Dynamic

A very interesting insight

Fair enough, but one would expect a fair amount of deviation from the market average in a concentrated portfolio, trailing in some quarters and beating in others. Berkshire Hathaway has a strong allocation to financials and a very large stake in Apple, for example, so I would expect significant deviation from quarter to quarter. I wouldn't judge then too harshly on a couple of quarters any more than I'd kick myself for my underperformance in Q1 which I've since almost entirely made up for. I felt that Apple in particular was priced quite optimistically at 30 September 2018 but it didn't make much sense for Berkshire to sell when it's intending to hold for many years.

Interesting. The KHC Q1 results weren't published but even without then the earnings handily beat 2018Q1. If the 27% share in KHC contributes around $200-230 million it's easily better. I noticed they stopped publishing Book Value in the press releases this year now that it doesn't affect the buyback threshold. Using the 31 March shares outstanding, I made BV per A Share $225,553 and BV per B Share $150.37 before KHC earnings. If the 27% stake in KHC adds about 215+/-15 million USD to BRK's earnings, it might add about $0.08 to $0.10 of Book Value per BRK.B share. $225,685 per A share or $150.46 per B Share assuming about 215 million from KHC [edited to correct mistake in shares outstanding at 31st March. Adds about $0.35 per B share to Book Value.]

Sarang Gupta on Seeking Alpha has some interesting takes on the Occidental deal too, using some variations on Black Scholes but pointing out their limitations and also noting that the funding is in essence financed by insurance float, meaning that the return to BRK shareholders could be considered to be leveraged to around 18% if you decide to look at it that way.

Sorry, I don't know how to go back that far with free resources, but this does sound like a good idea. It can show how a single long-term holding could provide the majority of a portfolio's returns over the long term if you can bear to let it run and not sell your compounding winner. It might also be worth obtaining the numbers for one or two defunct companies to show things such as: • how value can still be realised even as a company winds down but distributes capital via dividends or special dividends and spin-offs. • how value can be lost almost entirely if you're very wrong about the company's prospects. It doesn't have to be a fraud like Enron, but perhaps a great company like Nokia or RIM/Blackberry or local monopoly newspapers whose lofty expectations based on great performance and competitive strength turned to dust as disruptive change came to their industry. You could also show how if you realise it's unravelling after you've lost 60%, you could still be better off selling and baking in your losses then before it drops by 95% of your original stake. You don't have to make it back the way you lost it. The lessons from firms like KO could be great too. For example recognising that even the New Coke debacle was a temporary setback and the price was likely to recover, and looking at the failure of rivals like Virgin Cola and other well funded entrants to unseat the Coke/Pepsi brands for such a modest-priced and widely distributed product.

I certainly won't be trying to convince you to get back into Value Investing in any of the ways most of us practice it. I get the impression that you are still considering the fundamentals, and not relying simply on Technical Analysis alone as a speculator, so to some extent you probably are some kind of investing trader who does consider valuation and qualitative factors important to investment and ownership mindset in selecting companies you'll trade. It really seems you have identified what suits you psychologically, and to have learnt the hard way (as I suspect most of us have). I wish you well, and I'm interested in your experiences and development of your approach. Things like when and why to sell or trade are probably the least developed aspects for most investors. There seems to be a number of method people try to employ to improve their results, including some that work most of the time but cause you to miss out on big gains occasionally. It's difficult to separate what feels right strategically from what actually yields the best result in the long run. It reminds me of the offline Texas Hold'em poker app I have on my phone, playing mostly against computerised players without major exploitable flaws in offline mode. Frequently it's about folding early when the odds are against you and not trying to win it back the way you lost it by betting aggressively or trying to bluff on only modest hands. Then you have to be prepared to bet aggressively when the odds are strongly in your favour and hope that at least one opponent will call you. You will quite often see that you would have had a winning hand after folding after another player has place a huge bet 20 times the blind/ante, representing more than half your chips before the dealer has even shown the flop, or when you needed, say a Jack on the final card and nothing else to make a straight and otherwise you have a weak hand, so you don't call your opponent's raise and one time in thirteen you miss out. I try to mentally reward myself for those misses because I know the odds were against me, but I might have to wait for 30 or 40 hands before I get an opportunity to win big or even recoup my gradual losses (e.g. with 4 opponents, I have a 4 in 5 chance of losing each hand, so I should expect a long streak of losses from time to time, which is fine if I'm only betting on those hands where my chances are much better than 1 in 5. Aside from being a zero-sum game unlike investing, poker can certainly tell you important things about the psychology of trying to profit from probabilistic/random events given a certain amount of prior knowledge (i.e. the card you hold, the cards dealt face-up and how much your opponents raised or called at various times)

