shalab
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Posts posted by shalab
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Starting a thread on this - a couple that come to mind:
In the last decade we had several greats - Big short guy(s), Einhorn, Ackman, Ericopoly, packer, uccaml(from our board) Pabrai, Guy Spier etc.
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Shareholder letter, pgnt going below book - opportunity to buy ;)
http://pgntgroup.com/wp-content/uploads/2014/02/PGNT-2016-Letter-to-Shareholders.pdf
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Sanjeev has also done some work in VA real estate I think - may be he can share his experiences here
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True - here is Munger's friend John Arrilaga who is a real estate billionaire.
https://en.wikipedia.org/wiki/John_Arrillaga
Microsoft co-founder Paul Allen has also made money in real estate (vulcan ventures).
There must be many real estate moguls in Europe/Asia - many countries here have higher population density per unit land compared to the U.S
e.g: Property prices in South Korea
https://en.wikipedia.org/wiki/Gangnam_District
Real estate has probably created more wealth than any other asset class on earth but where are the accounts of the great real estate investors? I know of two RE investors (Sam Zell, Bruce Flatt) but many good equity investors. If you know of any and/or their writings that would be appreciated. TIA.
Packer
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Looks like it would have been up > 3% if WFC was flat. With KHC up > 15% and if the banking stocks come back later in the year, things should work out well for BRK.
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Read this article on what people are willing to do
http://www.bloomberg.com/news/articles/2014-09-04/how-to-get-into-an-ivy-league-college-guaranteed
This is not for everyone, a million dollars is a lot of cash for some folks (including me) but not so much for some others.
Shalab, you're talking about spending 60k/yr and then 110k/yr for hs? At some point I think you have to measure the value received vs the cost and ask if it's worth it. You could spend a million dollars just getting your kid ready to have a career, or you could spend the same amount buying assets for him to fund the same lifestyle without working at all.
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Your private school is cheap - around the place I live, it comes up to around 40K/year. The good thing about private schools is that the kids get individual attention and all go to college. The chances of doing drugs etc is low. And one can easily spend another 50K/year on a college coach in high school.
This is not including extra lessons such as music, math or sports. Add another 10-20K/year if you want those in after school hours.
Average cost of raising a kid to age 18 is 250K.
This is an even more absurd number than the wedding cost. Consider the median family income is $50k and the average family has 2 kids. That means on average this average family will pay $500k to raise two kids over 20 years (kids 2 years apart). That means 55% of a family's pre-tax income goes to raising kids, or 74% of their after tax income. Does this even make sense?
How does one spend 74% of their after tax income on raising kids when they're spending 30% of their gross income on rent or their mortgage?
I have three boys, I have no idea if they're more or less expensive than average. We use a bit more electric because they don't turn off lights, they eat a TON of food (I'm scared for when they're teenagers), and they need clothes. They eat up shoes like crazy and can destroy clothes fairly quickly. I think the record was having a new pair of jeans a few hours before there was a hole in the knee. But the additional food/clothes/lights/toys don't cost me $13k per year. If it did I couldn't afford them.
I think these studies are skewed by the affluent. My kids go to public schools, my cost is my tax dollars. We have friends who are sending their kids to a private school, it's $9k per kid per year. Over 18 years that's $162k to send them to a private school that may or maybe not be any different than the public school. This family also pays for a nanny, I'm guessing she sucks up the other $4,800 per year they'd need to spend to hit the average number. So if you send your kids to a private school and have a nanny it's possible to hit $250k.
What throws me for a loop even more is that when you think of averages the less affluent have more kids. In theory the cost should be skewed low. If one travels to very rural areas or into poorer urban areas the average family size increases dramatically, and these people are raising kids on very little. I guess it just goes to show how much more the top end is spending that the average is still so high.
I know for a fact we're not spending an additional $41k a year to raise our kids...
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Wedding expense is only the starter ;D- then if you have kids, it will cost you a fortune. Average cost of raising a kid to age 18 is 250K. Then if you pay the college expenses, it will set you back atleast another 200K. Then if you pay their marriage expenses....
Parsad is the wise one here - he is done with all this and has accumulated all the wisdom :D
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Good article - automated driving is definitely going to be a massive disruptive technology along with electric vehicles.
http://www.mrmoneymustache.com/2016/04/15/tesla-road-trip/
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rk - what is your opinion of the quality of German made vehicles? I think they have the lowest quality of any manufacturer at the moment. I have heard from both BMW and Volkswagen owners. However, these brands are doing extremely well in the US - contributing to 75B trade deficit with Germany.
So the question could be turned around... how can the existing industry leaders survive long term under this newly higher level of ambition and execution?
The same way they survived when Asian companies produced higher quality vehicles at lower prices ... government bailouts.
How are they going to reinvent their cultures?They won't. They don't have to.
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In your case - the cost basis should be the original cost basis in TRIP. It gets interesting when the payment is cash + stock.
I have a separate question on sales taxes, when company A is bought by company B; is there a sales tax due to the local government? It looks like the assets would require a sales tax but I haven't seen sales tax being paid in any acquisition - so wondering if some one could shed light on this?
thanks!
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In the past five years, the EPS has grown at 15%/year, investments/share has grown @ 10%/year.
