Buffett/Berkshire - general news

[dealraker]

On 7/20/2024 at 12:44 PM, UK said:

So this is from SA from a few month ago. It does not cover everything and omits some important positives (e.g. recent total operating results, because of very strong insurance performance, or together with other omissions them not buying long term bonds in ZIRP period etc). And author seems to be expecting some perfection after all:), despite stating the opposite. But I think some of his critique and analysis is quite interesting and not that bad/stupid?

 

For what it is worth: https://seekingalpha.com/article/4693091-berkshire-15-years-of-disappointing-acquisitions

 

Please do not shoot the messenger:). Still own some BRKB, but this year/recently reduced allocation to a "core minimum", mainly because of the valuation, although I admit, that WB's warning on utilities earlier this year also scared me a little. Also I am a bit worried, that the way the possible management transition on the horizon is expected to occur at BRK is the best way to do this or one I would prefer.

 

Personally, from a current valuation, I still expect BRK will provide a reasonable buy and hold return in the next 10 years of 6-8 per cent or even more, but doubt it could be >10 per cent, without some major luck. And probability is also very high they will finally have to deal with a management transition in this period (and this again could be an opportunity). Now, this 6-8-10 is nothing tragic at all and price/valuation could overshoot even more (probably ~1.8 BV would be a level for me to get out completely), but I think now it is already out of the exciting territory, at least for more active approach. I get and respect this "do not sell a single share" approach, but not so sure if this is a reasonable thing to do in BRK case this time, especially if your expectations are higher, than mentioned above. And with recent AAPL (wonderful, but probably to expensive) and BAC (probably expensive enough for average at best and not anti fragile business) sales, it seems even Buffett himself is showing this is the the way to go:)?

 

I would also appreciate if anyone could share their thinking or push back on this and maybe also discuss what are his expectation for the next 10 year BRK returns.

 

Decades owner and won't sell in my lifetime.  I easily see the authors point of view and your logical one too UK.  I have no guess as to returns, but I have some strong thoughts on the inevitable journey.  Inevitable...at least in my mind.

Edited July 22 by dealraker

[dealraker]

On 7/20/2024 at 12:44 PM, UK said:

So this is from SA from a few month ago. It does not cover everything and omits some important positives (e.g. recent total operating results, because of very strong insurance performance, or together with other omissions them not buying long term bonds in ZIRP period etc). And author seems to be expecting some perfection after all:), despite stating the opposite. But I think some of his critique and analysis is quite interesting and not that bad/stupid?

 

For what it is worth: https://seekingalpha.com/article/4693091-berkshire-15-years-of-disappointing-acquisitions

 

Please do not shoot the messenger:). Still own some BRKB, but this year/recently reduced allocation to a "core minimum", mainly because of the valuation, although I admit, that WB's warning on utilities earlier this year also scared me a little. Also I am a bit worried, that the way the possible management transition on the horizon is expected to occur at BRK is the best way to do this or one I would prefer.

 

Personally, from a current valuation, I still expect BRK will provide a reasonable buy and hold return in the next 10 years of 6-8 per cent or even more, but doubt it could be >10 per cent, without some major luck. And probability is also very high they will finally have to deal with a management transition in this period (and this again could be an opportunity). Now, this 6-8-10 is nothing tragic at all and price/valuation could overshoot even more (probably ~1.8 BV would be a level for me to get out completely), but I think now it is already out of the exciting territory, at least for more active approach. I get and respect this "do not sell a single share" approach, but not so sure if this is a reasonable thing to do in BRK case this time, especially if your expectations are higher, than mentioned above. And with recent AAPL (wonderful, but probably to expensive) and BAC (probably expensive enough for average at best and not anti fragile business) sales, it seems even Buffett himself is showing this is the the way to go:)?

 

I would also appreciate if anyone could share their thinking or push back on this and maybe also discuss what are his expectation for the next 10 year BRK returns.