Thanks @gfp for explaining the flaws in that argument. I read a few paragraphs of it yesterday and thought it didn't seem right but that it wasn't worth my reading in detail. Personally, like Buffett, I'd rather have directors who have taken meaningful long term stakes in the business with their own money rather than complying with somewhat arbitrary good-governance checklists drawn up by conventionally-minded academics. I'm sure Berkshire's Board would be more effective than almost any other in doing the difficult things that may be required of them. Regarding the Occidental Petroleum warrants etc., thanks for the interesting perspective, @aws. That's a rational way of looking at it, assuming the deal goes ahead. It make it look particularly attractive in providing a fairly certain acceptable return over a decently long period with a moderate headline rate plus quite a good chance of a significant upside from the warrants with no immediate tax implications upon exercise. While I'm sure the OXY stock is highly cyclical and linked to the wild swings in oil prices, and is probably relatively close to a cyclical low, the warrants, while currently out-of-the-money are likely to be worth a fair amount in 2030 dollars, and a discount to that in present value. Even with a fairly high 10% discount rate over 11 years giving a 1:2.85 discount of PV:FV, the present value would be $20 if the $62.50-strike warrants are worth about $57 in 2030, implying an OXY future value of around $120 per share, which certainly isn't out of the question especially being so cyclical and so far in the future. I'm personally hesitant in attempting to value oil & gas in a decade's time when I see renewables and vehicle electrification showing so much potential to displace them rapidly in many areas of the economy as they become cheaper, so I feel it's outside my circle of competence to make long term investments unless they're cheap regardless of a substantial future decline, but I think the odds that Warren will obtain a decent return given current cyclical low valuations are pretty good. In the mean time, the warrants will probably receive a Black-Scholes like valuation for Berkshire's accounting purposes, based on recent history of OXY's stock price behaviour at each accounting period, which could vary quite a bit throughout the cycle. Incidentally, Yahoo Finance reports that the jet-tracker found the Occidental corporate jet flew to Paris after Omaha, perhaps to make overtures to Total regarding Mozambique assets that they would need to sell as part of the potential acquisition.

I don't think the Occidental deal is an any way Buffett or Berkshire Hathaway competing to make a hostile takeover. Berkshire is simply offering capital to Occidental that they will only need if they complete the takeover, then Berkshire will be paid interest on that capital and obtain a warrant with the option to take a non-controlling stake in Occidental at a future date at an entry price close to today's market price. Berkshire's funding certainly adds credibility to Occidental's bid in terms of them delivering the asking price, but it's Occidental that is making the acquisition bid, not anyone who has offered funding that can be used to pay for it.

This could be an interesting question for the Annual Meeting or for the CNBC interview on Monday.

I'd say that the difference is likely to be marginal, probably very slightly in favour of Berkshire, especially if you can buy it when it's cheap. And there's likely to be a little less variation with Berkshire and I believe the business quality, long-term owner-oriented thinking and the honesty of accounting is better with Berkshire than the S&P500 constituents collectively. That's why I'd be happy to hold 100% Berkshire just like 100% S&P500 index. Reading forward from about this post in the 2018 valuation thread is probably quite informative regarding a few opinions around here in relation to that question, but there are certainly times when a Value Investor can identify at least one position that is likely to do significantly better than Berkshire and when they may be wise to switch a substantial portion of their portfolio into that, at least until the Price/Intrinsic Value ratio switches back in favour of Berkshire (hopefully thanks to a price rise)

And this deal would more than offset the $1.88bn pre-tax proceeds from the USG takeover that completed last week. The news and its timing before the Annual Meeting also helps remind execs that Uncle Warren may be willing to help out with funding when they're doing deals.

