wabuffo

Another important factor is the size of your grubstake. If its small and you are relatively young, there's an argument to be made that you should be fully invested at all times. wabuffo

Buffett piled up $128 billion because the market is not in a bubble or maybe the cash and short-term bills is nothing unusual when placed in proper context. One needs to equate the cash as a percent of shareholders' equity in order to judge its size. In fact, there are times when BRK has had a greater percentage of its net worth in cash and s-t-bills. The cash is nominally bigger because the balance sheet is bigger. The actual amount tells you nothing about any positioning or market stance because it is not unusual at all. wabuffo

the market will observe these prospects and vomit. on the day after the election of warren. The market is fairly good at handicapping political outcomes. It will mark-to-market the odds of either party winning on a daily basis throughout the political campaign season - and thus, won't wait until election. Unless its a complete surprise ("Dewey Wins!") Also - what if these ultra-low long-term Treasury rates are here to stay for the next 10-20 years? Stocks might actually be undervalued at a 3% risk-free long-term rate. I think the comparisons to historical valuations are really comparisons at much higher discount rates (and higher domestic corporate tax rates). What is $1 pre-tax earnings worth at a 35% tax rate and 7% 30-year Treasury ($0.65/.07 = 9.3x pre-tax earnings) vs a 21% tax rate and a 3% 30-year Treasury ($0.79/.03 = 26.3x pre-tax earnings). Of course, if that 3% 30-year Treasury rate is here to stay................ wabuffo

Buffett doesn't like buying assets out of a bankruptcy proceeding. In the past, courts/judges have imposed deal termination fees are that are sometimes too low for him. wabuffo

But he doesn't know that WEB doesn't do auctions. WEB is also not crazy about buying assets inside a bankruptcy process. He's had some disagreements with Bankruptcy judges about the miniscule size of the deal break-up fees imposed by Courts. Buffett views it like he is being forced to offer a put option and isn't being adequately compensated for it. wabuffo

BTW - back to the original post for a quick sec. Anyone else noticed that this bolded statement is plainly untrue. Here is Wedgewood's holdings of BRK.B shares over the last few years according to the 13Fs. He actually started selling in late 2015 (when BRK got cheap and very near Buffett's 1.2x book value buyback level). There was more selling there than this year. How does one reconcile his statement and his many media appearances as a BRK bull with his actual record? Perhaps I'm missing something. wabuffo

The old chucks angles board was so active during that time. oh hey - gfp = globalfinancepartners! The penny just dropped. I didn't realize the connection! Yeah the old Chuck's Yahoo BRK board was amazing - Prez, BabyB and too many others to mention. Those were fun times. I learned a great deal from many posters there and on the Motley Fool. Became a better investor because of them. wabuffo

Charlie Munger even "sold" some BRK-A shares via a Form 4 that was misunderstood at the time. https://www.sec.gov/Archives/edgar/data/1067983/000118143108063602/xslF345X03/rrd224408.xml Who says they don't ring a bell at the bottom. Sometimes they do! wabuffo

If you look at peak to trough Berkshire was down more than 50% during this period. Peak: 12/11/07 BRK-A closing price 148,900 (intra-day peak was higher) Trough: 3/5/09 closing price 72,400 (intra-day low was lower) Drawdown: -51.3% Munger_Disciple - this is an interesting example. Before Buffett came out with his 1.1x and 1.2x book value buyback "floor" prices, I liked to use price-to-book value as a short-hand way to buy and sell BRK. Basically if the price approached 2x book value - you sold (or didn't buy) and if you got anywhere near book value - you bought. The drawdown you note neatly encapsulates this "rule". The peak in Q4 2007 represented a price-to-book value of 1.96x book value. The trough in Q1, 2009 represented a price-to-book of 0.95x book value. Many people were buying BRK hand-over-fist in late 2008 and early 2009. Charlie Munger even "sold" some BRK-A shares via a Form 4 that was misunderstood at the time. He was actually selling his shares to his heirs near their lows on margin (95% margin IIRC). It was actually a ringing of the bell to buy BRK because Munger was executing a deft tax-planning move. There was another 50% draw-down with BRK that happened early in my investing career. During Q4 1998 and Q1, 1999 (in the middle of the Gen Re acquisition), BRK sold briefly at 2.1x book value. Then in March 2000, it sold as low as 1.06x book value. I believe the fall in price from peak to trough was 49.8%. My larger point is that 50% drawdowns do happen to BRK. But they start from a point of very high valuation and the trough (when it happens) often represents an outstanding bargain investment. BRK's valuation today makes it unlikely you would see a 50% drawdown from today's prices. And if you did, then you might want to buy it in size. wabuffo

