Buffett/Berkshire - general news

[nwoodman]

5 hours ago, ValueMaven said:

Greg Warren of Morningstar put own an awesome analysis of Berkshire a few days ago!!  $370 price target.  Well worth the read if you can get access.  

Thanks for the heads up.  A couple of points grabbed my attention

 

 

‘We continue to believe Berkshire is best positioned to get the most value out of Alleghany—something we don't feel the market fully appreciates”

 

Allegheny is mentioned a couple of times and reflects the thesis that it’s investments under Berkshire will be redeployed at higher rates of return

 

 

“We view Berkshire's decentralized business model, broad business diversification, high cash-generation capabilities, and unmatched balance sheet strength as true differentiators for the firm. While these advantages have been overshadowed during much of the past decade by the company's ever expanding cash balances—which have earned next to nothing in near-zero short-term interest rate environments—we believe the company has finally hit a nexus where it is focused on reducing its cash hoard through a mixture of stock investments and share repurchases. Over the past 12 calendar quarters, the company has repurchased $41 billion worth of its common stock, equivalent to $3.4 billion per quarter on average, which has eliminated close to 10% of the company's total shares outstanding. The company has also pursued higher dividend yielding securities when purchasing equity securities the past several quarters.”

 

I have been thinking that this is shaping up to be quite the decade for Berkshire thanks to Buffett’s incredible patience. 

 

“We've increased our fair value estimate for Berkshire Hathaway to $370 per Class B share (from $357) after updating our forecasts for the company's operating businesses and insurance investment portfolio. Our new fair value estimate is equivalent to 1.69, 1.45, and 1.33 times our estimates for Berkshire's book value per share at the end of 2022, 2023, and 2024, respectively. For some perspective, during the past five (10) years, the shares have traded at an average of 1.40 (1.39) times trailing calendar quarter-end book value per share. We use a 9.0% cost of equity in our valuation and assume that Berkshire pays a minimum of 15% corporate alternative minimum tax on adjusted financial statement income for taxable years beginning in 2023.”

 

1.69 x’s book is pretty optimistic IMHO,  but is perhaps reflective of the shares repurchased to date.

brk.b - berkshire hathaway analysis & rating - nyse morningstar.pdf

[ValueMaven]

He is a thoughtful analyst - and I always enjoy his commentary and valuation work.  He values Berkshire the way it should be valued IMHO.

[james22]

Thanks, nwoodman.

 

Once there is a shift in top management, we would expect Berkshire to be more open to initiating a dividend...

 

Grr.

[Ulti]

On 11/21/2022 at 8:47 AM, gfp said:

 

Berkshire reported higher stakes in the 5 Japanese equities and is issuing Yen bonds again 

 

h

 

http://brklninvestor.com/blog.php
 

old Brooklyn investor comments on Japanese equities 

[MCR]

Saw this today on Twitter: https://buffettbot.com/

My first query...not bad.

[aws]

I'm not sure about this one...

 

[longterminvestor]

BERKSHIRE HATHAWAY INC. NEWS RELEASE FOR IMMEDIATE RELEASE December 19, 2022 Omaha, NE (BRK.A; BRK.B) – Thomas S. Murphy, Jr. has been elected to the Board of Directors of Berkshire Hathaway Inc. Mr. Murphy co-founded Crestview Partners in 2004. Crestview is a private equity firm based in New York City. Prior to starting Crestview, Mr. Murphy was a Partner at Goldman, Sachs & Co. Additionally, Mr. Murphy serves on the boards of New York University, NYU – Langone Health and The Inner-City Scholarship Fund. About Berkshire Berkshire Hathaway and its subsidiaries engage in diverse business activities including insurance and reinsurance, utilities and energy, freight rail transportation, manufacturing, retailing and services. Common stock of the company is listed on the New York Stock Exchange, trading symbols BRK.A and BRK.B. — END — Contact Marc D. Hamburg 402-346-1400

[gfp]

Oh good - I was wondering what was taking so long.  They were in need of a new "independent" director ASAP since they were technically out of compliance with NYSE listing requirements.  I had thought maybe Gates would be offered a return but I guess not.  Tom Murphy Jr. is a good pick.  Warren has known him most of his life I imagine.

[UK]

https://www.barrons.com/articles/berkshire-hathaway-warren-buffett-board-member-51671476915

 

Earlier this year, investment research firm MSCI criticized Berkshire’s board composition. “Berkshire Hathaway continues to lag peers in corporate governance. The concerns include board entrenchment (over 42% board members are over 70 years old and 57% have served on the board for over 15 years), lack of board independence and diversity (57% not independent of management and less than 30% women on the board), combined CEO-chairman functions, and high voting power of the controlling shareholder.” Some of the qualities that MSCI criticized, such as “entrenchment,” are viewed favorably by many Berkshire shareholders who like that the board has considerable knowledge of the company and that Buffett wields enormous power. Buffett has suggested that if the board decided to rein him in, he would no longer want to be CEO. Buffett and Vice Chairman Charlie Munger have scoffed at the independence issue, saying board members care deeply about the company whether they are characterized as independent or not. Buffett has criticized corporate directors outside Berkshire who are deemed independent, but garner much of their income from director fees, compromising their willingness to buck management. Buffett noted there were big investors who withheld support for him about 15 years ago when he was on the board of Coca Cola , in which Berkshire held a big stake now worth about $25 billion. At Berkshire’s annual meeting in late April, Buffett said of the Coke episode that the opponents said he wasn’t independent because Dairy Queen, which is owned by Berkshire, “bought some Coca-Cola … I mean, do they think I can add things and if we’ve got billions and billions and billions of dollars (invested) that I’m going to be compromised, but it’s just nutty.” Added Munger: “Well, they don’t want them just independent. Now they want 1 horse, 1 rabbit, 1 cow, 1 whatever.”

