Munger_Disciple

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.

I disagree. The board has critical oversight role over the next CEO. I am confident Abel will be a fine CEO but board is there as a failsafe mechanism if something were to go wrong however low that probability might be. IIRC it is the board that acted decisively (not Buffett) when the unfortunate Sokol incident happened.

But that's not the only change. Walter Scott passed away and they added Susan Buffett and Chris Davis. That's quite a few changes since 2021. I think the quality of the board has gone down in recent years with Gates, Scott & Murphy departing and their replacements not of the same heft.

Is anyone else surprised at the lack of discussion about board changes in Buffett's letter?

Thanks Viking & Parsad for your responses.

I have recently started looking at Fairfax mainly due to its cheapness (it should be cheaper than Berkshire as I consider it lower quality). I am trying to answer (to myself) if it as cheap as it looks. A few questions for the Fairfax experts: 1. We know Ajit Jain is the genius running Berkshire's insurance businesses. Who is the equivalent of Ajit at Fairfax (not just in terms of running the ops but the brain behind it)? 2. Is the float primarily from long tail liabilities or short tail? 3. It appears that annual premiums written by Fairfax is a much bigger % of its net worth (also float as a % of net worth) than at Berkshire which implies higher insurance leverage. This implies any negative surprises in the insurance business will have a much greater impact at Fairfax than at Berkshire. How are people comfortable with this leverage? 4. What is the succession plan at Fairfax? If something were to happen to Prem tomorrow, who will be running the show the day after? Thanks in advance.

w/o a question Berkshire. It is not even close. Higher quality assets, better management, better succession plan, better capital allocation, deeper bench strength, better investment strategy (buy great businesses to own forever),......... I could go on & on.

As I understand this business, Ajit always insists on a maximum cap on the total liabilities. So the inflation risk is significantly mitigated if not completely eliminated.

I believe Warren looks at any holding as a % of total asset base of Berkshire including wholly owned businesses (2021 AM), not as a % of marketable security portfolio.

The rate is privately negotiated between Schwab & customer. The spread depends on the amount of assets you have at Schwab; the spread over the fed funds rate is guaranteed for 1 year and usually renewed automatically.

https://finance.yahoo.com/quote/BRK-B?p=BRK-B&.tsrc=fin-srch Not reflected in B share price, so it seems like a (fat finger mistake) market order on 3 A shares after hours LOL.

I feel like the board quality has been going down in recent times. We lost Walter Scott, who brought the energy business opportunity to Berkshire in the late 90s and had an outstanding business career and Bill Gates. Gates' replacement is ok but not as good as Gates. I don't understand why Susie needs to be on the board to provide input to the other members on Warren's mental acuity. Chris Davis is a decent fellow but why do we need one more investor on the board? We already have Meryl Whitmer in addition to Sandy Gottesman. What we really need are board members who have business operating background like Scott and Gates. Having a competent shareholder oriented board is more important than ever given Warren's advanced age and upcoming CEO transition.

Couldn't agree more

Some inconsequential news: https://www.bloomberg.com/news/articles/2021-10-22/buffett-brings-generali-close-to-completing-cattolica-purchase