Munger_Disciple

The real issue was that Berkshire made a deal with people of questionable character to put it mildly. Berkshire would have bought of 100% of Pilot at once but 62% of it wasn't available for sale initially. So in effect Berkshire either had to partner with the prior owners (it did) or walk away.

My prediction is that we will see a lot fewer purchases of large "family owned" businesses by Berkshire going forward. With hindsight, Buffett clearly misjudged the character of sellers in this case and wants to put this awful episode it behind him and save Abel time and focus so that he & Abel can focus on more important things.

I am reluctant to extend this debate, so I will just say I disagree with your interpretation of intrinsic value of FFH. Anyhow FFH is trading at book, not far above it. Furthermore, the goal of any buyback is not to be accretive to book value but to intrinsic value which will happen if buyback price < IV.

This makes no sense. The buyback is accretive to the intrinsic value & earnings as long as the share price at which you are buying back shares is below their intrinsic value. Your post only makes sense if you think FFH intrinsic value is below its book value where it is roughly trading currently.

Makes no difference to a US tax payer (with respect to Canadian withholding tax on dividends) where he bought the stock.

I think that applies only to tax deferred accounts? I am pretty sure for taxable US accounts, there is a Canadian withholding tax.

We are not talking about some random company here, but FFH. I agree that some companies should pay dividends (for example Tobacco) instead of blowing it on some stupid acquisition. I would not trust a tobacco company with even buybacks because there is a significant probability of terminal value being 0. With respect to FFH, the tax situation for US residents is actually worse because the dividend taxes are withheld (at 25% rate I think) by the Canadian government before paying the rest to US residents regardless of their US tax bracket. And you can't even offset the pre-tax dividend against your investment expenses (for example margin interest). We can just agree to disagree with respect to the wisdom of dividend at FFH.

1. Why not buyback? Are you worried that FFH will blow both reinvestment and buybacks? Then you should sell all your FFH shares instead of having an orgasm about dividends. 2. That was just a guess. 3a. In the US, the highest dividend tax rate is 20%+3.8% Obamacare surcharge = 23.8% at the federal level. Then you have to add state taxes which vary from 0% to 13.3% depending on where you live. 3b. Stop being an a$$ and stop treating others you disagree with disrespectfully & get back to rational and logical arguments to make your case.

I think the dividend is a poor capital allocation decision by Prem. I would have preferred (1) buyback or (2) no dividend, retain the capital inside the business on which they can hopefully earn decent returns and have it compound inside the company without any taxes. Dividend forces all shareholders (whether they have a need or not) to either spend or reinvest only 70-75% (lesser in case of shareholders in higher income brackets in states like CA or NY) of the cash proceeds after paying the tax due. It is an inefficient way to return capital to shareholders. Those shareholders who need cash can always sell a portion of their holding to meet the need in a more tax efficient way because one pays less in capital gains taxes than dividends which are equivalent to zero cost basis capital gains. Let us do some math: FFH has roughly 23 million shares outstanding which implies $345mm dividend payment before taxes. Let us assume 75% of shareholders own it in taxable accounts and dividend tax rate is 25%. This means that FFH shareholders are paying $65mm in taxes cumulatively to the govt out of $345mm for almost no reason. If Prem need cash for his living expenses, I would respectfully suggest one of two far better alternatives available to him: (1) Buyback $345 mm worth of stock and he can sell his pro-rata shares, thus retaining the same % economic ownership in FFH. Given the relatively tiny numbers involved, his voting % would hardly change. Other shareholders who need cash can do the same as Prem. Alternatively, (2) FFH board can pay Prem (as an example) $10mm yearly salary and the company retains remaining capital of $335mm inside the company and let it compound. Shareholders come out $55mm ahead in this case using the assumptions stated before and they don't need to worry about reinvesting the tax-inefficiently distributed capital. I realize nothing will likely change, but math & logic clearly show the sub-optimality of this capital allocation decision.

I think the best biography of Buffett is by Roger Lowenstein even though Warren didn't cooperate with the author. I was disappointed with Snowball even though Buffett gave unprecedented access to its author Alice Schroeder and spent countless hours with her.

https://buffett.cnbc.com/warren-buffett-archive/ It already exists. Enjoy!

Hopefully we don't have to worry about that for a long, long time.

