Poor Charlie

That's indeed the impression I get following him on Twitter. But I've seen all his old letters. They're off-the-charts accurate with both macro and company-specific details (this includes his other fund: Scion Asia Opportunities). It's some of the most thoughtful stuff I've read (I can see why Greenblatt called him the best analyst he'd ever seen). I have a hard time reconciling the Burry you see on Twitter with the Burry that wrote those letters.

My understanding is that Colson was carved out of Marmon so that Bob Pritzker would have something to do after Marmon was sold to Berkshire. Perhaps there was an implicit/explicit agreement to sell it back to Marmon later (similar to Berkshire's acquisiton of the remaining 40% of Marmon). I don't know about Angelo Pantaleo, but Marmon has had some world-class CEOs: Bob Pritzker, John Nichols, Frank Ptak. Both John and Frank trained under Sid Cathcart, one of the best industrial managers of the 20th century. Frank left Marmon for Madison Industries, another company that would be a great Berkshire holding.

Thanks Jaygo! I'm glad you like the posts.

FYI - I uploaded some of my Dempster files to Twitter a few months ago:

BusinessWeek, Institutional Investor and Forbes ran cover stories on BA in the late 80s and early 90s. You might like those. There's also an old Bernstein report on LVMH that I enjoyed. Erwan Rambourg, an ex-LVMH employee and HSBC analyst, wrote several books on the luxury industry. I haven't read them, but I imagine they include details on BA and LVMH.

See's has grown in the HSDs without a year-over-year decline for more than 75 years. Cash conversion is like 99%. Think of it as an annuity that grows at 2x GDP. What's that worth in a DCF? I think Buffett relies on pattern recognition more than people realize (how else can he make a yes/no decision in just a few minutes?). It could be chocolate, coatings, castings or cutting tools. He doesn't care as long as the financials look a certain way. And if you look at See's annual reports from the 1960s, you'll notice the financial results map to other deals he has done (or wanted to do).

Daily Journal filed their 10Q this afternoon: https://www.sec.gov/ix?doc=/Archives/edgar/data/783412/000143774922012145/djco20220331_10q.htm Notes: Realized a loss of $33 million ($24 million net) on Alibaba (bought at $209 per share; sold at $101 per share). Redeployed the Alibaba proceeds into another non-US security (or securities?). Increased margin debt by $6 million.

My guess: Duan Yongping. He won the 2006 GLIDE lunch auction, and they've probably kept in touch since (given Duan's knowledge on investing, china, electronics, apple, etc.).

The deal closes after an Allegheny shareholder vote. Until then, they can accept competing offers (with no deal-break fee paid to Berkshire).

Suprised Buffett never pushed for a deal-break fee. They're effectively giving Alleghany a free put option until the shareholder vote. I don't expect this deal to close. It's like Buffett wants Berkshire to be the stalking horse for an Alleghany auction.

Two comments: Buffett and Munger have been making concentrated bets since the 1950s. As far as I can tell, neither one has lost more than a few percentage points of equity capital on a single investment. This, from my point of view, is the most impressive thing about their careers. Can you think of any other investors who have done this? I can't. In the entities he has overseen, Munger has made especially concentrated investments (New America Fund = Lee Enterprises; Blue Chip Stamps = RJ Reynolds and Buffalo News; Wesco = Freddie Mac and Coca-Cola; Daily Journal = TBTF banks). He was often criticized as reckless when he made them (e.g., RJ Reynolds, Buffalo News, Freddie Mac and the TBTF banks), but they have all been massive successes. Munger's investments in Alibaba and the undisclosed non-US security (which I suspect is Tencent or some other Chinese company) are large, amounting to 60 percent of Daily Journal's $250 million in equity capital at cost. It's also odd he's taking on additional margin debt to make them. But I'm willing to give him the benefit of the doubt on this one.

I have some of the Berkshire and Wesco transcripts from the late 80s and early 90s, which I can send you when I’m back in the office. I’m also looking for old OIDs. If anyone has them (or knows where to get them), please send me a PM.