 

All solid thinking it seem to me UK.  

[UK]

1 hour ago, dealraker said:

All solid thinking it seem to me UK.  

 

Thanks dealraker! I understand and admire your approach as well and am thinking about transitioning, partly or fully, to some similar process, especially sometime in the future. Perhaps not selling out of something that I like and it still works well enough, only because of the valuation, could be a good start. I have earned some serious regrets by not doing so in the past, so thanks for sharing you experience and thinking about all this.

 

Edited July 22 by UK

[dealraker]

1 hour ago, UK said:

 

Thanks dealraker! I understand and admire your approach as well and am thinking about transitioning, partly or fully, to some similar process, especially sometime in the future. Perhaps not selling out of something that I like and it still works well enough, only because of the valuation, could be a good start. I have earned some serious regrets by not doing so in the past, so thanks for sharing you experience and thinking about all this.

 

When you rid your mind of those using Berk (read Bloomstran) for self-promotion and those who refer to Buffett in uncle and grandpa terms the path and story of the business in its present form are not the extremes expressed by either side.  But the capital outlays and their success/failure - or less polar wording would be preferred if I could think of it - are vividly obvious.  With size Buffett almost inevitably goes into a slew of less-than-ideal things to get in down the road of existence.

 

I'm 99% profit in my Berkshire, I'm not going to sell in my lifetime.  But others can and probably should based on valuation and even more importantly where in the economic/stock/business performance cycle we are.  These cycles by the way, at least to me, and screamingly obvious.

 

That's one of the things barely addressed in online forum posts, that each of us has our own unique place as to lifespan, taxes, estate plan, etc.--- which highly affects our bias as to what to do and when.  But these biases should be the starting point for all discussion.  

[WFF]

https://di.hkex.com.hk/di/NSForm2.aspx?fn=CS20240719E00364&sa2=ns&sid=2508&corpn=BYD+Co.+Ltd.++-+H+Shares&sd=22%2f07%2f2023&ed=22%2f07%2f2024&cid=2&sa1=cl&scsd=22%2f07%2f2023&sced=22%2f07%2f2024&sc=1211&src=MAIN&lang=EN&g_lang=en&
 

Sale of BYD continues…dropping below 5%. 

[Luke]

37 minutes ago, WFF said:

https://di.hkex.com.hk/di/NSForm2.aspx?fn=CS20240719E00364&sa2=ns&sid=2508&corpn=BYD+Co.+Ltd.++-+H+Shares&sd=22%2f07%2f2023&ed=22%2f07%2f2024&cid=2&sa1=cl&scsd=22%2f07%2f2023&sced=22%2f07%2f2024&sc=1211&src=MAIN&lang=EN&g_lang=en&
 

Sale of BYD continues…dropping below 5%. 

Interesting!

[gfp]

So this most recent BYD sale disclosure shows BHE selling about $358 million USD worth of BYD stock since mid June.

 

The remaining position is worth around $1.7 Billion USD.

[gfp]

Thinking more about Warren's recent BAC sales - it's interesting to look at what Warren is buying vs what Warren is selling.  He is buying Chubb, with stable and negative funding costs ( -10% ) and selling BAC with +4.2% funding costs.  

 

[UK]

33 minutes ago, gfp said:

Thinking more about Warren's recent BAC sales - it's interesting to look at what Warren is buying vs what Warren is selling.  He is buying Chubb, with stable and negative funding costs ( -10% ) and selling BAC with +4.2% funding costs.  

 

 

Insurance is also perhaps more resilient / less dependable on the economic cycle? Of course it has its own cycles or different issues, but taking into account the level of expertise BRK posses in the field and their already huge exposure to insurance operationally, it really seems like some kind of telling sign:)

[UK]

2 hours ago, dealraker said:

When you rid your mind of those using Berk (read Bloomstran) for self-promotion and those who refer to Buffett in uncle and grandpa terms the path and story of the business in its present form are not the extremes expressed by either side.  But the capital outlays and their success/failure - or less polar wording would be preferred if I could think of it - are vividly obvious.  With size Buffett almost inevitably goes into a slew of less-than-ideal things to get in down the road of existence.

