Buffett/Berkshire - general news

[ValueMaven]

WEB sounded almost depressed.  I get BNSF and BHE weakness - but these are super valuable assets.  In some ways I think he is really trying to talk down how special these are.  Nothing on MSR which is seeing really solid results.  

 

I dunno - I was left wanting more ... 

 

Also - why does he not publish the top 10 equity positions anymore??

Edited February 24, 2024 by ValueMaven

[scorpioncapital]

7 hours ago, Xerxes said:

The boosters for years were saying BHE is where you could just park that excess surplus get that 10% regulated return. Amazing etc. look at that negative tax rate. At the end of nothing is guaranteed with government and regulatory environment. I am not even sure I understand the full picture.  
 

I guess Greg did do the right thing to liquidate his BHE and redeploy into the greater Berkshire. 
 

in any case, I trust the management to continue navigating the headwinds. 

 

Read Viktor Shvets of Macquire and Russell Napier.  Interest rates zero or negative, technological deflation, demographic challenges , all lead to governments in desperate mode to control and regulate more and more, financial repression, etc.. Basically 'you will own nothing and be happy'. Viktor especially talks about the death of capitalism under this new model, but almost out of necessity, even if it was bungled up over many decades. The global economy is no match for a self-contained system. China flooding global markets, rules at home that give them advantages at the expense of citizenry, etc..all this requires massive government regulation, even expropriation to prevent civil war imho.

Edited February 24, 2024 by scorpioncapital

[gfp]

10 minutes ago, ValueMaven said:

WEB sounded almost depressed.  I get BNSF and BHE weakness - but these are super valuable assets.  In some ways I think he is really trying to talk down how special these are.  Nothing on MSR which is seeing really solid results.  

 

I dunno - I was left wanting more ... 

 

Also - why does he not publish the top 10 equity positions anymore??

 

It's not every Berkshire annual letter that goes into graphic descriptions of suicide.

[Parsad]

7 hours ago, John Hjorth said:

I personally like this shareholder letter very much. Reading it made me think and gave the feeling : 'This is the Mr. Buffett I know and can recognize from earlier shareholder Letters!'. [

 

Honestly, to me personally, some of the last ones have given me a feeling of a man running out of steam, but that's just me. And that would actually and certainly be all okay with me after this performance in more than a half century, based on actual age by now.]

 

Candid and honest expressions based on factual and critical thinking  about the 'social contracts' between non-public owned regulated businesses and the US society as a whole.

 

Personally I hope for the best for all my US fellow CoBF board members in that regard, because it's important for economic future development of USA.

 

- - - o 0 o - - -

 

A bit like asking a farmer i Western Jutland, Denmark at the end of October in a given record year for the harvest : 'How was the harvest this year?' Answer <With no excitement> : 'Not shabby, not shappy ...'

 

- - - o 0 o - - -

 

USD 96 Billon after tax and minorities. I just say : 'Not shabby.' But unlike the West Jutland farmer, I can't move the pipe from one corner of my mouth to the other while I say it.

 

Isen't this the worlds second largest profit for any company on the planet, only surpassed by Saudi Aramco?

Yes this letter was a throwback to the older letters.  I’m sure Charlie would have liked it!  Cheers!

[yesman182]

15 minutes ago, gfp said:

 

It's not every Berkshire annual letter that goes into graphic descriptions of suicide.

 

15 minutes ago, gfp said:

 

It's not every Berkshire annual letter that goes into graphic descriptions of suicide.

It was interesting hearing him be thankful for the men and woman working outside on the railroad in Montana and ND. 

[Xerxes]

1 hour ago, LearningMachine said:

 

Because owing it fully exposes to potentially severe liability risk, e.g. a spill in the deep water operations of Gulf of Mexico.  I've mentioned this a few times before. 

 

Remember the BP oil spill.  Buffett wouldn't want to expose the mothership to that type of liability risk even if it is low probability. 

I recall you mentioning that before. Yet insurance is also be a form of liability to the whole group. Even if the risk is right sized etc. 

