Munger_Disciple

Buffett also said that you need to "adjust" reported BNSF earnings downward to come up with a true picture of its earnings power. So he obviously understands & took into consideration that maintenance capital at the railroad is higher than depreciation. Even taking this into account BNSF is a decent business unlike a construction equipment rental company. These two are very different businesses; BNSF is a duapoly with zero chance of new entrants in the market unlike an equipment rental business with almost no barriers to entry (other than wasted capital which will be earning poor returns). It is like comparing apples and elephants. Lesson: you need to take wholistic view of the businesses, not just look at one aspect.

What Munger was trying to say is that in some businesses you are forced reinvest all the cash the business generates to simply stay in the business at the same spot (i.e., not grow unit volumes and things like that). This happens because your depreciation charges are much lower than maintenance capital. As the old construction equipment rusts or dies, the new one you need to buy to replace it costs way more than your depreciation charges. And you are not doing more volume of business necessarily. This is in sharp contrast to See's Candies type business where you are swimming in cash at year end and you don't need to reinvest much if anything back in the business.

wabuffo, Interesting hypothesis on the relationship between higher tax rates and higher inflation. Do you think this relationship holds in other countries? I think most European countries seem to have higher overall tax rates than the US but there wasn't much inflation in the Eurozone during the last decade. -MD

It is possible that Ted had some flow through business losses that were related to the wind down of his hedge fund management entity which partially offset the $131M income from Roth conversion.

After reading Ted's letter, in addition to being blown away by his investing prowess all I can think of is "What a Class Act!" Those of us who are Berkshire shareholders are lucky that the company has such an outstanding bench that includes Ted, Todd, Ajit & Greg ready to step up to the plate when the time comes.

Don't know, never used it.

Just FYI, Schwab's one year agreement is better than IBKR's. IBKR can and does change margin rate basis calculations overnight whereas Schwab actually guarantees the margin rate calculation for one year (for example R = Fed Funds Rate + Agreed Upon Spread)

Schwab automatically renews the agreement every year for me. They send me a letter once a year reiterating the margin rates that were agreed to.

+1

I use Interactive Brokers & Schwab. Overall I prefer Schwab. The back-office support at Interactive Brokers is virtually non-existent. If have questions or you believe there are errors on an Interactive 1099, good luck getting any one to help you especially during tax time. The only advantage of of Interactive is foreign stock and forex trading IMO. You can pretty much negotiate the same/better margin rates at Schwab assuming your account is of significant size. And back office support at Schwab is outstanding.

It has been awhile since I looked at LSXMA closely. 5% FCF for SIRI sounds about right. It is clearly not super cheap. I am not sure what is SIRI's terminal value in 5-10 year time frame. Also (LSXMA's stake in) Live Nation is trading at a significant over-valuation IMO. So while the discount to NAV is attractive, I worry that NAV is overstated.

+1 Long term sustainability of the underlying business is a huge concern for me. The Stitcher acquisition (Podcasts) is a bust in addition to Pandora. I really worry that Sirius will be an also ran in audio with no real advantage in any segment (music, podcasts, live etc.) in the long run. However it does generate significant cashflow today so it will be interesting to see what Malone & Maffei do with it. It eerily reminds me of Qurate.

Another perspective FWIW:

I live in southern California. I think we live on different planets. As I mentioned in my earlier post, I see price increases in everything I use and buy but I am not an expert on macro economic issues. With that caveat, here is what I find where I live: Utility Bills: Yes! Electrical utility bills have gone up roughly 6% per year for the past decade. Similar increases in water bills. Real Estate Prices: Have you looked at them recently? I guess not. Skilled Labor: Hourly rates are up roughly 30% from 2019 (if you can find someone). Healthcare & Education: I guess we agree on this. It is BS that they are not captured in the CPI. BTW congrats for the 0% inflation on your planet.

TCC, Why do you think inflation in the big ticket items like utility bills, real estate costs, skilled labor, healthcare & education are transitory?

Just anecdotally, low inflation camp seems wrong to me. I live in CA and I see price increases everywhere including prices for goods I buy at Costco and I don't think the increases are transitory. For instance, how can increase in minimum wage be transitory? And we are also seeing big increases in skilled labor costs. Electrician charges $55 for trip cost and $85 per hour for work where I live. Plumbers routinely charge $100 per hour. These rates are much higher than what they were just 2-3 years ago. In addition, we have seen huge inflation over the last decade in anything government touches (in the US): healthcare, education, residential real estate, local utility bills, etc.

David Rosenberg has a very different take on inflation & interest rates. He thinks rates will continue to go down & the current inflation is temporary.

WSJ editorial board on the propublica article & the IRS: https://www.wsj.com/amp/articles/return-of-the-irs-scandal-11623191964

The propublica article is truly idiotic. The reporters use a flawed metric namely the ratio of income taxes paid in a period spanning a few years to increase in wealth of the individual during that period. It is conflating wealth with income. The right metric is (obviously) the ratio of income taxes paid to income earned. By this measure if someone owns a piece of land or a painting that produces no income, she is paying too little in taxes. What if wealth decreases in that period? It is not like that person doesn't need to pay taxes. She still has to pay income taxes during that period based on earned income. Looks like click-bait to me.

The latest op-ed piece by Bill Dudley: https://www.bloomberg.com/opinion/articles/2021-06-03/u-s-inflation-isn-t-scary-yet-but-it-could-be?srnd=premium

It seems to me that the Fed has succeeded in creating asset price inflation with very low interest rates and QE.

wabuffo, Your posts on the inner working of the Federal Reserve have been an excellent source of education for me. Please don't even think about thinking about not posting . MD

I thought Ron Olson's comments in the FT article are interesting: “Warren’s got a lot of life left. I want to underscore that,” Olson said. “Greg is our man at the moment. If it’s 10 years from now, who the hell knows.”

gfp, you rock! That is an awesome analysis of Greg's ownership. You are truly the go-to guy on Berkshire.

Buffett warned many times in his annual letters that insurance is not an easy business. And he pointed out that Berkshire's insurance businesses are very unique in many ways including an off-the-charts brilliant CEO Ajit Jain leading them. In fact Berkshire did poorly in reinsurance until Ajit took over and created tremendous value. It is surprising that Pabrai didn't heed Buffett's advice. Just because it worked for geniuses like Ajit and Warren, it doesn't mean it works for others.