Very interesting. Looks pretty attractive if their acquisition is successful. Thanks for posting, @james22

I think it's important to remember that not everyone is playing the same game, not everyone has the same goals in terms of upside potential and downside risks, and not everyone has the same approach or the same circle of competence. So both the buyer and seller of Berkshire Hathaway at any one moment may both be making perfectly sound and rational judgements even though they're doing opposite things. For example I've certainly sold some of my Berkshire stock on a number of occasions when I thought it was fairly cheap or even very cheap to fund the purchase of something I considered to offer a more attractive prospective return and risk profile at the time. On at least one occasion I've even taken realised losses of as much as 4-5% since my most recent BRK.B purchase to do so (that one will feature in the capital gains section of my next tax return), and I have so far benefited greatly from doing so in comparison to the counterfactual situation where I didn't make the trade. But I can see that the person who bought my BRK.B shares was also making a very sound decision and would have profited well from it. I'm not so sure about the person selling what I bought with the proceeds. And at certain times, having made a great return elsewhere, I've traded back into Berkshire at a somewhat higher price than I had previously traded out. As a very smart value investor recently pointed out to me over a bagel, it's always best to play your own game and not to try to emulate someone else's, because your goals, risk appetites and circles of competence will clearly differ. It's also more important to focus on how you're positioned now to benefit from future developments (and how your portfolio's Intrinsic Value may have grown) than to be concerned with whether you're currently ahead of the index or trailing it since the last arbitrary snapshot date at some particular point in the earth's orbit around the sun. Frankly just seeking a decent return and safety of principal going forward is far more important than chasing to catch up with the index in a certain timeframe at all costs. If you get that right, you can still outperform and/or meet your goals in the long run even if you underperform for a few periods and will probably be safer in doing so. For me, the point about short-term index comparisons is certainly relevant right now. My returns last year benefited from a big boost in the last few trading days of 2018, but four months into 2019, while I have a satisfactory gain so far, I'm trailing the S&P500TR and the FTSE100-TRI by a few percent. Although I passed on one great recovery play that didn't quite meet my demanding margin of safety (which subsequently left the station at great speed without me on board), I still feel that what I have will come good eventually. I believe that my portfolio's IV has improved and that I should be pretty well positioned to benefit from hidden value I believe I have identified that should at least partially get priced in later in the year as what I have discerned becomes more obvious to Mr Market, so I'm happy to accept temporary 'underperformance' whilst the market has been on a tear as my cost of entry for positions that I believe have been undervalued but will likely soon be re-rated upwards. So I should hopefully do OK for 2019 (whether or not I overtake the index) even if I don't come across any of those rare high conviction ideas that meet my margin of safety, and I'm happy that I'm playing my own game according to my own strategy. Back to Berkshire specifically, as someone else pointed out recently around here, the 10 year comparison is very interesting right now as the S&P500 was quite cheap at the beginning of that period in the GFC bear market and rose more sharply than Berkshire and is now close to regaining all-time highs, while Berkshire today is moderately cheap in comparison and is about 3.3% below its all-time high which I think wasn't as lofty as the S&P500's all-time high. In a year's time, the comparison will start in 2010 and Berkshire may well look like the winner in that comparison, just as it does over a 9 year comparison now. People with 10 fingers across two hands just happen not to be focusing on the 9-year comparison right now. I'd be quite happy if we get a lot of press saying that Buffett has lost his edge to lower the price while I'm buying and while Berkshire may be buying back stock.

Actually, I got a bit lazy in removing the r's from that batch of places, though some Brits from the western parts would keep them in. Being non-rhotic, I would also pronounce it LESStah, WOO-stah-sheah without the r's and with first syllable emphasis. There's a Rainham, Kent in the UK, which is RAIN'em too. An amusing story one of my old school friends recounted was a car pulling over beside him as he was walking along the main road near Battle, East Sussex around 1988, and the American couple within asked him, "Excuse me young man, is this the correct road to get to SAVANNAH-WAX?" He looked bemused and said he didn't know such a place until they showed him the road map with the town of Sevenoaks (named for a cluster of seven oak trees) that they were planning to visit, some 30 miles up the road. He was then able to tell them it's pronounced seven-oaks and confirm they were heading the right way. Obviously they had decided in their heads that the word should be split Se-ven-o-aks to be pronounced, and with their slightly different vowel intonation to his, he picked it up as Savannah-Wax, which was a new one on all of us. I feel there should be a native tribe in Kent call the se-ven-o-ak people after whom the town was named, who now prosper from the sale of a high grade car polish marketed as Savannah Wax.