 

I find it interesting that both this letter and last year’s letter, he shared fond memories of Coka Cola and American Express. Just cool brands. Not much to do. Unlike BNSF, BHE etc  

[Eldad]

1 hour ago, gfp said:

 

It's not every Berkshire annual letter that goes into graphic descriptions of suicide.

Hahaha that was so weird. 1 a day but at least not as bad as Europe. 
 

I thought he sounded a little depressed/nihilistic too. All varnished with the usual charm. BRK basically a super safe 8%er. I not sure he is just being humble old WB. I think he might be saying get out if you want to get rich like Bertie (or marry one of her pretty daughters). 
 

I mean if BHE isn’t there to suck up capital and you have Greg instead of WB and Charlie, I’m not sure I don’t take his advice at some point. 

[Munger_Disciple]

1 minute ago, Xerxes said:

I recall you mentioning that before. Yet insurance is also be a form of liability to the whole group. Even if the risk is right sized etc. 

 

I find it interesting that both this letter and last year’s letter, he shared fond memories of Coka Cola and American Express. Just cool brands. Not much to do. Unlike BNSF, BHE etc  

 

Perhaps Buffett has become more mindful of the advantages of long term holdings Coke & Amex which keep chugging along in light of new problems at BNSF & BHE. 

[Munger_Disciple]

I found the following comments from Buffett's letter noteworthy:

 

1. Buffett basically declared that the days of acquiring large private businesses is over due to Berkshire's size & increased competition from PE.
2. He said "Berkshire does not currently pay dividends". Perhaps preparing shareholders for the day they might have to given the potential issues facing BHE?
3. He especially seemed negative about BHE's prospects (and perhaps a bit less so about BNSF though he pointed out labor wage increases driven by President & Congress). If Berkshire can't reinvest huge earnings into more capex at BHE at decent regulated returns, it would indeed be a negative for Berkshire.
4. Buffett said Greg is ready to be CEO tomorrow in all aspects; not a surprise but perhaps preparing shareholders for the eventuality. 
5. Given the problems at BHE & BNSF, he seemed to appreciate the virtues of Coke & Amex holdings even more than he used to. 
6. He really seemed to have a high opinion of Vicki at OXY.
7. I thought it was funny Buffett was trying to entice shareholders to attend the annual meeting by dangling the prospect of getting to meet his very rich & attractive nieces in Omaha. 

 

 

 

Edited February 25, 2024 by Munger_Disciple

[schin]

2 hours ago, LearningMachine said:

 

Because owing it fully exposes to potentially severe liability risk, e.g. a spill in the deep water operations of Gulf of Mexico.  I've mentioned this a few times before. 

 

Remember the BP oil spill.  Buffett wouldn't want to expose the mothership to that type of liability risk even if it is low probability. 

@LearningMachine - Everyone of his businesses have risk. That's the whole point of margin of safety. That's part of your calculation.  Whether you own 30% or 100% -- the risk is there... 

[schin]

2 hours ago, ValueMaven said:

WEB sounded almost depressed.  I get BNSF and BHE weakness - but these are super valuable assets.  In some ways I think he is really trying to talk down how special these are.  Nothing on MSR which is seeing really solid results.  

 

I dunno - I was left wanting more ... 

 

Also - why does he not publish the top 10 equity positions anymore??

 

He says BNSF will be around forever... So, we're in a down cycle. It'll be okay.  He didn't talk about his World Book investments or Dexter or newspaper investments....  Some industries will run it courses. I guess he's just sad that BSNF, BHE, and GEICO has needed re-investments lately. All have needed some TLC lately. Industry wise, technology wise, and personnel wise. He doesn't have shiny Iscar or Precision CastPart or Lukizol to rave about.

[Jaygo]

I didn't find his tone to be overly dour. Perhaps just cautious and a bit nostalgic for the days of KO and AMEX, higher returns and possibly fewer headaches.

 

Moreso I think he is making a statement on the juxtaposition of men and women working their asses off in freezing weather, scraping bodies off the tracks only to be manipulated by the Washington ( politicians, ESG dicks, WS ) elite with a stroke of a pen from the comfort of a taxpayer funded office. 