Try the link below: https://48b401b4-d9c2-4d42-b9e8-8a13fc730ef4.filesusr.com/ugd/f2fd00_ad8cd425a77244c98186a35cd5864d84.pdf For those interested, I’ve also posted some of my detailed long-term spreadsheets, including Berkshire (56 years), Coca-Cola (100 years), Microsoft (40 years), Apple (42 years), etc. And I’ll be posting more financials and a bunch of other stuff (old annual reports, articles, notes, letters, etc.) when I get some time. https://www.turtlebay.io/financials

Yeah. I left out the parts where he ripped into everybody for not preparing.

I found an old file with my notes from a lecture Li Lu gave in 2012. If you're interested, I cleaned it up and posted it online: https://48b401b4-d9c2-4d42-b9e8-8a13fc730ef4.filesusr.com/ugd/f2fd00_daf48b49e7614ed7b4a8235885c59be8.pdf Disclaimer: This isn't a transcript. It's an edited document from rough notes I took nearly 10 years ago, so please forgive my errors and omissions.

To those involved in the Riviera Resources liquidation: Does anyone have any updated information since they went dark? I've tried multiple times to contact the company for financials and distribution plans, but no one has responded. Thanks for any responses.

Ultimate Risk On The Brink Risky Business

There are several good books on the underwriting issues at Lloyd’s. They do a good job covering the causes and consequences of poor underwriting discipline.

Thanks for taking the time to do this! Any idea when/if an English edition of Li Lu’s book will be released? Given the reception it would receive, I’m surprised we haven’t seen anything yet.

I recommend the trade journals. Schiff’s Insurance Observer no longer publishes, but the archive is available online at no charge. Dowling’s IBNR, which Alice Schroeder used to write, is good too. I’ve also enjoyed Fortune Magazine’s insurance-related reporting—particularly from Loomis and others in the 70s and 80s. Other suggestions: I learn by simply reading annual reports. Try reading the annual reports (and statutory filings) of successful insurance businesses. You can’t go wrong with Berkshire, but I’d also suggest companies like Progressive, WR Berkley, Markel, RLI, etc. It’s also interesting to learn about the failures. Why do great high-frequency-low-severity insurers like GEICO or 21 Century get into trouble (Loomis wrote a great article on GEICO’s issues in the 1970s). Why did Fairfax have problems? Why did Lloyd’s nearly fail (there are several good books on this)?

I actually enjoy conversations on valuation math. I’m always looking to improve my understanding, so I welcome people poking holes in my posts. I just ask that you put forth coherent arguments, which we don’t seem to be getting from Thrifty. As soon as I sober up I'll see if I can clarify. Haha. Geez, I feel like I'm being baited. But, fine, if it makes you trolls happy... Normalized Per-Share Look Through Earnings - Year 0: $10.31 Projected Earnings: Year 1: $10.93 Year 2: $11.58 Year 3: $12.28 Year 4: $13.02 Year 5: $13.80 Present Value of Projected Earnings - Years 1 Through 5 (10% Discount Rate): $46.19 Residual Value: Residual Earnings (Year 5 Earnings x 1.06): $14.62 Capitalization Rate: 6% Capitalized Residual Value: $243.75 Present Value of Capitalized Residual Value (10% Discount Rate): $151.35 Total Present Value of Projected Look Through Earnings: $46.19 + $151.35 = $197.54 And there you have it. $197.54 is the precise intrinsic value of a Berkshire Hathaway B share down to the penny. I can carry it out to more decimals if you like. Haha. Obviously, you can model it out for more than 5 years, play with all the variables, add more inputs and variables, and derive pretty much whatever intrinsic value you want (why Warren Buffett has never wasted time on a DCF model, and why I feel slightly disgusted for wasting my own time). For me, the most important inputs are the normal earnings estimate and growth estimate. Naturally, those are the two numbers I originally shared, and are the two items I wish others would share and intelligently discuss (that goes for all investments on COBF), especially if they aren't just pulled out of the air, and are the result of quality research and personal experience. If you want to add value while attacking my (or anyone's) work, personally I'd prefer you challenge me to defend the effort and assumptions that went into deriving the look through earnings and growth estimates. Another way to be a hero would be to post your own estimates, and subject yourself to a little scrutiny. Bring it on! My posts had nothing to do with what I think Berkshire is worth. I was simply trying to point out that $10 in retained earnings aren’t the same thing as $10 in distributed earnings. You can’t capitalize earnings like you did (and continue to do) unless those earnings are distributed. Would you capitalize the reinvested interest when valuing a zero-coupon bond? If not, then why would you capitalize the retained earnings of Berkshire (Berkshire, which retains all its capital, is effectively a zero-coupon equity)? Aren’t they the same thing? If we can’t agree retained earnings ≠ distributed earnings, then I’m sorry for wasting your time. I was just looking to join a conversation about something I find interesting. All the best

I actually enjoy conversations on valuation math. I’m always looking to improve my understanding, so I welcome people poking holes in my posts. I just ask that you put forth coherent arguments, which we don’t seem to be getting from Thrifty.

