Buffett/Berkshire - general news

[MarioP]

Kind of funny and a sign of a new area. Buffett always said  to  avoid investments in sector that can be disturb by technology. Now technology is messing up one of his investment made 50 years ago…

[scorpioncapital]

Every old world business has no excuse not to use technology to enable their core business model to be more efficient and do better. I don't see this is an issue of being tech adverse but just a bad mistake unfortunately. 

Also it is probably normal for insurers to have claims cost inflation and that to impact performance. Insurers don't do very well when there is unexpected inflation. Even moreso if you didn't use available technology to do better underwriting.

 

Edited September 14, 2022 by scorpioncapital

[yesman182]

I think Geico is doing exactly what they said they would do. They said they feel they can have a leading underwriting profits just by asking questions at the time of application. They also said they would pay close attention to telematics and integrate them into their business if they prove to be better over time. I don't think its a big deal if they are a few years late to the party. Its the same story with precision railroading. 

[gfp]

1 hour ago, yesman182 said:

I think Geico is doing exactly what they said they would do. They said they feel they can have a leading underwriting profits just by asking questions at the time of application. They also said they would pay close attention to telematics and integrate them into their business if they prove to be better over time. I don't think its a big deal if they are a few years late to the party. Its the same story with precision railroading. 

 

Yeah, I think you are right broadly speaking.  I do think they started to notice some adverse selection by letting the competition run with telematics for as long as they did.  Safe drivers want telematics to save money, crazy drivers avoid telematics.  Also, a lot of the items they liked to base their rates on - like credit score - are somewhat frowned upon as a rate-setting tool lately.  Despite being just fine as a predictor of claims.

[gfp]

On 9/13/2022 at 9:34 AM, gfp said:

Who says there are no synergies between Berkshire subs - Greg Abel will probably be better at keeping his ears open to opportunities to collaborate -

 

https://wvmetronews.com/2022/09/13/berkshire-hathaway-company-to-produce-titanium-aerospace-products-in-jackson-county/

 

 

This announcement is pretty interesting because it is something totally new for BHE.  BHE Renewables will be the owner/developer of this 2000 acre industrial park and Precision Castparts / Timet will be the first tenant to locate there.  But PCP doesn't need 2000 acres.  So this is actually a bigger development than just BHE buying PCP's factory site.  The park will apparently be marketed to additional tenants - kind of like the parks that the Iscar founder Steph Wertheimer developed after selling his company to BRK.

 

Also odd / interesting because it isn't very sunny in West Virginia.  I think it's like 48th in the states for sun so it's an odd choice for a solar powered industrial park.  Maybe the solar won't actually be generated on site?  Or maybe that's why they need so much land LOL

 

One thing is for sure, there must be some hefty tax incentives on the table.

[yesman182]

3 hours ago, gfp said:

This announcement is pretty interesting because it is something totally new for BHE.  BHE Renewables will be the owner/developer of this 2000 acre industrial park and Precision Castparts / Timet will be the first tenant to locate there.  But PCP doesn't need 2000 acres.  So this is actually a bigger development than just BHE buying PCP's factory site.  The park will apparently be marketed to additional tenants - kind of like the parks that the Iscar founder Steph Wertheimer developed after selling his company to BRK.

 

Also odd / interesting because it isn't very sunny in West Virginia.  I think it's like 48th in the states for sun so it's an odd choice for a solar powered industrial park.  Maybe the solar won't actually be generated on site?  Or maybe that's why they need so much land LOL

 

One thing is for sure, there must be some hefty tax incentives on the table.

I wasn't aware they are going to be the Owner/Developer of the land. Buffet has mentioned at the annual meetings how server farms have flocked to Iowa for the low cost power. Maybe BHE wants to offer low cost electricity to long term tenants and collect leasing/rental income? 

[ValueMaven]

Stock is cheap here - hope Warren is buying back aggressively !!

[yesman182]

6 minutes ago, ValueMaven said:

Stock is cheap here - hope Warren is buying back aggressively !!

I do too, but I also hope he is finding other securities he likes more. 

