Munger_Disciple

Perceived moat of FFH by COBF members as a whole is directly proportional to FFH stock price.

Fantastic letter from Buffett on the eve of Thanksgiving! We are lucky to have the running Berkshire. Wonderful human being too. https://www.berkshirehathaway.com/news/nov2123.pdf

Generally agree. Many of the old moats these days are getting filled with rocks & sand due to increasing change brought by technology among other things. I think Disney is toast FWIW. I also think Berkshire has a much bigger moat than Fairfax today because they have been transformed into a diversified energy, industrial, consumer and insurance company as opposed to Fairfax which is mostly just an insurer. It is hard for me to see how BHE & BNSF can get disrupted; I think they will good businesses 100 years form now (barring some exogenous horrible event like nuclear war or something).

I think we mostly agree. IMO the culture component at Berkshire or Fairfax will get progressively harder to maintain in the future. That's what I was saying in my earlier post. I think Disney's moat is very weak (and getting weaker by the day) and it doesn't belong with the other consumer staples in the discussion. I think Hershey & See's have pretty good moats . Their volumes won't grow much but the pricing power is still there. Their moats far better than "culture" type moats.

I think you missed the whole point of the moat discussion.

+1 Even Buffett misjudged the deterioration of culture at Gen Re. It is not easy to maintain the culture especially after the founder departs. So I would call this much a lower quality fragile moat than say Hershey bars or See's Candies.

No worries, just having some fun. Cheers!

What are you talking about? Bezos is an engineer. He has dual degrees in Electrical Engineering & Computer Science from Princeton. People have no clue how hard that is! Just getting a BS in one of the two disciplines is damn hard; getting dual degrees in both is almost unheard of. And he graduated with a 4.3 GPA! He is off the charts smart.

It appears that MP's fund already drifted from "Circle the Wagons" style and permanent holding philosophy of Berkshire & Nick Sleep who he quotes a lot with 30% allocation to coal stocks.

More than anything else, I worry about the lack of focus and discipline on the part of management to keep doubling down on shitcos. It is almost like they keep falling for sunk cost fallacy without learning.

Yeah, he apparently shared some amazing insights such as this: "Economically strong means financially strong" https://www.cnbc.com/2023/11/17/ray-dalio-says-us-reaching-a-point-where-our-debt-problem-gets-even-worse.html

That would be torture . It is amazing what people would do for money. Apparently BW pays even secretaries $200K per year (according to Copeland) to put up with this stuff.

+1 Every time I listen to Dalio on TV, I get a headache. So I stopped watching his interviews.

It is almost a given that ROE will go down as the asset base increases in size. It happened to Berkshire and will happen to Fairfax.

Thanks @glider3834!

Thanks @Cigarbutt!

A couple of questions for Fairfax experts: I was going through the cashflow statement in Q3 report. At first glance, it seemed odd that the cashflow from operations for the first nine months was negative $1B. Then I realized it was due to the line item called "Net purchases of investments classified at FVTPL". I would think purchases of investments would belong in investing activities, not operating activities? Is it related to adoption of IFRS? Why do they classify share buybacks into two separate line items, i.e., purchases for treasury and purchases for cancellation? Thanks in advance.

https://www.cnbc.com/video/2023/11/07/the-surge-in-stock-prices-goes-hand-in-hand-with-dropping-yields-says-interactive-brokers-peterffy.html According to Peterffy, the treasury basis traders use 100 to 1 leverage.

The underlined statement was the best point the author made. It is the first time I see a mainstream reporter make this point. I guess what he was saying (& the Fed worries about) is that if for whatever reason the hedge funds (acting like primary dealers) had to undo their basis trade, the treasury yields can go thru' the roof parabolically because they are big players in these markets and use ungodly amounts of leverage. In other words, something similar to the October 1987 Black Monday crash can happen. Edit (added): Since the Fed cannot "theoretically" extend their credit facilities to hedge funds like they can for primary dealers it will make the problem that much worse. IIIRC, the Fed arranged a bailout of LTCM by banks, not directly rescued the hedge fund. But push comes to shove, IMO the Fed will "invent" some novel reason to rescue the hedge funds doing the carry trade.

@Cigarbutt Thanks for your response. If I understand you correctly, wildfire risk is an evolving issue for regulators, and ultimately all the capex required to implement better shut-off systems will be borne by the public that receives the service. In the meantime, utilities that have not so hot balance sheets to handle current legal payments may go bankrupt so that creates an opportunity for a financially strong entity like BHE to pick up their equity for nothing. So it is painful in the short-term for BHE (a hit to current earnings) but a great opportunity to acquire other utilities long term.

More on wildfire looses at PacifiCorp. from 10-Q (underlined emphasis mine): PacifiCorp increased its liability for estimated pre-tax probable Wildfire losses, before expected related insurance recoveries, by $1.4 billion in the third quarter and by $1.9 billion in the first nine months of 2023. Expected probable Wildfire losses, net of expected insurance recoveries, were approximately $1.3 billion in the third quarter and $1.7 billion in the first nine months of 2023. Such amounts were included in energy operating expenses in the accompanying Consolidated Statements of Earnings. PacifiCorp’s cumulative charges to date for estimated probable Wildfire losses were $2.4 billion through September 30, 2023. It is reasonably possible PacifiCorp will incur significant additional Wildfire losses beyond the amounts currently accrued; however, we are currently unable to reasonably estimate the range of possible additional losses that could be incurred due to the number of properties and parties involved, including claimants in the class to the James case, the variation in those types of properties and lack of available details and the ultimate outcome of legal actions.

I think we are just hearing one side of the story regarding the Pilot lawsuit. It is hard to believe that Berkshire is not abiding by the contract. It is also clear that Berkshire was very unhappy with the way Pilot was being run before gaining 80% control and Abel moved quickly after getting control to replace Pilot's management. I suggest we all wait for the Berkshire side of the story to emerge before speculating too much.

+1. Utility earnings were impacted due to reserves for wildfire law suit costs. From 10-Q: After-tax earnings of BHE declined 68.9% in the third quarter and 46.3% in the first nine months of 2023 compared to 2022. The earnings decline in the first nine months reflected lower earnings from the U.S. regulated utilities, reflecting increased wildfire loss estimates, as well as lower earnings from other energy businesses and real estate brokerage businesses. It is crazy that regulated utilities (where all the capex needs to be approved by regulators) have to pay for wildfire costs.