 

I'm 99% profit in my Berkshire, I'm not going to sell in my lifetime.  But others can and probably should based on valuation and even more importantly where in the economic/stock/business performance cycle we are.  These cycles by the way, at least to me, and screamingly obvious.

 

That's one of the things barely addressed in online forum posts, that each of us has our own unique place as to lifespan, taxes, estate plan, etc.--- which highly affects our bias as to what to do and when.  But these biases should be the starting point for all discussion.  

+1

[sleepydragon]

Last week or so, Russell 2000 outperformed Russell 1000 by 3%+ in one day. This is turns out to be rare event. It only happened like 3 times since 2000.  2 of those times Russell 2000 continued to outperform for another 4 years. Value stocks are back.

[gfp]

There is a paywall but the headline and beginning text cover the gist - Ajit is less aggressive in Florida this season:

https://www.insuranceinsiderus.com/article/2dj4r5bh7hhbs81rl20hs/floridians/berkshire-hathaway-pulls-out-of-citizens-2024-25-risk-transfer-program?zephr_sso_ott=mGFXVh

[CorpRaider]

Could be a good opportunity in BAC if he nukes the price.  It was in WFC.

[coc]

On 7/20/2024 at 12:44 PM, UK said:

So this is from SA from a few month ago. It does not cover everything and omits some important positives (e.g. recent total operating results, because of very strong insurance performance, or together with other omissions them not buying long term bonds in ZIRP period etc). And author seems to be expecting some perfection after all:), despite stating the opposite. But I think some of his critique and analysis is quite interesting and not that bad/stupid?

 

For what it is worth: https://seekingalpha.com/article/4693091-berkshire-15-years-of-disappointing-acquisitions

 

Please do not shoot the messenger:). Still own some BRKB, but this year/recently reduced allocation to a "core minimum", mainly because of the valuation, although I admit, that WB's warning on utilities earlier this year also scared me a little. Also I am a bit worried, that the way the possible management transition on the horizon is expected to occur at BRK is the best way to do this or one I would prefer.

 

Personally, from a current valuation, I still expect BRK will provide a reasonable buy and hold return in the next 10 years of 6-8 per cent or even more, but doubt it could be >10 per cent, without some major luck. And probability is also very high they will finally have to deal with a management transition in this period (and this again could be an opportunity). Now, this 6-8-10 is nothing tragic at all and price/valuation could overshoot even more (probably ~1.8 BV would be a level for me to get out completely), but I think now it is already out of the exciting territory, at least for more active approach. I get and respect this "do not sell a single share" approach, but not so sure if this is a reasonable thing to do in BRK case this time, especially if your expectations are higher, than mentioned above. And with recent AAPL (wonderful, but probably to expensive) and BAC (probably expensive enough for average at best and not anti fragile business) sales, it seems even Buffett himself is showing this is the the way to go:)?

 

I would also appreciate if anyone could share their thinking or push back on this and maybe also discuss what are his expectation for the next 10 year BRK returns.

 

 

That SA article is atrocious and doesn't do any real analysis. The first one alone (BNSF) he failed to notice with his "thousands of hours" that BNSF paid out a bunch of dividends in the early days reducing BRK's cost basis almost immediately. It has also distributed substantial cash and would be worth >$100B at market today. Where is this in his "analysis"? Also, BRK has tax advantages to owning something 100% versus owning the index, which he doesn't mention. 

 

PCP and Kraft were disasters as everyone already knew.

 

I agree that BRK's disclosures suck but WB seems to do that purposely for competitive reasons.

