Viking Posted July 24 Share Posted July 24 (edited) 1 hour ago, 73 Reds said: 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. @73 Reds thank you for the comment. Regarding Berkshire Hathaway, i am a novice when it comes to understanding the company. So my comments are very high level. And they could be way off base. BRK appears to me to be a conglomerate today. Insurance is now one of many businesses. Float is a benefit, just much less of a benefit than it was 20 or 30 years ago. My read is for the past 5 years, perhaps longer, Berkshire Hathaway has been primarily run like a trust - with the focus on preserving the wealth of Berkshire Hathaway’s many, many long term and very wealthy shareholders (who have big tax issues if they sell). Berkshire Hathaway is no longer focussed primarily on building long term per share value for shareholders. Now this might change when Buffett is gone. But it adds a great deal of complexity for the new guy - because if he does something different and it doesn’t work out right away… well his job will just get that much more difficult. As per usual, i am probably way overthinking things. And i like to go to extremes sometimes when posting on the board - to test drive ideas… (thanks for pushing back Anyways, i don’t own BRK shares today. When i do, i usually hold it as a bond substitute. Edited July 24 by Viking Link to comment Share on other sites More sharing options...
73 Reds Posted July 24 Share Posted July 24 You're welcome, Viking! The irony is I wouldn't buy Berkshire today but I wouldn't sell it either; decades of deferred capital gains makes that entirely logical. Going forward, the appeal of Berkshire is that it can, and does invest in literally anything. Trillion dollar companies evolved from one idea/concept and each operates in a single industry. When viewed like that, size is really no excuse. Link to comment Share on other sites More sharing options...
sleepydragon Posted July 25 Share Posted July 25 I think compared to other companies , Berkshire is the one that has the most options to do anything. It basically has the most optionality to make the best choice in the uncertain future. Just like human. Some born rich, some well educated, some are smart. But ultimately it’s those handful options we chose that made the difference of our life. Making the right choice and frankly to have the options to make that choice is the most important, and that’s what Berkshire has. Link to comment Share on other sites More sharing options...
charlieruane Posted July 25 Share Posted July 25 (edited) 12 hours ago, Viking said: 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. 12 hours ago, Viking said: Of course this is marketing. Buffett loves buybacks - look at Apple etc. I hear you, but I want to push back a bit on these comments. It's wrong to reduce buy-and-hold to a marketing tactic. It has a few massive benefits that go beyond marketing. For public equities, buying and holding allows Berkshire to defer capital gains taxes on the portion of earnings its holdings retain and reinvest. For wholly owned subsidiaries, selling only when businesses deteriorate beyond repair makes Berkshire a uniquely attractive buyer to closely/family-held firms that don't want to see their babies (businesses) tossed around by private equity firms. As for buybacks, yes, Buffett probably should've started buying back stock way earlier. But clearly he's changed his tune—Berkshire has bought back many tens of billions of dollars of stock in the past few years, at attractive prices and with attention to valuation. So, this anti-buyback "marketing" stance you mention just doesn't exist. Your point about underinvestment in technology at e.g. Geico, though, is well taken. Insiders say Greg shines at improving Berkshire's long-held assets, and Ajit+Todd seem to be giving Geico their all, but we'll just have to see how it shakes out. All that to say: yeah, Berkshire's not as great as it once was, but it's still an incredible investment in risk-adjusted terms. You used to get ludicrous absolute returns with very low risk. Now, you get adequate absolute returns with very low risk. It would be a mistake for future managers to try to jack up absolute returns by taking on more risk; the next generation should not seek to attract new, growth-hungry shareholders. To do so without risking the company is basically impossible. Think about what Munger would say if he saw Berkshire reach to become something it couldn't be. Edited July 25 by charlieruane Link to comment Share on other sites More sharing options...
