redskin

I'm calculating BRK repurchased 23,744.4 class A shares equivalent as follows: On Feb 13, 2020, BRK had 700,395 Class A and 1,385,994,959 Class B shares outstanding, adding up to a total of 1,624,393 Class A equivalent shares. See https://www.berkshirehathaway.com/2019ar/2019ar.pdf. On July 7, 2020, Buffett owned 248,734 Class A and 10,188 Class B shares, adding up to a total of 248,740.792 Class A equivalent shares. His total economic share in BRK was 15.54%. This puts total Class A equivalent shares of BRK to be 248,740.792/0.1554 = 1,600,648.597. See https://www.sec.gov/Archives/edgar/data/315090/000119312520189490/d936378dsc13da.htm 1,624,393 - 1,600,648.597 = 23,744.4 class A equivalent shares repurchased There were 1,620,023 class A equivalent according to the 1st quarter 10-Q. About 19,300 this quarter.

He sold $6 billion of equities in April.

I emailed Carol Loomis asking if Warren would be taking questions from shareholders. She responded with the following... Yes, he is--though the number of questions probably will be shorter than in previous years.

Has anyone heard what the format will be for the annual meeting? Will Warren be fielding questions from the journalists or analysts?

https://bankingjournal.aba.com/2020/03/fed-to-delay-implementation-of-revised-bank-control-framework/ The new control regulations are delayed for 6 months. I was thinking we'd start to see BRK increase its bank holdings after this was implemented.

He's talked in past meetings about the potential for very large investments in the utility. He reiterated in the letter that they could take on projects requiring investments for as much as $100b. In 2019, they invested $4.5b in excess of depreciation charges in the utility.

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200130a.htm

Personally, I'll second redskin's question whole-hearted. I can't remember the sources any longer, and I've got no time to dig them up [perhaps it was actually posted by a fellow CoBF on here], but if I remember correctly, Berkshire has asked for permission not to reduce its position in BAC below 10 percent, while it continues to reduce its position in WFC. Please correct me if I'm wrong, and if I'm not wrong [i may be], what do you get out that? I mean, perhaps, with regard to the forced WFC selling at Berkshire, it may be considered at Berkshire's convenience in the situation. [No kick-a** one-liners from Mr. Buffett nor Mr. Munger for years about WFC being a "good bank" - perhaps for a reason.] Looks like they finalized the rule change. It is effective April 30th. https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200130a.htm

Has anyone heard any updates on this proposal? https://www.barrons.com/articles/berkshire-could-lift-stakes-in-several-big-banks-under-proposed-fed-rule-change-51556217117

If the buybacks become truly significant, the IV/BV ratio would narrow somewhat, but otherwise (as is likely to persist for some years) I'd imagine that there are still quite a lot of people willing to pay 120% of BV, and probably also 125% of BV in normal circumstances, which acts as something of a backstop. They might adjust last-reported BV down a little in the event of a market crash. Certainly, if markets plummet, Berkshire is likely to fall too, by a somewhat similar amount, such that the perceived risk-adjusted returns are commensurate for all stocks. However, 'somewhat similar' may still be less than the general market, which could be pegged to a few reasons: 1. If it was trading at the bottom of its range before the crash (e.g. P/BV < 1.30) as it is now, it likely to fall a little less . 2. It is seen as more defensive (i.e. lower risk, meaning lower business risk as well as lower 'beta' for those who subscribe to EMH or CAPM), hence on a risk-adjusted basis it ought to fall a little less. Some of the optionality of Berkshire's assumed ability to invest its excess cash profitably when markets are down is then priced in when markets fall markedly, reducing how much it falls compared to the wider market. 3. The stock portfolio of Berkshire might well fall less than the market because it's also relatively defensive. And even if the Berkshire portfolio experiences a 20% pre-tax decline, this $42 billion reduction in market value is only about 10.6% of Berkshire's Book Value, and after applying 21% deferred tax reduction to the unrealized capital loss, BV would only reduce by 8.4%. This would be partially offset by operating earnings too. I would expect most things to decline in market panics, Berkshire included, and for Berkshire to gain IV and increase leverage by spending that float-funded cash hoard at such times if it can deploy capital, even if it that value might be hidden for a few years. I would not expect Berkshire to fall more than the general market, but not an awful lot less than it either (unless it was highly priced going prior to the crash, of course) I don't try to side-step market crashes, aiming to remain fully invested as I would expect the compounding I'd miss out on by predicting the crash too often and too early to exceed the losses I'd avoid by going to cash. If purchases are made above book value and below intrinsic value, the gap between book and intrinsic value will actually widen.

Berkshire Hathaway Energy is the only subsidiary I know of where you can see the valuation that Buffett places on it. Since Walter Scott is a minority shareholder and he periodically sells his shares to Berkshire Hathaway Energy, those transactions are reported in the Berkshire Hathaway Energy filings. Scott's last reported sale was in Q1 2019. He sold 447,712 shares for $293mm ($654 per share). This transaction values BHE at approximately $50 billion. Transactions in previous years suggest the following per share values.... 2018 $602 2017 $542 2015 $480 2013 $350 2010 $225 2009 $210 He purchased MidAmerican for $35/share in 1999. This equates to an annual rate of return of close to 16%.

I think Buffett would be more interested in buying a private European business or a public European company in whole which would avoid the % restrictions.

Berkshire's cost basis in 'Banks, Insurance, Financials' increased by $15 billion in Q3. $5-6 billion can be attributed to the increased stake in BAC. Will be interesting to see the additions he made.

Why do you think he owns WFC in his personal account? I've seen that stated many times. It would probably take some work for me to find any sources as everything I am recalling was some time ago, (5-15 years?). I thought these were Berkshire pension holdings. I remember him addressing this in the past. He said he wasn't sure why it was disclosed that way.

