Buffett/Berkshire - general news

[John Hjorth]

On 4/26/2024 at 10:47 PM, gfp said:

It depends on the subsidiary and how the bulkheads are constructed.  I believe a subsidiary of BHE, like Pacificorp for instance, can be put into bankruptcy without the other assets of BHE being risked, much less the parent company holding company.  But I'm sure there are exceptions for nefarious asset stripping or fraud.  ...

 

Agreed. +1

[Charlie]

Barron´s cover story:

 

Warren Buffett or Not, Berkshire Hathaway Stock Is Built to Last

 

https://www.barrons.com/articles/berkshire-hathaway-stock-price-warren-buffett-succession-4ab47394

 

Nothing new, but a good warm-up for the annual meeting.

[Munger_Disciple]

Another day & another $30 Billion lawsuit aimed at BHE. BHE is looking more like a tobacco company these days:

 

https://finance.yahoo.com/news/warren-buffett-pacificorp-now-faces-215442680.html

Edited April 29, 2024 by Munger_Disciple

[Munger_Disciple]

Another WSJ article in the lead-up to the annual meeting:

 

https://www.wsj.com/finance/investing/charlie-munger-berkshire-hathaway-annual-meeting-missed-7a5d2ee5?mod=lead_feature_below_a_pos1

[ValueArb]

https://www.ft.com/berkshire

 

Quote

Berkshire after Buffett: can any stockpicker follow the Oracle?

 

Ted Weschler and Todd Combs stand to take over a $354bn portfolio from the world’s best-known investor

 

Warren Buffett’s deputies are trailing both their mentor and the market, according to a Financial Times analysis that examined the performance of the two men set to take over Berkshire Hathaway’s $354bn stock portfolio.

 

According to the FT analysis the last decade hasn't been kind to Warren's public company investments (trailing the S&P 500), but both Ted and Todd have done much worse. Their methodology is pretty ad hoc, so can't attest to the reasonableness of their conclusions.

 

Quote

The FT reconstructed the company’s US stock portfolio starting in 2010, just before Combs and Weschler joined Berkshire, based on quarterly filings with the Securities and Exchange Commission.

 

The FT then used Buffett’s comments in dozens of interviews, speeches at annual meetings and media reports to determine which trades were his and which belonged to one of his deputies...

 

At times, Buffett has been explicit about who invested in what stock but in other cases we had to make an educated guess. Smaller trades have generally been attributed to Combs or Weschler. But as their portfolios have grown, the size of an individual investment has become less informative as to whether it was made by Combs and Weschler or Buffett.

 

They make one good point about Berkshire's "permanent capital" giving them an edge that few managers have. But I think overall running a $350B actively managed portfolio is probably the most challenging situation an investment manager ever had. So it's not surprising that even Buffett is trailing the S&P for long periods now.  

 

I'm not sure what the solution can be after Buffett, I doubt the shareholder base has the stomach for an enormous one time dividend or whether it would be enough to lighten those chains to return the portfolio to consistent market beating returns. Even a $250B distribution would leave them with over $100B to allocate, and even if they produce stellar returns that's from barely 10% of Berkshire assets so how much could it move the needle?

[John Hjorth]

@ValueArb,

 

You appear to disregard or forget, that large parts of the stock portfolio is owned inside the insurance part of Berkshre, that the insurance group is subject to regulation on it's capital levels, thereby introcing dividend restrictions. I'm not even sure a dividend of USD 250 B or USD 100 B is possible / feasible.

[Hektor]

https://www.wsj.com/finance/berkshire-hathaway-annual-meeting-romance-25eb77fc

 

How Berkshire Hathaway’s Annual Meeting Became a Hotspot for Romantic Mergers

Warren Buffett himself has jumped in to serve as a wingman at the famous Omaha gathering

 

Buffett has been the wingman on proposals, including once for his grandnephew Alex Rozek, who wanted to propose to his girlfriend, Mimi Krueger, at the 2009 shareholder meeting.

 

“Just ask how we’re going to get the economy back on track,” Rozek recalls Buffett advising him.

 

When the day arrived, Rozek and Krueger were in the audience when Buffett said there was time for one more question. Rozek delivered his line. 