Charlie Posted July 25 Share Posted July 25 2 hours ago, charlieruane said: All that to say: yeah, Berkshire's not as great as it once was, but it's still an incredible investment in risk-adjusted terms. You used to get ludicrous absolute returns with very low risk. Now, you get adequate absolute returns with very low risk. It would be a mistake for future managers to try to jack up absolute returns by taking on more risk; the next generation should not seek to attract new, growth-hungry shareholders. To do so without risking the company is basically impossible. In the book "Richer, Wiser, Happier" Munger talks about his investments: "Berkshire, Costco and a portfolio of Chinese stocks selected by Li Lu. The chances that any of those three bets will fail is "almost zero". I like almost zero. There are not many stocks like this. Link to comment Share on other sites More sharing options...
DooDiligence Posted July 25 Share Posted July 25 GEICO just seems like plain old incompetence. It's as simple as NOT running off your best customers. I find it hard to believe that they don't have the analytics to figure out who's who. Link to comment Share on other sites More sharing options...
73 Reds Posted July 25 Share Posted July 25 Not to minimize the issues at Geico but it is hardly the only company that shuns its best customers. In fact most renewal type businesses raise prices on existing customers at renewal time while offering first time customers a better deal - the telecommunications industry is perhaps the worst culprit. Call me naive but wouldn't rewarding loyalty (and lack of claims/incidents in the case of insurance) increase customer stickiness and thereby decrease marketing and turnover costs? Link to comment Share on other sites More sharing options...
MCR Posted July 25 Share Posted July 25 I've had the sense of late that more times than not over the past month or so Berkshire's daily price moves appear more out of sync with the broader market than what I've seen in the past few years. Out of curiosity, I went to Portfolio Visualizer to look at the correlations for daily returns between BRK.B and SPY. I set the rolling correlations to 20 days and the date range for January 1 through July 24. I did this for each year from 2000 through 2024. Yes, the time period is arbitrary and as we all know the start and end dates of any analysis can skew the results. So, with these caveats (and more unmentioned) in mind, here's what I found: Asset correlations for time period 01/01/2024 - 07/24/2024 based on daily returns (Year and Correlation): 2000 0.26; 2001 0.29; 2002 0.31; 2003 0.22; 2004 0.24; 2005 0.25; 2006 0.17; 2007 0.31; 2008 0.18; 2009 0.70; 2010 0.62; 2011 0.81; 2012 0.76; 2013 0.84; 2014 0.73; 2015 0.84; 2016 0.82; 2017 0.72; 2018 0.85; 2019 0.73; 2020 0.93; 2021 0.64; 2022 0.73; 2023 0.73; 2024 0.36 Net-net: through the first 206 days of the year (one additional day for leap years), this is the lowest correlation between Berkshire and the S&P 500 in 15 years. There were high correlations over this time period every year since 2009. So far this year, Berkshire appears to be providing more diversification than it has in a long time... Link to comment Share on other sites More sharing options...
crs223 Posted July 29 Share Posted July 29 On 7/25/2024 at 6:38 AM, 73 Reds said: Not to minimize the issues at Geico but it is hardly the only company that shuns its best customers. In fact most renewal type businesses raise prices on existing customers at renewal time while offering first time customers a better deal - the telecommunications industry is perhaps the worst culprit. Call me naive but wouldn't rewarding loyalty (and lack of claims/incidents in the case of insurance) increase customer stickiness and thereby decrease marketing and turnover costs? If I understand you correctly, you are suggesting that Geico: 1. Sell insurance below cost to existing customers with low claims 2. Gain customer loyalty/stickiness 3. Sell insurance above cost to existing customers with low claims Assuming Geico adopted your plan, how do you know they are not on Step 3 right now? Or perhaps you are saying geico should: 1. Sell insurance below cost to existing customers with low claims 2. Gain customer loyalty/stickiness 3. Go to 1 Link to comment Share on other sites More sharing options...