That's an aptly named location for a member of this forum. Very apt indeed. I once pondered calling myself SussexHathaway online as I live in one half of that traditional county, a couple of counties away from the Royal County of Berkshire, which for those who don't know, contains Windsor Castle in the town of Windsor, one of the Queen's major residences. But someone had made the same kind of joke on Motley Fool I think - SuffolkHathaway if I recall correctly. I worked in the county of Suffolk for a while too. I wonder @Lemsip, if, like me, you've adopted the American pronunciation for the company Berkshire Hathaway (which I did after a number of years when there was more audio content and YouTube videos to confirm how it was pronounced by the likes of Warren and Charlie) We Brits have developed some bizarre pronunciations for place names (famously Leicester being pronounced LESTER, and Worcestershire being pronounced WOOSTER-SHEAR with a short OO sound, and don't get me started on small places like Trottiscliffe = TROZE-LEE, Wrotham = ROOT'UM or Happisburgh = HAZE-BRUH!). For Brits, the county of Berkshire is pronounced BARK-SHUH or BARK-SHEAH by the non-rhotic Brits from the south-east who usually drop the final R sound from words like Hear in normal speech, or BARK-SHEAR for those rhotic accent Brits mainly from the western parts. I've heard British financial journalists like Evan Davis, who interviewed Warren Buffett a few years ago for the BBC, refer to Berkshire Hathaway with both American and British pronunciations at times, but probably veering to the more American version BURKE-SHUH or BURKE-SHURE or even BURKE-SHY'R for consistency with the interviewees.

I think European railways have quite different economics anyway. Fewer places are very distant from the sea and navigable rivers than in North America, population density is higher and thus road transport of containers directly from ports can be more viable than rail, a trend that has certainly reduced UK good trains by orders of magnitude since the 1970s, while shorter distances make passenger trains more viable, though some form of subsidy is usually necessary and the public private mix varies by country.

The purchase of USG Corp by Knauf completed on Wednesday at $43.50 per share (in addition to the special $0.50 dividend in Q4 2018) so I've now modified the sheets hard coded to $43.50 to reflect the cash proceeds before tax and I've zeroed the EPS figure. I'll eliminate the position when the 13-F comes out on 15th May.

Haha, I have a similar situation for some of the same sort of period. I've managed to piece together most of my client ledger, but I'm missing a few exact dates and prices from early trades in the the time before I switched my broker to allow non UK trading. Luckily my exact Berkshire purchases are ones I kept track of, and Yahoo Finance helped out with historical exchange rates to convert them to USD. Mine was in an ISA so no need to keep records for tax purposes and BRK.B gave me the added advantage of no dividends to reinvest and pay withholding tax on, giving me a further advantage over an S&P500 index fund. There turned out to be other advantages over the equivalent index fund investments based on what I could fund with the proceeds in 2014-2015 when the index was lagging considerably, perhaps more by luck than judgement. I agree with that and what @Paarslaars said, and would add that in addition to this, I'm happy knowing what I'm buying in Berkshire, the integrity and honesty of my business partners and the diversity of its earnings streams, with its relatively consistent IV compounding rate in all economic climates being close to that of the S&P500 long term and with the price being below a conservative estimation of IV by a relatively consistent margin over time. With an index fund I'm less certain of that, but make up for some of the uncertainty with a little extra decorrelation among the constituents, but I feel Berkshire is the better bet for me almost all of the time (or if I feel it's a little pricey I may just wait in cash until it's in the lower part of its range). It's also why I'm entirely happy holding a 100% weighting in Berkshire for the long term. So while BRK.B is a bedrock of meeting my long-term compounding goals, since I became more active as an investor I have also found BRK.B to be useful currency in funding rare high-conviction opportunities (e.g. 25%+ cagr) where I might want to put in, say 25% of my portfolio. BRK.B is usually trading at a similar or lesser discount to IV than when I bought it, so I'm usually gaining around 10% a year (way better than holding cash) while I'm waiting, I'm usually paying a price towards the lower end of Berkshire's trading range, and I'm very unlikely to lose very much purchasing power in the short term even if I happen to come across that other big opportunity within months of purchasing more Berkshire. I'd imagine I'd be very unlikely to lose more than 10-15% this way by the time it came to sell some BRK.B, and I'd be much more likely to gain while waiting, and that the margin of safety in the High Conviction Opportunity would far outweigh my low-likelihood 15% loss in any case. So I've emotionally prepared myself to eat the loss and not paralyse myself through loss-aversion into missing out on the HCO. It's a matter of my own temperament that I've prepared my mind and twisted my thinking to overcome my loss-aversion instinct enough to relish the taking of a certain 15% loss in BRK.B over a few months as part and parcel of the process of locking in a high conviction opportunity for a much larger potential gain in the future. I guess I give my self a little dopamine reward when I recognise I've overcome such a cognitive bias just as I do when cutting my losses (or sub-par gains) in selling positions where my original thesis has changed. I think the most loss I've actually taken on my most recent Berkshire purchase to buy into a high return opportunity is just short of a 5% loss in about a month, and far more often I've gained purchasing power (e.g. 15% in 3 months) while waiting. I think having Berkshire as the bedrock of my portfolio doing all the compounding that I need and expect also helps me to remain focused on waiting for opportunities that truly meet my high conviction threshold instead of just buying things that look reasonably priced but don't really scream out as bargains. Yes, I'd agree that the index can go on a tear from time to time, while Berkshire stagnates, and I'd expect Berkshire's IV to compound close to or slightly lag the index when the index is rising, but to materially beat the index most times when the index is falling. There can often be a time lag between the index recovering from a down period and Berkshire's price recovering fully, so you can certainly find yourself regaining ground very much slower than the index in times like the last few months!

