omagh

@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.

Get a VPN. It's 2021.

@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?"

@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.

@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.

Permanently out of the money How silly to round-trip on BB and be unable to sell. Who could have possibly foreseen this?!

https://www.sec.gov/Archives/edgar/data/1709323/000170932321000003/xslForm13F_X01/13fq12021.xml https://dataroma.com/m/holdings.php?m=HC FB - Reduce 40.37%

Interesting bit as well. It speaks to his involvement in analysis of deals and to his grounding in accounting. He'll work well with Ted and Todd given this background. Buffett is so smart in the selective quality of people with which he surrounds himself. Abel found his way to the company through one of its many acquisitions. After working as an accountant at PwC in San Francisco, in 1992 he went to work for one of the firm’s energy clients, a small business known as CalEnergy. “Anything I asked him to do he did 125 per cent and then looked at things around it to do better as well,” Sokol said, who was running CalEnergy. “Greg needed very little mentoring. What he required was just being given the opportunities.” CalEnergy under Sokol and Abel went on a dealmaking spree before Berkshire bought the company in 2000. Before he had turned 40, Abel had been elevated to president and chief operating officer of the energy unit, going on to own a valuable 1 per cent stake in it. It was there where he gained much of his dealmaking chops. The division has accounted for some of Berkshire’s biggest takeovers, a fact that has not been missed by shareholders who grumble about the mammoth $145.4bn cash pile the conglomerate has amassed.

Some decent AGM notes... https://www.moomoo.com/en/news/post/4908363/the-2021-berkshire-agm-meeting-notes

Calpers lacks insight. Proof is trivial to find.

13F is available. https://www.sec.gov/Archives/edgar/data/915191/000110465921021076/xslForm13F_X01/a21-5468_6informationtable.xml

Another way to look at this -- they converted their long duration bond portfolio into a set of income producing real assets at BHE and BNSF. The yields are better and the risks are better than long duration bonds at this point in the bond market cycle. Further, based on Christopher Bloomstran's deep dive, they used the accelerated depreciation credits at BHE and BNSF as a secondary method of reducing tax payments and increasing cashflows. As well, based on Brooklyn Investor's charts, they have built up a large cash component in their portfolio to backstop insurance losses and to provide optionality for opportunistic acquisitions. This is not all black and white but the big asset allocation shift of the last ten years (see attached) has been the movement of funds from longer term fixed income to cash and equivalents. This movement raises two questions (the indirect one raised by wabuffo and a direct one). The indirect (and retrospective) one: Returns would have been better if the longer term fixed income portion would have grown proportionally to float. The direct one: Does the current (and growing) allocation offer potentially significant optionality value? (my answer is yes) Part of the decision in shifting from bonds to other assets (cash, owned income producing assets) is about expected future returns. The move seems correct, but the unexpected happened during the recent COVID panic -- government became a lender of first resort where normally Berkshire would have had its pick of distressed assets. A similar crossroads is appearing now for Berkshire. AAPL is starting to flatline in terms of its EBIT growth and topline sales growth, but it's priced for some large expectations out of the business. Does Berkshire exit, partially exit or hold due to the expected tax hit? In 1998, Berkshire was facing a similar question with very sizable paper gains in Coca Cola, Gillette and American Express in particular. Berkshire had an out where they turned a ~3x BV share price into General Re with a merger where they acquired a substantial amount of float and a bond-heavy portfolio that they turned into cash. So, giving up a bit of equity to acquire a cashable asset was enough to de-risk an overvalued portfolio without incurring a very sizable capital gains hit from selling KO, G or AXP. Do they interrupt compounding at lower rates going forward and take the sizable capital gains tax hit? History says no, but the new answer may be something creative just like the last time.

Another way to look at this -- they converted their long duration bond portfolio into a set of income producing real assets at BHE and BNSF. The yields are better and the risks are better than long duration bonds at this point in the bond market cycle. Further, based on Christopher Bloomstran's deep dive, they used the accelerated depreciation credits at BHE and BNSF as a secondary method of reducing tax payments and increasing cashflows. As well, based on Brooklyn Investor's charts, they have built up a large cash component in their portfolio to backstop insurance losses and to provide optionality for opportunistic acquisitions.

Happy New Year all Cheers nwoodman Slide 32 shows that P&C M&A transactions (2016-2020) have been done at P/B multiples from 1.2 to 2.0 (throwing out that 6.0). So, Fairfax at 0.8 P/B is well below a private buyer's transaction level.

Seems about right. Share buybacks at a 5-10% of float along with 8-10% toplline growth will be just fine; should push share prices north at a 15% annual clip. They have ~$2B / month coming in along with the current cash on the balance sheet. As well, the utilities will add generation capacity which creates accelerated depreciation credits. There is a long reinvestment runway and lots of optionality. The negative Buffett / Berkshire pieces are good for selling online ads, but often precede a decent run-up in the stock price.

