omagh
-
Posts
432 -
Joined
-
Last visited
Content Type
Profiles
Forums
Events
Posts posted by omagh
-
-
On 10/19/2022 at 1:11 PM, longterminvestor said:
Tax implications of S&P index ETF, any ETF really, are an important consideration. If you buy and hold an ETF for 10yrs, you pay tax on annual dividend and capital gain tax on the ultimate sale of ETF 10yrs later. However, when the S&P re-shuffles its allocations, adds new companies, removes companies - the ETF re-allocates the index fund and that is a tax free transaction. For example, if Apple's allocation in the S&P is 10%, then there is a re-shuffle, Apple's allocation is reduced to 8%, the holder of the ETF does not pay on the gain of Apple inside the ETF. I am probably missing some pieces but this is my understanding. The structural tax advantage of ETF is pretty strong. Especially vs a Mutual Fund that pays taxes on a shuffle of the allocation. To that point, Berkshire's tax implications are better compared to a mutual fund rather than an index ETF. I understand returns can be compared but the tax implications are different all together.
Seems like some magical thinking -- somebody pays for lunch and the government gets paid. ETFs have some tax avoidance workarounds through some creative structures that effectively defer most taxes until sale of the ETF by the holder.
The workaround for ETFs is that they can exchange shares amongst themselves without conversion to cash - the taxable event. Payment is done in delivered shares avoiding taxation. This helps deal with underlying index churn and securities turnover. So, that works well in highly liquid markets, but in less liquid markets, and in severe market dislocations, conversion to cash is a reality. Nobody talks about the black swan case in these typical articles which are thinly disguised marketing pitches. Some ETFs use leverage and options which invokes different short/long term capital gains taxation.
https://www.jhinvestments.com/viewpoints/etfs/creation-and-redemption-etfs-secret-sauce-explained
But, in the end, if there is a capital gain distribution, the ETF investor is still responsible for the cap gain taxes annually.
https://www.fidelity.com/learning-center/investment-products/etf/tax-basics-etfs
Distributions. Both mutual funds and ETFs generally are required to distribute capital gains to investors, which can potentially result in a significant tax cost annually.
Dividends. ETF dividends are taxed according to how long the investor has owned the ETF fund. If the investor has held the fund for more than 60 days before the dividend was issued, the dividend is considered a “qualified dividend” and is taxed anywhere from 0% to 20% depending on the investor’s income tax rate. If the dividend was held less than 60 days before the dividend was issued, then the dividend income is taxed at the investor’s ordinary income tax rate. This is similar to how mutual fund dividends are treated.
-
Phil Fisher gave a 1987 interview. Would love to find the original if anyone has it.
https://investmenttalk.substack.com/p/a-rare-interview-with-phil-fisher?r=i1bs
-
On the circle of competence: “I think a weakness of many people’s approach to investment is that they try to be jacks of all trades and masters of none.”
-
On management: “Getting to know the management of a company is like getting married. You never really know the girl until you live with her. Until you’ve lived with a management, you don’t really know them to that same degree.”
-
On waiting for big payoffs: "I don’t want to spend my time trying to earn a lot of little profits. I want very, very big profits that I’m ready to wait for."
-
On avoiding stock market favourites: “Nor will I buy market-favored stocks. I particularly notice it when I attend meetings for technology stocks and see all the people crowding into the room and so on. If there’s standing room only, that’s usually a pretty fair sign it’s not a good time to buy the stock.”
-
On retirement, as a then 80-year old: “I could wax for a half-hour on the utter folly of people being forced to retire at the age of 65. I think I have produced better results in the last five years than in any other five-year period. The refinement that comes from contemplating your own mistakes and improving yourself has continued. I have seen enough people start to go senile as they get older that if it should happen to me, with my responsibilities, I would cut myself off. But unless that happens, I think it’s ridiculous to stop the work I enjoy.”
-
-
On 2/9/2009 at 2:28 PM, uncommonprofits said:
Print and deliver $1 million cash to each and every family in America -- and I can assure you the system will inflate (no doubt big time!!). Of course this is an overblown/exaggerated example -- but if inflation is preferable to deflation it should be obvious that the only thing standing in the way is political will. And that political will works a lot quicker in America than it does in most other parts of the world (here in Canada there is arguably a lot of envy over the American system).
Finding the right balance at the current moment is the trick. If it is too much the system will certainly inflate. If it's not enough then deflation may become a problem in the short term but one can be assured that more (stimulus) will come. Prior to the crisis in Japan --- unemployment was typically close to zero percent. Had it reached 5% very quickly (rather than taking a decade) --- there would no doubt been a lot swifter action and deflation would have not been a long term issue. The culture may be changing a bit in Japan now --- but that was the way it worked back then.
