Buffett/Berkshire - general news

[ValueMaven]

What I dont like about this article is the miscommunication ... specifically this: 

 

The railroad hired industry veteran Ed Harris, a proponent of precision scheduling, an operating model that is prized by investors and that executives at BNSF have resisted. Harris has told people that Abel recruited him as a consultant for BNSF, according to people familiar with the matter.

A BNSF spokesman said Chief Executive Kathryn Farmer has known Harris for years and the company has a history of seeking outside perspectives to ensure it is delivering the best service possible. The spokesman disputed that Abel initiated the hiring of Harris. Abel didn’t respond to a request for comment; Harris declined to comment.

[Munger_Disciple]

13 minutes ago, ValueMaven said:

What I dont like about this article is the miscommunication ... specifically this: 

 

That's a good point. Yes something is off at BNSF. It does look like Abel has his hands full fixing it. 

[UK]

5 hours ago, dealraker said:

Basically UK I observed and participated with virtually all the rail Co's changes for over 40 years and one since 1976.  Improved operations and vastly better financial performance has intermittently surged within all rails for years - even decades - before HH.  My view is that if profitability is pushed too hard and too fast there is near equal repercussions that take years process through... its happening now.

 

So over a the next few years in my view is that UNP's supposed efficiency gains over BNSF will prove nothing but a short term breakaway easily caught up with.   Railroads that cut investments and too many workers to pump quarterly numbers via buybacks like UNP are like spun-out solo cyclists being bore down on by the pellaton.  Thus the last mile of much of the HH model in my view is or was just dysfunctional whitewash, needless one step forward two steps back, quick profits for selling shareholders at the expense of loyal ones.

 

It is the exact same thing in the insurance brokerage business and that's why all of them model overall growth over simply obsession with operating margin. 

 

Thanks dealraker. From my part generally (and sure, not all cases or experts are the same) it is quite terryfying or quite bad sign, when managment or owners start hiring consultants or experts to advice how to run a company...as a former consultant myself, I have no advice for such managment and only one for owners: just change the managment:))

 

Edited October 6, 2024 by UK

[schin]

13 minutes ago, UK said:

 

Thanks dealraker. From my part generally (and sure, not all cases or experts are the same) it is quite terryfying or quite bad sign, when managment or owners start hiring consultants or experts to advice how to run a company...as a former consultant myself, I have no advice for such managment and only one for owners: just change the managment:))

 

@dealraker @UK

I thought Hunter Harrison and his concepts on precision railroading have been used by all in the industry. It should have been table stakes now.  It amazes me that BNSF can be so mismanaged now. The point of the BNSF acquisition was they would have cheap, ample capital from BRK.A -- so, they can keep up and possibly, over invest to dominate.

 

Was Matthew Rose then, CEO ... so, good...that it blew up after his retirement? I don't understand how BNSF, GEICO can be so dry-rotted in their current state.

 

[UK]

28 minutes ago, schin said:

@dealraker @UK

I thought Hunter Harrison and his concepts on precision railroading have been used by all in the industry. It should have been table stakes now.  It amazes me that BNSF can be so mismanaged now. The point of the BNSF acquisition was they would have cheap, ample capital from BRK.A -- so, they can keep up and possibly, over invest to dominate.

 

Was Matthew Rose then, CEO ... so, good...that it blew up after his retirement? I don't understand how BNSF, GEICO can be so dry-rotted in their current state.

 

 

I think this is not a big tragedy in terms of the whole BRK universe and is fixable in both cases. Perhaps it is not very unusall for a very large organization to have such periods (not the best managers) for a while and it takes quite some time (perhaps 2-3 years at least) to notice any changes for the better. 

 

Edited October 6, 2024 by UK

[Whensthepaintdry?]

I like to take the optimistic view. There is room for improvement and no limit of capital to make those improvements. I think under Greg these improvements will come way faster than they would have under Buffett. How much more can UNP flex their margins when compared to BNSF? 