 

I think the same goes for the capital and ingenuity of BHE and the like. If you want to unfairly punish the utility sector for political points enjoy sitting in the the dark, we will take our new capital elsewhere. The utility is mandated to provide power even in the most remote places but when storms, or fires hit these hard to service remote places the utility is on the hook for damages. People bitch when the power is out, bitch when the bill comes due and now litigate for freak accidents in areas where power lines probably shouldn't have been in the first place.

 

 

 

 

[Xerxes]

2 hours ago, Munger_Disciple said:

I found the following comments from Buffett's letter noteworthy:

 

1. Buffett basically declared that the days of acquiring large private businesses is over due to Berkshire's size & increased competition from PE.
2. He said "Berkshire does not currently pay dividends"

 

If BHE and railroad needed some qualitative “kitchen-sinking” under the current incumbent CEO, rather than future CEO, perhaps the same can be said of the dividend. 
 

No one is going to argue with Buffett if he re-institute the dividend after 50 years or so of not having it. Or at least he can create a runway of expectations for it. But leave the final call to future management. 

[scorpioncapital]

4 hours ago, Eldad said:

Hahaha that was so weird. 1 a day but at least not as bad as Europe. 
 

I thought he sounded a little depressed/nihilistic too. All varnished with the usual charm. BRK basically a super safe 8%er. I not sure he is just being humble old WB. I think he might be saying get out if you want to get rich like Bertie (or marry one of her pretty daughters). 
 

I mean if BHE isn’t there to suck up capital and you have Greg instead of WB and Charlie, I’m not sure I don’t take his advice at some point. 

 

He said Munger was the architect that taught him to buy great businesses at fair price rather than cheap (or cyclical) at a good price. The bnsf and bhe issues (and even the oil investments) suggest that due to size he chose to go into businesses that have *some* advantages but not nearly as good as truly great businesses. Large capex utilities with high regulatory risk are obviously one or two levels lower on the quality ladder.  In other words, it was the next best thing to do with large amount of capital in the absence of finding the super great businesses. On the other hand, should he have specialized in technology, given tech firms are the largest market cap assets in the world today, he might have been able to do better. But do we really know if the FANGS themselves won't have big problems in the next generation too?  He also talked about if Americans want to go the public utility model. I believe in countries like Canada it is such a model with a sole, highly subsidized Crown corporation providing all the power. Should this happen, he will have made a wrong bet on changing situation. It isn't even clear he could divest them or the gov would pay a fair price. Most likely they'd be profit restrained going forward. 

Edited February 25, 2024 by scorpioncapital

[LearningMachine]

4 hours ago, Xerxes said:

I recall you mentioning that before. Yet insurance is also be a form of liability to the whole group. Even if the risk is right sized etc. 

 

4 hours ago, schin said:

@LearningMachine - Everyone of his businesses have risk. That's the whole point of margin of safety. That's part of your calculation.  Whether you own 30% or 100% -- the risk is there... 

 

 

The risk here is not about just losing 30% if only 30% is owned, but the risk here is about losing 500 to 1000% of the investment if 100% is owned.  If BRK owns OXY as a subsidiary fully, in case of a deep oil spill, courts can pierce the corporate veil to reach BRK assets like they did in case of BP subsidiary to reach BP parent's assets.  So, full $58B OXY purchase can create a $250B liability.

 

Ajit explained how they make insurance bets at a recent annual meeting that they are willing to risk a certain percent of their capital.  I think he said risking somewhere around 5% of capital on a bet.  Risking $250B liability would be too much for BRK. 

 

When justifying BRK's purchase of BNSF, Buffett and Munger once explained how they looked at the highest damages that a BNSF accident had ever caused in the past, and had decided that they could live with that.  However, they can't live with the highest damage that a deep water oil spill can cause. 

