Kiltacular

Here is (part) of what Buffett notes in the letter (my emphasis added): "Looking ahead, I believe we will continue to underwrite profitably in most years. If we do, our float will be better than free money." So, there you have it. If Berkshire can perform with cumulative underwriting profits, Buffett right there says, he'd rather have Berkshire's float liability than an equivalent amount of equity. I have spent about 5 or 10 years bringing this issue up with people in all kinds of forums and I have NEVER gotten anywhere with getting people to agree that this is what Buffett thinks. First, it seems they can't even get past the issue of Buffett's important caveats. You have to have long-term undewriting profits for float to be better than "free" money. You have to be certain that the float won't shrink quickly. You have to agree that you want to have the money called "float" invested in something for a long time (and NOT otherwise immediately spent). But, IF those conditions can be met, insurance 'float liability' that delivers underwriting profits IS BETTER than having the same amount of money in equity. That Buffett believes this is not particularly useful to us analysts because, as Buffett takes pains to highlight, these conditions ARE NOT MET by the insurance industry as a whole. And, when they're not met, the dream scenario he describes simply doesn't apply. It isn't true for AIG. It isn't true for Fairfax. Etc. That doesn't make their float useless. Still, what Buffett says here -- well, I haven't found (m)any people that can accept what he is saying is true EVEN IF they agree Berkshire (or some other insurance company) can produce sustained underwriting profits on a float pool that doesn't shrink or doesn't shrink quickly. So, if you can understand what Buffett is saying here, you might be able to write an interesting book or produce a document that ends up getting forwarded around the value investor community. Be prepared, though, people will say you're an idiot and mock you. Later, they'll pretend you never said it -- when Buffett finally confirms you were correct about what he is saying in plain English. ;D -- edited for clarity, if that's even possible on this subject

If you look at the balance sheet for MSR that Buffett posts there on p. 12, you will see "Berkshire equity" of $48,657 on the right hand side. On the left hand side, you will see "Goodwill and other intangibles" of $26,017. If you subtract the "Goodwill and other" from the "Berk equity", you'll see that you get $22.64. Close enough for this game. By the way, Buffett's long discussion about the amortization of goodwill and other intangibles was awesome. There is little discussion of this issue anywhere. Frankly, I mentioned this the other day in the Leucadia thread w/r/t the amortization of intangibles at National Beef. National Beef is throwing of enormous cash to Leucadia and the business had a "bad" year according to the 10k. Also, Buffett mentioned (as he has previously) that Wells Fargo is taking HUGE completely non-cash and meaningless charges to amortize the intangibles it bought in the Wachovia acquistion -- $1.6 billion in 2012. Wells Fargo's earnings are WAY higher than they appear based on this number. I love how Buffett mentions that "no analyst report he's seen mentions this". Interesting in that (1) he takes a shot at the "analysts and (2) he read EVERYTHING, including their reports. Disclosure: Long WFC warrants

Bullseye !!!!! Of course, the dreams of many are to get in on this -- and not just for the money. Sociopaths feel okay about their actions when they can convince others they're not just not bad people but they're great people. Remember, when Michael Lewis wrote "Liar's Poker", he said he thought it would be an indictment of Wall Street. Instead, many made it their dream to get in on the game. Same with Gordon Gecko / "Wall Street". This was also apparently true about that book Munger used to recommend by Cialdini -- "Influence". Munger said it was most popular among those looking to use the techniques -- not those wanting to prevent themselves from being used by them. Predictable, I guess. But, like the man swindled by the swindler, the last thing most people want to do is admit they were suckered. That's why I like Buffett's rule: "If you've been at the table for more than 10 minutes and you don't know who the patsy it, you're the patsy." The funny thing, like the swindled man, the last thing the 'patsy' seems to do is get the hell away from the table. I guess Munger would simply say: "Don't waste your time with these people." Anyway, excellent insight "LessthanIV". EDIT: I'd like to say that one good thing about this board is that -- at least it seems to me -- the "swindlers" don't last long. The good guys seem to win. I like good guys and I like winning. I keep coming back.

Was just reading some newly posted notes on TMF brk board. This person's recap. of the lessons Munger learned due to his "regret" over not taking a bigger position in Belridge Oil struck me as matching the playbook of our very own Ericopoly. Given the board's anniversary, I thought they should get a mention: Lessons: 1. Don't blow opportunities 2. Don't be too timid when you really have a cinch 3. Intelligence and gumption count for a lot I've learned a lot from many of you here and seeing this playbook in action, in real time, has been very beneficial. Thanks to others here that have contributed a lot about their methods, styles, approaches and reasoning over the years.

Thanks to Sanjeev and all the contributors!