Why do you think he owns WFC in his personal account?

pg. 49 of annual report.

BAC warrants are on the books at fair value.

Wow! Thank you! A lot better than the meeting.

I think the $145k per share will continue to grow due to appreciation of the equity portfolio and the free cash flow that will continue to build. Ideally, the current cash and future cash flows will be used for the acquisition of new operating businesses. The $145,000/share cash/investments currently consists of the approximately $110 billion equity portfolio and $128 of cash/fixed income. With the KHC preferred being repaid and free cash flow, I think cash is probably back close to $70 billion. How will the 2 column components look in 5 years? If pre tax operating profits organically increase 4% annually, the per share numbers will go from 13,500/share to $16,400/share In addition, I think there is something like $1 billion/month ($12B annually) of free cash flow coming in from the operating businesses. Lets say Buffett is able to use all of that free cash flow and $30 billion of the current cash hoard to add to the operating businesses for a total of $90 billion. If Buffett's hurdle rate for acquisitions is 10% pre tax returns it would add $9B pre tax profit to the operating column. After 5 years with these assumptions Cash/investments would be $166,000/share and Pre tax operating income of $21,877/share. Annual increases of 3% and 10%

BNSF has been paying out most of their earnings to Omaha. They have paid $20 billion in dividends since Berkshire purchased.

Is this the right way to think about it? All earnings at Berkshire are used to keep growing earnings (they are retained, not dividended or share repurchased out) so won't total return be equal to (earnings growth + return from change in multiples) instead of (earnings yield + earnings growth + return from change in multiples). The cash flow stream would not grow without capex, particularly the utility and railroad and the industrials. I think the only types of businesses where you can say total return = earnings yield + growth in earnings are See's Candy types of things where almost no capex is needed for growth. If berkshire triples earnings over the next 10 yrs and the multiple doesn't change, shouldn't the stock price triple. But it should not triple + give you even more for earnings over that time period. You can do this type of calculation with dividend yield or truly free cash flow yield (after growth capex), but earnings yield seems too generous right? For example, the S&P 500 trades at 18X (5.5% earnings yield) and a 1.9% dividend yield. If earnings per share grow by 6% per year for the next ten years and there is no multiple change, what is the total return? By the earnings yield + growth formula you use for berkshire it would be 11.5% (a cumulative 196% return over 10 yrs). But that's not what it would be, instead it would be dividend yield + earnings growth, right? Because the non dividended earnings are what is used to grow the EPS (either through investment or share repurchase). Growth isn't free. I would consider the depreciation charges as the amount of capital needed to maintain the position of the existing businesses to grow with the overall economy. Berkshire's purchases of property and equipment in 2014 was approximately $15b, more than double the 7.3B depreciation and amortization charge. A lot of the additional capex was used in the utility and railroad. Buffett has talked in the past how he believes they will earn adequate returns on these investments (10-12% pre tax?). So the additional $8b capex in these regulated businesses should add $800-950mm. In addition, the excess cash flows are used to purchase additional streams of income like VanTuyl. With these additional investments, pre tax operating earnings have increased by 14% in the first half of 2015 compared to 2014. It should be even higher over the entire year as more of the utility projects are coming online and the Duracell and KHC deals close in the 2nd half. The PCP deal alone will increase pre tax operating earnings by approximately 13% and that cash will be replenished quickly to set up the next elephant. I wouldn't bet against Buffett/Berkshire being able to increase earnings significantly over the next 5-10 years.

I don't know, but I also question why they'd want to. Instead, they wind up with more assets on the balance sheet if you use the same amount of cash to add to existing equity positions. A buyback is a return of capital -- it's not as good as adding to their positions that earn a return. That is... if you want a fortress. If you like the idea of growing the many little rivers that feed the mighty Amazon. IMO. Buffett is all about increasing intrinsic value, not expanding empire. If he could buy a significant amount of his existing businesses at a price cheaper than buying a new business he would do it. I would guess he'd rather put $37 billion in to BRK share buybacks than PCP but it is unlikely he could repurchase that amount of shares.

The two column analysis is included in every annual report by Buffett. It was not just mentioned 20 years ago when the yield curve was different. I would assume the Berkshire insurance subsidiaries price their insurance contracts differently with short term interest rates under 1% versus 4-5% in the past. Following is Buffett's discussion of float in last years letter. He says the float liability is 'dramatically less than the accounting liability'. How much is dramatically less? "So how does our float affect intrinsic value? When Berkshire’s book value is calculated, the full amount of our float is deducted as a liability, just as if we had to pay it out tomorrow and could not replenish it. But to think of float as strictly a liability is incorrect; it should instead be viewed as a revolving fund. Daily, we pay old claims and related expenses – a huge $22.7 billion to more than six million claimants in 2014 – and that reduces float. Just as surely, we each day write new business and thereby generate new claims that add to float. If our revolving float is both costless and long-enduring, which I believe it will be, the true value of this liability is dramatically less than the accounting liability. Owing $1 that in effect will never leave the premises – because new business is almost certain to deliver a substitute – is worlds different from owing $1 that will go out the door tomorrow and not be replaced. The two types of liabilities are treated as equals, however, under GAAP."

Sorry. I think I understand what you are saying. The insurance company is making little spread as long as Berkshire continues to hold the excess cash and short term fixed income. You are still using the 2 column method but fully deducting the float liability. Cash and investments (230B)- Float (80B) = 150B + Operating earnings (18B)X multiple (10?)

Wouldn't the two column approach be $230b of cash and investments partially funded by the $80b float + a multiple of pre tax operating earnings of approximately $18b. I'm not sure where you get 80-80=0?