Maverick47 Posted July 29 Share Posted July 29 (edited) 1 hour ago, crs223 said: If I understand you correctly, you are suggesting that Geico: 1. Sell insurance below cost to existing customers with low claims 2. Gain customer loyalty/stickiness 3. Sell insurance above cost to existing customers with low claims Assuming Geico adopted your plan, how do you know they are not on Step 3 right now? Or perhaps you are saying geico should: 1. Sell insurance below cost to existing customers with low claims 2. Gain customer loyalty/stickiness 3. Go to 1 @73 Reds was on the right track with regard to current industry practice in pricing auto insurance customers. In order to get customers to switch to a new insurance company, almost all companies now offer prices or discounts to them which are not warranted as they are not based on their actual expected loss costs. Once they are in the door however, those discounts drop off over the next few years so that somewhere around years 2-4 or so, the company breaks even on them. Prices continue to rise at each subsequent renewal, while loss costs on longtime customers tend to improve. Most of the underwriting profit is generated by customers who’ve been with the company for over 4 years. In that sense, the longtime customers are indeed paying more than they should be and could likely get better prices if treated as a new customer with another company. Most of the underwriting loss is generated by the newer customers. If a company priced every customer to make a target underwriting profit, prices for new customers would be too high relative to other companies and so they wouldn’t sell any new policies. Their prices on existing customers would be better, so they’d be more likely to retain them, but eventually all their existing customers will die and they won’t have been able to replace them with new customers in the meantime. It really is sort of a catch-22 situation. For long term customers with good driving records, an optimal approach is likely to entail shopping for replacement coverage on a regular basis. The industry relies on actual customer behavior being much less rational. They rely on customers such as myself being too lazy or simply uninterested in shopping regularly for replacement coverage. Edited July 29 by Maverick47 Correction. Link to comment Share on other sites More sharing options...
Hektor Posted July 29 Share Posted July 29 6 hours ago, Maverick47 said: They rely on customers such as myself being too lazy or simply uninterested in shopping regularly for replacement coverage. Inertia Link to comment Share on other sites More sharing options...
73 Reds Posted July 29 Share Posted July 29 10 hours ago, crs223 said: If I understand you correctly, you are suggesting that Geico: 1. Sell insurance below cost to existing customers with low claims 2. Gain customer loyalty/stickiness 3. Sell insurance above cost to existing customers with low claims Assuming Geico adopted your plan, how do you know they are not on Step 3 right now? Or perhaps you are saying geico should: 1. Sell insurance below cost to existing customers with low claims 2. Gain customer loyalty/stickiness 3. Go to 1 @crs223 I am not suggesting that Geico sell insurance "under cost" to anyone. But it seems that properly measuring "cost" may be an issue at Geico. Where I live Geico has never been a viable option for auto insurance. This encompasses a more than 40-year time span, multiple family members - young and old and in-between, who oh-by-the-way have never had a ticket, accident or claim. The only reasonable conclusion is that Geico should not be in business here at all or their standards of assessing risk need adjustment. Link to comment Share on other sites More sharing options...
gfp Posted July 29 Share Posted July 29 Bets on yet another Form 4 showing BAC sales dropping this evening? Say around 8pm Eastern time? Link to comment Share on other sites More sharing options...
crs223 Posted July 30 Share Posted July 30 11 hours ago, 73 Reds said: The only reasonable conclusion is that Geico should not be in business here at all I think GEICO concluded the same… Link to comment Share on other sites More sharing options...
crs223 Posted July 30 Share Posted July 30 I recently read Buffett's letters from the 1970s. He described a couple periods where insurance was being priced too cheaply by his competitors. During those times he intentionally "reduced volume". Buffett has also said that insurance is a commodity. Customers are not loyal and there is no benefit to keeping long term customers happy (my interpretation). Link to comment Share on other sites More sharing options...
UK Posted July 30 Share Posted July 30 5 hours ago, gfp said: Bets on yet another Form 4 showing BAC sales dropping this evening? Say around 8pm Eastern time? https://www.sec.gov/Archives/edgar/data/70858/000095017024087477/xslF345X05/ownership.xml So WB is selling BAC, BYD, possibly even more AAPL...I am wondering what does it mean (probably nothing) or what is his alternative (probably cash) for them? Link to comment Share on other sites More sharing options...