[DooDiligence]

Redditors not super happy with Todd. Departures began around about the same time they started running off low risk policyholders (just correlational ). It's been asked here before if Omaha has any operational warts and apparently they do (not just at GEICO). Where does the rot stop at GEICO? Has it already stopped?

 

===

 

 

 

Here's a 14 minute podcast generated by Google Notebook (HT to @nsx5200 ) from Berkshire's latest 10Q. In the first minutes they talk about GEICO. They repeatedly pronounce it wrong. They get into BNSF quickly. Again, you can speed up the playback.

 

https://notebooklm.google.com/notebook/5f88e914-c65a-4e1f-a333-b05cd366b0fb/audio

 

I wonder if they could change the tone of the narrators? They sound quite rosy, even when discussing wildfires. Maybe if you run a crappy company through Google Notebook and create a podcast it would have a more demeaning tone.

 

FWIW, I don't think you get warts from holding BRK.

Edited October 7, 2024 by DooDiligence

[DooDiligence]

As reported by NotebookLM. You probably burn down a few acres of rain forest to get these reports.

 

===

 

Berkshire Hathaway's business segments had mixed performance during the first six months of 2024 compared to the same period in 2023.

• Insurance – Underwriting: Increased $2.7 billion in the first six months of 2024 compared to 2023, benefiting from improved operating results at GEICO and no significant catastrophe events in 2024, in contrast to approximately $450 million in after-tax catastrophe losses in 2023.
• Insurance – Investment income: Increased $1.6 Billion in the first six months of 2024, driven by higher interest income from short-term investments in U.S. Treasury Bills.
• BNSF: Decreased 5.6% due to litigation-related charges, although partially offset by improved employee productivity and lower costs.
• BHE: Increased $171 million due to higher earnings from U.S. utilities and natural gas pipelines, partially offset by lower earnings in real estate brokerage. Litigation-related costs negatively impacted earnings.
• Pilot: Decreased 34.5%, with gross margins down 4.1% and operating expenses up 2.7%. Lower interest expenses partially offset these declines.
• Manufacturing: Increased 5.8% driven by industrial product earnings, partially offset by declines in building products.
• Service and Retailing: Decreased 19.9% due to lower earnings at TTI (down 50% for the six months ended June 30, 2024) and aviation services.
• Non-controlled businesses: Decreased $478 million, primarily due to lower earnings from Kraft Heinz and Occidental, coupled with the inclusion of Pilot's earnings in January 2023.

Overall, Berkshire Hathaway's net earnings attributable to shareholders for the first six months of 2024 were $43.05 billion, compared to $71.416 billion in the first six months of 2023. This decrease was largely driven by lower investment gains in 2024 compared to 2023.

[Eldad]

“Though BNSF carries more freight and spends more on capital expenditures than any of the five other  major NA railroads, it’s profit margins have slipped relative to all five since our purchase. I believe that our vast service territory is second to none and that therefore our margin comparisons can and should improve.”  WB 2023 letter

 

So not only are they behind UNP (28%) they are even behind Norfolk at 22%. Ouch. The Canadians run at close to 30%. Glad they are making a change. PSR obviously works. If the whole industry has eaten your lunch for 10+ years, maybe you are not the lone genius but in fact the sucker. 

 

 

[dealraker]

On 10/6/2024 at 10:06 PM, Eldad said:

“Though BNSF carries more freight and spends more on capital expenditures than any of the five other  major NA railroads, it’s profit margins have slipped relative to all five since our purchase. I believe that our vast service territory is second to none and that therefore our margin comparisons can and should improve.”  WB 2023 letter

 

So not only are they behind UNP (28%) they are even behind Norfolk at 22%. Ouch. The Canadians run at close to 30%. Glad they are making a change. PSR obviously works. If the whole industry has eaten your lunch for 10+ years, maybe you are not the lone genius but in fact the sucker. 