I follow every post from benhacker and writser as well. Very thoughtful investors (and humble too - despite their very evident value investing chops). I also like cigarbutt's careful reflections and ideas. He's very polite and tolerates my snarky posts about Aimia. I don't think I would have his patience and grace if someone was ripping one of my investment theses. :) Overall - as long as one stays away from the "Politics" mosh pit, one of the few websites with so many high class posters! wabuffo

I don't want to pile-on Wedgewood. But I don't agree that Berkshire Hathaway has underperformed the S&P 500 in recent years. He/they arbitrarily chose the start of the current bull market in March 2009 to do their comparison - but I think that misses an important point. Buffett is starting to acknowledge that his capital base and cash position are making it harder to achieve BRK's past results and he has signalled that he will take action to prevent underperformance. That is why starting in Sept. 2011, he formalized a buyback policy which has helped to put a floor under the stock and moderate its price declines. He started at 1.1x Book Value, then raised it to 1.2x Book Value in Dec. 2012 and then finally went to a more unconstrained approach last year. I would argue that this new capital policy means that one should look at BRK's record since 2011 vs the S&P 500. From what I can see, how can one say that BRK has under-performed vs the S&P 500 through this period (until this year)? It hasn't! It's too early to panic because of a few Q's of underperformance in 2019. Especially since Buffett will act if BRK's price/value becomes attractive. We all may wish he was more aggressive with his buybacks so far - but I do believe that the presence of a significant repurchase program is a new factor that helps the stock from languishing the way Wedgewood fears it will. Of course, this performance reflects buy-and-hold since the end of 2011. There's nothing that prevents someone from buying or adding to a BRK position during periods where it gets statistically cheap (like late 2008/early 2009, Aug-Sep 2011, or Q4 2015). In those cases, the investing record in BRK improves vs the simple buy-and-hold record. I don't see how Wedgewood's investment in BRK has anything to do with their underperformance vs the S&P 500. FWIW, wabuffo

Not sure I understand all of this myself, but have been reading everything to learn I don't think the NY Fed does either. obviously. LOL. wabuffo

CB - thanks for the link to Campbell's article. its a bit technical but it helped provide the best explanation I've seen of what's happening to the US monetary system's plumbing right now. I'm not sure I agree with everything he says but his point about the intersection of shrinking the Fed's balance sheet and new bank regulatory capital requirements causing unintended liquidity consequences is very insightful. Thanks again, wabuffo

I would expect a bailout of some sort in the next Presidential term. Cheers! Did you know that $1T of these student loan balances are 100% owned by the US Federal Govt as assets. There already was a bail-out. Around 2010, the Obama administration pushed private student lenders completely out of the market and basically took over the issuance of new student loans. The "business case" made by the Administration at the time was that the Federal govt could borrow at a lower interest rate than private lenders could. Thus, the govt could, in turn, lower student loan interest rates and help students while still making a small spread. The claim was that the US taxpayer was going to 'make money' on this deal. (LOL!) The Federal spending wasn't even counted in the official Federal Budget deficit statistics since the disbursements under the Federal Direct Student Loans Program and Temporary Student Loan Purchase Authority were considered the purchase of an "asset" and not an expenditure. So the over $1T disbursed for new loans and purchased loans was never counted in the deficit numbers from 2009 onwards. Nevertheless - to the student loan recipients the cash deposited to their bank accounts was real enough! You can see the numbers in Schedule E of the US Treasury's monthly budget reports. wabuffo