Edited July 23 by coc

[Malmqky]

6 minutes ago, coc said:

 

That SA article is atrocious and doesn't do any real analysis. The first one alone (BNSF) he failed to notice with his "thousands of hours" that BNSF paid out a bunch of dividends in the early days reducing BRK's cost basis almost immediately. It has also distributed substantial cash and would be worth >$100B at market today. Where is this in his "analysis"? Also, BRK has tax advantages to owning something 100% versus owning the index, which he doesn't mention. 

 

PCP and Kraft were disasters as everyone already knew.

 

I agree that BRK's disclosures suck but WB seems to do that purposely for competitive reasons.

Yep.
 

You also have to look at things as a whole. I know he mentioned Apple and such near the end of the article, but the author needs to actually factor them into his argument as well. You can’t just isolated companies Berkshire has bought 100% of and judge Berkshire based solely off that. That’d be like looking at Lamar Jackson and saying “hmmm… if we ignore his rushing ability and stats he’s actually a below average quarterback because he doesn’t have as many passing yards and tds as other top qbs”.
 

Besides, I’m not sure if anyone thinks Berkshire is going to consistently beat the SP500 now that it’s pushing $1T in valuation anyways. But I’d much rather own Berkshire than a very top heavy SP500.

[sleepydragon]

Remind me an old saying (from Buffett?): people who took subways to work giving advice to people who took rolls Royce to work.

is he has been right , why he’s not rich yet?

Many Berkshire shareholders are.

[charlieruane]

I'll chime in with the old refrain that Berkshire's returns should be judged in risk-adjusted terms. To be sure, PCP and the like were simply flawed investments that lost shareholders money. But BNSF's adequate absolute returns have been excellent in risk-adjusted terms. There was almost zero risk of the capital invested in BNSF becoming permanently impaired at the prices BRK paid.

 

Attaining adequate returns with low risk is what Berkshire should strive to do going forward. In the past, we were treated to exquisite returns with low risk, but size has rendered that unlikely going forward. 

[Munger_Disciple]

I recall reading a few years back somewhere that Buffett sold some Berkshire stock to buy the beach house for his wife in 1970s. I am unable to find the article which says he called his personal broker to direct him to sell Berkshire stock. Does anyone here have the reference? Thanks

Edited July 24 by Munger_Disciple

[keegomaster]

3 hours ago, Munger_Disciple said:

I recall reading a few years back somewhere that Buffett sold some Berkshire stock to buy the beach house for his wife in 1970s. I am unable to find the article which says he called his personal broker to direct him to sell Berkshire stock. Does anyone here have the reference? Thanks

I don't think buffett ever sold berkshire shares

[Munger_Disciple]

24 minutes ago, keegomaster said:

I don't think buffett ever sold berkshire shares

 

That's what I thought but apparently he sold some in the seventies. I am sure he bought back those & more later. 

[gfp]

He ran out of personal cash in the 70's at some point.  He had come out of the Buffett Partnership wind-down with $16 million in cash but he used that cash to buy more Berkshire and Blue Chip shares.  The first Laguna house cost $150k.  He probably had a net worth between $25 and 40 million at the time Susie convinced him to buy that $150k house.

 

He was only making $50k a year salary at BRK and he had a little bit of other income - but he was pretty tapped out at one point cash-wise.  I think he bought the first Laguna house before he ran low on cash but I don't know for sure.

 

 

[petec]

On 7/20/2024 at 5:44 PM, UK said:

So this is from SA from a few month ago. It does not cover everything and omits some important positives (e.g. recent total operating results, because of very strong insurance performance, or together with other omissions them not buying long term bonds in ZIRP period etc). And author seems to be expecting some perfection after all:), despite stating the opposite. But I think some of his critique and analysis is quite interesting and not that bad/stupid?

 

For what it is worth: https://seekingalpha.com/article/4693091-berkshire-15-years-of-disappointing-acquisitions

 

Please do not shoot the messenger:). Still own some BRKB, but this year/recently reduced allocation to a "core minimum", mainly because of the valuation, although I admit, that WB's warning on utilities earlier this year also scared me a little. Also I am a bit worried, that the way the possible management transition on the horizon is expected to occur at BRK is the best way to do this or one I would prefer.

