LearningMachine

I noticed that too. It almost felt like it was trying to call attention to it trading at lower Price-to-Book than the companies with higher market cap currently, i.e., MSFT, AAPL, AMZN, GOOGL. That is almost like telling folks to buy BRK stock instead of MSFT, AAPL, AMZN OR GOOGL, increasing BRK's price, making it harder to do buybacks. Wonder why it was worded that way because I am sure Buffett knew local U.S. investors would also be reading into the Press Release on Berkshire website. Maybe it was always his dream to make BRK the highest valued company in the U.S. before he departs, and making that statement makes him feel he has reached that dream, and he wanted to call that out before anything happens to his health. Hope his health is ok. Maybe he started thinking more about his mortality risk as a result of turning 90.

Thanks ShaiDardashti for sharing the 0% coupon bond filing: https://www.sec.gov/Archives/edgar/data/1067983/000119312520064645/d853116d424b5.htm. Ingenious! By the way, 625.5 Billion Yens translate to $5.911 Billion USD at today's currency rate for me.

Makes sense why Berkshire started issuing yen-denominated bonds at ultra-low coupon rates as low as 0.17% in 2019 for the first time in its history. Starting April 2019, he borrowed 625 Billion Yens at low fixed rates with long maturities and used the cash to buy Yen-denominated securities that probably have a much higher earning yield than the ultra-low interest rate he has to pay. Pure interest rate arbitrage without spending Berkshire cash and without taking on currency risk.

A big telecom company in Vancouver, Canada went along the same path, and guess where it led eventually? Some years ago, everyone was working 100% in offices. Then, they started letting people WFH one day a week. After sometime, that went to WFH two days a week. After sometime, it went to working from office two days a week, and rotation model similar to what JPM is thinking, where each team knew which two days of the week they were in office. Then, they went to "hoteling" at the team level where you could book one day a week for your team. Then, the teams started meeting downtown for lunch one day a week instead of going into office. The company then started realizing teams are socializing outside and not even coming to office. This was all Pre-Covid. Then Covid hit. Having had that realization before Covid already, the company told folks to get their stuff out of the building by end of July because they are going to now sell the building.

Regarding the separation, I think you might be thinking about investment banking business, where (1) one arm is acting as seller's broker, and (2) another arm invests bank's own balance sheet. What I was talk about was a bank that (a) takes deposits and (b) lends out that money as loans/investments. Yes, you hit it right on the nail that banks and insurance companies are not "businesses that are so wonderful that an idiot can run them."

10% vacancy rate? Lets hear more thoughts. Fyi, we are already at 17.1%: https://www.reuters.com/article/us-usa-property/u-s-office-apartment-vacancy-rates-rise-marginally-in-second-quarter-reis-idUSKBN2492QJ

I have been following this thread, and I feel folks have been taking extreme positions: (1) office building is dead, or (2) we are going back to office. I think everyone will agree that what will end up happening will be somewhere on the spectrum between #1 and #2. I wonder if we should express that point on the spectrum by what would be the vacancy rate in office? Moody's is now predicting vacancy of 19.1% in 2021 and 20% in 2022: https://www.bloomberg.com/press-releases/2020-08-17/moody-s-analytics-forecasts-us-office-vacancy-rate-hitting-historic-high-of-19-9-in-2021. What do folks think vacancy rate might be post-Covid in 2021-2022? Based on what I'm hearing, I think it will probably fall between 20% and 30%. I wonder if folks might be underestimating the impact on pricing from 20-30% vacancy in office and retail. Because prices are based on incremental supply/demand, a 15% vacancy can cause 50% drop in prices. In Detroit, 20% vacancy in houses caused holding banks to sell houses for $1 each to avoid paying property taxes and to avoid legal liability. Imagine you own 10 million sqft of office space, which was all rented pre-Covid and could cover your mortgage payments and property taxes. Imagine, post-Covid only 75% is rented. If you couldn’t cover mortgage payments and property taxes with the rent anymore, what will you do with the remaining 2.5 million sqft? Will you sell/rent it for whatever price you could get? What if many such folks have to do that to survive? Would they do it even if price is 75% off? Also, what do folks think the effect of that vacancy rate will be on NYC office PSF? What is lowest salvage PSF that would make it profitable for a developer to convert office to condo or multifamily given rental rates at the time?

...and, then it was cre

I think scorpiancapital's hypothetical question is using a well-run bank's deposits vs. a well-run insurance company's float to make investments. I have been thinking about this as well. Munger and Buffett have talked about this too. They were not happy when they had to sell their bank as a result of the 1969 Bank Holding Company Act. Here is one of the videos: With the insurance companies, you get a little more flexibility in what you can invest in and regulators don't jump at you the moment you are making losses. With banks, as we saw in the GFC, regulators can really make you sell shares at the bottom to dilute your shares by orders of magnitude (Citigroup) or take over the bank (WaMu), when your Common Equity Tier 1 capital ratio is too low. If you want to own equities in the bank using depositors' money, the regulations make you count them at a multiple when computing your Risk Weighted Assets. For example, for publicly traded equity, adjustment factor for RWA is 300%, for non-publicly traded equity, it jumps to 400%, and for other equity it jumps to 600%. This effectively has almost a proportional effect on how much base Common Equity Tier 1 you need to hold. So, effectively your leverage goes down. Then, if the marked-to-market prices of your investments fall, you have to increase your Common Equity Tier 1 to meet the required capital by recapitalizing at that time, i.e. by selling shares at the bottom. That said, I think using depositors' capital to make investments is probably doable, but you need someone meticulous to be running the bank. If I was running the bank, I can think of several ways to juice up the ROA without taking any additional risk. I bet Munger and Buffet are thinking the same when they say they didn't like having to sell the bank, and wouldn't mind owning 25% of a bank now that the rules have changed. However, risks are still there as you need to have processes in place to make sure your employees don't screw up in making loans/investments just like risks are in place that your underwriters don't screw up in insurance, but with banks risks are more SEVERE and can materialize really FAST with regulators ready to jump at you if marking your investments to market and CECL losses on loans take your CET1 capital under what you need to have.