Let us say the growth goes to zero, i.e, no growth in 160K/share in investments and EPS sits at 12.5K/year. If the 160K/share yields 5% - we get 8K/share in returns pre-tax.
Just adding the two gives about 10% yield at today's prices assuming 0% growth.
Also, the odds of getting a dividend is zero as there was a shareholders vote recently and 98% voted not to have a dividend. WEB suggested you can get a low cost dividend by selling your B shares as you need income. It is more tax efficient than a dividend distribution. Also, Munger has said that the day Berkshire offers a dividend is a sad day - as it means the compounding machine is not working the way it used to.
Even if your assumption of 6% growth is likely to provide better returns than SP500 where a bunch of companies are providing "Proforma" or non GAAP earnings - e.g:, VRX's cash earnings which excludes a bunch of costs or Google's proforma earnings or Amazon's overstated cash flow.
If there is growth at 6%/year as you assume, then the return with retained earnings should be higher than 10% (at today's prices).
If Berkshire compounds at 6% then you have:
- 7.1%
- 7.5%
I think it's possible and maybe likely that the majority of his shareholders could find at least one deal (maybe 1%-2% of their capital, assuming 100% allocation) with higher returns. I wouldn't have wrote this if I thought the floor for BRK was 10%.
- 7.1%
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I think you are adding up the debt in BNSF and BH Energy and Financial products - if you look at the principal payment schedule in page 59, it looks very manageable.
Furthermore, S&P looked at this recently and re-affirmed the ratings ( even when not paid to do so )
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If you go with the investments + EPS multiple of 10, looks like it is a 40% discount. Even with conservative models looks like there is 20 - 25% upside from current prices. It is a growing coupon and will grow by 6-8% in 2016.
Looks like some of the equity positions won't be disposed off, from page 109.
From page 109:
Besides, Berkshire has access to two low-cost, non-perilous sources of leverage that allow us to safely own far more assets than our equity capital alone would permit: deferred taxes and “float,” the funds of others that our insurance business holds because it receives premiums before needing to pay out losses. Both of these funding sources have grown rapidly and now total about $151 billion.
Better yet, this funding to date has often been cost-free. Deferred tax liabilities bear no interest. And as long as we can break even in our insurance underwriting the cost of the float developed from that operation is zero. Neither item, of course, is equity; these are real liabilities. But they are liabilities without covenants or due dates attached to them. In effect, they give us the benefit of debt – an ability to have more assets working for us – but saddle us with none of its
drawbacks.
Of course, there is no guarantee that we can obtain our float in the future at no cost. But we feel our chances of attaining that goal are as good as those of anyone in the insurance business. Not only have we reached the goal in the past (despite a number of important mistakes by your Chairman), our 1996 acquisition of GEICO, materially improved our prospects for
getting there in the future. In our present configuration (2015) we expect additional borrowings to be concentrated in our utilities and railroad businesses, loans that are non-recourse to Berkshire. Here, we will favor long-term, fixed-rate loans
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Somebody noted in the BRK thread that the market caps of Berkshire and Facebook are now identical - what is a better buy now and why? We know Watsa's answer to this but wondering what this board thinks.
Interestingly, operating earnings (before tax) growth at facebook before taxes for full 2015 is 25% whereas it is 18% for the first nine months of 2015 for Berkshire. Per share growth is lower at facebook because of dilution at 17%.
If one looks at share holder equity, FB has 44B in equity whereas BRK is at 248B after nine months of 2015 and likely crossed 250B by year end.
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I have a few qs - Looking at your writing, can't say your maximum education was elementary school. Anyways - here are the questions:
- When do you plan to retire? ( or why do you continue to work )
- What is your return rate
- What are your best ideas for 2016
- Where do you plan to retire to?
cheers!
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BRK-B => never had two consecutive down years in stock price since the seventies
AIQ => interesting at these levels
STZ => beverage growth
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SP500 has done remarkably well from 2009-2015 compounding at an annual clip of 15.8%/year - this poll is to get the boards feeling on the future expected returns.
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What about the Somalis? Looks like they are the largest group coming in.
http://www.wnd.com/2014/09/refugees-in-u-s-state-drawn-to-welfare-jihad/
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What about the legal people who are paying taxes, working for companies like Tesla,Apple, Amazon, Google, Facebook etc. and making America great now?
Many of these highly skilled people are stuck in limbo in h1-b, green card process.
We should get these folks visa first..
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Some of the greatest Americans have been immigrants - e.g; Albert Einstein, Nicola Tesla, Elon Musk, Enrico Fermi, S. Chandrasekhar etc.
Why not prioritize people with advanced degrees and make it easy for them to stay and work in America?
Looks like a couple of states have rejected the Syrian refugees. There are many ways to help refugees - not clear why China, Japan, Russia, Brazil, Mexico and India are not taking these people. May be the US government should put some pressure on them?
Berkshire KHC investment
in Berkshire Hathaway
Posted
This one is a home run, it is amazing just how much this is paying back in dividends already. It is more likely than not that the entire original investment (9.8 billion) will be paid back in dividends in less than 10 years.
Total shares owned:
325,634,818
Dividend per year:
749 million
Market value:
27.4 billion