I prefer the Modified Dietz method (vs using IRR - which has some faulty assumptions if there are large inflows and outflows during the time period). https://en.wikipedia.org/wiki/Modified_Dietz_method wabuffo

greed, and good convo! This stuff is endlessly confusing (at least for me) and I always enjoy these type of discussions and to hear other points of views. ditto - I'm always trying to learn more about macroeconomics but feel like I only scratch the surface. wabuffo

The treasury can't affect aggregrate demand. they don't control the supply of the medium of account. Treasuries are not a medium of account. Only the dollar is, and the Fed is the sole controller of the dollar. The treasury can't print more dollars, only bonds. Sometimes the Fed plays ball and buys those bonds and monetizes part of the debt. But thats entirely the Feds call. They could refuse to buy any more treasuries, in which case no new dollars get out into the economy, and any deficit will either be accompanied by a future surplus or otherwise the bonds will default. Unlikely this will occur, but just list the extremes to illustrate a point. Ok - thanks for your point of view. Needless to say I don't think this is how it works at all. The US Treasury always spends first. If the Dept of Defense wants to buy a new F-35, the US Treasury directs the Fed to credit the appropriate private banks with new deposits to pay for the plane. The new deposits create reserves at the Fed's account with that private bank. Bond issuance by the Treasury is after-the-spend. The issuance of Treasury Bills or Bonds is not really debt for a fiat currency issuer. Its an interest-rate maintenance mechanism and meets the private sector's need for interest-earning financial assets. The bond issuance by the US treasury just moves the deposits at the Fed from a non-interest bearing account to an interest-bearing account. On one part we agree. The US Treasury never has to has to issue a T-bill or T-bond ever again if it wanted to, the deposits would just accumulate in the banking sector earning whatever the Fed wants to pay on reserves. This in a nutshell is what happened from 2009 on - more or less. In practice, it can't actually happen that way, because Congress has put limits on the Fed buying Treasuries directly from the US Treasury and Congress has also limited the amount of overdraft of the US Treasury's bank account at the Fed. It used to be $5B limit (ie, Treasury could spend up to $5B without going over - and would be forced to issue bills or bonds to prevent an overdraft - but that was changed after the GFC. I believe now the US Treasury's account is allowed up to a $400B overdraft limit - which used to be an entire year's annual deficit). These political constraints create the appearance that the US Treasury must borrow to spend - but as we've seen they are political and not financial or economic constraints. Congress waived both requirements or modified them during the GFC. Needless to say - I don't think we agree. But that's ok - thanks for the engaging conversation! wabuffo

Fiscal deficits only matter to the extent that the central bank allows them to matter. I don't understand your points. How exactly did the Fed offset $8.3 trillion of new bank deposits created by excess Federal spending? What mechanisms did the Fed execute to offset an increase of $8.3 trillion in net deficit spending. And that's an AVERAGE deficit to GDP of 5% per year. And one can't argue that the Fed was somehow too tight! When the spot gold price has increased from ~$950 per oz at the beginning of 2010 to $1420 per oz today, that isn't a tight monetary policy. Gold's characteristic is one of extreme stability so it indicates to me that the there's been a 40% depreciation in the US Dollar over this time frame vis-a-vis a very stable commodity (a North Star for monetary direction). The Fed can't be "too tight" when that kind of a move is happening. What is the difference between the Fed printing up $8.3T in new money and helicoptering it and the US Treasury sending $8.3T to individual private banking accounts? None - I think they are the same thing. Except in today's monetary system, the US treasury is the heavy mover of monetary effects. The Fed can't hit two policy targets with one policy arrow. It maintains an interest rate target so it then slaves itself to US Treasury net deficit spending/bank reserve maintenance. The last time the Fed targeted aggregate money supply was an experiment by Volcker in 1979. Volcker himself abandoned it and replaced it with an interest rate targeting mechanism. wabuffo