Well, no one can replace Warren including Greg. But I think he will do fine especially with Ajit as his consiglieri. It won't be a decision by committee. Greg will seek advice from the three especially Ajit I think on big matters but at the end of the day, he will make the final decision. GEICO was a mess before Ajit took over all the insurance operations in 2018 and he put Todd in charge as CEO and is working with him to fix GEICO. I think Warren was blind-sided by his love for GEICO and ignored the festering problems until Ajit took over. This fiasco actually shows us that in important ways Ajit (and likely Greg) are better managers than Warren himself. So there is hope post-Buffett.

Brian M made a huge mistake loading up on longer dated treasuries at BAC. So I don't think he belongs in that list. I think Abel is an excellent operating executive. I just don't know how he thinks about risk, capital allocation and avoiding left tail risks the future. I am relying on Warren & Charlie's judgment in this regard. It is like the scene in the Gladiator movie where senator Gracchus when introduced to Maximus by Lucilla says: "Marcus Aurelius trusted you. His daughter trusts you. I will trust you." I think Abel will work with Ajit, Todd & Ted on big issues and large acquisitions. I would also add that Ajit is the new Charlie; he is off the charts smart, no-nonsense, direct, doesn't sugarcoat the problems (for example at GEICO), to the point and crisp in his answers at the AGM. Very much reminds us of Charlie. Plus Ajit is the best risk manager on the planet; Greg will undoubtedly seek his counsel and benefit from his wisdom in making important decisions at Berkshire. So I would say to Abel: "Charlie Munger trusted you. Warren Buffett trusts you. I will trust you." https://www.google.com/search?q=gladiator+scene+gracchus+trusts+maximus&sca_esv=593843995&rlz=1C5CHFA_enUS1015US1015&ei=WkqLZdyzDaDKkPIPmfec-AU&ved=0ahUKEwjcyJy6iq6DAxUgJUQIHZk7B18Q4dUDCBA&uact=5&oq=gladiator+scene+gracchus+trusts+maximus&gs_lp=Egxnd3Mtd2l6LXNlcnAiJ2dsYWRpYXRvciBzY2VuZSBncmFjY2h1cyB0cnVzdHMgbWF4aW11czIFECEYoAEyBRAhGKABMgUQIRigATIFECEYnwUyBRAhGJ8FSMQiULcPWNUgcAF4AZABAJgBqQGgAYQLqgEEMTAuNLgBA8gBAPgBAcICChAAGEcY1gQYsAPCAgUQIRirAuIDBBgAIEGIBgGQBgg&sclient=gws-wiz-serp#fpstate=ive&vld=cid:fae2b5ee,vid:jQhMB8qzvX8,st:0

Merry Christmas to all! Special thanks to Sanjeev @Parsad for maintaining this wonderful site.

Wow, that's a big difference. Congrats!

I read somewhere that the 2024 premium increases do not appear to be that great for insurers and reinsurers so there is some fear that we are nearing the end of a hard market for renewals.

Clearly Buffett mis-judged the character of Haslams when he bought Pilot. Hopefully he will lean into more share buybacks (zero risk) and refrain from buying "family" controlled large businesses in the future. There probably aren't that many out there anyhow.

Yes thanks. @gfp clarified it for me on the general Berkshire board as well. It is also known as IRR or internal rate of return which is a more common terminology.

You are right as usual @gfp. I re-listened to this part of the podcast again and Charlie confirmed that he was talking about dollar weighted results. Here is the segment: John: [01:10:15] And when you say per dollar year, you mean dollar weighted results, basically? Charlie: [01:10:17] Yes. How much return -- for every dollar year, what was your return? And of course, that's a very different figure. I know of a case of a hedge fund where the proprietor made a lot of money, but per dollar year, the net return was zero. Because when he got a lot of money, he really made a lot of dumb mistakes. He made a lot of money when this one didn't matter much. And yet it looks like a wonderful record. But in fact, it was terrible. And why wouldn't that be a fair thing to require?

That's exactly what money weighted return does.

Assuming he is referring to money weighted returns, that was exactly what Charlie was urging US Congress to do. He said even Liz Warren & Bernie Sanders can agree with his suggestion.

From Investopedia: The money-weighted rate of return (MWRR) is a measure of the performance of an investment. The MWRR is calculated by finding the rate of return that will set the present values (PV) of all cash flows equal to the value of the initial investment. The MWRR is equivalent to the internal rate of return (IRR).

That's a good point.

I thought so too. That's basically what IRR is I think. His use of per dollar year threw me off since that is not a common term that's used to describe money weighted returns.