As for the current stimulus and interest rate action in the States --- finding the right balance is obviously key. To some it seems that they are overdoing it and inflation is going to be huge going forward. Others like yourself worry that it will take forever to work through this and deflation is going to be a persisting problem. Perhaps the right balance is being struck? In the end --- I don't see the stimulus being such that will enable people to pay off their houses (and other debt obligations) in any dramtic fashion. If that's the case then mortgage rates won't be rising much any time soon (perhaps for the next decade or two). Higher rates simply are not affordable without pushing the system back into recession.
So could it be possible that mid and long term bonds trade in the current range of 2-4% (or lower) for the next several years? If so -- that would seem to bode well for common stocks which are currently yielding much higher. If it bodes well for common stocks as a whole --- it would seem to be the most opportune time in quite a while to seek out of favour bargain situations of good quality.
One other point is that a lot of emphasis has been on the financial and housing crisis being the sole cause of this global recession. But what about high oil (and other commodity) prices? High oil prices have been the prelude to many recessions in the past. An increase in oil price (first Gulf War) also helped push things into the brink for Japan -- but the rise was not nearly as dramtic as it was in the current situation. I think the role that high energy and commodity prices played in helping ignite the current situation has been under-estimated to a great degree.
UCP / DD
@uncommonprofits DD - With inflation picking up after a period in which governments were giving people COVID money and also making the cost of money effectively zero to encourage borrowing, this post has stood up well. Now we're in for a period of belt tightening and working off the excesses.
-
On 10/5/2022 at 4:13 PM, snowglobe said:
Munger said "There'll be one big advantage for the shareholders that pay taxes. The Berkshire shareholders - even if we just match the S&P we'd be way ahead after taxes".
I'm not understanding the mechanism here. Why is this true? If BRK.B matches SPY, and I incur a capital gain on both of them, and I have to pay capital gains tax on both of them, how are the Berkshire shareholders ahead on an after-tax basis?
Can someone explain please?
To Munger's point, there's a constant tax bill with holding the SP500 index whereas Berkshire is a buy-and-hold-forever. So buying SP500 and selling after 10 years incurs taxes each year and taxes at year 10 whereas the same scenario for BRK would incur taxes only in year 10. I'm purposely ignoring dividends which are a wash. BRK's float leverage would amplify the amount of taxes paid. That structural difference will add up over longer periods of time (10 years or more).
https://www.businessinsider.com/sp-500-index-constituent-turnover-2015-6?op=1
Among other things, Parker points out that the makeup of indexes like the S&P 500 is constantly evolving.
"One of the main items that changes over time in the S&P500 is the actual constituents of the index," Parker writes. "While there has been relatively less turnover lately, with only 3% of the companies changing since 2013, the cumulative effect of adding and subtracting companies is surprisingly substantial. Ten percent of the companies in today's index are different since 2011, 17% are different since 2009, and fully half the companies are different since 1999. Said another way, at least half the companies in the S&P500 today were not in the S&P500 when your average portfolio manager started running a portfolio."
To put it another way, there is a healthy amount of trading going on in the S&P 500.
Parker charted the number of companies that have been added each year since 1965.
"On average, 22 companies, or 4.4%, are added to or removed from the index each year," Parker wrote.
-
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.
-
6 hours ago, Swedish_Compounder said:
Actually, Berkshires three largest stocks (Apple, American Express and Bank of America) seem committed to making large buybacks over time. Also, Berkshire seems to want to buy back 4-5% annually.
I have been looking at the un-distributed earnings from stock component from 2011 to 2021E. I estimate that this component has increased by roughly 13% CAGR per BRK B share during those ten years when BRK simultaneously built a mountain of cash. If BRK had repurchased 4,5% of their shares per year, the figure would be more like 17% CAGR. And then the largest components of the 2011 stock portfolio consisted of IBM, Wells Fargo and Coca Cola, which were no great components.
@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.
-
19 hours ago, gfp said:
Berkshire has repurchased $38.2 Billion in the past 5 quarters.
@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 $24.7 billion repurchased in 2020.
-
On 11/17/2021 at 10:04 AM, MarioP said:
1 B us$ Price range : 425 to 500us$. Financed by the sale of 10% of Odysse
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.
-
15 hours ago, nwoodman said:
Thanks, an interesting but altogether unsurprising addition at these levels.
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.
-
-
-
Chris Bloomstran posted his 3Q 2021 notes
https://threadreaderapp.com/thread/1457045107765559296.htmlBerkshire 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.
-
17 hours ago, Parsad said:
The stock will do over 50% regardless...just reversion to book will do that! So you're not really adding anything!
15% compounded on $595 USD book over two years gives $786 USD...was trading at $393 USD on Monday. I say 100% return or better by October 2023 at the latest...barring a massive catastrophe or market crash.
Cheers!
15%...let's put some reality to that.
http://financials.morningstar.com/balance-sheet/bs.html?t=FFH®ion=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.
