scorpioncapital

The risk free rate is not 5 or 4 percent. It's under 1 percent. How does this affect the calculation?

Berkshire was as low as 193 I think.

It doesn't matter if dividends exceed or not interest expense. Carrying cost is often negative. It doesn't matter if you earn 1$ and pay 10000$ in interest. Actually it doesn't even matter if the stock does not pay a dividend at all. The rule I believe is IF the stock does not explicitly stated in the 10k or annual report 'we have no intention of paying a dividend ever'. If the legalaze is something like we may pay a dividend in the future or we will consider it it's also ok. It's a bit of a grey area for Berkshire. They said they never paid one in the past (which does not mean they never will technically). Buffet has recently said at a few annual meetings IF certain conditions are met or after his death management may consider a dividend I believe this also strictly qualifies. Unless Cra explicitly states NO dividend now, No deduction I believe their intent is to allow almost all deduction except those that explicitly stated in articles of incorporation we will never pay a dividend or plan to ever pay one. This would equalize real estate investor mortgage deduction benefit with stock investors. That's my understanding anyway.

I feel commerical real estate and oil both have very pronounced boom bust cycles but oil is more political and global , with sources only in some places and not others. Real estate on the other hand is more local and less dramatic I think. I guess oil is for those who love extreme volatility.

They are absolutely not the same. Ask yourself this. Suppose my stock goes down to zero. If I had to eat from this pool of money how much can I eat selling a stock at zero? Nothing. But the zero stock can still pay a dividend , say 20 percent a year paid quarterly. While I may struggle to reach the quarter end I will get cash in my hand. There is no way capital gains or capital is equivalent to income. Look at another example real estate for investment. You control the asset and the cash. You can pay a salary to yourself. You can pay yourself director board fees. You can do this regardless of the asset price or quoted value. That's why stock prices offer opportunities because there is a divergence between value and price. But cash in your hand is there regardless of asset value (some exceptions such as a failing company where dividend is suspended as equity goes to zero or bankruptcy)..you may argue it's a timing issue but when you need cash from the business you don't have the luxury of time. Cash dividend is pragmatic, now. It requires no wait for market to revalue an equity or perform.

A dividend and selling your shares are not anyway equivalent. Imagine you have 100 shares and the stock does not move for a few years. You sell all 100,you have nothing left, then it takes off. On the other hand if you had a dividend you would have the 100 shares and the income while waiting. Since the market price of the stock can't be controlled , selling stock is not the same as a dividend as presumably you must do it on a regular basis for income.

Actually usd is stronger than ever. Strangely even currencies with higher interest rates like cad are worth less. More to value of a currency than interest rates I guess?

A monopolist may buy a competitor and drop the line . This is one reason anti trust regulators try to prevent some mergers

Same..every time I scan the market brk seems imminently reasonable at these prices, although be sure to adjust for inevitably lower mark to market equity portfolio. Probably it's closer to 1.3 but still reasonable.

When you say Berkshire should return 8 to 12 percent a year , from what starting price are talking about ? 230 a share? I guess you can buy on corrections and if you do it well can boost this return perhaps as high as 12 to 15. But we would need a big one.

Upturns create just as many opportunities as downturns. Maybe I'm missing something.

Why do we need a recession to make money when we can continue making money as stocks keep going up ? )

Interesting in 2015 was 30 pages long 2018 and 2019 14 pages and 2017 16 pages. Any clues in the length ?

An explanation for a long stretch of underperformance with a plea to 'trust me'?

Depends on the size of your account but I see little advantage to lite for me. Pro I pay 35 cents commission (vs zero for lite) but lite does not give you best execution , using market makers. So for 35 cents a trade it's not worth it. Also , do you plan to borrow ? If so , again pro is better deal.

Cash is the riskiest asset ...long term. But nobody has defined long term. Also one hasn't defined the level of cash that is risky or not.

I would look at interest rates as a bell curve. Too low means economic problems and certainly not stocks to the moon. It's the combination of low rates and recovering economy. Too high rates also will snuff out the high valuations. So it's like the habitable zone in exoplanet hunting. It's a range and either side of that range is dangerous.

Europe has some good companies but it's amazing what shooting yourself in the foot as a society and system can do to reduce returns. UK and Canada and Australia have not had great returns either due probably to commodity focus.

Yeah, I helped my sister in law set up a TFSA account with IB in Canada. I'm based in the UK, and it's a shame they don't offer the UK equivalent ISA account. They were probably forced by regulators in Canada. I don't get the impression they really want to.

I don't quite understand this line "Casualty insurers often invest in common stocks with a value amounting roughly to their shareholders’ equity, as did Berkshire’s insurance subsidiaries. And the S&P 500 Index produced about 10% per annum, pre-tax, during the last 50 years, creating a significant tailwind" If an insurer places into stocks merely net equity, where is the benefit of the float leverage , with which one can invest in equities in excess of book value, namely if you put 2x the assets as equity into stocks you have 2 to 1 leverage. Is Charlie saying Berkshire did not use the leverage of float? Or did Berkshire use float exactly as all other insurers (say 20 percent equities and 80 percent bonds) but that they allocated their unleveraged stock portfolio better than others for higher return? Because if Berkshire did not leverage float into stocks we cannot say insurance float is interest free leverage for stock portfolio right ?

So if a company is some sort of leveraged buyout deal it starts with a low ROIC and the ROIC increases as debt is paid down up to the natural limit of the business? Also what's the difference between ROIC and return on purchase price? Say a company has $1 of book equity and $40 billion in debt and a market price of $40 billion. One should calculate return on $80 billion or on $41 billion?

Quite interesting. Are we to understand that held long enough any company's yield on purchase price will approach ROIC? It seems the capital efficiency is one of the main engines of wealth creation, is this only because 'hard' resources are finite and usually must be financed by debt? If a company uses debt so that ROE>>ROIC, should the calculations in the table in the article be adjusted because the shareholder's return - assuming no blow-up - is on the leveraged equity portion? Is there an adjustment to fair value P/E for leverage used?

From what I understand here, it may be easier to incrementally earn some required (or higher) return with few assets than with many (the problem of eventually needing maybe even all the assets in the country, etc..) and I found it interesting the part about capital being or not being free. Would this imply that when money is 'cheap' as might be today then hard asset businesses become more desirable because the major constraint of cost of money is reduced? Now if rates increase, then potentially a business with no assets that makes money is not as encumbered by the costs associated with raising capital? I also imagine that when we talk about hard asset business we talk about borrowed money as the sums are so huge few people have the capital to own them outright?

Seems a simple question but I could not answer well for a friend. Why is higher return on investment better? Why is 1 Percent on a billion dollars worse than 10 percent on 100 million when it's the same profit ? Why is making money with no assets the paradise business? Is it a question of efficiency or resource utilization even if result is same at the bottom line ?

I already see Buffett being quieter, maybe there is truth to his line that he wants to be like the Wizard of Oz and give commands from beyond the grave) Might even be a non-event this way of 'bowing out'. Look at the founders of Google who just bowed out at even an early age.