If the only cash you get is when you sell the investment (the terminal year), then why are you capitalizing the yearly earnings [$10 / (.10 - .06) = $250]? You wouldn’t capitalize the reinvested interest when valuing a zero-coupon bond, so why would you capitalize the reinvested earnings when valuing an equity investment? Not worth commenting on. If Berkshire is earning 6% on incremental retained earnings, which is what you’re implying (6% growth * 100% retention = 6% ROEs), and you assume the market will discount cash flows at 10%, which is also what you’re implying [$10 earnings / (10% discount rate – 4% growth rate)], each dollar retained is indeed worth 60 cents. For example, retained earnings at the end of year 24 for would increase by $508.16 [($40.49 ending earnings – $10 beginning earnings) / 6% ROE] but the market value would only increase by $304.89 [($40.49 ending earnings – $10 beginning earnings) / 10% discount rate]. This means that each dollar retained is worth 60 cents ($304.89 increase in market value / $508.16 increase in retained earnings). Part of the problem is you’re conflating the market’s discount rate with your discount rate (or more specifically, your required rate of return). Rather than plugging the wrong numbers into a formula it seems you don’t fully understand, try thinking about it without using a formula at all. For instance, “I get $40.49 in cash flow every year after year 24. The market will capitalize cash flows at 6.25% (using the 16x you used above, but pick whatever multiple you want), which means I can exchange my $40.49 cash flow stream for an upfront payment of $647.83 at the end of year 24. I want a 10% compounded return (what you say you’d pay for an “earnings cash flow stream growing at 6%”), so I’d be willing to pay anything less than $65.77 for this now ($647.84 / 1.10^24).”

The $10 of current earnings are not distributable earnings, but retained earnings. In other words, the only way Berkshire can achieve growth rate of 6% in your model is by retaining the earnings. So you should re-work your model to come up with an intrinsic value estimate that incorporates this fact. It is not equal to $10/(10%-6%) = $250 per B share as you seem to be implying. The company earns $10 in year 1. It retains and reinvests that $10 earned in year 1, and as a result, it earns an additional $.60 in year 2, for total year 2 earnings of $10.60. It does the same in year 3. It reinvests the $10.60 it retained in year 2, and earns $11.24. That pattern continues in perpetuity. In 24 years, for example, it will be earning $40 per share according to the model. Why does that need to be reworked? Seems straightforward. Your’re capitalizing retained earnings rather than distributed earnings. The value of $10 in earnings growing by 6% a year depends on how much has to be reinvested to produce the 6% growth. Your economic assumptions ($10 initial earnings, 100% retention, 6% growth) and your valuation assumptions ($10 initial earnings, 0% retention, 6% growth) are not the same thing. Using your 10% discount rate, you get the following present values for Berkshire’s operating earnings (i.e., the value of Berkshire excluding cash and securities): (a) $10 earnings, 100% retention, 6% growth (using your terminal year of 24): ($40.49/.10) / 1.10^24 = $41.11 (b) $10 earnings, 0% retention, 6% growth (in perpetuity): $10 / (.10-.06) = $250 Under your economic assumptions of 100% retention, 6% growth and a 10% discount rate, Berkshire would be destroying value. In fact, each dollar retained would be worth only 60 cents. Here’s another way to look at it: If Berkshire needs to retain 100% of its earnings to grow by 6% a year, they’re earning 6% on equity. Berkshire is levered 2:1 and the liabilities cost zero (roughly). You’re therefore assuming Berkshire will earn just 3% on the asset side. Of course, assets that produce operating earnings only make up half the balance sheet, but you get the idea.

Anyone have his 2019 or 2018 letter?