I haven't watched BNN in years. Didn't know it was still a thing. Cutting out crap is satisfying.

That's not what I meant because it doesn't raise the issue that I mentioned of the shareholder not knowing how to allocate the cash. I had my head stuck in the past when I remember he had addressed the topic back when dividends were asked for. But yes, beginning the sentence the way I did was prone to confusion. My point is that the shareholders similarly wouldn't know what to do with the shares distributed. Fair point. Shares distributed would encounter the same issue of the shareholder doing a worse job of cash allocation than BRK. Spin-off shares could easily get flipped where retention is probably the better option. On distribution of cash vs buyvacks, Buffett has always leaned to repurchases. Chris Bloomstran laid out the hierarchy of decisions using DIS as the example: https://threadreaderapp.com/thread/1322554127298240515.html

They are distributing cash now through buybacks. Sopping up some of the undervaluation will gin up the price which is what most folks are really complaining about. Berkshire is a growth company, but priced like a BV multiple play.

, and basically all others ending by : ? August 31st on that press release. So Marc Hamburg was likely on vacation and a general number was provided. I wouldn't read too much into it.

Importantly, Berkshire's reputation is still intact. With 400,000 employees, the odds of 1 of them doing something shady get pretty high to the point of certainty in any given year. Find it, stamp it out immediately and move on. Wells Fargo learned the hard way about letting shady practices fester.

We did that ages ago. Shares were bought and then registered with certificates being couriered to us by Wells Fargo who is the trustee. They were held as collateral for a collaterialized loan that we put in place. The value of the shares dwarfed the initial loan amount after a few years. If you hold shares that split, then the trustee has to mail out new certificates. The banks get a bit jumpy as the collateral suddenly goes down by the factor of the split. One time, we were away for the weekend and Purolator helpfully left $250K in share certificates under our front doormat late on Friday afternoon. Sunday night when we returned home, there they were...heartstopper! Would the stolen certificates not be worthless or are they not numbered in anyway like bearer bonds? Were you able to get favorable terms on a loan using the shares as collateral? Was it with a mainstream lender? So, yes, they are numbered and electronically registered, but it's a good story to tell after a couple of drinks. There's a narrow case where a forged signature can 'transfer' the shares between owners, so best not to let them wander too far. On the back of the certificates, there is wording for conducting a sale or transfer. For the collateral, it depends on the lender. If I recall, the rate was prime or prime+1% and the borrowable amount was 50% which kept climbing as the bank did an annual revaluation of the collateralized shares. Most banks discourage it because of the handling costs (vault storage, tracking, etc), but you may still be able to find a lender willing to do it. We used blue-chip stocks and kept the actual borrowings at low levels. It could be a useful low-cost way to raise tax-free funds when the amounts are substantial and let the heirs figure it out later.

We did that ages ago. Shares were bought and then registered with certificates being couriered to us by Wells Fargo who is the trustee. They were held as collateral for a collaterialized loan that we put in place. The value of the shares dwarfed the initial loan amount after a few years. If you hold shares that split, then the trustee has to mail out new certificates. The banks get a bit jumpy as the collateral suddenly goes down by the factor of the split. One time, we were away for the weekend and Purolator helpfully left $250K in share certificates under our front doormat late on Friday afternoon. Sunday night when we returned home, there they were...heartstopper!

https://www.barrons.com/articles/tech-tesla-and-apple-star-as-stocks-keep-rising-51598052420 -- a couple of 'fair use' quotes below:

If an insurance company writes consistently at 100% CR and makes 5% on the float after tax, it should report roughly 5% AT profit assuming no leverage. So, with treasury rates down to 0.5% or lower, the way to report a similar profit as the previous simple example is to raise prices to ensure that the insurance business writes consistently at 95% CR; again with no leverage or change in portfolio mix. Prices just went up in a hard market to help the company and its industry peers maintain profitability. In the old days, one could write insurance at a loss (CR>100%) and make it back to profitability through investments and leverage. Bill Berkley and Warren Buffett have talked extensively about these mechanics if you look around. In the post-2008-9 period there was a short hard market 2010-11 if I recall correctly. I had shares in Odyssey Re which Fairfax bought out in this timeframe as cat insurance was becoming very profitable to write at that point. We're probably in the middle of a similar hardening as the industry's going forward financial picture has diminished greatly due to bond pricing getting whacked.

It looks like due diligence is going on from BB side. Not much news... https://seekingalpha.com/news/3579210-fairfax-held-talks-to-buy-remaining-shares-of-blackberry-street-insider BlackBerry (BB +5.2%) surges as much as 7% after Street Insider reported Fairfax Financial recently held talks to acquire the remaining shares it did not already own. According to the article, BlackBerry has formed a special committee and hired bankers to assist in the potential acquisition. More to come...