 

“I was sitting there with my head in my hands trying to disappear,” she recalls. “I was like, oh my God…what is he doing?”

Buffett replied that “household formations” would help—and asked if that gave Rozek any ideas.

 

“I think so,” Rozek said. “Mimi, you’re my best friend. Would you be my wife?”

The crowd applauded as she took in what had happened, and gave a resounding, “Yes.”

[gfp]

1 hour ago, ValueArb said:

https://www.ft.com/berkshire

 

 

According to the FT analysis the last decade hasn't been kind to Warren's public company investments (trailing the S&P 500), but both Ted and Todd have done much worse. Their methodology is pretty ad hoc, so can't attest to the reasonableness of their conclusions.

 

 

They make one good point about Berkshire's "permanent capital" giving them an edge that few managers have. But I think overall running a $350B actively managed portfolio is probably the most challenging situation an investment manager ever had. So it's not surprising that even Buffett is trailing the S&P for long periods now.  

 

I'm not sure what the solution can be after Buffett, I doubt the shareholder base has the stomach for an enormous one time dividend or whether it would be enough to lighten those chains to return the portfolio to consistent market beating returns. Even a $250B distribution would leave them with over $100B to allocate, and even if they produce stellar returns that's from barely 10% of Berkshire assets so how much could it move the needle?

 

So it's kind of a bullshit article because they don't know which investors bought which stocks.  Several of their guesses appear to be incorrect.

 

These are likely wrong:

Aon: Buffett

Capital One: Buffett

Celanese: Combs/Weschler (not sure)

General Motors: Combs/Weschler (not sure)

Lee Enerprises: Combs/Weschler

PNC Financial: Buffett

S&P 500 ETF: Buffett

VeriSign: Combs/Weschler

Verisk Analytics: Combs/Weschler

 

(they also don't do enough research to figure out the actual buy and sell prices to calculate the returns, using 13F quarter-end data instead)

 

Edited May 1, 2024 by gfp

[Xerxes]

1 hour ago, ValueArb said:

https://www.ft.com/berkshire

 

 

According to the FT analysis the last decade hasn't been kind to Warren's public company investments (trailing the S&P 500), but both Ted and Todd have done much worse. Their methodology is pretty ad hoc, so can't attest to the reasonableness of their conclusions.

 

 

They make one good point about Berkshire's "permanent capital" giving them an edge that few managers have. But I think overall running a $350B actively managed portfolio is probably the most challenging situation an investment manager ever had. So it's not surprising that even Buffett is trailing the S&P for long periods now.  

 

I'm not sure what the solution can be after Buffett, I doubt the shareholder base has the stomach for an enormous one time dividend or whether it would be enough to lighten those chains to return the portfolio to consistent market beating returns. Even a $250B distribution would leave them with over $100B to allocate, and even if they produce stellar returns that's from barely 10% of Berkshire assets so how much could it move the needle?

If Buffett ever uses a special dividend at some point it will be IMHO for “signalling” reason telling the regulators to chill-out vis a vis BHE. Better to give back it to the shareholders than “throwing more money at bad money”.
 

I don’t think he will ever issue special dividends for the sake of creating a lower base, to grow from. 

[charlieruane]

It's also clear that Combs and Weschler are doing way more than public-market stockpicking. Combs is spending the vast majority of his time fixing up Geico, which is a huge value-add for Berkshire. Ted also does meaningful work on private deals, the results of which are not reflected in his portion of the public equity portfolio. 

 

 

[ValueArb]

2 hours ago, John Hjorth said:

@ValueArb,

 

You appear to disregard or forget, that large parts of the stock portfolio is owned inside the insurance part of Berkshre, that the insurance group is subject to regulation on it's capital levels, thereby introcing dividend restrictions. I'm not even sure a dividend of USD 250 B or USD 100 B is possible / feasible.

 

That just makes it worse, no? It would mean Combs and Weschler are going to be stuck managing such an enormous portfolio that it's going to be very difficult to beat the market over time.

[ValueArb]

59 minutes ago, Xerxes said:

If Buffett ever uses a special dividend at some point it will be IMHO for “signalling” reason telling the regulators to chill-out vis a vis BHE. Better to give back it to the shareholders than “throwing more money at bad money”.
 

