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omagh

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Everything posted by omagh

  1. Buffett is on point in the video. Let's not forget that rail assets are depreciated over a fixed number of years but have asset life that extends well beyond the depreciation period. Most of BNSF's capex in this cycle is done. Furthermore, most of these assets aren't replicable and in an inflationary period, their replicability becomes an even larger hurdle. BHE as a regulated provider can earn a regulated margin above cost which is passed on to the consumer. BHE has ready access to capital (from its parent) and won't be starved out should capital become scarcer (inflation) and will continue to have a lower cost of capital than its competitors (borrows from parent's credit rating). Most of BRK's companies are franchises with moats and provide necessary goods/services. They have some degree of pricing power that will become more evident in an inflationary period. I sleep well.
  2. @Swedish_Compounder Great point that you make here! There are probably a few other factors to consider... https://static.fmgsuite.com/media/documents/2bde00e4-7037-4c39-beb8-9946b2b2dce3.pdf (page 104 onward) Chris Bloomstran suggested that BRK's cash balances are roughly in line with historical levels (~15% of assets). It's doubtful that BRK would have allocated 4-5% annually without giving up some other capital allocation choices. At present, BRK seems to be allocating the remainder of operating earnings less growth capex to share repurchases (per Bloomstran on a podcast if I recall correctly). So, a dip in operating earnings likely means a dip in buybacks. As well, any acquisitions would eat into the available capital and may further eat into any share repurchases. It's very likely that acquisitions would be done in preference to share repurchases. Let's not forget as well, that BRK has the largest asset base in the SP500 which has come about by a combination of acquisitions and growth capex. I've made the point before that the market is underestimating the compounding story in BRK, so it will be a band of stability and (somewhat) unexpected growth in the portfolio for those who hold.
  3. @gfp It doesn't change the narrative. The $51B is the amount repurchased since they started in quantity which for context is more than they spent on AAPL shares. For those who care about the trees instead of the forest, here you go... https://ycharts.com/companies/BRK.B/stock_buyback https://www.barrons.com/articles/berkshire-hathaway-stock-price-earnings-51636202458 Berkshire continued to repurchase stock in October, buying back $1.8 billion of shares from Sept. 30 through Oct. 27, the date of the 10-Q report, Barron’s estimates. Buffett prefers buybacks to dividends; the company doesn’t pay a dividend. Berkshire has repurchased about 1% of its outstanding shares during each quarter in 2021. Its current market value is around $648 billion. Berkshire has repurchased $20.2 billion of stock so far in 2021 and is on pace for about $27 billion for the full year, above the $24.7 billion repurchased in 2020.
  4. Fairfax's approach is complicated compared to Berkshire's approach which is to use operating earnings to buyback shares. Imagine a Fairfax with an appropriate capital structure and you'll have a much better company. Imagine Berkshire having to sell part of National Indemnity or GenRe to allocate capital to buybacks...I'd rather not. Yet here we are with Fairfax selling OdysseyRe ownership to raise capital. Both BRK and FFH believe their shares are undervalued, so you can pick your own path. BRK has bought back $51B in 5 quarters. Check back to see how much FFH *actually* buys over the next 5 quarters.
  5. The value transfer from outgoing shareholders to remaining shareholders is being widely underestimated. Here's hoping prices stay low for a while longer to allow that reverse compounding to really kick in. It's at $51B cash (outbound) + discounted intrinsic value (inbound) since the buybacks started in earnest as well as the earnings per share boost (5%) so far.
  6. https://www.sec.gov/Archives/edgar/data/1709323/000170932321000005/xslForm13F_X01/13fq32021.xml https://dataroma.com/m/holdings.php?m=HC BRK.B - Berkshire Hathaway CL B 11.41 897,749 Buy $272.94 $245,032,000
  7. Latest 13F is available here... https://www.sec.gov/Archives/edgar/data/915191/000110465921138402/xslForm13F_X01/a21-32105_1informationtable.xml
  8. Chris Bloomstran posted his 3Q 2021 notes https://threadreaderapp.com/thread/1457045107765559296.html Berkshire Hathaway released its 3Q financials this morning. A few quick observations. Cash at $149.2B and share repurchases of $7.6B during 3Q and $20.2B through 9/30 will draw media headlines, but inflation is the real story, as is the case with so many companies of late. ... ... ... Despite $BRK shares outpacing major indices this year, the company will continue to draw criticism. Many expect a company with $472B in shareholder equity that earns a normalized ~10% on unleveraged equity capital to "beat the market" over all short and intermediate periods. 33/ With the S&P 500 trading at an earnings yield well below 5% and with margins at record highs, a bet against Berkshire's LONG-TERM continued outperformance is one I wouldn't take. Soundness looks silly at extremes of optimism. When capital suffers, Berkshire takes advantage.