This is a hell no child or parent deserves -- and your empathy already shows you see that. I don't think you'll find any map in the wisdom of history that can guide someone through these shoals in every instance. My feeling is that you have to judge your friend's emotions. Some people want an offer or thoughts of kindness and others want nothing more than to move forward. There is no 'right' response. It's clear that you care. You're the kind of friend I would cherish even if I never knew your concern. If you feel they want your support vocalized, I would offer "anything you can do" as help. If he's a good friend, he'll know what to ask for. If you're not sure they want to talk about it, a simple, "I am (we are) thinking of you and [child] every day." Good luck

LC, I think you hit on one significant reason. These things stay at face value while stocks inside the insurance operation fluctuate with market value. I think that constrained Buffett during the stock market crash when regulators must have been breathing down his neck when WFC and AXP were in single digits and meanwhile the regulators are seeing that AIG is insolvent. In addition, I believe that the dividends from the preferreds are taxed at 13% (or thereabouts) for Berkshire -- like dividends from Coke or WFC -- so it is much more attractive than getting interest on similar bonds.

Rabbit, they were very, very close. But, I concede he never said never to every paper. May 2009 http://www.cbsnews.com/2100-502603_162-4986754.html "Warren Buffett will keep the Buffalo News and a stake in the Washington Post Company (NYSE: WPO)but won't play white knight for the newspaper industry. The billionaire financier told shareholders at the Berkshire Hathaway annual meeting taking place today in Omaha, Neb., that newspapers face possible "unending losses" and that the company would not buy most U.S. newspaper "at any price," according to MarketWatch and WSJ."

Soon, we won't have doctors to kick around anymore: http://www.latimes.com/health/la-me-doctors-20130210,0,1509396.story They are working on proposals that would allow physician assistants to treat more patients and nurse practitioners to set up independent practices. Pharmacists and optometrists could act as primary care providers, diagnosing and managing some chronic illnesses, such as diabetes and high-blood pressure. "We're going to be mandating that every single person in this state have insurance," said state Sen. Ed Hernandez (D-West Covina), chairman of the Senate Health Committee and leader of the effort to expand professional boundaries. "What good is it if they are going to have a health insurance card but no access to doctors?" ** Naturally, this was entirely predictable. The doctor shortage canard has been being fed to the populace for a couple years. You can keep your doctor, if he exisits. The next step, of course, will be to create a government union for these newly deputized "doctors". Seriously, though, it's not like I have a solution. But, those who claim that we're any closer today to solving this problem than we were a few years ago have some 'splainin to do.

I enjoyed watching Buffett say, first, newspapers are dead: "I would not invest in them at any price." Then, years later, he buys up a huge swath of local papers. He explains his rationale to the market. And, in doing so, 'hints' that, well, everyone should start charging for online access: "You can't give away your product and simultaneously charge for it." It's clear, of course, papers will never be what they once were but Buffett played this pretty well. Even if it is a drop in the Berkshire bucket.

Hello eggbriar, Thank you for the detail! That is helpful.

Speaking of receiving dividend withholding for owners of Canadian stocks based in the U.S., does anyone have details on this document? I received a link from Schwab which discussed that I should fill out this form if I owned or planned on owning Canadian dividend payers. Has there been a change in the tax treaty between Canada and the United States? TIA for anyone who has info. http://www.cra-arc.gc.ca/E/pbg/tf/nr301/nr301-10e.pdf

Very valuable -- thanks for posting.

Excellent!! Thanks JEast

Read this: http://boards.fool.com/peg-14354692.aspx It's the "sine qua non" on the matter.

On the contrary giofranchi!! You do not sound deferential -- you sound sincere. And, it was your sincerity, I think, that prompted me to mention you. So, if anyone was being deferential, it was me being so to you. Frankly, while we're on the topic, your writing has been excellent on investing and your approach and thinking about owner-operators fits with much of how I try to invest. So, thanks to you as well!

twacowfca, I just wanted to take a moment, as the New Year has dawned, to say a heartfelt and sincere thank you for sharing your thoughts and reasoning about Berkshire as well as other investments. I definitely don't have the "thank-abilities" as giofranchi -- even though my first language is English and my paternal lineage is Italian -- so I will say, simply, thanks. There are so, so many other people on this board who post truly excellent information that I'm hestitant to name names for fear of leaving others out. I will say that, unlike virtually any other forum and definitely unlike any other forum I've seen, Parsad has created a situation where engaged and intelligent people contribute excellent information and -- crucially -- the competitive spirit (while always alive and necessary) does not supersede the rational and useful and decent.