 

 

The one metric OR stopped providing returns for shareholders long ago.  Berk's use of capital may or may not make a difference, time will tell.  The game though is well past cutting employees, cutting lines, cutting cap ex, cutting maintenance,, cutting yards, and using debt for buybacks.  The math on minimal sales growth gets downright exciting from here.

[xboojum]

On 10/6/2024 at 10:06 PM, Eldad said:

“Though BNSF carries more freight and spends more on capital expenditures than any of the five other  major NA railroads, it’s profit margins have slipped relative to all five since our purchase. I believe that our vast service territory is second to none and that therefore our margin comparisons can and should improve.”  WB 2023 letter

 

So not only are they behind UNP (28%) they are even behind Norfolk at 22%. Ouch. The Canadians run at close to 30%. Glad they are making a change. PSR obviously works. If the whole industry has eaten your lunch for 10+ years, maybe you are not the lone genius but in fact the sucker. 

 

 

I think you're misreading the statement, which says "relative to". So if their margins were five points better than Norfolk's and now they're four points better, that's relative slipping.

[alpha]

 

Looks like Warren is still bullish on Japan

 

https://www.reuters.com/markets/us/berkshire-hathaway-raises-19-bln-bond-deal-term-sheet-shows-2024-10-10/

[Eldad]

On 10/8/2024 at 2:52 PM, xboojum said:

I think you're misreading the statement, which says "relative to". So if their margins were five points better than Norfolk's and now they're four points better, that's relative slipping.

Yes that is correct. But considering that Norfolk Southern has slipped relative to itself since BRK bought BNSF it is a very ugly picture. 
 

In the years before the GFC Norfolk was running at about 25% and BNSF was around 22-23.  

 

Also, BNSF has a tremendous inherent advantage over Norfolk by being in the wide open West where it can run much longer trains and it is still lagging. 
 

[Munger_Disciple]

One thing that bothers me about BHE is that it took BHE management almost 3.5 years to recognize and reserve adequately for the legal problems resulting from 2020 wild fires. I find it strange that the equity value of BHE was $89 Billion in Q3-2022, when Abel cashed out his stock almost 2 years after the wildfires. And now after 2 more years, we find that BHE equity was marked down by 45% from 2022. It seems to me that BHE was very late in recognizing the problems. 

 

It looks like Pacificorp hired a new CEO in 2023; probably a result of the above issues. 

Edited October 10, 2024 by Munger_Disciple

[Munger_Disciple]

BAC holding now below 10%, so no more reporting outside 13-F. I won't be surprised to see it be gone by the end of 2024. 

 

https://www.cnbc.com/2024/10/10/berkshire-slashes-bank-of-america-stake-to-under-10percent.html

Edited October 10, 2024 by Munger_Disciple

[villainx]

1 hour ago, Munger_Disciple said:

One thing that bothers me about BHE is that it took BHE management almost 3.5 years to recognize and reserve adequately for the legal problems resulting from 2020 wild fires. I find it strange that the equity value of BHE was $89 Billion in Q3-2022, when Abel cashed out his stock almost 2 years after the wildfires. And now after 2 more years, we find that BHE equity was marked down by 45% from 2022. It seems to me that BHE was very late in recognizing the problems. 

 

It looks like Pacificorp hired a new CEO in 2023; probably a result of the above issues. 

 

I'm trying to get a sense whether the issues at Geico, BHE, BNSF and or others are viewed as systemic problems that will lead to big decline or perhaps serious problems that can or should be corrected.  Is it correct to say that this is a bad as Berkshire has been in a long time, and the failure to address things earlier is surely a sign of deep problems.  Or it's normal course of business to hit on dry spells, and it's bad coincidence that the problems are hitting kind of all at once.  

 

 

[crs223]

On 10/1/2024 at 9:39 AM, KPO said:

Yeah, Greg’s timing has me a little less concerned about his investing chops.
 

