scorpioncapital

Mark's main thesis is you need massive leveraged upside in rare events. Doesn't even matter anything else. So anything that doesn't go up a whole lot isn't going to work. I was looking at say TTT, 3x leveraged short 20 year bond etf. But it just isn't going to work as even that is not enough leverage. Maybe the options on such an etf would be better.

Sure...although ideally I would like the bright future to happen under Buffett too. He's 90. He could be around another 5? years. I really don't want to wait another 5 years of just being a trustee added onto 10 years of somewhat tracking SP500. I'm actually happy to hold Berkshire with slight underperformance to SP500 because I own other securities that complement the circles of competence he's deficient in. However, I'm not sure what the underperformance to SP500 is, but any meaningful divergence , say over 2-3%/yr could be huge over time.

I'm just worried he isn't expanding his circle of competence. Nothing wrong to be focused but when do you decide it's time to move on from horses to cars? Or an entire new field with better future? Sure the old businesses can pump out profits for decades but if growth is slowing or negative, it can trade like IBM or a value trap. There are a few cutting edge businesses inside Berkshire (or investment portfolio), but not many. Inaction is also problematic as it has the price of deferring future growth to the next Berkshire CEO at the expense of current shareholders. Underperformance has occurred for perhaps 10-15 years. That seems somewhat long period when one could have been riding the SP500 horse.

I found this quote from 1995 kinda funny given the pandemic of 2020 "So, to sit there and hope that you buy them in the throes of some panic, you know, that you sort of take the attitude of a mortician, you know, waiting for a flu epidemic or something, I mean — (laughter) — it — I’m not sure that will be a great technique" Guess he was thinking of epidemics even 20 years before Gates lecture of 2015!

Not sure I understand the short put portion of your strategy. Does that somehow work to boost the payout in a cataclysm? I looked at pricing on Vanguard sp500 etf (lower management fees) but the prices are still too elevated. I mean you want pennies on the dollar like maybe 10 or 20 cents but I think it's still very elevated, which suggests fear in the market has not yet dissipated. Also there is a real risk in future periods you have inflationary depression which means sp500 may go up but not fast enough relative to costs. But all those options would always be worthless for a very long time.

Industrials and military defense did tank, and that is within his circle of competence. Philips 66 hit 40 and it had a huge dividend is not directly exposed to oil and he didn't touch it. Instead he touched the OXY junk. I really can't reconcile some of his behaviour with what was available in mid March and within his circle of competence. What was wrong with Lockheed martin with a PE of like 10-11? And this is only a few of the stuff I have in my portfolio that seem quite decent back in March and big megacaps.

Small ticket items may be deflated but big ticket items like rent, labour, medical seem to offset a lot of that. Inflation of essential supplies will magnify inflation especially if nobody is buying discretionary things - definition of stagflation.

So why doesn't he just plunk down the 130b into the sp500 index?

But he also said that unlike the 25 years of going nowhere from 1929 to 1954, the Fed now has FDIC and other tools. I actually got the opposite impression that it will be much shorter than a 25 year depression because of what the government is doing. Exactly right. He also said he expected inflation, which would be rather a different outcome. I happen to think an inflationary depression is pretty much the same as a deflationary depression ) But at least the Dow or SP or whatever will go up, just not as fast as all your costs.

But he also said that unlike the 25 years of going nowhere from 1929 to 1954, the Fed now has FDIC and other tools. I actually got the opposite impression that it will be much shorter than a 25 year depression because of what the government is doing.

Did anyone feel Greg Abel is not exactly as witty or eloquent as Warren Buffet? If he becomes CEO it may be a different vibe.

"So if stocks are cheap if rates stay low, why arent you buying stocks?" An IF statement is just that. IF. As such it is a probability. It is a risk assessment. People can judge the risks differently because on the other side of that IF statement is exactly what Berkshire is preparing for - the chance that the opposite happens. Berkshire still owns vast amounts of equity and business. More than 60%. But I think it would be imprudent to make an IF statement a 100% certainty. There has been massive strange going ons in Fed actions, interest rates, behaviour globally. This has led the sp500 and others to outperform taking the IF bet all the way to 100%. But if they are wrong eventually, I wonder if Berkshire will be on the other side being able to outperform in some future 10 year period. He is a little passive for my tastes too, but perhaps it will pay off and all the more aggressive investors are going to be giving back some gains in the years ahead.