  9. 15%...let's put some reality to that. http://financials.morningstar.com/balance-sheet/bs.html?t=FFH&region=can&culture=en-US So over the last 4 years, FFH compounded BV at 9%. Except that it issued $2.2B in equity capital after the first year, so excluding that capital raise, the BV compounded at a 4.4% rate. Per share values will be modestly higher than 4.4% but I'll leave that for someone with a calculator and ambition.
  10. @bearprowler6 Thanks for the insight into your reasoning. Although it's a reasonable policy, it reminds me of macro investors who fear the next move by the Fed, an expected recession or a depression and hang back with their special insight into the future. We each have our own approaches to value investing and portfolio resiliency. I sleep well regardless of any extraneous events to either FFH or BABA.
  11. The reverse compounding of the share repurchases is being undervalued, for sure. Reducing share count by 5% annually has a tremendous effect on per-share metrics and share valuation. As humans, we're wired to think linearly rather than logarithmically or exponentially. After 5 years equity employed is 77.3% and after 10 years, equity employed is 59% of starting. Meanwhile after-tax earnings continue exponentially growing at reasonable rates (probably 8-10%, per Bloomstran) while the per-share growth compounds at a much larger exponential rate. With BRK, this is a high-certainty bet.
  12. Analysts struggle to value FFH using EPS (bottom graph) because of the extreme variability quarter-by-quarter and year-over-year. If the EPS line was consistently at $70 share, FFH would be well above $700/share. In reality, it could revert to the mean and land above $700/share, but your guess is as good as the analysts. From the squiggles on the chart, it looks like we're in an up-phase, but who the heck knows?! Would you rather have FFH at its current discount or BABA at its current discount?
  13. Greggory Warren with his updated SOTP valuation... Morningstar article with updated BRK valuation We’ve increased our fair value estimate for the wide-moat company to $480,000 per Class A share from $440,000 and to $320 per Class B share from $293 after updating our near- to medium-term forecasts for the conglomerate’s various operations. We use a 9.0% cost of equity in our valuation, which assumes an increase in the U.S. federal statutory tax rate to 26% from the current 21%. Our fair value estimate is equivalent to 1.42, 1.31, and 1.35 times our estimated book value per share for Berkshire at the end of 2021, 2022, and 2023, respectively. For some perspective, during the past five and 10 years, the shares have traded at an average of 1.43 and 1.41 times trailing calendar year-end book value. We expect book value to grow at a 15%-20% rate this year (it expanded 26.6% year over year during the first half) and increase at a mid- to high-single-digit rate in 2022.
  14. 13F is available here... https://www.sec.gov/Archives/edgar/data/915191/000110465921105455/xslForm13F_X01/a21-24338_1informationtable.xml
  15. https://klementoninvesting.substack.com/p/how-to-survive-a-black-swan-event From a corporate perspective, there are basically three ways to cope with such extreme shocks and survive both the immediate impact as well as the following years. A company can have enough cash and liquidity reserves, it can have a high equity capital ratio and increase borrowing, or it can change its operations and become more flexible and leaner. And when it comes to these three levers, the historical evidence seems pretty clear cut. The only thing that helps a company survive these extreme revenue shocks is access to cash. Companies that either had lots of liquidity at hand or could tap into existing credit lines to increase their cash at hand were more likely to survive and recovered more quickly.
  16. Bloomstran's notes https://threadreaderapp.com/thread/1424124337527853063.html https://twitter.com/ChrisBloomstran/status/1424124337527853063?s=20
  17. http://csinvesting.org/wp-content/uploads/2015/01/Buffett-inflation-file.pdf Warren Buffett’s Comments on Inflation This is a compilation of Warren Buffett’s comments on inflation and some of the types of businesses he thinks do well in inflationary times. These comments were compiled from his 1977 Fortune article “How Inflation Swindles the Equity Investor”, his annual letters, and also include other commentary that is not inflation specific, but that I thought was useful to review in this context.
