Buffett/Berkshire - general news

[fareastwarriors]

https://omaha.com/business/local/omaha-s-megabillionaire-down-the-street-warren-buffett-set-to-celebrate-his-90th-birthday/article_52ccc925-378c-5094-8a1f-b57b3d3fb8bc.html

 

 

Nonetheless, Buffett says that by almost any measure, his health is quite good.

 

He gets checked out regularly by a variety of doctors, particularly after having been treated for prostate cancer in 2012. Just last week, he got a report back from his doctor with the results of a battery of recent tests.

 

“I’m in perfect shape,” Buffett was happy to share. “In fact, her final line was, ‘The only thing he has to worry about is not getting COVID.’ ”

 

Great!  8)

 

 

But he has recently been pretty religious about spending 25 minutes a day on a treadmill, something he does while watching the evening news.

 

“All you guys who used up your muscles and joints when you were young, I carefully put mine away in a box when I was 6 to save them for old age, and I only pulled them out a few years ago,” he said. “They’ve never been used.”

 

;D

[roberts1001]

Wabuffo, thank you for sharing your analysis of how much money should be subtracted from the investments column in a two-column valuation.  I have to confess that like many others I have not been subtracting anything from the investments column.  Perhaps this is why my two-column valuations consistently come in at the high end of the various valuation models that I use.  It makes sense to me that liabilities against the investments should be subtracted.  Liabilities would include borrowings for the purpose of making investments, deferred capital gains taxes and future insurance claims.  One question I have is that while 100% of float will eventually be paid out in claims (unless claims are matched by new premiums), shouldn't the liability for claims be the present value of those future payments?  That might bring the liability down to 20% or 30% of float.  Forgive me if I am being slow.  Thank you for explaining.

 

roberts1001 

[RadMan24]

We now have landfall of Hurricane Laura, a Cat 4 that is stronger than Katrina - god bless those in its path.

 

At this year's annual meeting, Buffett said that (paraphrasing) all because we have the pandemic, doesn't mean another black swan event can't happen, like an earthquake, or hurricane. Hence, his acknowledgement that $130b in cash didn't seem all that much like it once did, given the range of possible economic outcomes and uncertainty.

 

 

[thepupil]

We now have landfall of Hurricane Laura, a Cat 4 that is stronger than Katrina - god bless those in its path.

 

At this year's annual meeting, Buffett said that (paraphrasing) all because we have the pandemic, doesn't mean another black swan event can't happen, like an earthquake, or hurricane. Hence, his acknowledgement that $130b in cash didn't seem all that much like it once did, given the range of possible economic outcomes and uncertainty.

 

so this makes intuitive sense, but in 2005 (Katrina Rita Wilma), the last really bad season, Berkshire was flat in terms of underwriting profit. I don't know about Louisiana, but it's my impression that Berkshire has all but left the Florida Wind reinsurance market given that this was priced down to levels that they deemed not interesting.

 

With all due respect and sensitivity to those involved in this catastrophe, I doubt it will be a material use of cash for Berkshire.

 

2005 Annual Report

In 2004 our float cost us less than nothing, and I told you that we had a chance – absent a megacatastrophe – of no-cost float in 2005. But we had the mega-cat, and as a specialist in that coverage,Berkshire suffered hurricane losses of $3.4 billion. Nevertheless, our float was costless in 2005 because of the superb results we had in our other insurance activities, particularly at GEICO.

 

We have major reinsurance operations at General Re and National Indemnity. The former is run

by Joe Brandon and Tad Montross, the latter by Ajit Jain. Both units performed well in 2005 considering

the extraordinary hurricane losses that battered the industry.

 

It’s an open question whether atmospheric, oceanic or other causal factors have dramatically

changed the frequency or intensity of hurricanes. Recent experience is worrisome. We know, for instance,

that in the 100 years before 2004, about 59 hurricanes of Category 3 strength, or greater, hit the

Southeastern and Gulf Coast states, and that only three of these were Category 5s. We further know that in

2004 there were three Category 3 storms that hammered those areas and that these were followed by four

more in 2005, one of them, Katrina, the most destructive hurricane in industry history. Moreover, there

were three Category 5s near the coast last year that fortunately weakened before landfall.

 

Was this onslaught of more frequent and more intense storms merely an anomaly? Or was it

caused by changes in climate, water temperature or other variables we don’t fully understand? And could

these factors be developing in a manner that will soon produce disasters dwarfing Katrina?

