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Everything posted by rranjan

  1. Start of year it was 6.5B for every 1% parallel rise in short and long term. Attached snapshot shows details. On March end, it was around 5.5B for the same change. Portion of earning call transcript. ------- Q1 2022 Earnings Call Now we typically disclose our asset sensitivity based on a 100 basis point instantaneous parallel shock in rates above the forward curve. And on that basis, asset sensitivity at March 31 was $5.4 billion of expected NII over the next 12 months, and 90% of that sensitivity is driven by short rates. That $5.4 billion is down from $6.5 billion at year-end, largely because higher rates are now factored into and running through our actual or baseline NII.
  2. Thanks for taking time to put the details. I am just curious about it. I don't use any of it for my investments, but curious about it. So big picture I am getting here: Demand for long end( for example 10 years) treasury was not that high in early part of 2021 and 10 years rates rose as result. Then we had high demand starting from Mid-March and that put the pressure and yield on 10 years did not go up after Mid-March. What happens starting Aug and why? Demand for 10 years treasury shouldn't go down starting August. I know you answered it earlier, but something obvious to you is not obvious to me even after reading your detailed post.
  3. Agree here. Building a resume for 15 years so that you can do so and so .... A better idea will be to start doing whatever you want to do. Sure, you can't start writing full-time poetry when you have 5 kids to feed, but plenty of people unnecessarily keep building their resume for doing something in the future rather simply start doing what they want to do.
  4. Not true. You are laying out cash to buy a business in the hopes that someone else will be willing to buy it from you at a much higher value. If the second part doesn’t happen then it didn’t work. You do not actually get the cash a business produces... Some one else will eventually buy it higher from you 100% of times if value of owner's earnings are higher than price you paid.
  5. First of all, the asset base of FFH is not that small (though much smaller than BRK). FFH also faces competition from PE and others for deals in the $1-5 billion range. Second being smaller in now way guarantees success; the lackluster investment performance of FFH over the last 15 years is a prime example of that. I was comparing only with Berkshire in relative terms. Anyway, as you said being small does not guarantee sucess. With similar skill set, being small should provide a higher probability of success, but I don't think that skill set of Prem and Buffett can be compared. Fairfax is priced cheaper than usual right now and owners may do fine in the next few years with insurance hard market coming, but I don't know how to hadicap it. I put it in my too hard pile.
  6. If I can find a business throwing 10% of FCF with very little growth and FCF is not wasted then by owning it I can expect to make 10%. If my investment returns depends on liquidating to produce cash then time line for liquidation matters a lot. If you buy 1 dollar of asset by paying 50 cents then you will do fine if asset can be liquidated quickly. If it takes 10 years and meanwhile business also requires more cash to keep running then it's not going to work nicely. I find it too hard. Even lampert admitted it that it was not a one foot hurdle. ----------- Lampert. "We'd rather jump over a one-foot hurdle too. But it's difficult to find the opportunity. So I'm willing to engage more in underperforming companies." https://money.cnn.com/2006/02/03/news/companies/investorsguide_lampert_stockpicking/ -------
  7. Ceratainly of asset getting converted to cash was not too high. When you have to fire people to liquidate asset, it's not easy to do so quickly. There is time value of money when liquidating. Liquidating within a year is totally different than liquidating within 20 years. Illiquid real estate assets are not worth the claims made by many investors. If assets are liquid and can be converted to cash quickly then situation will be different. I personally put these cases in too hard pile.
  8. Buffett's investment universe is 1/15th the size of Prem's. If Buffett's universe comprises 200 public and private companies worldwide, Prem's universe has 3,000 companies to look at. It will be a huge advantage as long as we assume that Buffett and Prem can be compared as investor. Prem has speculated many times and won some time. Buffett operates differently and his process is likely to produce very few permanent loss. He has still taken 1-2% permanent loss in past, but that's not going to set back Berkshire too much. Buffett process is repeatable and outcome is more predictable. Prem can still produce higher returns due to being small, but certainly of that outcome is not very high. Both are different and can't be compared.