Palantir, I'd answer you as follows: 1) As for "more to the story", I alluded to the notion that Buffett stepped in -- "late" as it were -- once this industry had fully consolidated. The railroad industry was far more fragmented 25 years ago. So, there are two major competitors in the West and two in the East. Since there won't be any more competitors, the value of consolidation accrues fully to the owner. As Munger says, some businesses "cascade towards scale". This is one of them. 2) This industry used to be much more unionized, much less efficient with labor. Also, it used to be much less efficient before it was consolidated. Once consolidated, it made sense that owners invested large amounts into optimizing -- with double stacking and adding addt'l lines in highly congested areas, etc. You can find all kinds of articles using some google-fu if you're so inclined. 3) Buffett made it clear about 3 or 4 years ago that he believed that oil (and therefore diesel / gasoline) demand had caught up with supply. This meant / means that diesel / gas cost was unlikely to drop way back down. If one believed / believes that, the rails have an enormous energy advantage against their main alternative competitor -- trucking. Buffett has commented over and over again about how far BNSF can move 1 ton of freight on 1 gallon of fuel. When one adds in the fact that this energy efficiency also has an environmental advantage (and therefore, possibly, a regulatory / societal benefit), it is just gravy to the energy advantage idea. 4) With regard to the specific point I was making earlier in the thread and the point that was made in the excellent seeking alpha article, one can see -- if both I and the other writer are correct -- BNSF (and likely the other rails) are much, much more profitable than they appear because of the huge tax advantage. Read the whole thread carefully -- again -- including the the write-up that was included from value investor's club earlier in the thread. This write-up, which is years old, is what orginally pushed me to look into possible tax advantages for BNSF. All the info. you could want is here, in my opinion. Now I've put it on a platter. I like doing that once in a while just as others have done it for me on other ideas discussed on this board. This is helpful for all of us. Best of luck

This guy: http://seekingalpha.com/article/1058551-omaha-hold-em-going-all-in-on-berkshire-hathaway ...makes the point I was making earlier in this thread w/r/t BNSF's deferred taxes and how they do, in effect, produce much better than "apparent at first glance" returns. In addition, this is a generally excellent analysis of Berkshire. EDIT: I see Jeff linked to this article in a new thread. Well, I'm going to leave it here too since I like that he made the point I was making in this thread. ;)

Mr. B, STX has been discussed extensively on Motley Fool -- particularly by poster: "mungofitch" (smart person, rational). Check out the "Falling Knives" board. Here is the most recent thread: http://boards.fool.com/fka-stx-again-30351385.aspx?sort=whole Towards the end, it is mentioned that maybe WDC is the better buy. Here's an even older thread: http://boards.fool.com/fka-stx-30054822.aspx?sort=whole You might want to start with the older thread. This is a very interesting situation. Your general conclusions fit with mungofitch's. kiltacular

1) I'm not particularly excited by BNSF or MidAmerican. I don't think any of Berkshire's float is used to fund them. 2) That said, BNSF is likely better than some are painting it. Buffett likes industries that have "recently" finished a long period of consolidation. BNSF has that quality and lots of others that have been discussed. 3) BNSF gets very large and ongoing tax deferral which isn't reflected in the income statement but can be seen in the balance sheet. Search EDGAR for the relevant filings: "Burlington Northern Santa Fe, LLC". Also, this tax deferral -- as mentioned in the VIC write-up posted in this thread -- lasts as long as cap. ex keeps expanding. If you really think it through, you'll see this must be a big part of Buffett's attraction here. The rail is more profitable than it looks. 4) MidAmerican has no competition for its electric distribution businesses -- primarily PacificCorp and their U.K. system. MidAmerican has other businesses. It has gotten enormous tax breaks for its buildout of wind energy and, now, for its solar deals. These are very hard to spot just looking at the income statement. Search EDGAR for: "MidAmerican Energy Holdings Co / New ". 5) When MidAmerican has to, for example, add "scrubbers" for its coal plants, the cost eventually gets added to the rate base -- they end up getting paid a margin for all their cap. ex. even if it doesn't produce anything other than cleaner air. In spite of the positives, these aren't going to be amazing businesses but they may be a bit better than they appear due to the tax advantages that Buffett loves but that don't "appear" at first glance.

Congratulations to Francis. I was also excited to see him and his story on the cover of that section. Parsad has been singing his praises here for years. Last year, at the get together in Toronto, I had the opportunity to see what Parsad has been highlighting first hand. Mr. Chou spent an enormous amount of time -- after the dinner -- kindly, humbly and insightfully answering questions from the group of eager people around him. Some of these guests were pressing in like they might get a chance to shake the hand of one of the Beattles. Mr. Chou remained calm and interesting. To see the tale of his amazing story is both a credit to him and to a great Canadian immigrant success story. I did not know his history. You all should be proud up north.

Thanks for the color Parsad and rjstc

I thought Pabrai had almost all his personal money in his funds -- can you clarify, rjstc, if he meant his money outside his funds or if he has removed his money from his funds for this investment or some other permutation? It doesn't matter to me -- just curious.

Classic...I didn't think anyone would ever get that. Haven't played it for a long, long time. 4 rapid kills -- for the poor non-nerds out there. Great game ;D