The only 800 pound gorilla in the room is the Fed, not the Treasury How do you explain the following -- since Jan 2010 (using the US monetary system): 1) The change in banking required reserves was $ 85B - which in theory the Fed created to supply the US private sector banking system. Not sure the Fed actually had to supply all of that but whatever. So in theory, the banking sector needed $85B in additional deposits which the Fed added through its reserve accounts. 2) The US Treasury spent $8.3T more than it took in federal taxes (and other receipts). This net spending shows up as new deposits in the private sector banking system (eg social security check, payment to defense contractor for new F-35, etc...offset by income tax receipts which reduce banking deposits) So $8.3 trillion for the US Treasury vs $85 billion (maybe) for the Federal Reserve in fiat money creation. My vote is on the US Treasury as the 800-ib gorilla. And again I point out that Europe has a Fed equivalent (ECB) but no US Treasury-equivalent. The individual nations are more like states/provinces which are not fiat-currency issuers and thus face constraints. wabuffo

If Spain or Italy leaves the EU tomorrow, the only way they recover is by devaluing their (new) currency...ECB just needs to print more money...its so easy[/u] and yet we are all making it out to be rocket science. Not a macro guy - but it seems to me, that it's actually not easy to create more fiat currency in the EU system. That's because they have divorced the national political system of flexing deficit spending up and down from the central banking system. IMO - there are two ways that a fiat-currency based system creates new money (ie - new net deposits in the private banking system). I'll use the US federal system as an example: 1) Net federal spending (in excess of taxation) from the US Treasury creates new deposits in the banking system. Federal spending creates new deposits, federal taxation removes deposits. 2) Federal Reserve supplying additional required reserves to the US banking system, when in aggregate it comes up short of required reserves. The Fed has no choice - because it needs to support an interest rate. A little different now with so much excess reserves. A new private sector bank loan creates a new deposit, which if the banking sector comes up a bit short of required reserves, the Fed steps in and creates 1/10 of that new loan in the reserves. Of the two - US Treasury deficit spending is the 800-lb gorilla of new money creation vs the Fed. It isn't even close, really. It has historically dwarfed any new reserves supplied by the Fed. If we compare the US system (or Canada's or Japan's, etc) to Europe - prior to the Euro, each country had an identical system to the US. But since the creation of the euro - France, for example is no longer like the US, it is now more like Illinois. The EU now has a federal reserve equivalent (sort of) - the ECB, despite the banking systems still being largely nationalized. The ECB system really got going after the first Greek banking crisis of 2011. What Europe doesn't have any is a pan-national US Treasury equivalent. The individual national political structures can run out of money because they are more like states/provinces which face real budgetary constraints rather than fiat currency issuers that have no practical constraints (except debasement of their fiat currency due to inflation). This is a real economic problem and it has not been solved. The ECB can't just print - it can only support interest rates and bank lending via its individual national central bank structures. Without the equivalent of a US Treasury, the EU is moribund. In fact, one can argue that ECB pushing negative interest rates on national debts is like a tax since, like a tax, it is a payment from the private sector to the public sector. I would think negative interest rates actually make things worse because they are an additional tax on an already overtaxed system. So instead of negative rates stimulating, they are a drag (like a tax). wabuffo