  9. 35% gross margins in retailer won't work when other retailer can operate at 11% gross margin. Department stores fell behind and it's very hard to make math work for customers if your gross margin is drastically higher than others. Department stores needed high gross margin to operate because they had much higher expense. Old customers kept going for a while due to habit , but you can not attract new customers. Eventually you die if you are not providing value to your customers.s Now there was hypothetical value in asset, but it could not be converted to cash. If you can not take out cash then investment will not work.
  10. rranjan, Yes makes sense. How then do you explain Chou Associates 15 yr compound return of 1.6%? Are you saying that value investing community is not able to fairly assess how much cash the business will generate in future. I have not followed Chou to really comment on what he is doing. Market may not price properly for couple of years, but in most instances market will push asset price closer to true worth in 4-5 years. Often it will overshoot as well. In general, if you do poorly for 15 years then it means simply one thing, you are making mistakes in figuring out how much cash business will produce for owners. Recently, we have seen articles like value investment being dead or value investors not doing well. Some time it could the case of growing companies getting higher multiple due to very low interest rates. I meant, cash coming after 10-15 years becomes a lot more valuable for investors if they think that interest rate(proxy for inflation) will remain low for entire time. It may create a situation where investors starts overpaying for such companies and underpaying for decent cash but not growing that much. But even if you own second group, it's hard to only make 1.6% for 15 years unless you are making mistakes in evaluating what cash business will generate over time for owners. But when all said and one, investment is all about how much cash you get in future, how quickly you get it and how certain you are about getting it. Growth is simply a component in figuring out how much cash will come to owners in future. These tags about value investment, growth investment etc does not make too much sense to me.
  11. You are laying out cash to buy a business to get more cash from business in future. If you get the second part right and buy at a decent discount, I don't see how investment( or call it value investment) won't work. Trying to assign value based on P/B or P/E can be indication of value sometime, but not really a value other times. But if you can figure out owners earning with high degree of certainty and buy at a discount, it's extremely hard to not make money over time.
  12. Yeah this is very surprising given how much he was talking about the Great Depression. He talks to Gates frequently. Gates initially thought 5 years of doom. Now Gates has changed his mind about it and thinks rich countries will be done with virus issue by the end of 2021. Range of outcome has become narrower. I am just speculating here.
  13. Yes, there are other events happening at same time. Even this incident doesn't look like just a fight gone bad. ----------- U.S. Intel: China Ordered Attack on Indian Troops in Galwan River Valley ... The assessment contradicts China's subsequent assertions about what happened last week. And it indicates the deadly and contentious incident – in which at least 20 Indian and 35 Chinese troops died, and reportedly a handful on each side were captured and subsequently released – was not the result of a tense circumstance that spiraled out of control, as has happened before, but rather a purposeful decision by Beijing to send a message of strength to India. ... On June 15, a senior Indian officer and two non-commissioned officers traveled unarmed to a meeting place where they expected to be met by a comparable delegation of Chinese troops to discuss the withdrawal, according to the source familiar with the U.S. assessment of the incident. Instead, dozens of Chinese troops were waiting with spiked bats and clubs and began an attack. Other Indian troops came in to support, leading to a melee that caused more casualties from the improvised weapons, rocks and falls from the steep terrain. .... Analysts say it's clear the incident did not pan out as China intended, not in the least because its state media outlets have all but erased the incident from their pages in the week since it took place. ... https://www.usnews.com/news/world-report/articles/2020-06-22/us-intel-source-china-ordered-attack-on-indian-troops-in-galwan-river-valley --------------- Given other incidents happening at same time with different countries, all events could well be a planned and co-ordinated. If that's the case then I don't think that we have seen the end of it. Usnews could be simply getting information from Indian sources and may be biased as well , but I don't have much trust in information coming out of China as well. Hopefully, I am wrong and it's simply a coincidence that all events are happening at same time.