137 billion in cash is insurance that the tide against the old world businesses is permanently changing. This is a very slow moving process. No rush. But I hope they're studying tech and biomedical fields as those are likely to be with us forever in the future. Berkshire textile mills took a long time to close down. Meanwhile they took capital and put it elsewhere. The big debate here seems to be is there a rush to do so? Or is there time to do so? I mean berkshire may have underperformed a bit the sp500 but not enough to suggest that a rush is mandatory yet. Berkshire is not a bond alternative - it dropped like 30% in March! and several times before 50%. This not a bond. Also in a low rate world for a long time, value of low cost float is diminished. Everything Berkshire is doing - or not doing - seems to be safety for a changed environment. It is highly likely to happen at some point.

A vast majority of the outperformance of SP500 is biomedical and tech. Those are the 2 sectors sorely missing from Berkshire (except maybe Apple). And that I think is the single biggest reason for underperformance. If he added more to those 2 sectors it would at least keep up with sp500.

There is , I agree, a certain belief that one must get in at the bottom of some crash to outperform. Timing the market. Actually beside the fact you don't know the bottom, or the top , timing the market may not be so important. Berkshire is a giant company so waiting for more clarity, then acting can produce great results even without buying in at the bottom of anything. It really goes back to the idea of look to internal scorecard than external market moves. Maybe he sees danger. Maybe he sees no reason to rush.

But what exacttly is the problem. Airbnb apartments are just standard apartments. For a long time they made what? 2x - 3x their mortgage? Now they can rent long term and cover the mortgage. It seems very pandemic related. If there is so much property in excess of demand then rental prices should go down. Last time I looked I see big rent inflation everywhere.

The problem is there is no political outrage when you bail out the regular people. They keep asking for more and more. The problem before was Wall Street was bailed out. But I don't think anyone is complaining Main Street is being bailed out. But this kind of populism ends when it becomes obvious to the people that the dollar in their pocket is now worth 25 cents.

How else will we generate the much sought after and legendary hyperinflation if we don't bail everyone out?

So are we to conclude that a young or middle age person would be best to avoid Berkshire as it cannot meet the return expectations given this 'old age' conservatism?

I've been reading many articles on this subject and it seems it really is not covered under almost any policy. But they will try to 'legal up' no doubt. I find the American system fascinating. In several other countries in Europe and Canada, the government would just subsidize businesses with a generous make-whole system or just compensate the individuals directly with cash deposited directly in the bank. In this way there is absolutely no need to sue or go after an insurer. But I am not sure why in the USA people are not made whole, at least temporarily, during these closures.

I am surprised Trump, the businessman, would be advocating for this. Everything he has done has been pro business like lower taxes and regulation. Is the idea of these retrocessional pandemic interruption clauses that the government would then reimburse the insurer in part, like a chain of reimbursement or the idea is pretty much to stiff the insurance companies? I don't really understand it since the Federal government has been doing a ton of helicopter money why would they not just pay the tenants or landlords or insurer directly with federal cash? Why are they looking for a scapegoat in one area vs another?

Here's another way to look at it. While insurance float has zero or low cost in general, it's still what is essentially a low-cost margin account. If YOU were invested on margin, say 70-30 as Berkshire is with investments+cash would you add even in such a downturn? You're already fully invested if you consider your leverage level. As such you either need a SEVERE cataclysm to add or things to get better and rotate some existing holdings into new ones. Ok, it's not a margin account since they are conservative and there is no 'call of loan' risk. But it's still leverage, well used. You have a high bar for action since the leverage already gives you good returns in normal times. You don't need to stretch except in very special situations and this apparently is not enough.

One peculiar feature we see today is massive government involvement in supporting the economy. It is literally helicopter money. This crowds out investment opportunity from Berkshire for bailouts. Of course he could just buy good equities at lower prices. I hope he was at least nibbling. But if you believe they won't be able to unwind the helicopter money after the pandemic passes , then I'm not sure Berkshire is right not to be buying into potentially ruinous Interest rates to come. Then he can buy bonds for high yield and even stocks at the same price or lower than today.

I am not sure Berkshire can offer , for younger investors, a substantial return with such conservatism. While I like it, I certainly don't want a bond substitute.

Maybe there will be smaller units scattered around the country - and also in non-conventional settings like perhaps strip malls , rather than giant skyscraper office towers.