Edited February 25, 2024 by LearningMachine

[Blugolds]

^ good explanation @LearningMachine

 

Obviously Buffett has said very clearly multiple times, their #1 priority is to protect the base 

[Xerxes]

Thanks @LearningMachine

very clear 

[yesman182]

7 hours ago, LearningMachine said:

 

 

 

The risk here is not about just losing 30% if only 30% is owned, but the risk here is about losing 500 to 1000% of the investment if 100% is owned.  If BRK owns OXY as a subsidiary fully, in case of a deep oil spill, courts can pierce the corporate veil to reach BRK assets like they did in case of BP subsidiary to reach BP parent's assets.  So, full $58B OXY purchase can create a $250B liability.

 

Ajit explained how they make insurance bets at a recent annual meeting that they are willing to risk a certain percent of their capital.  I think he said risking somewhere around 5% of capital on a bet.  Risking $250B liability would be too much for BRK. 

 

When justifying BRK's purchase of BNSF, Buffett and Munger once explained how they looked at the highest damages that a BNSF accident had ever caused in the past, and had decided that they could live with that.  However, they can't live with the highest damage that a deep water oil spill can cause. 

I agree that WEB might not want to own a company with deep water wells, but he didn’t say that he likes oxy because of the deep wells. The income from OXYs deep water wells is small. He could easily buy oxy and divest the deep wells and keep the upside of carbon capture and Vickie’s ability to separate oil from rock. 

[yesman182]

7 hours ago, LearningMachine said:

 

 

 

The risk here is not about just losing 30% if only 30% is owned, but the risk here is about losing 500 to 1000% of the investment if 100% is owned.  If BRK owns OXY as a subsidiary fully, in case of a deep oil spill, courts can pierce the corporate veil to reach BRK assets like they did in case of BP subsidiary to reach BP parent's assets.  So, full $58B OXY purchase can create a $250B liability.

 

Ajit explained how they make insurance bets at a recent annual meeting that they are willing to risk a certain percent of their capital.  I think he said risking somewhere around 5% of capital on a bet.  Risking $250B liability would be too much for BRK. 

 

When justifying BRK's purchase of BNSF, Buffett and Munger once explained how they looked at the highest damages that a BNSF accident had ever caused in the past, and had decided that they could live with that.  However, they can't live with the highest damage that a deep water oil spill can cause. 

I agree that WEB might not want to own a company with deep water wells, but he didn’t say that he likes oxy because of the deep wells. The income from OXYs deep water wells is small. He could easily buy oxy and divest the deep wells and keep the upside of carbon capture and Vickie’s ability to separate oil from rock. 

[cubsfan]

10 hours ago, Jaygo said:

I didn't find his tone to be overly dour. Perhaps just cautious and a bit nostalgic for the days of KO and AMEX, higher returns and possibly fewer headaches.

 

Moreso I think he is making a statement on the juxtaposition of men and women working their asses off in freezing weather, scraping bodies off the tracks only to be manipulated by the Washington ( politicians, ESG dicks, WS ) elite with a stroke of a pen from the comfort of a taxpayer funded office. 

 

I think the same goes for the capital and ingenuity of BHE and the like. If you want to unfairly punish the utility sector for political points enjoy sitting in the the dark, we will take our new capital elsewhere. The utility is mandated to provide power even in the most remote places but when storms, or fires hit these hard to service remote places the utility is on the hook for damages. People bitch when the power is out, bitch when the bill comes due and now litigate for freak accidents in areas where power lines probably shouldn't have been in the first place.

 

 

 

 

 

Yeah, I think this interpretation is how I read it. Politician want their cake and eat it too. Never would I have thought BHE or BNSF would be a poor place to re-invest given what they do for the country. His statements seem like a warning to regulators.

[Hektor]

11 hours ago, Xerxes said:

Or at least he can create a runway of expectations for it. But leave the final call to future management. 

I feel the "no possibility of eye-popping performance" is a first step in setting that expectation.

[Cigarbutt]

A few words on the evolving Energy situation.

 

Yes, of course, one has to wonder how the US ('We') will navigate the meanders between deregulation an reregulation in the energy universe (especially relevant now with the democratic drift question, the unusually high level of bipolarization, unusual inability to "get things done" etc   versus   the actual present challenges: wildfire costs, distributed energy, climate-related issues, huge capital needs etc).