I don’t think he will ever issue special dividends for the sake of creating a lower base, to grow from. 

 

I wasn't referring to Buffett, I was referring to what happens after he's gone. Clearly it's unlikely he'll ever issue any dividends because it's antithetical to his life long goal of making his "painting" as large as possible. He didn't even start buybacks until his 6th decade as CEO, but at least in that case it directly increases per share value.

[ValueArb]

40 minutes ago, charlieruane said:

It's also clear that Combs and Weschler are doing way more than public-market stockpicking. Combs is spending the vast majority of his time fixing up Geico, which is a huge value-add for Berkshire. Ted also does meaningful work on private deals, the results of which are not reflected in his portion of the public equity portfolio. 

 

 

 

These are very good points. Buffett sees exactly what they do and by all his public statements he's been very pleased with their contributions for a long time.

[Hektor]

From a Davita 8k today

 

"Entry into a Material Definitive Agreement.

 

On April 30, 2024, DaVita Inc. (the “Company”) entered into a letter agreement (the “Share Repurchase Agreement”) with Berkshire Hathaway Inc., on behalf of itself and its Affiliates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) (collectively, “Investor”), the largest stockholder of the Company. Pursuant to the Share Repurchase Agreement, at any time Investor beneficially owns at least 45.0% of the issued and outstanding common stock of the Company (the “Common Stock”) in the aggregate, the Company shall repurchase from Investor, and Investor shall sell to the Company, on a quarterly basis, a number of shares of Common Stock sufficient to return Investor’s aggregate beneficial ownership to 45.0% of the issued and outstanding Common Stock. The per share price the Company will pay Investor in connection with any such repurchase will be the volume-weighted average per share price paid by the Company for any shares of Common Stock repurchased by the Company from public stockholders pursuant to the Company’s share repurchase plan during the applicable repurchase period.

 

Repurchases of shares of Common Stock by the Company from Investor under the Share Repurchase Agreement will occur on the date that is two business days prior to the date of the Company’s regular quarterly or annual (as applicable) investor call to report earnings (as publicly announced by the Company); however, if at any time the Company determines that Investor owns or will own (whether of record or beneficially) shares of Common Stock representing more than 49.5% of the issued and outstanding Common Stock in the aggregate, such determination will trigger immediate share repurchases by the Company under the Share Repurchase Agreement.

 

In addition, pursuant to the Share Repurchase Agreement, Investor also agreed that it would cause any share of Common Stock that it beneficially owns in excess of 40% of the aggregate issued and outstanding shares of Common Stock to be voted or consented on any matter in accordance with the recommendation of the Company’s Board of Directors. The Share Repurchase Agreement does not amend, supersede or otherwise modify the Company’s existing restated standstill letter agreement, dated as of February 9, 2022, with Investor, which remains in full force and effect in accordance with its terms."

 

[Charlie]

Morningstar´s latest regarding Berkshire:

 

https://www.morningstar.com/stocks/is-berkshire-hathaway-buy-before-annual-meeting

 

 

[Spooky]

15 hours ago, ValueArb said:

I wasn't referring to Buffett, I was referring to what happens after he's gone. Clearly it's unlikely he'll ever issue any dividends because it's antithetical to his life long goal of making his "painting" as large as possible. He didn't even start buybacks until his 6th decade as CEO, but at least in that case it directly increases per share value.

 

What happens from here is really the huge question. The company is so big now, Buffett even wrote in the last letter that their era of eye popping returns is over. Breaking up the company after Buffett is gone would impair some of the advantages it has using insurance float to buy safe businesses. Paying a dividend would be counter to the desires of most of the shareholder base that Buffett has built up. No easy answers. However, there is still a possibility that in a period of financial turmoil Berkshire will be in a position to deploy a significant amount of capital. Given what is happening in the world today I wouldn't count out that possibility.