[gfp]

This article goes a little bit into the history of the West Virginia BHE/PCP deal.  Letter to Buffett, Buffett forwards it to BHE. Bill Furman goes out to West Virginia to tour sites.  Sounds like the other tenants of the microgid industrial park will be feeding into or taking off from the Timet plant.

 

https://www.sfgate.com/news/article/A-letter-to-a-billionaire-sparked-a-W-Va-17464001.php

[CassiusKing1]

On 9/23/2022 at 8:32 PM, ValueMaven said:

Stock is cheap here - hope Warren is buying back aggressively !!

Agreed!  Started some nibbling on Friday.

[UK]

https://www.wsj.com/articles/amazon-berkshire-hathaway-could-be-among-top-payers-of-new-minimum-tax-11664098382

 

The UNC analysis comes with caveats. Lacking confidential tax returns that would allow precise calculations, the authors used publicly available financial data. Companies might change behavior to minimize taxes. A one-year snapshot includes unusual situations that cause companies to pay the minimum tax once, generating tax credits that can be used in future years.

 

Under the new law, companies averaging more than $1 billion in publicly reported annual profits calculate their taxes twice: once under the regular system with a 21% rate and again with a 15% rate and different rules for deductions and credits. They pay whichever is higher. The new system, known as the book minimum tax, starts with income reported on the financial statement, not traditional taxable income. Differences between the two—the treatment of stock-based compensation, for example—could drive a company into paying the new tax. According to the UNC estimates, Berkshire Hathaway would have paid the most in 2021, at $8.3 billion—or about a quarter of the estimated total—followed by Amazon at $2.8 billion and Ford Motor Co. at $1.9 billion.

Edited September 27, 2022 by UK

[gfp]

These articles ignore the fact that the implementation of the minimum tax law hasn't been written yet.  There is no indication they intend to negate renewable energy tax credits, accelerated depreciation for investments in US PPE, or introduce a new tax on unrealized gains on securities inside insurance company investment portfolios.  

 

I wouldn't expect Berkshire to have a huge change to their cash tax rates when this thing is finally implemented.

[Munger_Disciple]

5 hours ago, gfp said:

These articles ignore the fact that the implementation of the minimum tax law hasn't been written yet.  There is no indication they intend to negate renewable energy tax credits, accelerated depreciation for investments in US PPE, or introduce a new tax on unrealized gains on securities inside insurance company investment portfolios.  

 

I wouldn't expect Berkshire to have a huge change to their cash tax rates when this thing is finally implemented.

 

+1

 

Articles like this from Barron's & WSJ are click bait I'm afraid. I like this rebuttal : An AT&T spokesman said the company doesn’t expect the minimum tax to affect its 2023 tax bill. “Academics don’t prepare our taxes; trained and expert tax professionals do that work,” the spokesman said.

Edited September 27, 2022 by Munger_Disciple

[hardcorevalue]

even though it's losing relevance does anyone care to guess what p/b $BRK.b is trading at today? 

[Thrifty3000]

On 9/23/2022 at 7:39 PM, yesman182 said:

I do too, but I also hope he is finding other securities he likes more. 

 

Last time the shares were in this price range he was scooping up $5 to $6 billion per quarter. I assume he's buying back that amount again now.

[yesman182]

I was wondering if WEB would sell his ATVI shares and buy back more BRK shares. At most he stands to make ~25% before taxes with ATVI. But since the ATVI deal isn't certain to close, why "risk it" when you have the buyback as an option.  When they were buying ATVI in Q1 is seems like the BRK shares were near the all time high. It seems to me that the BRK shares are around 20% below intrinsic value and it seems like they are a better buy than ATVI.

[backtothebeach]

2 hours ago, hardcorevalue said:

even though it's losing relevance does anyone care to guess what p/b $BRK.b is trading at today? 

 

At today's close I have estimated "realtime" BV at $214.26 and the B shares at a P/BV of 1.24.