Munger_Disciple Posted July 30 Share Posted July 30 (edited) 20 minutes ago, UK said: https://www.sec.gov/Archives/edgar/data/70858/000095017024087477/xslF345X05/ownership.xml So WB is selling BAC, BYD, possibly even more AAPL...I am wondering what does it mean (probably nothing) or what is his alternative (probably cash) for them? My guesses are (1) Buffett thinks these securities are overvalued or at least fully valued & he is cleaning the house for Greg, and (2) He thinks we may be entering a recession and he is beefing up the cash pile as there may be big opportunities. Edited July 30 by Munger_Disciple Link to comment Share on other sites More sharing options...
UK Posted July 30 Share Posted July 30 (edited) 22 minutes ago, Munger_Disciple said: My guesses are (1) Buffett thinks these securities are overvalued or at least fully valued & he is cleaning the house for Greg, and (2) He thinks we may be entering a recession and he is beefing up the cash pile as there may be big opportunities. Yes, the second point is somewhat intriguing. But after watching him/them doing nothing in 2020 (lots of opportunities) or 2022 (big tech opportunities), I do not hold my breath for any big offensive moves anymore. Would be glad to be wrong though. Being continuously defensive and cleaning the house perhaps makes a lot of sense for him now. Not sure if this is the ideal way for preparing for inevitable transition though. Edited July 30 by UK Link to comment Share on other sites More sharing options...
Blugolds Posted July 30 Share Posted July 30 6 hours ago, UK said: Yes, the second point is somewhat intriguing. But after watching him/them doing nothing in 2020 (lots of opportunities) or 2022 (big tech opportunities), I do not hold my breath for any big offensive moves anymore. Would be glad to be wrong though. Being continuously defensive and cleaning the house perhaps makes a lot of sense for him now. Not sure if this is the ideal way for preparing for inevitable transition though. I would have liked to see him be more aggressive in 2020, Covid lows as well, hindsight is easy here, but then I remember that BRK #1 priority is to protect the base, preserve the fortress/shareholders/partners. Its easy to forget that Ackman was on CNBC...CRYING, there were medical ships in the NYC harborm National Guard tent citys, the roads were closed, I am in the O&G industry and for the first time in my career the airports were NOT buying Jet fuel shipments it was crazy, there were a TON of unknowns. At the time we didnt know that it would kind of turn out to be a nothing burger, its easy to forget that the potential was there to be really really bad, like a once in a lifetime or couple lifetimes event and had the gov not been so aggressive with stimmy checks etc, the results could have been totally different and it becomes more reasonable to see why WB errored on the side of caution, it really wasnt an error, it was sticking to the primary goal of protection given the potential risks at the time and the unknowns. Hindsight, yeah, should have been headed outside with buckets to catch the raining gold rather than a thimble, but again, thats with hindsight and what we know now. It could have ended up much worse than the GFC. I was looking at purchase history for BRK and I was glad that I personally was buying hand over fist during that time, so I was personally able to take advantage of the opportunity even if BRK wasnt, but I can at least reason on why they behaved the way they did. Link to comment Share on other sites More sharing options...