 

This WSJ article was pretty good: https://www.wsj.com/finance/stocks/warren-buffett-berkshire-hathaway-returns-investors-2e0acca9?st=y8ssqh77y6a8wpt&reflink=desktopwebshare_permalink

[gfp]

It's funny, with Fairfax, nobody points to the bond portfolio and panics over the idle cash.  They get busy calculating the spread between 95% combined ratio cost of capital and +4.5% investment yield.  At Berkshire it sits in 3 month and 6 month bills and it's some huge problem.  If Warren moved $150 billion to 3 and 5 year treasury notes would everybody stop worrying about the "cash problem" and call him a genius like Brian Bradstreet?  Can we just call most of Berkshire's cash the "bond portfolio" and be done with the 'big cash problem' talk?

 

[Viking]

44 minutes ago, gfp said:

It's funny, with Fairfax, nobody points to the bond portfolio and panics over the idle cash.  They get busy calculating the spread between 95% combined ratio cost of capital and +4.5% investment yield.  At Berkshire it sits in 3 month and 6 month bills and it's some huge problem.  If Warren moved $150 billion to 3 and 5 year treasury notes would everybody stop worrying about the "cash problem" and call him a genius like Brian Bradstreet?  Can we just call most of Berkshire's cash the "bond portfolio" and be done with the 'big cash problem' talk?

For Berkshire (and Fairfax) i think the cash drag was more a problem when short term interest rates were effectively zero. Now that short term rates are much higher (3 month treasury is 5.4%) holding cash is no longer a drag on returns.

Edited May 2, 2024 by Viking

[John Hjorth]

42 minutes ago, gfp said:

It's funny, with Fairfax, nobody points to the bond portfolio and panics over the idle cash.  They get busy calculating the spread between 95% combined ratio cost of capital and +4.5% investment yield.  At Berkshire it sits in 3 month and 6 month bills and it's some huge problem.  If Warren moved $150 billion to 3 and 5 year treasury notes would everybody stop worrying about the "cash problem" and call him a genius like Brian Bradstreet?  Can we just call most of Berkshire's cash the "bond portfolio" and be done with the 'big cash problem' talk?

 

 

It's a good one, @gfp,

 

Or,

 

1. - like in posts above,  where a dividend from Bershire is desparately needed for the shareholders, because Berskhire is underperforming, and the large positions in the portfolio desparately needs to be sold [AAPL, BAC, AXP, KO], while some seem to forget those positions are indeed financed by insurance float and also partly by basically massive, free and deferred taxes on giant unrealized capital gains. Talk of dividends of perhaps USD 250B or USD 100 B, while the insurance group as a whole at YE2023 has a max. dividend capacity of USD 31 B, and holding company cash and T-Bills at YE2023 is USD 22 B. Typically suggested by people who trade around quite a lot, and never tell anything about their own track record.

2. - 'Breaking' the whole thing 'up' by splitting it to atoms, to 'get the real values to surface', [likely by the use a particle accelerator at CERN to put the company in or something like that?]. Typically suggested by people who aren't aware of the central role of NICO in the group structure and all the implications of that and no understanding of the inner workings of insurance float.

[Munger_Disciple]

3 hours ago, gfp said:

It's funny, with Fairfax, nobody points to the bond portfolio and panics over the idle cash.  They get busy calculating the spread between 95% combined ratio cost of capital and +4.5% investment yield.  At Berkshire it sits in 3 month and 6 month bills and it's some huge problem.  If Warren moved $150 billion to 3 and 5 year treasury notes would everybody stop worrying about the "cash problem" and call him a genius like Brian Bradstreet?  Can we just call most of Berkshire's cash the "bond portfolio" and be done with the 'big cash problem' talk?

 

 

[cubsfan]

^^^ Yup, in regards to understanding the excess cash and the insurance funding of stockholdings - GFP always has great commentary. We're lucky to have him.

[SafetyinNumbers]

4 hours ago, gfp said:

It's funny, with Fairfax, nobody points to the bond portfolio and panics over the idle cash.  They get busy calculating the spread between 95% combined ratio cost of capital and +4.5% investment yield.  At Berkshire it sits in 3 month and 6 month bills and it's some huge problem.  If Warren moved $150 billion to 3 and 5 year treasury notes would everybody stop worrying about the "cash problem" and call him a genius like Brian Bradstreet?  Can we just call most of Berkshire's cash the "bond portfolio" and be done with the 'big cash problem' talk?