Where can you see 005389.KS in the DJCO portfolio? Is there some filing? FYI, I looked in the 10K and nothing was mentioned. I believe what wabuffo is saying is that he has inferred the identity of the undisclosed foreign security by looking at the end of quarter marks for DJCO's entire investment portfolio and backing out the known, disclosed positions. 005389.KS lines up with those marks, which as more quarters are reported becomes less and less likely to be a coincidence. gfp is correct. To my knowledge Charlie has never disclosed the identity of the South Korean manufacturing company in the DJCO portfolio. He did disclose that the other foreign manufacturing company on the Hong Kong exchange is BYD (1211.HK) at the AGM last year: https://www.sec.gov/Archives/edgar/data/783412/000143774918002649/djco20180215_8k.htm Using publicly available information, one can easily identify the mystery South Korean stock. Here's a table that shows the start of how to do that. http://i68.tinypic.com/2efpctk.jpg DJCO has to file a 13F every quarter and outline its holdings of its four US-listed stocks (WFC, USB, BAC, PKX). One can back into the quarter-end fair values of its two foreign-listed stocks by subtracting the amounts in the 13-Fs with their total holdings of common stocks reported in the 10-Qs, 10-Ks. We can see that the bigger position is BYD. We can use the BYD information to calculate the quarter-end fair values of the South Korean stock (and then figure out what stock it is). http://i65.tinypic.com/2eoce55.jpg To calculate the quarter-end fair values of DJCO's holding of BYD (1211.HK) we need to peg it to the quarter-end reported fair values of BYD by BRK Energy (a more-or-less permanent holding) in its 10-Qs, 10-Ks. You can see that the annual values (9/30) declared in the foreign currency risk section in the DJCO 10-K tie with the calculated values using BRK Energy's fair values of its BYD holding. Using the fair value of DJCO's BYD holding, we can then back into the quarter-end fair values of DJCO's mystery South Korean exchange-listed security. If we compare the index vs the 9/30/17 fair value of this holding with the calculated USD-value of Hyundai Pfd Series 3 (005389.KS) quarter-end prices converted to USD from South Korean won, you can see that the quarterly index values match exactly. This makes it virtually certain that this is the South Korean-listed stock that DJCO owns. There's other circumstantial evidence that supports this hypothesis. One is the Alfred Munger Trust holdings of Hyundai securities. A second data point is that Li Lu (who manages Munger's money in his Himalaya Capital fund) presented South Korean preferreds (which are actually non-voting common shares) being mispriced versus their voting common equity pairs at a Sohn Conference in 2013 and has probably influenced Munger's thinking in this area (Munger first started buying Hyundai Series 3 Preferred for DJCO during late 2014). https://www.marketfolly.com/2013/05/li-lus-sohn-conference-presentation-on.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+MarketFolly+(Market+Folly) And then again I could be wrong 8) wabuffo

To think that WEB, CM, or anyone could do 50% for even 5 years in a row without leverage I don't think WEB explicitly ruled out the use of leverage in that 50% boast. He has always used leverage - specifically in market-neutral special situations. Not just at BRK or the Buffett Partnership, but even in his pre-Buffett Partnership days. wabuffo

Which Hyundai entity is it? (There are quite a few - Hyundai Motors, Hyundai Engineering & Construction, Hyundai Dept Store, Hyundai Fire & Marine, Hyundai Green Food, Hyundai Merchant Marine, Hyundai Heavy, Hyundai Corp, Hyundai Mobis, Hyundai Steel, Hyundai Mipo) By isolating the quarter-end fair value dollar amounts and comparing the Q-to-Q change in fair values to quarter-end prices (converted to USD), I believe Munger has also purchased Hyundai Motors Preferreds in the DJCO portfolio. Specifically, the 005389.KS ticker on the South Korean stock exchange. It hasn't been a winner for him, so far. wabuffo

We wants it. We needs it. Must have the precious alpha! wabuffo

There are no economies of scale in the taxi business. Each and every current Uber/Lyft trip is uneconomic and has to be "sold" to the rider at below its cost. Uber/Lyft are the quintessential examples of losing money on every ride but trying to make it up on volume, LOL. The only way Uber/Lyft can make money is to take more of the gross billing from the driver. But this is problematic since even at current pricing levels, the average Uber driver makes less per hour (<$10/hr) than working at McDonalds (with no benefits) based on this detailed study of Uber driver earnings. https://www.ridester.com/2018-survey/ I'm not sure how much more Uber/Lyft can take from drivers without losing them (even though there is some informational asymmetry between these companies and their drivers). And of course, raising gross fares to allow both the driver and the company to make money will drive away consumers/invite more competition. I seriously doubt that these are viable businesses. There's zero innovation here, just a huge subsidy that is unsustainable - though the IPO proceeds will keep it going for a little while longer. But going public now also exposes the financials to the light, so we'll see if they can continue to defy the laws of economics. wabuffo