Whatever the case, I hope reinvesting in BHE drops to maintenance capex levels until the industry and the government arrive at a sustainable solution for wildfire liabilities. If that doesn’t happen I think Buffett and Abel need to reconsider this business altogether. 

 

And he waiting until Sep 28, 2022 to buy his BRK -- nailed the bottom @ $270/B-share!  (I'm proud to say I bought some that same day)

[Eldad]

12 hours ago, villainx said:

 

I'm trying to get a sense whether the issues at Geico, BHE, BNSF and or others are viewed as systemic problems that will lead to big decline or perhaps serious problems that can or should be corrected.  Is it correct to say that this is a bad as Berkshire has been in a long time, and the failure to address things earlier is surely a sign of deep problems.  Or it's normal course of business to hit on dry spells, and it's bad coincidence that the problems are hitting kind of all at once.  

 

 

It’s a decentralized model so every company is pretty close to stand alone so I don’t think you can say there are deep BRK problems. It would have to be coincidental in that respect. You could say putting Todd in charge of Geico was a mistake and a deviation from the decentralized model.

 

I would think the decentralized model has a higher risk of letting bad managers or lazy managers stay on too long. Like WB backing BNSF management for this long even though they were underperforming for over a decade. But I think that is the BRK way and decentralized is good.   
 

The bigger longterm risk in my mind is Greg and post WB BRK try to be more centralized and top down. I get that feeling from Greg but I could be wrong. 

[Hektor]

12 minutes ago, Eldad said:

The bigger longterm risk in my mind is Greg and post WB BRK try to be more centralized and top down.

+1

[MarioP]

One of the problem might be attracting top talent at the subs. If I was a rising star in insurance where would I prefer to work? The sub in a conglomerate or Progressive? If my goal is to be CEO I would prefer a S&P500 insurance over Berkshire. So as the all star managers retires we perhaps have a succession problem as top talent choose to work elsewhere than a conglomerate where mandatory retirement age is 105.

[sleepydragon]

8 minutes ago, MarioP said:

One of the problem might be attracting top talent at the subs. If I was a rising star in insurance where would I prefer to work? The sub in a conglomerate or Progressive? If my goal is to be CEO I would prefer a S&P500 insurance over Berkshire. So as the all star managers retires we perhaps have a succession problem as top talent choose to work elsewhere than a conglomerate where mandatory retirement age is 105.

maybe or maybe not. It comes down to how the compensation is calculated, whether it motivates people and fair. I don’t think Brk underpays people 

[Jaygo]

1 hour ago, MarioP said:

One of the problem might be attracting top talent at the subs. If I was a rising star in insurance where would I prefer to work? The sub in a conglomerate or Progressive? If my goal is to be CEO I would prefer a S&P500 insurance over Berkshire. So as the all star managers retires we perhaps have a succession problem as top talent choose to work elsewhere than a conglomerate where mandatory retirement age is 105.

Bingo

 

I think this is a really big headwind for the company. Working for or selling out to Warren Buffett of 20 years ago was something to be proud of, something to aspire to. Working for Greg Able is awesome but it does not have the same cache.

 

So even an exceptional company or an all star manager is going to get lost in the weeds of BRK. I think the money as a motivator is really short sighted. Money is great but once you get wealthy are you really going to dedicate your life to something when you know your never going to get any recognition for it? My guess is that's unlikely in most people.

 

Warren has always espoused mid western values, and maybe with midwestern values business fame and recognition are less important to those folks. Better start shopping in Minnesota baby.

 

 

 

 

 

[villainx]

I really enjoyed it when executives in the subs got shout out in prior annual letters.  Seems less prominent these days.  

[DooDiligence]

I predict a change on #4.

 

 

https://www.berkshirehathaway.com/1999ar/acq.html

 

---

 

and many here don't want to see this but...

 

Edited October 12, 2024 by DooDiligence

[villainx]

3 hours ago, TB said:

Tilson thinks the problems are fixable and let us hope that things will work out and Able, others can put order to chaos. From Tilson.

 

Where is this from?