LearningMachine

I think the probability of oil windfall taxes is different between U.S. and Canada. If someone has thoughts, please share at:

Probability materializing in UK so far: https://www.cnn.com/2022/05/26/investing/uk-windfall-tax-oil-gas/index.html

Thanks @Viking for highlighting the probability of this risk for everyone's benefit. If that risk materializes, it will probably have a huge impact on a lot of things. Good thinking to plan ahead so that you are ok if it happens, and also ok if it doesn't happen.

@Sweet, I'm curious what's your reasoning for no Apple?

Upon looking through the companies in the COWZ etf, I realized I don't like a lot of them. Some don't even have shareholder friendly culture to give money back to shareholders. So, I intersected COWZ holdings with holdings of another etf, PKW, which tracks stocks that have reduced shares by at least 5% in the last 12 months. The result is the following list: LPX XRX HPQ AN ALSN LOPE MAN STLD PHM KSS NUE TPX DGX OC LUMN NVR NXST DBX Any of these stocks folks like? I like some of them but still many I don't like.

Vix has only hit 31 so far. Still many companies trading at such high prices that they won't give you your money back for decades if you owned them entirely and market was shutdown forever.

The issue is not the math based on highest interest rate we can imagine when looking backwards at periods of low interest rates. The issue is risk management when looking forward, where we can't predict at all what future interest rates will be at the 10 year mark. I don't think you can say with certainty that mortgage rates will be 8% at the 10-year mark. If for a small amount, you can buy 100% certainty of not having to pay through the nose in interest rates at 10 year mark and for the subsequent 20 years, while getting the opportunity to refinance if interest rates were to drop, I personally would buy the insurance of 30-year mortgage. All that said, if the real estate will not cashflow positively with a 30-year fixed with actual or imputed rent, property taxes, insurance and maintenance, I wouldn't buy the real estate for investment purposes.

Buffett would have knowingly chosen to make the same decision to go with 30-year mortgage even if his plan was to sell in 5 years: On Feb 27, 2012, he said he would buy a couple hundred thousand single-family homes if he could and sell them 5-years later, and even then choose a 30-year mortgage. I couldn't find the original video but here is an article cnbc made based on it: https://www.cnbc.com/id/46538421 . On March 6, 2017, he reiterated that a 30-year mortgage is “the best instrument in the world. ... Because if you’re wrong and rates go to 2 percent, which I don’t think they will, you pay it off. It’s a one-way renegotiation. It is an incredibly attractive instrument for the homeowner and you’ve got a one-way bet." He shared how unfortunately Berkshire doesn't have this same opportunity to call back a 30-year bond on par, and how this gift is available only to individuals. See https://www.cnbc.com/2017/03/06/heres-why-warren-buffett-thinks-you-should-buy-a-home.html .

30-year can also be refinanced. I'd recommend Protect yourself against the probability that interest rates could be lot higher when your 10/1 ARM resets the rate Set yourself up to benefit from the probability that interest rates fall below 3.3% at some moment in the next 30 years. So, I'd recommend going with 30 year.

I get wowed every time I see this table. Buffet has said before he sees Apple as more like See's. However, he was able to buy See's at about 10x, not at Apple's current 24x price. Also, See's Profit margin compared to Revenue was extremely low 6.7% at time of purchase and had room to multiply to 9.8%. Apple's already at gross margin/sales at 41.8%, operating income/sales at 29.8%, and net income/sales at 25.9%. Just like See's was able to double price in 7 years, I think Buffett sees Apple having similar pricing power to be able to double the prices over the next 7-10 years if inflation continues. But if P/E goes from 24 to 12 at some point that will negate that increase at least in public stock price at that time. Maybe not permanently, but hoping there will be some buying opportunities close to P/E of 10 at some moment in the next 7-10 years.

In what year do we think each of the following will happen? (1) AAPL generates $13.5 FCF per share annually (2) AMZN generates $200 FCF per share annually (3) GOOG generates $200 FCF per share annually Seems like it will be many years from now, no?