-
On 8/30/2021 at 8:44 PM, bearprowler6 said:
I have a policy not to invest in Chinese based companies so despite the compelling opportunity that BABA appears to offer at the present time; I simply stay away. I put this hard policy into place since I do not trust the business environment in China given the lack of respect for western rule of law.
BTW----I have visited China numerous times over the last 15+ years and traveled extensively throughout the country on numerous occasions. My wife is Chinese and we regularly speak with and get updates on the business and political environment from her friends and family (as recently as Saturday night). The comments that I have received from them especially over the last few years have only reinforced the "no China" investment policy that I already had in place.
So given the choice you offered to me I would have to select Fairfax over BABA however even just thinking that is nearly killing me.
@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.
-
On 8/29/2021 at 1:49 PM, ValueMaven said:
Great recap: simple, direct, and to the point. Some of his assumptions are conservative in my view. Even still Greg is one of the better analysts on Berkshire.
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.
-
39 minutes ago, bearprowler6 said:
I don't know why Fairfax is not being re-rated by the marketplace. Nor does anyone else. Low interest rates are clearly a factor however other factors I believe are also in play. No need to review the long list of possibilities at this time.
As for what has changed between mid-2019 and mid-2021 --- my best guess (and that is all it is) is that the market place has simply got tired of Prem and his approach to the management of Fairfax.
I continue to hold a smallish position in Fairfax and hope that it is re-rated much higher however I would not at all be surprised if it is not.
As for the low interest rate environment we are in (which we all seem to agree has to some extent played a part on the valuation currently placed on Fairfax by the market), I do not believe we will see a significant upward movement in rates for a very very long time. If this view turns out to be correct than I believe it will also be a very long time before Fairfax is re-rated to the 1.1-1.2 times book value level by the market.
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?
-
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.
-
-
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.
-
-
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.
-
21 hours ago, muscleman said:
Rates should be going up soon. You can't have a government with the most reckless unproductive spending, (How many more trillion dollar bills will we see?) and still have low rates.
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://s1.q4cdn.com/579586326/files/doc_financials/AR2000.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.
-
On 7/22/2021 at 10:22 PM, Viking said:
The stock prices of P&C insurers have been weak for the past 4 months or so. My guess is the weakness is due primarily to concerns the hard market in pricing is over.
Well, results and commentary from WRB suggest Mr Market is wrong. Q2 was very strong. And WRB feels strong results should continue. The hard market is not dead. And future results will benefit years into the future as written premiums become earned. This suggests Q3 is shaping up to also be another strong quarter in terms of top and bottom line. From the Q2 Q&A:
Mark Dwelle (RBC): …second question … in terms of competition across the industry, are you still seeing primarily rational competitive behavior, or are you seeing any signs around the edges of aggressive competition, or price limited competition like you would typically see, perhaps at peaks of a pricing cycle?
Rob Berkley
There is nothing that leads us to believe -- let's put workers comp aside for the moment - that the opportunities in virtually every other product line are not very meaningful today, and will be very meaningful tomorrow. We continue to see the opportunity to push rates further and quite frankly, we're seeing the standard market continue to push business out creating opportunity for the specialty market. So we remain very encouraged by and large, as it relates to the opportunities. And no, we do not think that this marketplace has peaked in any way, shape, or form - quite to the contrary.
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.
Buffett/Berkshire - general news
in Berkshire Hathaway
Posted
https://www.barrons.com/articles/warren-buffett-berkshire-hathaway-tax-51673028329?mod=hp_DAY_0
Berkshire Hathaway Could Face a Big Tax Hit if the Bull Market Resumes
... Ever since a 15% corporate minimum tax was included in the Inflation Reduction Act in 2022, there has been uncertainty about whether corporations would owe taxes on paper profits, or unrealized capital gains, on stocks starting this year. The treatment has long been that these paper profits created a deferred tax liability that is only paid when the stocks are sold, and the profits realized.
Berkshire Hathaway (ticker: BRKb ) probably has the most at stake, and faces the biggest potential tax bill among U.S. corporations since its equity portfolio is so large—more than $300 billion. It has periodically had big unrealized gains in the portfolio, including $58.6 billion in 2021, and $26.8 billion in 2020.
Recent guidance from the Internal Revenue Service, while not definitive, suggests that paper profits on stocks could be subject to a 15% tax this year, according to New York tax expert Robert Willens. The issue involves the tax treatment of applicable financial statement income (AFSI), a measure of earnings.
“The IRS left open the question of whether ‘mark to market’ gains and losses should be disregarded when computing AFSI,” Willens wrote to Barron’s in an email. “As of now, they are included in AFSI. The IRS solicited the comments of investors as to whether these gains and losses should be backed out of AFSI or whether they should remain in the tax base. My guess is that they will remain in AFSI, potentially exposing Berkshire to a massive amount of book minimum tax.” ...