  14. Doesn't this speak to the quality of troops and leadership in the region on both sides? Why were Indian officers not able to stop their troops from entering Chinese territory seeking revenge? And why did a modern military suffer ~40 casualties to troops armed with blade weapons and batons? Scary to imagine a larger regional war starting over what sounds like it is essentially a local feud between border guards. Based on all readings, I don't think it was a local spontaneous fued between guards. Here is one view point of how China sees it. Not sure if it's correct, but you can read. CHINA’S STRATEGIC ASSESSMENT OF THE LADAKH CLASH https://warontherocks.com/2020/06/chinas-strategic-assessment-of-the-ladakh-clash/
  15. I grew up poor in India but I was not not dirt poor compared to other kids around me. I grew up with no electricity and filtered water supply. But I had food on my table each day and didn't have to think about it. There were kids with me who had to work in evening to help their families to earn money. There were some kids who used to wear 2 set of clothes entire year. I had like 4-5 sets. So I was much better off. I picked up or I should say I was forced to learn english when I was 15 years old due to preparing for IIT(It's an Engg institute in India and you have to give tests in English). I had around 2000 bathcmates in my engg, I won't call them genuius or anything like that. Probably handful of them were really great but rest of them, including me, were fine. Now out of that crowd, 20% came to US for higher studies, but that was probably better off portion of entire 100%. My family wasn't that better off so I had to borrow for air ticket despite getting full coverage for tution and living expenses. Now subset of people who manage to come here end up in Microsoft. Point is simple. Very few , who grew dirt poor in India, will manage to get in some university which will allow them to work in Microsoft here. Unless you are from a reasonably well off family, it's not likely that you will end up in Microsoft. Coming back to your original question, I think a large portion of world is talented but underutilized due to poverty and also not speaking dominant language like English. It will be a very large number. - Rohit
  16. American intelligence believes 35 Chinese troops died, including one senior officer, a source familiar with that assessment tells U.S. News. The incident took place during a meeting in the mountainous region between the two sides – both of which had agreed to disarm – to determine how the two militaries would safely withdraw their presences from the region. The meeting grew tense and resulted in a physical confrontation between the troops. According to the assessment, all of the casualties were from the use of batons and knives and from falls from the steep topography, the source says. According to the U.S. assessment, the Chinese government considers the casualties among their troops as a humiliation for its armed forces and has not confirmed the numbers for fear of emboldening other adversaries, the source says. The sources who spoke with the Times said 43 Chinese troops died in the fighting. https://www.usnews.com/news/world-report/articles/2020-06-16/dozens-killed-as-india-china-face-off-in-first-deadly-clash-in-decades ----------------- So it's esclating, but all casualties seems to be due to close priximity physical fights. Not really gun fights or anynthing like that. I am pretty sure that both sides will try to find solution.
  17. I have seen companies depreciating buildings at fast rate and in reality they don't really depreciate that fast. Then you have accelarated depreciating schedule allowed in some cases to help companies pay less tax to simulate economy. Depreciated asset may or may not reflect the exact value of asset. Some time it's just accounting figure and in reality you won't be able to get money out of asset if you try to really sell in market. Going back to your car example, you did pay 10K and then spent 0.5K in year 3, making total spent money 10.5K. Still, it will be not correct to use 10.5k as tangible capital deployed in year 3 because car is not worth 10.5K in year 3. In reality car may not be worth even 8.5K, but 8.5K should be much closer to tangible value than 10.5K. These straight line depreciation is simply a way to make it smooth because we know that car depreciates much faster in year 1. Now if you have a business which uses cars, you will be much better off by buying 1 year old cars than buying brand new car if everyrthing else is equal. Deterioation of car is normally a lot less than market value drop in first year. In fact , real depreciation if quite a lot just after you drive out of dealer's shop after paying.