UK Posted July 30 Share Posted July 30 1 hour ago, Blugolds said: I would have liked to see him be more aggressive in 2020, Covid lows as well, hindsight is easy here, but then I remember that BRK #1 priority is to protect the base, preserve the fortress/shareholders/partners. Its easy to forget that Ackman was on CNBC...CRYING, there were medical ships in the NYC harborm National Guard tent citys, the roads were closed, I am in the O&G industry and for the first time in my career the airports were NOT buying Jet fuel shipments it was crazy, there were a TON of unknowns. At the time we didnt know that it would kind of turn out to be a nothing burger, its easy to forget that the potential was there to be really really bad, like a once in a lifetime or couple lifetimes event and had the gov not been so aggressive with stimmy checks etc, the results could have been totally different and it becomes more reasonable to see why WB errored on the side of caution, it really wasnt an error, it was sticking to the primary goal of protection given the potential risks at the time and the unknowns. Hindsight, yeah, should have been headed outside with buckets to catch the raining gold rather than a thimble, but again, thats with hindsight and what we know now. It could have ended up much worse than the GFC. I was looking at purchase history for BRK and I was glad that I personally was buying hand over fist during that time, so I was personally able to take advantage of the opportunity even if BRK wasnt, but I can at least reason on why they behaved the way they did. Thanks. I do not disagree with you at all, especially regarding 2020. In this covid period I was also defensive to early and soon hidding almost completely in BRK myself:) Link to comment Share on other sites More sharing options...
Eldad Posted July 30 Share Posted July 30 3 hours ago, Blugolds said: I would have liked to see him be more aggressive in 2020, Covid lows as well, hindsight is easy here, but then I remember that BRK #1 priority is to protect the base, preserve the fortress/shareholders/partners. Its easy to forget that Ackman was on CNBC...CRYING, there were medical ships in the NYC harborm National Guard tent citys, the roads were closed, I am in the O&G industry and for the first time in my career the airports were NOT buying Jet fuel shipments it was crazy, there were a TON of unknowns. At the time we didnt know that it would kind of turn out to be a nothing burger, its easy to forget that the potential was there to be really really bad, like a once in a lifetime or couple lifetimes event and had the gov not been so aggressive with stimmy checks etc, the results could have been totally different and it becomes more reasonable to see why WB errored on the side of caution, it really wasnt an error, it was sticking to the primary goal of protection given the potential risks at the time and the unknowns. Hindsight, yeah, should have been headed outside with buckets to catch the raining gold rather than a thimble, but again, thats with hindsight and what we know now. It could have ended up much worse than the GFC. I was looking at purchase history for BRK and I was glad that I personally was buying hand over fist during that time, so I was personally able to take advantage of the opportunity even if BRK wasnt, but I can at least reason on why they behaved the way they did. He could have dipped a toe in at least. I am a stupid optimist probably but it has made me a lot of money in times like that. I still think that was kind of a black eye for them. That is one scenario where Greg would have probably been much more active. Link to comment Share on other sites More sharing options...
Intelligent_Investor Posted July 30 Share Posted July 30 Buffett has long moved past the stage of his/Berkshires life where he focuses on rate of compounding. He's implied he focuses more on not losing money (and making Berkshire less volatile) in recent years due to 1) Number of older people holding Berkshire for decades and relying on it to fund retirement and 2) probably also influenced by the amount of shares held by various charities (Buffett cares that those shares will help fund causes that will make a different; he doesn't want a situation where they need to sell at a low price). Munger even said as much toward the end of his life that you basically need to hold big tech to just match the S&P, and Buffett implied as much as well (he's repeatedly said big tech is good business and you can run them with zero capital). Berkshire is good for capital preservation and will probably vastly outperform bonds and a more conservative stock portfolio, but with how the company is weighted, its highly unlikely it will be able to keep up with the S&P going forward. Link to comment Share on other sites More sharing options...
73 Reds Posted July 30 Share Posted July 30 Its hard to blame a 90-year old for hunkering down during a pandemic. As with any investment, shareholders or prospective buyers should ask themselves why they want to own the stock. Its not a stock for everyone, but conversely, owning it would probably not hurt anyone. Link to comment Share on other sites More sharing options...
charlieruane Posted July 30 Share Posted July 30 45 minutes ago, Eldad said: He could have dipped a toe in at least. Were the ~$50B of buybacks across 2020 and 2021 not dipping a toe? Link to comment Share on other sites More sharing options...
Spooky Posted July 30 Share Posted July 30 Warren also mentioned that their phone was starting to ring in 2020 but the Fed acted so swiftly and decisively to give firms access to funding they didn't need capital from Berkshire. Link to comment Share on other sites More sharing options...
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