 

Opinion: Mr. Buffett is a great communicator but also a great negotiator.

 

For Geico in the 1970s, he let Jack Byrne be the contractor and carry the stick while he remained the architect and became personally involved (with the carrot part) interacting with Max Wallach, a key DC insurance regulator, in order to reverse what seemed to be an obvious end of going concern destination for Geico.

For the Solomon scandal, he also became personally involved with regulators and law makers (especially Nicholas Brady) in order to actually reverse a government decision with ominous implications for the company.

Not so long ago (2015, NV Energy vs SolarCity), there was some drama (potential unfairness of return on equity for the utility with net metering over distributed solar energy) and there were negotiations but who actually remembers now the relatively deep questioning about the potential ability to resolve this issue?

 

The issues now are larger (1-how to deal with wildfire costs and 2-is the trend for less-friendly regulated approved reasonable returns a secular one?) and it's not clear who Mr. Buffett needs to talk to but he somehow decided to use the stick and is clearly sending a message (the annual report will obviously be read by relevant regulators all around the country).

 

For the wildfire costs which are very large, the damages to be paid have been and will be determined by juries and the court systems and that's unlikely to change. What needs be figured out is a way to cap those damages (outside of clear negligence and recklessness) and to pass those costs to the electricity consumers. It will happen somehow.

Interesting reference:

Microsoft Word - 2024_02_14 Utility Companies with Wildfire Liability Exposure Pose Unique Considerations for Investors.docx (clearygottlieb.com)

 

For the regulated ROE question, much has been said about "energy justice" inputs which have had, at least so far, a limited and patchy impact on rates approved. It's about a balance of forces and some of those forces underline the unusually high executive compensation (an idea that Mr. Buffett certainly approves) as an excessive input into the approved rate decision.

 

Also, now that approved rates sometimes go down from something like 10% to 9%, before mounting the barricades, an historical perspective may be helpful keeping in mind that interest rates, apparently, at least in some instances, act like gravity on valuations. 

 

Any idea as to why this has suddenly become such an existential issue?

[LearningMachine]

2 hours ago, yesman182 said:

I agree that WEB might not want to own a company with deep water wells, but he didn’t say that he likes oxy because of the deep wells. The income from OXYs deep water wells is small. He could easily buy oxy and divest the deep wells and keep the upside of carbon capture and Vickie’s ability to separate oil from rock. 

 

@yesman182, yes, he could do that and I've mentioned that earlier as well.  With the recent purchase, OXY has already indicated they are going to divest certain assets - remains to be seen if they shed the riskier ones.   Given Buffet is involved, they probably would.  

[bizaro86]

12 hours ago, Jaygo said:

 

Moreso I think he is making a statement on the juxtaposition of men and women working their asses off in freezing weather, scraping bodies off the tracks only to be manipulated by the Washington ( politicians, ESG dicks, WS ) elite with a stroke of a pen from the comfort of a taxpayer funded office. 

 

 

Since he complained about railroad wages in the letter, I think he wanted to make it clear that while he respects the front line workers he has issues with the politicians.

 

Otherwise "billionaire rail baron complains about front line worker wages in letter to millionaire investors" is a bad look.

[LearningMachine]

21 minutes ago, Cigarbutt said:

For the wildfire costs which are very large, the damages to be paid have been and will be determined by juries and the court systems and that's unlikely to change. What needs be figured out is a way to cap those damages (outside of clear negligence and recklessness) and to pass those costs to the electricity consumers. It will happen somehow.

Interesting reference:

Microsoft Word - 2024_02_14 Utility Companies with Wildfire Liability Exposure Pose Unique Considerations for Investors.docx (clearygottlieb.com)

 

Any idea as to why this has suddenly become such an existential issue?

 

@Cigarbutt, I think here too, Mr. Buffett doesn't want to risk losing 500-1000% of the investment in a specific utility due to uncapped jury damages, which could put mothership at risk.

 

He wants statutes on the books to cap those damages for him to invest. 

Edited February 25, 2024 by LearningMachine