[crs223]

pretty simple really.  if “investment research firm MSCI” is unhappy with the board, they should start buying shares and elect a better board.  I recommend the “A” shares for this purpose.

[rkbabang]

10 hours ago, UK said:

Earlier this year, investment research firm MSCI criticized Berkshire’s board composition. “Berkshire Hathaway continues to lag peers in corporate governance. The concerns include board entrenchment (over 42% board members are over 70 years old and 57% have served on the board for over 15 years), lack of board independence and diversity (57% not independent of management and less than 30% women on the board), combined CEO-chairman functions, and high voting power of the controlling shareholder.”

 

I've never understood how a person's skin color or private parts can contribute to "cooperate governance" or shareholder returns.  And isn't having long term board members who have deep understanding of the company a good thing, not a negative?   The whole thing seems like politically correct posturing to me.

 

[RadMan24]

12 hours ago, rkbabang said:

 

I've never understood how a person's skin color or private parts can contribute to "cooperate governance" or shareholder returns.  And isn't having long term board members who have deep understanding of the company a good thing, not a negative?   The whole thing seems like politically correct posturing to me.

 

The best part is, somehow the directors independence is comprimised, yet get no director fee compensation.

[UK]

https://www.barrons.com/articles/warren-buffett-investment-aides-stock-market-performance-51671746676

[ValueMaven]

Terrible article - wow ... for example with SNOW and NU - BRK got in at pre-IPO prices.  

[Dinar]

 

[gfp]

Thanks Dinar.  This video is from March 2022 for context.

[UK]

https://www.barrons.com/articles/berkshire-stock-what-to-watch-warren-buffett-51672586769

[backtothebeach]

The AAPL position was 20% of Berkshire's market cap a while ago, now down to 16.6% (or 15% if you substract an estimated 10% tax on unrealized profits).

[UK]

 

[omagh]

https://www.barrons.com/articles/warren-buffett-berkshire-hathaway-tax-51673028329?mod=hp_DAY_0

Berkshire Hathaway Could Face a Big Tax Hit if the Bull Market Resumes

... Ever since a 15% corporate minimum tax was included in the Inflation Reduction Act in 2022, there has been uncertainty about whether corporations would owe taxes on paper profits, or unrealized capital gains, on stocks starting this year. The treatment has long been that these paper profits created a deferred tax liability that is only paid when the stocks are sold, and the profits realized.

 

Berkshire Hathaway (ticker: BRKb ) probably has the most at stake, and faces the biggest potential tax bill among U.S. corporations since its equity portfolio is so large—more than $300 billion. It has periodically had big unrealized gains in the portfolio, including $58.6 billion in 2021, and $26.8 billion in 2020.

Recent guidance from the Internal Revenue Service, while not definitive, suggests that paper profits on stocks could be subject to a 15% tax this year, according to New York tax expert Robert Willens. The issue involves the tax treatment of applicable financial statement income (AFSI), a measure of earnings.

 

“The IRS left open the question of whether ‘mark to market’ gains and losses should be disregarded when computing AFSI,” Willens wrote to Barron’s in an email. “As of now, they are included in AFSI. The IRS solicited the comments of investors as to whether these gains and losses should be backed out of AFSI or whether they should remain in the tax base. My guess is that they will remain in AFSI, potentially exposing Berkshire to a massive amount of book minimum tax.” ...

[Blugolds]

3 hours ago, omagh said:

 

The IRS solicited the comments of investors as to whether these gains and losses should be backed out of AFSI or whether they should remain in the tax base. My guess is that they will remain in AFSI, potentially exposing Berkshire to a massive amount of book minimum tax.” ...

 

This sounds like the IRS was asking for investors opinion, what investor would be a proponent for paying tax on paper gains? 

 

 

[aws]

The treasury always asks for public comments with proposed regulations, which could from any interested parties, not just those that would be directly affected by the tax. I don't think anything has been decided about this issue yet. A filing from just last week says this is still an open issue and I'm sure their people are on it:

 

https://www.irs.gov/pub/irs-drop/n-23-07.pdf  pages 48-49

 

It would be quite unfortunate if Berkshire is caught up in the confluence of a minimum tax not really aimed at them (as they always pay a substantial amount of corporate tax) and an accounting rule that only recently brought mark-to-market gains into book income.

 

 

[Xerxes]

If “unrealized gain/loss” already flows through the income statement, wouldn’t there be already be tax consequence as net income is influenced by it ?

[John Hjorth]

14 minutes ago, Xerxes said:

If “unrealized gain/loss” already flows through the income statement, wouldn’t there be already be tax consequence as net income is influenced by it ?

 

@Xerxes,

 

Yes, but those taxes that are not paid related to a given year are recorded as deferred taxes. Please see Annual Report 2021, p. K-100, note (19), ref. the line : "Investments – unrealized appreciation" in the specification.

Edited January 7, 2023 by John Hjorth

[UK]

It probably means their GAAP earnings and BV would remain almost the same, but tax float would be gone. But would this apply to all accumulated unrealized profits or only for profit made in the future?