 

Personally, from a current valuation, I still expect BRK will provide a reasonable buy and hold return in the next 10 years of 6-8 per cent or even more, but doubt it could be >10 per cent, without some major luck. And probability is also very high they will finally have to deal with a management transition in this period (and this again could be an opportunity). Now, this 6-8-10 is nothing tragic at all and price/valuation could overshoot even more (probably ~1.8 BV would be a level for me to get out completely), but I think now it is already out of the exciting territory, at least for more active approach. I get and respect this "do not sell a single share" approach, but not so sure if this is a reasonable thing to do in BRK case this time, especially if your expectations are higher, than mentioned above. And with recent AAPL (wonderful, but probably to expensive) and BAC (probably expensive enough for average at best and not anti fragile business) sales, it seems even Buffett himself is showing this is the the way to go:)?

 

I would also appreciate if anyone could share their thinking or push back on this and maybe also discuss what are his expectation for the next 10 year BRK returns.

 

 

I own BRK and don't plan to sell (which is not to say I won't, but my intention is to hold long term).

 

I assume 5-9% REAL returns over very long periods of time with a very low probability of a genuinely bad outcome.

 

My PRIMARY reason for holding is culture and management. You could assess this in any number of ways but the simplest is just to reiterate that all board members have to buy stock with their own money and don't get D&O insurance. This is incredibly different from most boards and I expect the behaviours to be different too. I think this massively narrows the expected outcomes. There is no incentive to take the kinds of risks required to compound at 15, 20, 25%; but equally the likelihood of really bad outcomes is very low.

 

[73 Reds]

6 hours ago, gfp said:

He ran out of personal cash in the 70's at some point.  He had come out of the Buffett Partnership wind-down with $16 million in cash but he used that cash to buy more Berkshire and Blue Chip shares.  The first Laguna house cost $150k.  He probably had a net worth between $25 and 40 million at the time Susie convinced him to buy that $150k house.

 

He was only making $50k a year salary at BRK and he had a little bit of other income - but he was pretty tapped out at one point cash-wise.  I think he bought the first Laguna house before he ran low on cash but I don't know for sure.

 

 

Yes, he easily could have financed the house but instead he chose to pay cash. One lesson that made a lasting impression on this shareholder.

[Viking]

9 hours ago, petec said:

 

I own BRK and don't plan to sell (which is not to say I won't, but my intention is to hold long term).

 

I assume 5-9% REAL returns over very long periods of time with a very low probability of a genuinely bad outcome.

 

My PRIMARY reason for holding is culture and management. You could assess this in any number of ways but the simplest is just to reiterate that all board members have to buy stock with their own money and don't get D&O insurance. This is incredibly different from most boards and I expect the behaviours to be different too. I think this massively narrows the expected outcomes. There is no incentive to take the kinds of risks required to compound at 15, 20, 25%; but equally the likelihood of really bad outcomes is very low.

I think the headwinds for Berkshire Hathaway have been growing over the past decade. The problems?

1.) The size of the company.

2.) its capital allocation policies - it looks to me like Buffett has painted himself into a corner. The problem is he likely has also painted his successor into a corner. 
 

An couple of examples:

- buy and hold forever works best when you are growing rapidly - and earning returns of 20% per year. The queens in your portfolio dominate your dogs. But when you become an elephant and your growth slows - and your returns slow - your dogs become a bigger part of the total portfolio. The buy and hold forever mantra no longer works for BRK - but Buffett made promises decades ago to never sell. That bit of marketing is not going to age well.
 

- not doing stock buybacks (starting much earlier and going heavier) has created the size problem for BRK today. But Buffett has couched buybacks in moral terms ‘taking advantage’ of BRK shareholders. Of course this is marketing. Buffett loves buybacks - look at Apple etc. Buffett also put Singleton on a pedestal and he was the king of buybacks. 
 