Joe, Ajit and I don’t know the answer to these all-important questions. What we do know is that

our ignorance means we must follow the course prescribed by Pascal in his famous wager about the

existence of God. As you may recall, he concluded that since he didn’t know the answer, his personal

gain/loss ratio dictated an affirmative conclusion.

 

So guided, we’ve concluded that we should now write mega-cat policies only at prices far higher

than prevailed last year – and then only with an aggregate exposure that would not cause us distress if shifts

in some important variable produce far more costly storms in the near future. To a lesser degree, we felt

this way after 2004 – and cut back our writings when prices didn’t move. Now our caution has intensified.

If prices seem appropriate, however, we continue to have both the ability and the appetite to be the largest

writer of mega-cat coverage in the world.

[RadMan24]

We now have landfall of Hurricane Laura, a Cat 4 that is stronger than Katrina - god bless those in its path.

 

At this year's annual meeting, Buffett said that (paraphrasing) all because we have the pandemic, doesn't mean another black swan event can't happen, like an earthquake, or hurricane. Hence, his acknowledgement that $130b in cash didn't seem all that much like it once did, given the range of possible economic outcomes and uncertainty.

 

so this makes intuitive sense, but in 2005 (Katrina Rita Wilma), the last really bad season, Berkshire was flat in terms of underwriting profit. I don't know about Louisiana, but it's my impression that Berkshire has all but left the Florida Wind reinsurance market given that this was priced down to levels that they deemed not interesting.

 

With all due respect and sensitivity to those involved in this catastrophe, I doubt it will be a material use of cash for Berkshire.

 

2005 Annual Report

In 2004 our float cost us less than nothing, and I told you that we had a chance – absent a megacatastrophe – of no-cost float in 2005. But we had the mega-cat, and as a specialist in that coverage,Berkshire suffered hurricane losses of $3.4 billion. Nevertheless, our float was costless in 2005 because of the superb results we had in our other insurance activities, particularly at GEICO.

 

We have major reinsurance operations at General Re and National Indemnity. The former is run

by Joe Brandon and Tad Montross, the latter by Ajit Jain. Both units performed well in 2005 considering

the extraordinary hurricane losses that battered the industry.

 

It’s an open question whether atmospheric, oceanic or other causal factors have dramatically

changed the frequency or intensity of hurricanes. Recent experience is worrisome. We know, for instance,

that in the 100 years before 2004, about 59 hurricanes of Category 3 strength, or greater, hit the

Southeastern and Gulf Coast states, and that only three of these were Category 5s. We further know that in

2004 there were three Category 3 storms that hammered those areas and that these were followed by four

more in 2005, one of them, Katrina, the most destructive hurricane in industry history. Moreover, there

were three Category 5s near the coast last year that fortunately weakened before landfall.

 

Was this onslaught of more frequent and more intense storms merely an anomaly? Or was it

caused by changes in climate, water temperature or other variables we don’t fully understand? And could

these factors be developing in a manner that will soon produce disasters dwarfing Katrina?

Joe, Ajit and I don’t know the answer to these all-important questions. What we do know is that

our ignorance means we must follow the course prescribed by Pascal in his famous wager about the

existence of God. As you may recall, he concluded that since he didn’t know the answer, his personal

gain/loss ratio dictated an affirmative conclusion.

 

So guided, we’ve concluded that we should now write mega-cat policies only at prices far higher

than prevailed last year – and then only with an aggregate exposure that would not cause us distress if shifts

in some important variable produce far more costly storms in the near future. To a lesser degree, we felt

this way after 2004 – and cut back our writings when prices didn’t move. Now our caution has intensified.

If prices seem appropriate, however, we continue to have both the ability and the appetite to be the largest

writer of mega-cat coverage in the world.

 

That's not the point. It's simply Buffett recognizing that pandemics and earthquakes are not related; therefore, the whole moniker of $20b cash minimum doesn't apply until we are out of this storm, no pun intended.

[Cigarbutt]

Wabuffo, thank you for sharing your analysis of how much money should be subtracted from the investments column in a two-column valuation.  I have to confess that like many others I have not been subtracting anything from the investments column.  Perhaps this is why my two-column valuations consistently come in at the high end of the various valuation models that I use.  It makes sense to me that liabilities against the investments should be subtracted.  Liabilities would include borrowings for the purpose of making investments, deferred capital gains taxes and future insurance claims.  One question I have is that while 100% of float will eventually be paid out in claims (unless claims are matched by new premiums), shouldn't the liability for claims be the present value of those future payments?  That might bring the liability down to 20% or 30% of float.  Forgive me if I am being slow.  Thank you for explaining.

roberts1001

Looking forward to wabuffo's explanations but here's (hopefully) a complementary perspective.

