Spooky

I like Fairfax's setup here and have added some more to my position recently. But aren't we all jumping the gun comparing it to Berkshire and their position in 1995? To match Berkshire's track record going forward, Fairfax is going to need to significantly shift its asset allocation from 75% bonds to predominantly equities. As a Canadian company, will Fairfax be allowed to do this by insurance regulators (I'm ignorant on the rules here but there must be differences between the US and Canada)? Also, this shift presumes that there will be good opportunities to buy wonderful companies at fair prices that Fairfax can easily shift capital into. Is the investing environment going forward going to be conducive to doing this? Buffett himself has written that the investment arena is much more competitive now and there aren't as many easy opportunities as there were in the past. There are also many people out there now trying to implement the Munger playbook. Lastly, have we seen that Fairfax is able to identify and buy these compounders / wonderful companies? Where are the Coca-Cola's, Amex's, See's Candies, Apples in their portfolio today? Which companies in their portfolio have high returns on assets, are growing and have durable moats?

What happens from here is really the huge question. The company is so big now, Buffett even wrote in the last letter that their era of eye popping returns is over. Breaking up the company after Buffett is gone would impair some of the advantages it has using insurance float to buy safe businesses. Paying a dividend would be counter to the desires of most of the shareholder base that Buffett has built up. No easy answers. However, there is still a possibility that in a period of financial turmoil Berkshire will be in a position to deploy a significant amount of capital. Given what is happening in the world today I wouldn't count out that possibility. This WSJ article was pretty good: https://www.wsj.com/finance/stocks/warren-buffett-berkshire-hathaway-returns-investors-2e0acca9?st=y8ssqh77y6a8wpt&reflink=desktopwebshare_permalink

Market movements seem to be based a lot more on vibes these days. People have become so short term focused, trading zero day options. There is a lot more volatility day to day. However, this gives those of us with a longer term perspective an opportunity to exploit the volatility they create.

If Berkshire's legal structure is set up properly it can insulate the parent from risks at the subsidiary / operating level. Generally the maximum you can lose in a corporation is the capital that you have put into it, there is no default right to go after the assets of a parent corporation or shareholders. There are a few exceptions: 1) parent company guarantees of debts / contracts at the subsidiary level; 2) piercing the corporate veil - a judge can look through the corporate form if a corporation is not run as a distinct entity of the shareholder (I doubt this is a risk for BRK, more common with small corporations with one or two shareholders); 3) certain regulatory regimes like GDPR can give you a penalty equal to a percentage of the global revenue of a company which is terrifying but I think this penalty would be levelled at the subsidiary which violated the rules.

Same. Like to see the evolution in their investing style happening.

Sure but your original post was that the interest payments will be a drag on economic activity in the future. Counter-intuitively there is an argument to be made that raising interest rates is actually stimulative. Still 75% of this income going to American citizens and institutions will be spent or re-invested. It may be a drag if the interest payments force the government to spend less thus reducing GDP. The key question is whether the borrowing is to make productive investments which will increase productivity / GDP in the future. Also, if the US were to switch from running deficits to a surplus that would be deflationary / potentially lead to another crisis like 2008 which has been talked about by Wabuffo and others on this board.

But this interest expense is interest income in people's pockets.

My view is this rate environment is much healthier than zirp.

Little nibble of BRK. Let's hope this market sell off goes a lot lower.

Can't remember where I heard this unfortunately but here is an article talking about Buffett inheriting stock positions: https://www.cnbc.com/id/41868643

Ya apparently Lou Simpson begged Warren not sell their Nike position when he retired but Warren wasn't comfortable holding someone else's idea.

Nuclear events are generally carved out of insurance so the Government would need to step in.

Canadian corporate law is a bit different than Delaware - the fiduciary duty is to act in the best interest of the corporation but you have to consider the interests of all the stakeholders in your decisions. In practice, courts still give a lot of deference to boards of directors so as long as you can demonstrate you considered the stakeholders other than shareholders in the decision making process. It is not just straight maximization of shareholder value.

Ya it definitely feels like Covid accelerated everything becoming so political, didn't help that it forced a lot more people to spend more time on their phones / internet rather than interacting with real people in person. Seems like we haven't addressed the root cause of people being driven further apart to the extremes - Facebook and other media driving outrage / division for profit.

Fair enough but if you look at the total amount of Berkshire stock he repurchased in 2023, $9.2 billion, and then the approximately $2.2-$2.4 billion up to March 6th then the aggregate amount is pretty significant. It would exceed the value of Berkshire's Moody's holding as of the last 13-F and that is a top 8 public holding. Just seems like his actions are somewhat inconsistent with the points raised in the annual letter. Maybe he is trying to talk down the share price so he can buy back more at a better price?

Thanks for sharing. I find it interesting that Buffett is buying back stock so heavily given his pessimistic statements about Berkshire's future prospects. Maybe one of the few companies capable of moving the needle is Berkshire itself.

The CNBCs of this world are in it for the eyeballs. You might find this interesting, on page 5 of this JPM Eye on the Market they give an "armageddonist update". Obviously, once things have crashed, they all seem to predict further pain to come. https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/eye-on-the-market/five-easy-pieces-amv.pdf

Grantham back at it again: https://www.gmo.com/americas/research-library/the-great-paradox-of-the-u.s.-market_viewpoints

What is the flaw vinod1 (apologies if I missed it above)?

No chance in hell.

Agree with you there. He didn't paint an optimistic long-term portrait of the company. Barring some financial calamity where they are able to be the buyer of last resort, they will struggle to move the needle given their huge size. Given the issues discussed with BHE, if they aren't able to re-deploy their capital in a way that meets Buffett's test for retained earnings, I can see them instituting a dividend which would be unfortunate for me. As a Canadian I'll get hit with withholding taxes. The pendulum of market sentiment has changed from fear to greed, time to be cautious.

Maybe they have some attractive daughters too . Something in the water in Omaha...

Excellent letter this year. Was interesting to see him say that the five Japanese trading houses have more shareholder friendly policies than American companies like buying back shares as a discount and management not being so aggressive with their compensation. There were a few subtle and not so subtle digs at the direction the US is going such as the regulatory aspect mentioned above but also the casino mentality and Wall St. Also that part at the end about going to Omaha to meet Bertie and her attractive daughters was hilarious!

But they already have Amazon in the 13F? Believe it is one of the T&T positions.

This is essentially correct - there is a good paper out there called Buffett's alpha from 2013, I've pasted the abstract below: Berkshire Hathaway has realized a Sharpe ratio of 0.76, higher than any other stock or mutual fund with a history of more than 30 years, and Berkshire has a significant alpha to traditional risk factors. However, we find that the alpha becomes insignificant when controlling for exposures to Betting-Against-Beta and Quality-Minus-Junk factors. Further, we estimate that Buffett’s leverage is about 1.6-to-1 on average. Buffett’s returns appear to be neither luck nor magic, but, rather, reward for the use of leverage combined with a focus on cheap, safe, quality stocks. Decomposing Berkshires’ portfolio into ownership in publicly traded stocks versus wholly-owned private companies, we find that the former performs the best, suggesting that Buffett’s returns are more due to stock selection than to his effect on management. These results have broad implications for market efficiency and the implementability of academic factors.