  18. Macro - probably spending more than 5 minutes a year is detrimental to your mental health and your portfolio health. Are we done now? Reframing to think along the lines of 'is any single security that I hold overvalued relative to its future business opportunities?' and 'is my portfolio sufficiently resilient to weather some turbulence?' If you really want to hold some cash, Klarman is always great to read, but he was usually at most 40-50% cash at any time ever. Being out of the market is detrimental to long term returns. https://www.safalniveshak.com/wp-content/uploads/2012/07/Painful-Decision-to-Hold-Cash-Seth-Klarman.pdf
  19. https://s1.q4cdn.com/579586326/files/doc_financials/AR2000.pdf https://s1.q4cdn.com/579586326/files/doc_financials/2020/q4/WEBSITE-Fairfax-Financial's-2020-Annual-Report.pdf So, I'll argue the con argument here. Sometimes addition by subtraction gets a better result. Let's say you bought in 1999 at ~$200 at a nice discount to book value of $231.98 at year end which Sanjeev and I both did. Fast forward 22 years, there are now twice as many shares 26.4M vs 13.1M and book value has grown to a whopping $661.7/share or 2.86 times or 4.9% annualized in 22 years and it's still at a discount to book. Has anything really changed? Is it really going to start compounding at 15% annually? A different strategy would be to sell the Fairfax shares, patiently hold large sums of cash and deploy the cash during a market or company-specific downturn into a basket of actual long-term 15-20% compounders that are selling at a then market discount.
  20. Given some recent property loss events due to flooding and fires, the hard market may continue a while longer. Insurance companies in this low interest rate period have increasingly used sub-100 CRs as the mechanism to provide returns. It means that the best underwriters will do best over longer periods of time and those that have access to equities (many stick to bonds and other yield products) will similarly do better over time.
  21. @scorpioncapital Sure, but inflation had been going on at a high clip from 1965 (1%) through to 1979 (15%) when Volcker took his measures shortly after assuming the position of Fed chair. It's a little early to be calling for drastic measures as the length of the run was the inducement to act. With better information in today's environment, we'll probably see action sooner, but still it seems early.
  22. @wachtwoord https://lonecapital.com/wp-content/uploads/2017/09/e38090margin_of_safetye38091seth-a-klarman.pdf Klarman often sits on 30-40% cash. He has a vulture-like multi-year approach patiently waiting and looking for significantly mispriced assets. His chapter 13 (starts at pg 219) on portfolio management walks through his framework. It's simple, but brilliant thinking. Holding cash is about managing duration and maintaining liquidity. Portfolio management transcends the inflation question and begs the question of whether current asset prices are sufficiently priced in an inflationary environment. An improved question would be "Why is Buffett maintaining upwards of 30% portfolio at zero-duration with full liquidity?" And "Why in the normal range of capital allocation options (1) purchase undervalued growth assets, 2) invest in internal growth, 3) repurchase shares) is Buffett allocating spare capital to share repurchases as a preference?" And "Are today's prices providing a sufficient margin of safety?" And lastly "Why is Buffett preferring to hold sizeable amounts cash as an infinite duration call option on future asset prices and liquidity events?"
  23. @Xerces...FFH has so much under their control, yet they put themselves into forced outs continuously. It's capital structure, portfolio structure, and lack of overall financial strength. Thanks for the catch -- it was WFC and not AXP that they held way back then. Those excerpts from the 2012 and 2013 letters exactly nail the problem at FFH where they incur portfolio risk that is obvious to outsiders. It's like someone driving a car without a seatbelt and having their mother claim to the press "Who could possibly have foreseen this tragic accident?" (!hand up!) The 2013 letter was a turning point for me personally as the investment team showed how they couldn't be trusted. I exited after the annual meeting run-up. The cash pulled is worth multiples more. The speculators hanging around today in FFH are looking for mean reversion to some premium to book value. Good luck to them.
  24. @Parsad RFP is a cyclical, capital-intensive business, so it's ultimately a trade unless Fairfax round-trips on this investment like they just did with BB. Assume 35% goes to govt in capital gains taxes. It's hard to get excited about an investment that's still underwater and you get to keep 2/3's of the capital gain. Fairfax investment team has been really bad over the last ten years and really have only had 1 large winner in the last 20 years -- which they had to pay 1/3 cap gains on. Imagine that they had actually stuck to their pronouncements back in 2010 that they were going to be buy-and-hold investors in blue-chip franchises like JNJ and AXP -- no cap gains, multiples of original purchase, dividends. Imagine further if FFH cut their debt load and had the financial strength to execute when others need cash instead of having to sell assets to raise capital, often at inopportune times. I walked out on Fairfax long ago and made multiples more with the proceeds than remaining with Fairfax. https://seekingalpha.com/article/4429197-tracking-prem-watsas-fairfax-financial-holdings-portfolio-minus-minus-q1-2021-update Resolute Forest Products (RFP The large (top three) RFP stake is now at ~12% of the portfolio. The position was first established in Q4 2010 when it was named Abitibi Bowater and the stake has since been more than doubled. Over the years, their net investment in RFP was $745M ($24.39 per share) and the current value is ~$455M ($14.89 per share) – in the books, the carrying value listed is ~$134M as they wrote down losses. Their ownership stake is just under 25% of the business.
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