I calculate below about $15B of securities sold in Q2. Some of it was the airlines before the AGM. I wonder if he also sold some of the remaining banks or maybe the overpriced AAPL (even though Q2 statement says AAPL is part of top four holdings)? At the time he sold these stocks in Q2, he probably didn't know that BAC price was going to get attractive in Q3 for him to purchase more. If the sales had been after BAC purchase, it would have been more likely to be banks for him to avoid conflict of interest with other banks. However, sales were a lot before BAC purchase. So, could it be overpriced AAPL or something else, or he disliked some banks so much that he wanted to sell them even when he didn't know he was going to buy more of BAC? WFC holdings are about $8.6 B, JPM is $5.7B, USB is $5.6 B and BK is $3.3 B. -----------Calculation of $15B stock sales ---------------- We know already that between April 23 and July 7, 2020, he bought 19,374.65 BRK class A equivalent shares. Assuming he was able to get it for about $170 per Class B share, that is, for $255,000 per class A share, and assuming further that the purchases were entirely in Q2, he spent about $5 Billion buying back BRK in Q2. Despite that, the cash position went up from $137B to $147B in Q2. 5+10=15 Billion The Dominion purchase was announced on July 5. So, that wasn't in Q2. BAC purchases were started on July 28. So, not in Q2 either.

gfp, sorry, trying to parse your sarcasm. Which one of these did you mean? (a) $800 million purchase is such a big news that Mainstream press should be making a bigger deal about it. In current times, only some of the press is reporting it and not making a huge deal they would have been making in the past. (b) $800 million is such a tiny amount given Buffett's portfolio. Sign of times that press has to even report it.

Thanks gfp for figuring out the discrepancy. You're right: 1,620,023 - 1,600,648.597 = 19,374.65 class A equivalent shares bought between April 23 and July 7, 2020. I was getting 1,601,290.26 for July 7 in another column by doing longer math based on voting power percentage declared in the SEC document. Because voting power percentage and economic interest percentage are both rounded to only 2 decimal places in the sec doc, they produce different figures, but good that the figures are not that far off.

Thanks redskin and gfp. For April 23, 2020, you're right. I was able to confirm 1,620,023 Class A equivalent shares at https://www.berkshirehathaway.com/qtrly/1stqtr20.pdf For July 7, 2020, I am getting 1,601,290.26 based on calculation above using numbers at https://www.sec.gov/Archives/edgar/data/315090/000119312520189490/d936378dsc13da.htm 1,620,023 - 1,601,290.26 = 18732.74 class A equivalent shares purchased between April 23, 2020 and July 7, 2020. Are you getting different numbers for July 7, 2020 using a different calculation from what I did earlier? Looks like the lowest the share price hit during that time was 168.52 on May 15, 2020. Wondering if he picked it up all under $170?

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

That is sarcasm, right? (I think it almost definitely is, but just wanted to make sure) I'm thinking it actually increases the value of Buffett's investment in senior securities in OXY with (1) no negative impact from dilution of subordinated securities and (2) positive impact from lowering the likelihood of OXY filing for bankruptcy with the new money.

https://www.berkshirehathaway.com/letters/2019ltr.pdf shows annualized return of 20.3% for BRK market value and 10.0% for S&P 500 from 1965 to 2019. Similarly, https://www.berkshirehathaway.com/letters/2018ltr.pdf shows annualized return of 18.7% for BRK book value and 9.7% for S&P 500 from 1965 to 2018. During those years, Berkshire Hathaway had the opportunity to invest more and more float from insurance companies, and others have said BRK effectively got a leverage of 2:1 while paying no interest on that float. Could that leverage explain a big part of the performance difference between BRK and S&P 500? If BRK had access to the same float and at some point, had switched to investing in S&P 500 returning 10% instead of picking stocks & operating companies, could it have achieved about the same results? Would love to hear insightful thoughts to help me understand deeper.

Thanks bizaro86, I agree you have to subtract the insurance float in the valuation above. These are assets that belong to insurance premium payers. This is similar to if you were valuing a bank, you wouldn’t count all of depositor’s cash in the valuation. Those are assets held for depositors. True, Buffet gets to invest these assets similar to how a bank that gets to lend out the deposits. However, if there are big loan losses banks have to still make depositors whole. Also, if Buffett has big investment losses, he has to still make insurance premium payers whole.

I think Buffett will have the last laugh. He is spot on that some workers won't come back to offices. Tech companies are already making decisions for the long term which will result in at least 25% reduction in office sqft, retail and even residential real estate in expensive cities. Folks might be under-estimating how much 25% increase in incremental real estate supply can impact prices drastically in office, retail, and maybe even residential housing in expensive cities. 25% reduction in space needed can result in over 50% drop in prices because prices are based on incremental/marginal supply/demand. Imagine you own 100,000 sqft of office space, which was all rented pre-Covid and could cover your mortgage payments. Imagine, post-Covid only 75% is rented. What will you do with the remaining 25,000 sqft? Will you sell/rent it for whatever price you could get if you couldn’t cover mortgage payments with the remaining 75%? Does anyone know what percentage of Detroit housing had to be on sale for prices to plummet? My guess is it didn’t even need to be as high as 15%. 50% drop in real estate prices will be deadly for banks and in turn, several industries.