Munger_Disciple

And Tom Murphy!

@LearningMachine Buffett or Munger didn't really answer the question about leverage due to float. Buffett pointed out the double taxation problem (when index is held and sold later by BRK) and Munger pretty much said what I wrote in the earlier post. BRK's float pretty much equals cash+ST bonds held by BRK, so the long term return roughly equals cash returns, assuming zero cost float. Given that float is roughly 25% of SH equity, I don't think this leverage adds much to BRK performance. At 4% ST treasury rates, it adds roughly 1% pre-tax to BRK which is 0.8% post-tax.

Let us say BRK annual average return equals total return of S&P 500 including dividends. S&P 500 fund dividends are taxed every year whereas BRK has no dividends so no taxes are paid by BRK owner during the holding period. Hence BRK investor comes out ahead after taxes.

+1 Articles like this from Barron's & WSJ are click bait I'm afraid. I like this rebuttal : An AT&T spokesman said the company doesn’t expect the minimum tax to affect its 2023 tax bill. “Academics don’t prepare our taxes; trained and expert tax professionals do that work,” the spokesman said.

Thank you @Viking! That's a wealth of useful information. I appreciate your thoughts very much. Depending on our schedule, I would love to get a coffee with you. Will DM you once our plans are finalized. We will be in the city for 3 days/4 nights and head to WA for a few more days and return to the airport. Perhaps do a day trip away from the city one of these days and see the attractions in the city/nearby during the other two days. Your suggestions for spending the time in the city are terrific. Trip to Victoria sounds very nice too.

Thanks @Spekulatius and @Xerxes! Vitoria Island & the trail look & sound amazing.

My wife & are planning to fly to Vancouver from San Diego to visit family in Bellingham WA and visit the city. IIRC @Parsad and others on this board live in Vancouver. I have two questions: 1. Can I rent a car in Vancouver & drive across the border to WA & return back to the Vancouver airport? I am assuming yes but wanted to be sure. Are the lines to enter /exit the border between US & Canada long? 2. What are some fun things to do in Vancouver/ nearby areas if we are planning to stay for 2-3 days? Thanks very much for your help! Please feel free to DM me.

Agree 100% regarding BHE. Moreover all insurers estimate their liabilities years and sometimes (in case of long tail business) decades before the contracts expire and "book" under-writing profits/losses per GAAP. Will the govt tax these too as soon as they are booked for GAAP purposes? Don't think so.

I am willing to take the other side of this bet: there is no way Berkshire or other companies are going to pay tax on unrealized gains. The "book" income (of unrealized gains) already includes deferred taxes payable. So, govt will get its cut when the gains are realized.

The warrants are in the money but not worth $5B (yet). The intrinsic value of the warrants is roughly $180mm based on current price.

Paid closer to $284 per B share for the June repos, and my math agrees with @aws regarding July repos; closer to $470mm in repos in the July 1-July 26 time period at an average cost of $420K per A share or $280 per B share.

I think everyone should just relax. We would have Ajit, the best insurance exec in the world running insurance ops and Greg, the best energy exec in the world running everything else + filling the CEO role. I hope Ted becomes the next Warren for investments. Though it is unlikely Greg would have Warren's breadth across multiple businesses, most of the internal reinvestment of Berkshire earnings is likely to go towards energy & utilities, which is Greg's wheelhouse. So we will do fine with him as CEO. All in all, we are in good shape post-Buffett.

Alleghany shareholders approve the deal with Berkshire: https://finance.yahoo.com/news/alleghany-corporation-stockholders-approve-acquisition-151300741.html

If SWMA management is super confident of future growth it makes no sense to sell now unless the premium offered is much better than the reported amount. Perhaps the competition is heating up with MO's On.

+1 The deal may be ok for SWMA shareholders if there is a significant PM stock component whose earnings near term are adversely impacted due to Ukraine-Russia war.

USA Today article on Greg Abel: https://www.yahoo.com/finance/news/buffett-successor-greg-abel-regular-205408257.html

The possibility for a competing bid for Y is very low IMO. There are many reasons for this: (1) Y has a longer duration bond portfolio that will be marked to market when it announces Q1 results and the bond portfolio losses will not look pretty. So effectively Berkshire is likely paying slightly higher price to Q1-22 book than the reported 1.26 number based on Q4-21 book value, (2) Historically the offered price to book for Y is at the very high end of its market valuation over the last 10 years, (3) The reality is that Y is a better business as a part of Berkshire than as a stand-alone business. It has been a low ROE business for a long time as they were forced to hold lots of bonds (with very low coupons) to match their insurance liabilities. Once Y becomes part of the mother ship, they wouldn't have to do it and finally (3) Ajit & Warren are as smart as they come. They know all this and that's why there is no break-up fee. IMO this is a rare deal that is good for both buyers and sellers. Both sides are very smart so that's what we should expect.

Interesting. Thanks @Spekulatius

Great post as always @wabuffo! Here is an FT article on the shape of yield curve that might be interesting to folks: https://www.ft.com/content/40584b18-1b37-4580-b605-26f7aca09c0a The article discusses how (10yr-3mo) rate difference is a better probabilistic predictor of recessions than (10yr-2yr). It also references research where the author discusses how 10yr rate no longer contains term premium due to QE.

Interesting details: https://www.bloomberg.com/news/articles/2022-03-21/buffett-thumbs-nose-at-goldman-bankers-with-quirky-deal-price

So I took at a quick look at Y's 2021 10-K. It looks like they have $15.7 B fixed income securities out of which $5.5B have maturities exceeding 5 years and $3.7B have maturities between 1 and 5 years. Y has significant duration exposure which implies significant mark-to-market losses on FI portfolio in Q1. I love this deal! Berkshire gets float and great insurance executive talent. Relatively cheap. Plus Buffett will sell long dated bonds and uses the losses from FI portfolio to offset capital gains from elsewhere in Berkshire portfolio. And Y's large FI portfolio is not attractive to others so the probability of a competing offer is very low.

+1 Excellent point Bill! It is quite possible that Y's Q1 results show losses (potentially large depending on their duration. I haven't looked at Y's most recent 10-K so I don't know) in their bond portfolio given the rapid rise in interest rates this year. It also explains why Berkshire is not asking for a break-up fee if Y finds another suitor. Ajit & Warren are as shrewd as they come and they think it is quite unlikely that Y will attract another suitor in 25 days which incidentally coincides with Q1 earnings season.

Your rate is 3.75% now. Fed just raised rates last Wed so the upper limit is 0.5%.

Dinar is correct. Schwab evaluates each client's margin rate based on various factors including total assets at Schwab & margin used. At the end of the day, they try to figure out how much profit they could make off you and give you a quote for margin rate. So it is highly customized.