  18. An interesting question. True in hypothetical case where you simply not spend any new amount in PP&E forever. In reality, businesses do have to keep spending on PP&E. Spending may not happen in smoth line each year. Some businesses will spend one time big amount every 5 years and some may spend every 10 years, but most will have to spend much more frequently. If you buy a brand new car by paying $10,000. Assume life of car is 10 years and it becomes worthless in 10 years. It depreciates by 1K each year. In year 2, tangible capital is 9K and in year 3 , your tangible capital is 8K. If you are able to not spend a single penny in car for 10 years and car keeps producing 1K earnings for you then Return on invested capital will keep increasing. In reality you will have to spend on car each year and you have to spend on factory each year just to maintain it. May be you can get away for 1-2 years, but PP&E will start adding up. If you are using 2 years old car then you do have use 8K rather than 10K as worth of car as invested capital after 2 years. If you try to sell the car will you get 10K in year 2? If not then you can't claim that tangibel capital deployed is 10K in year 2. In some cases, depreciated amount does not reflect reality, but in general using depreciated amount makes sense if we are trying to see what our car/business is producing each year on invested capital. Hope it helped.
  19. He said something like , I wouldn't blame anyone for decision making due to many unknowns initially...... We are doing an experiemnt with voluntarily shutting down economy ....... Most countries get F grade for handling this ...... Just going by my memory, but you can look it up. He hardly criticizes directly, but you can put 2 and and 2 together here. Pandemic was not an unforseen outcome for him in Feb. How most countries and government have reacted was surely a surprize. Even developing countries have followed lockdown steps taken by developed countries despite not having resource to maintain low infection rate for too long. It's alway easy to focus on what can be easily counted so focus is on Covid-deaths. Long-term damage is not due to virus here, but due to reactions.
  20. One is drastically better business than other. Airlines are likely to use earning power to pay down debts for the next 5-7 years. Airline was not a case of good business and overpaying.
  21. How much intrinsic value will evaporate in those 2 years for shareholders? Yes, airlines may take on lots of debt and then keep paying those debts in the next 5-6 years. Just because they survive , will shareholders get richer? If yes, then by how much and what risk they are taking? I don't think he is thinking short-term here. I think range of outcome is wide.
  22. You can make some money in one scenario and lots of money in other scenario without assuming that one scenario will play out. Knowing that interest rate will remain near zero for 10 years is lot different than interest being low at any given time. I don't get the logic of not doing buybacks in small amounts when stock was in 160-170. Intrinsic value has not declined by that large margin and even he made it clear that it was down so much for a small period as explanation, but why not buy on those small periods. It's not as if buying will take out 50B cash. If small buying is not going to work then why even buy at 220 with similar discount. You don't know how long 220 will last. I think he dodged the question. Anyway, Buffett is human and he can make mistakes. He has been mostly consistent with how he operates. Investors can make up their own mind about risk reward and invest appropriately.
  23. Any one noticed that cost basis went up by around 3B for all held securities? Not sure if I am missing something or he bought few things.
  24. Not any material information just before the Q end. Just guessing here.....
  25. If Buffett thought that Intrinsic value of BRK dropped a lot and stop doing buybacks at 160-170-180 when he was willing to do it at 220, then it's fine otherwise S&P level makes no difference. Sorry, I was not clear. My point is that some of us could be evaluating Buffett based on what the market has done. I am saying if instead the market kept going down, it is possible that we would be applauding him on patiently waiting for the pitch. Just a thought. Coming to buybacks. It is instructive to look at his purchase of Mid-Continent Tab Card Company. He really wants proof that he is not going to lose money before doing anything. During the sharp drawdown in March, and before Government came up with the $2 trillion relief (and I would argue even now), the economy could have been severely hurt with many companies going bankrupt. To someone like Buffett being 100% certain that Berkshire is safe is vastly more important than say increasing IV by 2% with a quick buyback. Vinod Either he saw a need to keep entire cash due to uncertainty or he thought that he had material information which made him not do buy backs to be fair to all shareholders. I don't agree with that logic, but he clearly wants to be fair to even departing shareholders. I am aware of fact that he bought other years before Q end, but there was no material information. I am just speculating here. Anyway, let's see what he shares with us today.
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