesome interview with Grantham. Longer than the one on Bloomberg Front Row, and more interesting. The part about the comment people left for him after Front Row is pretty funny. For a value investor he has a good sense of humor, in fact i think funnier than Bloomstran's humour. https://podcasts.apple.com/gb/podcast/jeremy-grantham-uncertain-crisis-invest-like-best-ep/id1154105909?i=1000477283884

ICUMD My view has been that both FIH and ex-FAH were more investment firm with permanent capital that could really make additional investment either by (1) selling another holding (2) issuing equity. The latter was out of option given the huge discount and if you are riding a macro wave, it doesn't makes sense also to sell a holding that has long term potential. Flipping asset makes more sense in a more developed economies. The missing key has been third-party fee, which now they are getting through their revamped African business re-named Helios, and hopefully through something similar with Anchorage. Major difference between the two but ultimate aim is to get that fee machine going.

So, the general idea is that we had a four-decade bull market (1980 through say 2020 for simplicity). And for argument sake let's say we will have a slow grinding bear market over the next 40 years (2020 through 2060). Fairfax long term view was that the bull market ended (or was soon to end) when they switched out in 2016, and have been keeping on the short end only. After a few false start, (i.e. The initial stages of the pandemic contributed to the pause on the narrative), lets say it is now slowly heading that way. I understand if they were to stay on the short end, they will float like a boat and ride that wave, while never having material exposure to capital loss. But at some point, let's say 20 years from now for illustration's sake, they will gradually lock in because they perceive that the rate has peaked. That "lock-in" itself could be 20 years too early, if the actual peak rate arrives in 2060. That is what I meant. These long term interest rate movements are very long term and very gradual, where you could be in the middle inning of what is actually a larger first inning (i.e an inning within inning). Think these are very much outside the scope of most observers. Even now, only in hindsight, economists are looking back to explain why we had a 40 years long drop in interest rate. But maybe none of this matters, because by then we wont be around anyways i think and/or already enjoying retirement on Planet Mars, thanks to SpaceX-Tesla consortium.

well said !

I think he is smart, hardworking but at time abrasive and in search of deciding who he is in this world. Just like Social Capital is going through different stages, so is he. He definitely looking in his own way after the retail with "All about retail" being his battle-cry. That is fair. That said the power of Twitter platform can be intoxicating, hence my comment about sheep and the Messiah. Just personally, I prefer people who keep their heads down, and just do a good job and are being good citizen. Let the society recognize you for your past good deeds, rather you needing to buy goodwill via buying call options. Goodwill acquired through derivative instrument tend to have a decaying time premium to it.

All these celebrities treat their Twitter followers like sheep and themselves like a Messiah of a sort.

wow 4x the current interest/dividend income over a long i imagine and over much larger float? As an newbie on the topic, the way i see it, the think with a long-term bear market in bonds, is that as interest rate slowly go up, and if any fixed-income investor decide to lock in those higher rate, while they naturally get higher income, they also automatically expose themselves to incur long-term unrealized capital losses as decade goes by and interest rate continues to grind higher. It is much easier to be in a long-term bull market in bonds.

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.

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.

Thanks I can save on my printer

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.

This a great point of view on BRK 13F. https://www.cnbc.com/video/2021/02/19/josh-brown-why-berkshires-stock-moves-arent-relevant-to-investors-anymore.html 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.

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.

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.

I wonder if he visits here at all. Sanjeev should recruit him ;D LOL indeed