[gfp]

1 hour ago, yesman182 said:

I was wondering if WEB would sell his ATVI shares and buy back more BRK shares. At most he stands to make ~25% before taxes with ATVI. But since the ATVI deal isn't certain to close, why "risk it" when you have the buyback as an option.  When they were buying ATVI in Q1 is seems like the BRK shares were near the all time high. It seems to me that the BRK shares are around 20% below intrinsic value and it seems like they are a better buy than ATVI.

 

I doubt he is capital constrained to the point where it's a 'one or the other' situation.  But, yes, that's why arb spreads tend to widen out when stocks are hitting new lows.  People sell what they can to raise funds.

 

Warren has the Alleghany check to write some time soon, then a Pilot Corp. check to write in January and has moved some of the cash into slightly longer dated treasuries.  

[Dynamic]

I hold some ATVI myself in a tax free account and have considered adding to Berkshire or Markel using the proceeds. It has held up pretty nicely against a declining market as merger arbs tend to, but I've been on the fence about whether to switch or not.

 

A central estimate of a Berkshire's 1 year return might well be close to the possible 6-9 month returns offered by ATVI if the merger proceeds but I quite like the market neutrality of the position in case Berkshire gets even a little cheaper and I decide to really load up, to lock in not only the 1 year returns but the subsequent long term compound returns of inflation+7-9% that we might expect after that.

 

I think my hysteresis would like the return of the alternative to be just a little more juicy before I switch.

[nwoodman]

MS with an update on losses

 

“Hurricane Ian makes Florida landfall, marking the first major hurricane to make landfall since Hurricane Ida in 2021. Current industry loss estimates range from $10b-$30b+. We think individual company exposures are manageable. While total insured losses for FY22 should be < $100b, we still expect strong reinsurance pricing into 2023.”

 

 

 

INSURANCE_20220929_0000.pdf

[DooDiligence]

7 hours ago, nwoodman said:

MS with an update on losses

 

“Hurricane Ian makes Florida landfall, marking the first major hurricane to make landfall since Hurricane Ida in 2021. Current industry loss estimates range from $10b-$30b+. We think individual company exposures are manageable. While total insured losses for FY22 should be < $100b, we still expect strong reinsurance pricing into 2023.”

 

 

 

INSURANCE_20220929_0000.pdf 323.33 kB · 7 downloads

 

I'm assuming the "excluding auto" cohort will see the biggest portion of claims?

 

When I switched to GEICO for auto, a few years ago, I tried bundling home and auto but they wouldn't write a homeowners policy. I was very happy to see this.

[Spekulatius]

1 hour ago, DooDiligence said:

 

I'm assuming the "excluding auto" cohort will see the biggest portion of claims?

 

When I switched to GEICO for auto, a few years ago, I tried bundling home and auto but they wouldn't write a homeowners policy. I was very happy to see this.

Did Geico ever write homeowners? They had an affiliation with Travellers to write homeowners when I was with Geico years ago.

 

Auto could take a decent hit,  if there is widespread flooding.

Edited September 29, 2022 by Spekulatius

[longterminvestor]

Auto will be a portion of loss because auto policies include flooding, homeowners does not cover flood.  Flood is backed by US Gov through National Flood Program.  Some private players have started to underwrite flood - mostly Lloyds and have seen some AIG.  

 

GEICO does not write homeowners on GEICO paper, they act as agent - similar model to USAA in Florida.  

 

BoatUS is a Berkshire company and they write boats - will be some claim activity in recreational marine as well.  GEICO also writes boats on GEICO paper.  

[DooDiligence]

Here's a few interesting threads on Reddit:

 

---

 

 

[longterminvestor]

Here is data for insurance companies exposed in Florida.  This does not include Auto and its state wide.  I don't know if its possible to pull data by county - maybe total exposure by county but doubt data is available by carrier by county (for competitive reasons)

 

According to this data, in Florida there is $2.9Trillion of exposure for wind.  Again, does not include auto/marine and other lines.  

 

https://floir.com/tools-and-data/residential-market-share-reports

FL - STATEWIDE - BY POLICY TYPE - INCLUDING WIND.pdf FL STATEWIDE - PERSONAL & COMMERCIAL INSURANCE RANKING.pdf