 

No one except for Bloomstran who thinks BRK’s surplus capital gives it a return advantage over FFH since it can invest more of its capital in equities which by definition have a higher return potential than fixed income. Of course, he ignores the leverage and one would think a quickly increasing surplus capital might be highly correlated to the multiple, but I digress.
 

My question is, how much surplus capital do you think FFH could deploy into quality equities if there was a giant dislocation that created a big opportunity.

 

[Viking]

What were the key drivers of Berkshire Hathaway’s success when the company was in its prime?

 

I have ranked the key drivers by importance. 

• Did i get the list right? What is missing? 
• Did i get the order right? If not, what is the new order?

1.) Buffett

• the man is a genius. 
• As an investor. He has also been a very good manager.

2.) Control - Buffett has voting control.

• Gave Buffett free rein to run the company as he saw fit
• Without this, Berkshire Hathaway never would have evolved as it did

3.) Capital allocation skills of management.

• Primarily Buffett, but also includes Charlie Munger, Ajit Jain, Greg Abel etc.
• Value investing framework: shifted over the years (as Berkshire Hathaway grew in size) from deep value to quality at a reasonable price

4.) Insurance Float

• Provides a low cost, stable and growing source of funds/capital that Buffett used to make many outstanding investments.
• When combined with 3.) magnified returns.
• Float loses its value when interest rates are very low, like they were from 2010-2020. Float increases greatly in value when interest rates are high like they are today.

5.) Long term focus

• Fits hand and glove with the ‘buy and hold’ value investing framework. 
• Investments: able to take advantage of market volatility. 
• Also fits hand in glove with the P/C insurance cycle - which can run in 15 year cycles (hard to soft and back to hard).

6.) Invest a significant portion of the investment portfolio in equities.

• Embrace volatility
• Earn a much higher return, compared to a bond only portfolio.

7.) Culture

• Insurance and investments - operations decentralized
• Capital allocation - managed by Buffett / small corporate office

8.) Businesses generated enormous cash flow.

• Both insurance and investments: was reinvested well, creating new income streams. Virtuous circle.

9.) The company was small.

• capital allocation decisions made had a relatively quick and material impact on the performance of the company

10.) Power of compounding

• Attributes 1 to 9 - all happening at the same time - is a very powerful elixir, especially if it can be maintained for decades.
• time is the friend of the wonderful business

11.) Favourable external environment

• There was lots of volatility in financial markets. This provided continuous supply of opportunities to deploy large amounts of capital at very attractive rates of return.

Edited May 2, 2024 by Viking

[Jaygo]

Great post Viking. Most of those things are still present. I just feel like magic was the system and aside from being huge is still very much in place. 
 

will the worlds greatest investor be at the helm, it’s unlikely but that could change and they could also shrink the equity to limit the strain on the next guy. 
 

I also think that the amount of potential efficiencies in the operating businesses must be massive and ripe for a bit of screw turning or outright divestment. 
 

The complaint about the cash is nuts. I think their interest income alone puts them in the fortune 50 ( this may be totally wrong but I read that )

 

i’m in the camp of good returns with brk for the foreseeable future. 

[Spooky]

6 hours ago, John Hjorth said:

 

It's a good one, @gfp,

 

Or,

 

1. - like in posts above,  where a dividend from Bershire is desparately needed for the shareholders, because Berskhire is underperforming, and the large positions in the portfolio desparately needs to be sold [AAPL, BAC, AXP, KO], while some seem to forget those positions are indeed financed by insurance float and also partly by basically massive, free and deferred taxes on giant unrealized capital gains. Talk of dividends of perhaps USD 250B or USD 100 B, while the insurance group as a whole at YE2023 has a max. dividend capacity of USD 31 B, and holding company cash and T-Bills at YE2023 is USD 22 B. Typically suggested by people who trade around quite a lot, and never tell anything about their own track record.

2. - 'Breaking' the whole thing 'up' by splitting it to atoms, to 'get the real values to surface', [likely by the use a particle accelerator at CERN to put the company in or something like that?]. Typically suggested by people who aren't aware of the central role of NICO in the group structure and all the implications of that and no understanding of the inner workings of insurance float.

 

Excellent post John - is there anywhere that I can look that has more information on Berkshire's corporate structure and where NICO sits?