I'd like to invite fellow board members to poke holes in COWZ ETF that is based on FCF/EV yield. It selects 100 stocks from Russell 1000 with highest FCF/EV yield, and then weighs them by TTM FCF. Holes I see so far: 0.49% expense ratio translates to about 5% of earnings if it grows by only 10%. Selects companies that might be about to lose their FCF. As with other ETFs, probably does shenanigans like lending out the shares in the portfolio, exposing to some risk. Quarterly rebalancing could result in other people front running Defines FCF yield as FCF/EV, leaving out heavily indebted companies, but still I saw at least one mortgage reit squeezed in. Pros I see are: FCF/EV yield was 10.19% as of 3/31/2022 You don't have to pay capital gains taxes as it quarterly selects companies with highest FCF yield, and monetizes companies that have gone up in price. Probably better than average in bear markets. YTD, it hasn't moved much. I need to study more, especially the companies it selects, and whether I can bear owning the ones I don't like, and capital gains benefit is enough to overcome that. Folks, please poke holes :-). Links: https://www.paceretfs.com/products/cowz. Video at https://www.youtube.com/watch?v=kUyMqNq5IMo . Podcast at https://podcasts.apple.com/us/podcast/etf-of-the-week-pacer-us-cash-cows-100-etf-cowz/id1396798703?i=1000521643152 .

Effective April 1, 2020, Berkshire can now go over 10% percent as long as it can avoid some factors that could lead to rebuttable presumption of control. See https://www.federalreserve.gov/aboutthefed/boardmeetings/files/control-rule-fr-notice-20200130.pdf. Here is a clearer table from https://www.arnoldporter.com/en/perspectives/advisories/2020/02/federal-reserve-adopts-final-rule-clarifying that clarifies what factors Berkshire would need to avoid for different levels of ownership to not have to deal with rebuttable presumption of control:

Thanks @gfp for keeping everyone updated on this.

PSX

What do folks think Buffett bought beyond Y, CVX, OXY, HPQ, and BRK? Wonder what he sold?

I agree it is really hard to predict many years out. This also applies to predicting what happens to Costco many years out. Live by your own principle, @Gregmal :-). Safer to own a company that is returning money to shareholders now and will give it all back in the next 5-10 years, instead of owning a company that you hope might some day start returning to you in 20-30 years. Bird in the hand is worth two in the bush.

Given today's market cap of $90B, in what year in the future, do you expect NFLX to have free cash flow of at least $9B?

Thanks indeed @longterminvestor for posting. I found the following really interesting: What candidate business will be worth 10-20 years from now: Buffett said that when deciding on whether to invest in a company, he looks for "what is the company going to be worth 10 or 20 years from now". Did he always look that far out or did he used to look only about 5-10 years out? $5 Billion size investments making only a 1% impact: He said that even now he finds some "whales", but that even if he finds a $5B investment that he thinks is a "whale", it will only be about 1% of the portfolio. Any recent ~$5B size investments he might be referring to? Thoughts?

What's going on with Oxy stock today? Any special news out there?

What do folks think is the risk of oil windfall tax in U.S. vs. Canada? Democrats have proposed windfall tax on profits above $66 per barrel. See https://www.congress.gov/bill/117th-congress/house-bill/7061 . Windfall Profit Tax on Domestic Crude Oil was passed back in 1980 also. See https://www.govinfo.gov/content/pkg/STATUTE-94/pdf/STATUTE-94-Pg229.pdf#page=1 . What do folks think is the likely probability range it will get passed again this time in the U.S.? Any likelihood of it getting passed in Canada?

Well, remember what happened to BP with the oil spill liabilities. I don't think Buffett would ever expose Berkshire to that risk. That said, he seems to be interested in the lower-risk Permian over the higher risk Gulf of Mexico oil. So, if he were to acquire it, he could quickly get rid of the higher risk operations that could put all of Berkshire at risk. Overall, I think he does want to have X billions of barrels of oil owned by Berkshire for inflation risk without the other liability risk. One way to do it is to keep owning just a percentage of OXY, and another way is to get Permian out of OXY and own that.

Hey, I'm curious how are you calculating 2021 operating income? Last 9 months of 2021 Non-IFRS Net Profit for 9 months of 2021 was $537M USD. See slide 26 at https://ir.tencentmusic.com/download/3Q21+TME+Investor+Presentation.pdf . Their current market cap is $5.56B USD.

@SharperDingaan, what year would we hit 20 million electric car sales & production per year when we are selling 15 million total cars per year, and less than 0.5 million of them electric? Article below based on ING Research report is complaining even hitting 50% cars sold by 2030 is too drastic to expect: https://www.theguardian.com/us-news/2021/dec/03/us-electric-vehicle-car-sales-biden

@SharperDingaan, I'm not denying that the change is happening. I'm saying let's do the math on what asap means here. When we are selling 0.3 million electric cars per year, and electric car sales/production is doubling about every 2-years last time I looked, and we have 280 million cars in the U.S., how many years will it take to replace those 280 million cars? What does your math say? Are you saying electric car sales per year are going to grow much faster than doubling ever two years that they have been doing so far? Give us a growth rate and let's do the math on how long it would take to replace 280 million cars to calculate what "asap" means here.