@Lemsip - I notice those dates as periods when Berkshire was particularly cheap within its moderately narrow range and when I also took advantage. The decline in GBP also boosted those returns. My overall IRR with Berkshire stock alone is a little lower but still market beating when compared with total return index purchases and sales I could instead have made on the same dates for SP500TR and FTSE100-TRI, this over a period since July 2003 when I purchased around 1.6* Book Value and left the position untouched for 11.25 years. Even if I'd only held the original not-especially-cheap July 2003 position until now, about 15.75 years on, despite a P/BV decline, my CAGR on that tranche alone would still exceed the SP500TR by 0.37% and the FTSE100-TRI by 3.33% giving me $4.26 per dollar invested vs $4.04 S&P or £5.26 versus £3.25 in FTSE. That has made a solid foundation for portfolio growth as my default purchase in which I feel safer in terms of value preservation than the index yet earn about the same return or a few percent more by improving my buy and sell prices since that original purchase.

The refrigerant temperature differences and specific heats in the paper looked impressive, as did the temperature deltas, though I'm not well versed in the field. It will be interesting to see if this type of material, and possibly even better 'plastic' material phase transitions (plastic meaning a deformable solid, not polymer) can be developed into efficient commercially viable heating and refrigeration devices and heat pumps in place of refrigerants like R134a. I'm sure it will take some years if it's not abandoned as unpromising at an early stage, but superficially there looks to be enough potential with this paper and the one by Li (reference 50 also in Nature) for some serious R&D to take place in the next few years to thrash out whether it can be made into viable products for specialist niches (e.g. high reliability/long life to be used in places where it's very hard or expensive to re-gas conventional refrigerants like R134a that might leak over time, so a solid state material could be worth slightly higher cost or lower efficiency) or whether it might even outcompete gas refrigerants for more general uses like freezers, refrigerators, air conditioning and air and ground source inverter heat pumps, etc. It might even allow quieter devices to be made if no hydraulic pumps are required, giving other possible niche uses.

I just Googled the title of the article and read it on my phone without needing a WSJ subscription

Allowing as much as 25% ownership with becoming a bank holding company would certainly allow Berkshire a lot of freedom to make some sensible investments. Such a change would be very helpful to Berkshire.

https://sullimarcapital.group/2019/04/20/airlines-grounded-or-taking-off/amp/?__twitter_impression=true The above is an interesting dive into the rationale behind US airline investments since around 2013 when the latest consolidation was approved, with quite a good deal of applicability to Berkshire's investments into the big four. Now, Barron's has an article along the same lines too. https://www.barrons.com/articles/the-right-way-to-value-delta-united-and-other-airline-stocks-51555956488?redirect=amp#click=https://t.co/YDJpuWGExp

...and he said that once Delta announced how much they had bought back and now Berkshire found themselves above the 10% stake, he thought he might as well buy some more now they were obliged to disclose it anyway (presumably within the 3-day window). I imagine having bought about $150m around the time of the announcement, taking him to 10.10% he decided to buy another $116m worth, taking the stake to 10.44% (see my post on the Look-Through thread). I imagine he might consider staying at the current holding and not reducing to keep below 10% (thus it will gradually rise as DAL buys back stock), or he might decide to sell some around the time that his holdings would be about to be revealed anyway, such as the dates of 10-Q or 13-F filings to get back below 10%.

Lubrizol has made a presumably modest bolt on acquisition in France. Laboratoire Phenobio is the company's name. There was a press release too..