- is the focus on cash flow resulting in underinvestment at the companies? This appears to have been a big problem at Wells Fargo - they were more profitable than peers for year (and Buffett was constantly praising them) because they were underinvesting - and it blew up. It looks like the same thing has been happening at Geico - Progressive looks much better positioned from a technology perspective moving forward. Does BNSF have the same disease? Are the falling behind peers from a technology perspective?
 

Anyways, i love Warren Buffett and i like BRK as a company. But i think they have some structural issues (some external and some internal) that might make it a challenge for them to outperform the S&P500 moving forward. I do think BRK will likely perform better than a balanced (stock and bond) portfolio. An alternative perspective…

Edited July 24 by Viking

[73 Reds]

13 minutes ago, Viking said:

I think the headwinds for Berkshire Hathaway have been growing over the past decade. The problems?

1.) The size of the company.

2.) its capital allocation policies - it looks to me like Buffett has painted himself into a corner. The problem is he likely has also painted his successor into a corner. 
 

An couple of examples:

- buy and hold forever works best when you are growing rapidly - and earning returns of 20% per year. The queens in your portfolio dominate your dogs. But when you become an elephant and your growth slows - and your returns slow - your dogs become a bigger part of the total portfolio. The buy and hold forever mantra no longer works for BRK - but Buffett made promises decades ago to never sell. That bit of marketing is not going to age well.
 

- not doing stock buybacks (starting much earlier and going heavier) has created the size problem for BRK today. But Buffett has couched buybacks in moral terms ‘taking advantage’ of BRK shareholders. Of course this is marketing. Buffett loves buybacks - look at Apple etc. Buffett also put Singleton on a pedestal and he was the king of buybacks. 
 

- is the focus on cash flow resulting in underinvestment at the companies? This appears to have been a big problem at Wells Fargo - they were more profitable than peers for year (and Buffett was constantly praising them) because they were underinvesting - and it blew up. It looks like the same thing has been happening at Geico - Progressive looks much better positioned from a technology perspective moving forward. Does BNSF have the same disease? Are the falling behind peers from a technology perspective?
 

Anyways, i love Warren Buffett and i like BRK as a company. But i think they have some structural issues (some external and some internal) that might make it a challenge for them to outperform the S&P500 moving forward. I do think BRK will likely perform better than a balanced (stock and bond) portfolio. An alternative perspective…

Viking, first I'd like to say thanks.  You are the primary inspiration for me having recently joined this board.  Your work on Fairfax has been the most thorough, spot on analysis of any company or investment that I have seen in a lifetime.  

 

That said, a little push-back on Berkshire.  As you know, Berkshire has one huge advantage over the S&P 500 - insurance float.   That alone ensures that with proper underwriting discipline, size is no barrier to success.  To your point about size, it does of course minimize the playing field of needle moving investments, that is until it doesn't.  Financial armageddon  will most certainly recur one day, whether during Buffett's tenure or thereafter.  What company is better situated to avail itself to a time of blood in the streets?  My personal opinion is that shareholders will demand much more of successor management than they do of Warren.  They won't tolerate some of Buffett's nuances that shareholders were always happy to overlook.  This does not require a change in culture; rather the company could focus less on empire-building and more on broadening the so-called "circle of competence" to encompass industries, and even geographical regions of the World that have never really been considered.  Older shareholders like me are happy to own Berkshire in its present form with a bent toward preservation of capital.  But in order to attract new shareholders, successor management may have to loosen up the company's investment objectives beyond those of a 93 year old.  Future management will surely recognize that they are not Warren Buffett, nor should they try to be him.  My guess as a shareholder is that they will utilize their specific strengths and skills to see the company evolve in a way of which Buffett would be proud, as opposed to stagnation and/or a poor S&P 500 proxy.