shalab
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Posts posted by shalab
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He asked everyone to buy C. He expects it to triple in three years. This morning, C is down.
cheers!
Shalab
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8.8% dilution - kind of expected this to happen. Still, not as bad as I expected.
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Thank you - wish you a great weekend as well!
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NYTimes carried an article on the resumption of bidding wars recently.
http://www.nytimes.com/2009/11/15/realestate/15Cov.html
This is not an aberration. In my place, for a million+ dollar property, there were four bids.
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With so much risk, investors are not going to be allocating much of their portfolio anytime soon.
Well, not all are alike. My friend recently bought a new construction which was 3700 sq. ft. while renting out his old house. He was looking to buy another house but now he paid less price than he would have paid two years back. My friend liquidated part of his equity portfolio to pay for the house. Liquidating the equity was prudent. His rationale is that he doesnt know how to invest in equities and he thinks the houses will work out for him in the long term.
Also, the recovery in the equity markets has helped. Vanguards average 401(k) plan is now above where it was two years ago by some 7%.
cheers!
Shalab
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Buffett has said that the inventory should stabilize by mid 2010. He is probably right as the demand is very low. There is a house construction going on near my house, the builder had permit for six houses in 2008 and nothing got built till now. He has put up one house now and dont see any customers flocking to buy the house. He has already pulled in water, sewer and power for all the houses.
cheers!
Shalab
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Signal of great downside or more upside for stocks.
http://www.bloomberg.com/apps/news?pid=20601087&sid=ae_qam_SR.8o&pos=3
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Kind of interesting to watch, after the half way point. Looks like the prime minister is also bullish about America's future. Interesting to watch given that he graduated from the london school of economics.
http://www.cnn.com/video/#/video/world/2009/11/22/gps.singh.interview.cnn
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It seems more like Japan than anything else at the moment. The government is trying to inflate but the population is trying to save and deleverage. The savings rate is expected to go up even further from where it is today. ( somewhere in the 8% range ). The prices wont fall like it did in Japan as US economy is pretty open and there isn't much room for prices to go down. The economy is pretty slack and a lot of people need to be employed before the economy takes off again. I dont see huge inflation for another two-three years and then we may get inflation and no growth for a few more years. The only upside for the US is that the population is going up and not down.
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OTOH, I got declined for a SBA loan by USB for the same reason you did. Although I had the assets to buy out the business outright, I was refused the loan for lack of experience in that business. Wonder how WEB gets the loan although he doesnt know how to run the railroads.
cheers!
Shalab
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I didnt submit the W2 and got away without it. I had half the mortgage amount in cash in the bank though.
cheers!
Shalab
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Dell has had declining cash flows for the past some years. Their business model ( build to order and collect money upfront ) went broke when they went to emerging markets. They had to build inventory and I dont see any attraction in their stock.
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If the deal is done to soak extra capital, I think it is a bad one for shareholders. You can issue dividends to shareholders or do other things to take care of liquidity.
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The borrowing costs should go down with brk as the owner. If you look at the different in spread between Microsoft (AAA) and FFH(BB), it is about 4% points for long term debt. Since BNI has similar rating as FFH ( upgraded after the deal was announced ), the borrowing cost should decline. On 10 billion of debt, 1% difference is 100 million dollars.
I dont expect oil prices to go down significantly anytime soon or alternative technologies to disrupt BNI for the next 10-20 years. The real alternative that can kill BNI is a super jumbo cargo plane that uses alternative energy to fly reducing time and cost.
cheers!
shalab
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Also, Gieco has its own CIO, Lou Simpson who does the capital allocation. Not sure if excess cash goes back to Buffett to allocate.
cheers!
Shalab
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Sanjeev, you raise a good point. Netjets has been sucking cash and not returning anything in return. I think it is a non berkshire type of business and hopefully Sokol can fix it up for good.
While BNI is definitely not like Sees and Geico, I hope it is more like Mid American rather than NetJets. Once berkshire acquires it, I hope its borrowing costs go down. It currently pays 600 million in interest. It should reduce by 50-100 million dollars given the differential between BNI's credit rating and Berkshire's credit rating including Berkshire's added surcharge.
BNI pays 500 million in dividends. I think of it as the excess cash thrown out by BNI. Also, BNI has been spending few hundred million dollars every year to buy back stock. There is no need to buy back stock any more. Also, none of these companies are entirely debt free ( e.g: midamerican ), they take on debt to maintain their operations. I see atleast a billion dollars freeing up from lower interest rates, no stock buybacks and no dividends.
The extra cash should go to the headquarters unless BNI is planning on buying another railroad :- ).
cheers!
Shalab
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Burlington, like MAE, will suck up excess cash at Berkshire for the next 50-100 years. That means less cash in the hands of the potential CIO's, who are unlikely to be as good as Buffett...at least over such an extended period of time and with large amounts of capital. There are much smaller and cheaper targets that we all can look for. Cheers!
Agree that Berkshire optimizes for its size and what is good for a 150B+ company is not good a person holding tens of thousands of dollars.
However, the way Berkshire is structured, dont think Burlington will suck Berkshire's cash. The way it is structured at Mid American, Berkshire borrows money using its AAA rating and lends to mid american at one% additional interest. Thus the collapse of Mid American will not mess up Berkshire. I would be surprised if Burlington will be structured any differently simply because it would hurt Berkshire as an entity.
cheers!
Shalab
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Well, every substitute/alternate discovery that is needed takes energy to create. Today, this energy is generated through the petro-chemical industry. To produce ethanol, one needs fertilizers which is produced from crude oil.
One substitute that is available in large quantities, burns more cleanly than gas and is cheaper is natural gas. Unfortunately, none of the car/truck engines are being retrofitted in the US to burn with natural gas.
The last factor here is the emerging markets of India and China. The amount of gasoline consumed world wide is going up, not down despite the drop in the US to 1997 levels.
Thus, the price of gas is expected to go up and not down in the next ten-twenty years.
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BNI isn't cheap by today's standards. However, I think it's moat is probably bigger than Coke. No one is ever going to put a rail road like BNI in the next one hundred years - it is just not doable today. The article in "value investor's club" puts the yield taking into account tax deductions for railroads at 12%. Given the recession and price paid, even a 10% yield can be quite a deal :- ).
http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/3011
cheers!
shalab
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Can you please explain how did you calculate your numbers?
cheers!
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As Munger says, you can learn by collecting inanities. This way you build your mental models on human nature and the way the world works. There are many such examples in this world and you collect them as you go. If you observe and keep a collection of those, you will do fine.
The poor charlies almanac was terrific as it brought together so many disparate things together.
Collecting inane stories is interesting in itself. The Rudy Guliani and his wife's story is interesting. As is Elliot Spitzer. The thing I got from snowball was the thing about Larry King. I think Buffett judged him right, never been impressed with his interviews. Buffett experiment with Dale Carnegie principles in high school is interesting as was his firing of his secretary the first day.
cheers!
Shalab
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I think Mary Buffett does a better job than Alice ;D
cheers!
Shalab
would you borrow to buy Fairfax at current prices given the following terms
in General Discussion
Posted
I voted no as it didnt have the interest rate noted. 9 yrs at 2% is a good deal but not sure if I want to be hitched to FFH all the while. If you have the option to go with MPIC funds, then I would vote yes ;D