Not subtracting anything to the investment column is highly unusual and is related to the unusual nature of BRK. Look at pages 6 and 7 of the 2010 annual report for a short overview. The concept of investments per share Mr. Buffett refers to involves total investments financed by both the float and relevant retained earnings. Most insurers have a "safe" portfolio accounting for most float and retained earnings. A lot of these portfolios contain various embedded risks including reaching for yield but that's another story. Mr. Buffett suggests that the precise number computed is an "element" of intrinsic value. When valuing an insurer, one has to discount this number to various degrees and the market has done so for almost all insurers. The hybrid nature of BRK with a large and diversified source of consistent earnings allows it to invest its relevant retained earnings portion into equities. The discount to the first column investment number (which is related to the goodwill of an insurance operation) is related to three going forward assumptions: 1-the consistency of underwriting operations with zero or negative cost of float overall, 2-the long term growth rate of float and 3-the return on invested float (both acquired and reinvested float). Historically, those three assumptions for BRK meant no discounting of the first-column number element. What about now? It seems to me this is a conceptual way to integrate different takes on the outlook and present valuation. The third assumption is presently challenged by the fact that the "safe" part of the float portfolio is earning essentially zero. i would submit that it may be reasonable to discount the first-column number element because the growth of float is likely to be less than before and one has to make a judgement call as to the relevance and optionality of the "safe" part of the portfolio at this point. So, i'd say a slight discount is now warranted but the discount appears to be less than the one reported by wabuffo's model.

-----

For the insurance wind coverage aspect in Florida and the Gulf Coast, it appears that BRK drastically reduced exposure in the last few years and increased rates this year with the early phase of hardening of the market but it seems that public pools decided mostly to self-reinsure and retain wind risk..

[John Hjorth]

Wirtschafts Woche [August 27^th 2020] : Warren Buffett – die Bilanz des Gurus.

 

Instead of bugging Spekulatius with a question on here about what "kleinanleger" translates to in English, I looked it up myself, and got a bit surprised, likely because I thought it meant "wimp" or something like that! [ : - D]

[wisowis]

Warren Buffett’s Berkshire Hathaway buys stakes in Japan’s five leading trading companies

 

https://www.cnbc.com/2020/08/30/warren-buffetts-berkshire-hathaway-buys-stakes-in-japans-five-leading-trading-companies.html

 

They say 90 is the new 70, and in Warren Buffett’s case it may be true.

 

The chairman and CEO of Berkshire Hathaway announced today, on his 90th birthday, that his company has acquired a slightly more than 5% stake in each of the five leading Japanese trading companies. The companies are Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co., and Sumitomo Corp. Berkshire said it acquired the holdings over a roughly 12-month period through regular purchases on the Tokyo Stock Exchange. Based on Friday’s closing prices for the trading houses, a 5% stake in each would be valued at roughly $6.25 billion.

 

The Japanese trading companies — known as “sogo shosha” — are conglomerates that import everything from energy and metals to food and textiles into resource-scarce Japan. They also provide services to manufacturers. The trading houses have helped grow the Japanese economy and contributed to the globalization of business there. But as they have extended their footprint overseas, they’ve also become more vulnerable to global predicaments, like the financial crisis from a decade ago. The trading houses also face increasing competition from venture capitalists and private equity funds.

 

For Buffett, the move is no quick trading play. Berkshire says it intends to hold the investments for the long term, and that it may increase its holdings in any of the companies up to a maximum of 9.9%, depending on price. Berkshire also pledged to make no purchases beyond a 9.9% stake in any of the companies unless given approval by the trading companies’ boards of directors. In describing its intentions for the investment in the trading houses, Berkshire pointed to its history of long-term, passive holdings in companies like Coca-Cola Co., American Express Co., and Moody’s Corp., which each span multiple decades.

 

“I am delighted to have Berkshire Hathaway participate in the future of Japan and the five companies we have chosen for investment,” said Mr. Buffett, adding that the trading houses have many joint ventures around the globe. “I hope that in the future there may be opportunities of mutual benefit,” he said.

 

Berkshire also said that despite its large, yen-denominated bet, it would have little exposure to currency fluctuations because it holds 625.5 billion of yen-denominated bonds ($5.93 billion) that will mature at various dates from 2023 through 2060.

 

The official news release: https://www.berkshirehathaway.com/news/aug3020.pdf

[ValueMaven]

Warren Buffett’s Berkshire Hathaway has acquired a slightly more than 5% stake in each of the five leading Japanese trading companies.

