Munger_Disciple

My impressions after seeing the interview: On Banks: Buffett saw that all the banks were reaching for yield as they got massive deposits during COVID and sold all of them that BRK owned last year except BAC. He would have also sold BAC if he weren't knee deep into it (> 10% position) with a very low tax basis. Looking at BAC balance sheet, they owned a boatload of agency RMBS at low yields. Of course BAC's deposit franchise is bullet proof, Moynihan is a good guy and they are too big to fail so there is no LT risk there but their SH equity will take a hit from higher interest rates. Ajit & Greg's Relationship: To me this is the most interesting part of the interview when Becky asked Greg about his relationship with Ajit. It is clear that they now have a closer relationship than before after they both were appointed Vice Chairmen & Board members. And it seems to be a very respectful mutual relationship. I came away thinking: Ajit=New Charlie, Greg=New Warren. We are in safe hands. Paramount: Clearly it was a Buffett position. The funny thing is that he talked about all the reasons not to own it or other media companies including the fact that he thinks streaming is a really shitty business. My guess is that he sold it in Q1. Apple: Looks like Apple has become a sacrosanct position in Buffett's mind on par with Berkshire. These are the only two securities he kept in Allegheny's portfolio and blew out everything else. And he loves Tim Cook. Mr. B thinks he made a dumb mistake when he sold 10% of Apple position at $115. Mumbled something about taxes. Greg's BRK Ownership: Will continue to accumulate more shares in the future with his own capital freed up from BHE sale. Good news for BRK shareholders.

@Viking Why do you use 95CR as the "normalized" number for insurance? I would think it is almost impossible to predict insurance underwriting results on a yearly basis (shit may hit the fan in any given year just due to randomness even if underwriting is disciplined) & one can only make an educated guess about any company's longer term underwriting results. I would think something like 100CR is a very good LT "normalized" underwriting result for any insurance company (especially when treasury bills yield 5%).

You are right that most are self-made millionaires thru' ownership of businesses in the US. However there is a huge difference between being a private business owner and a passive investor. When you are the business owner, you make all of the important decisions; whether the business succeeds of fails it is 100% on you. When you are a passive minority shareholder you are coat-tailing someone else and hope that the guy in charge is competent, and acts in the best interests of all shareholders. You also hope that the business is a decent one. I think it is easier to go all in when you are the control owner-operator in a business you truly have an edge. Most people I know took such risks when they were younger. So one might have to concentrate in a private business when he is smart/business savvy, poor & hungry. For most people diversification is the way to stay rich though I would agree that that there might be instances when one might concentrate a bit more.

This is a great post. Survivorship bias is a real problem with the concentration strategy and it won't work for most people. It takes a unique skill and temperament to succeed at it (Munger, Buffett). It is worth remembering that even Munger & Buffett's buddy Rick Guerin blew up with this strategy even though he somewhat partially recovered from it with his real estate investments. We only see mostly the successes resulting from the strategy but never the huge number of blowups. Even Buffett & Munger are hugely diversified later in their life through their ownership of Berkshire which owns a variety of businesses.

@Viking Thanks for sharing your experiences. Congratulations on your success and all the best to you & your family. Concentration & position sizing is a very interesting topic. To get rich, I think one would have to concentrate but only after doing extremely thorough due diligence in a name/industry they develop deep understanding in. Even then, something could always go wrong. So it has to be a situation that is almost 100% certain to work out over the long run & trading at a deep discount. I suspect opportunities of this type are very rare so one has to act when it falls inside their strike zone. Everyone likes to quote Munger and Buffett about concentrating but no one is Buffett or Munger. We need to be careful with survivorship bias when it comes to concentrating (and hence copying others). We each need to understand our own advantages & limitations and act accordingly. Added thought: A less stressful & perhaps easier way to achieve concentration is by starting with a semi-concentrated portfolio (say 10 positions) and have one of the positions become huge relative to others due to a home run.

Yes Schwab margin has always been negotiable.

Only for very high $$$ margin amounts. Its higher for lower amounts: https://www.interactivebrokers.com/en/trading/margin-rates.php

If they quoted Fairfax stock price in Zimbabwean dollars the results will be even more amazing! But seriously Watsa should quote stock price appreciation in USD since BV is always quoted in USD. He can add a CAD column for price as the third column.

On pages 20 & 21, why is Watsa comparing intrinsic value (book) growth in USD to stock price appreciation in CDN? Doesn't make any sense to me. Both should be in the same currency, preferably USD.

To each his own. We are all free to bet the way we want & that's what makes it a market.

+1 In addition, I think there is an excellent symbiotic relationship between insurance & BHE where insurance generates the capital via float and can be invested in BHE at decent rates of return. That's why I think it would be stupid to try to break up Berkshire. As a whole, Berkshire's intrinsic value is greater than the pieces.

I will take the other side of this bet, i.e., Berkshire will endure in its current form for a long, long time.

You guys should all relax about the break-up of Berkshire. It isn't going to happen (with very high probability) during our lifetime and beyond. Buffett knows his most important legacy is Berkshire and he is firmly against break-up; he wrote extensively on the advantages of the Berkshire conglomerate structure. He structured Berkshire so that it is almost impossible to break-up and successor is firmly in place. Do you guys really think he is going to blow the important thing for his legacy? I don't think so.

That's not the point. Mobius should have seen the writing on the CCP wall and get the hell out of there at least a couple of years back. Now he is going to get what her deserves, which is nothing.

This guy is an idiot. The writing has been on the wall for awhile starting with required "social contributions" by tech companies & the disappearance of Jack Ma a couple of years back.

Wow! ChatGPT's article is a lot better than the one in Toronto Star. I think we have proved that AI >>> Most human intelligence

LOL At first I thought it was satire but then realized it wasn't sadly. This is probably the worst article on Berkshire I have ever read.

Great stuff @gfp! Thanks

Thanks @gfp! I have looked at Fairfax for a while and never fully jumped in the pond (thought got my feet slightly wet a few times). The thing that worries me most (at a high level) is the amount of premiums (net) they write annually relative to net worth (and hence float relative to net worth). I owned Berkshire for a long time (20+ years) and I don't think Berkshire ever had that kind of leverage in insurance business even when they were tiny. But I suppose one could size the position accordingly.

@gfp Interesting. A couple of questions: Do you hold Fairfax in a tax deferred account? And are you concerned about Fairfax's leverage (especially float relative to net worth) at all? Seems like their capital structure is very un-Berkshire like.

https://www.espn.com/nba/story/_/id/35746705/sources-marc-lasry-agrees-sell-bucks-haslams-35b Probably the reason Pilot deal was completed in January 2023.

I also missed a 10,000 ft overview of the important business segments though I did read the management discussion and analysis section. I think it is a good idea for Buffett to ask Ajit & Greg to include a 2-3 page summary of their businesses, similar to what Buffett used to do and include these as a part of the annual letter.

I missed seeing a summary of large equity holdings in this year's letter. I am not sure why it was dropped by Buffett. I think It is the first time it was omitted since at least 1977. Given the very large size of equity holdings relative to shareholder equity I think it is a significant omission.

I am not GFP, but here is your answer: "This amount is based on a contractual agreement that is dependent on Pilot’s earnings for 2022 and its net debt at the end of 2022, and is subject to postclosing adjustments following the completion of Pilot’s independent public accountant’s audit of its 2022 financial statements." The price was based on a formula that was agreed to beforehand.

Thanks for the excellent post!