 

Berkshire acquired the holdings in Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co., and Sumitomo Corp. over a roughly 12-month period through regular purchases on the Tokyo Stock Exchange.

 

Based on Friday’s closing prices for the trading houses, a 5% stake in each would be valued at roughly $6.25 billion.

Berkshire says it intends to hold the investments for the long term, and that it may increase its holdings in any of the companies up to a maximum of 9.9%, depending on price.

 

https://www.cnbc.com/2020/08/30/warren-buffetts-berkshire-hathaway-buys-stakes-in-japans-five-leading-trading-companies.html

 

Thats a $30B investment ... whoa...

[changegonnacome]

Nice - he's bought a toll road on the Japanese economy.....very Buffett indeed but need to look at the valuations he's paid

[ValueMaven]

toll roll ? how do you figure?  I thought these Japanese trading houses had questionable pasts/weak ROEs ?? ie: doing dumb things at dumb times (writing puts on the nikkei, in late 80s, buying US subprime in 06/07 etc) - but who I am to question the great one.  Also, imagine what Berk cash pile would be without this $30B investment ... no wonder he has let cash build ....

[JPerez]

It is actually just 6B in total adding the stakes in the 5 companies.

It is not a significant investment by any extend of the imagination.

I haven't look at these companies yet, but there is no need to panic  ;)

[adesigar]

Right it seems to be 6.5 Billion total and not 6.5 each.

 

Just hoping it turns out to be like AAPL and not like the airlines.

[thepupil]

In my opinion, this is an advertisement to corporate Japan and to these companies that Berkshire is a friendly, long term oriented shareholder that is ready to make a commitment to Japan. This is not a $6.5 Billion investment in some cheap companies to double and move on.

 

That’s how I read the release at least.

 

I hope that in the future there may be opportunities of mutual benefit

 

[ValueMaven]

yup...my bad.

 

Based on Friday’s closing prices for the trading houses, a 5% stake in each would be valued at roughly $6.25 billion.

[changegonnacome]

Not unreasonable take:

https://twitter.com/shaidardashti/status/1300267295655120897?s=21

[gokou3]

The total Japanese investment is $6B, not $30B.. see last paragraph of CNBC article stating they have neutral yen exposure due to their $6B yen bond..

[John Hjorth]

Poor Dynamic! [ : - ) ],

 

-It becomes harder and harder to keep the Berkshire portfolio updated. At least it keeps Dynamic away from trading!

[Xerxes]

At least this Japanese experiment provides a much needed ammunition and material to the business podcasts that I listened to in these last waning days of august. 

[LearningMachine]

Makes sense why Berkshire started issuing yen-denominated bonds at ultra-low coupon rates as low as 0.17% in 2019 for the first time in its history.

 

Starting April 2019, he borrowed 625 Billion Yens at low fixed rates with long maturities and used the cash to buy Yen-denominated securities that probably have a much higher earning yield than the ultra-low interest rate he has to pay.

 

Pure interest rate arbitrage without spending Berkshire cash and without taking on currency risk.

[LearningMachine]

Thanks ShaiDardashti for sharing the 0% coupon bond filing: https://www.sec.gov/Archives/edgar/data/1067983/000119312520064645/d853116d424b5.htm.

 

Ingenious!

 

By the way, 625.5 Billion Yens translate to $5.911 Billion USD at today's currency rate for me.

 

[gfp]

And remember, Berkshire has 625.5 Billion Yen in outstanding Yen-denominated bonds (more than the $4B USD being discussed here)

[NoCalledStrikes]

Is it me or is today's press release, the first time Berkshire Hathaway has referred to itself "as the largest company in the U.S. as measured by shareholders’ equity."

 

I get that this PR was written for a Japanese audience who may not know that, but it sounds a bit like a humble brag to me:)

 

Berkshire Hathaway, the largest company in the U.S. as measured by shareholders’ equity, has a long history of substantial, passive holdings in successful businesses. For instance, Berkshire Hathaway has held major stakes in Coca-Cola for 32 years, American Express for 29 years and Moody’s for 20 years.

  https://berkshirehathaway.com/news/aug3020.pdf

[LearningMachine]

Is it me or is today's press release, the first time Berkshire Hathaway has referred to itself "as the largest company in the U.S. as measured by shareholders’ equity."

 

I noticed that too.  It almost felt like it was trying to call attention to it trading at lower Price-to-Book than the companies with higher market cap currently, i.e., MSFT, AAPL, AMZN, GOOGL.  That is almost like telling folks to buy BRK stock instead of MSFT, AAPL, AMZN OR GOOGL, increasing BRK's price, making it harder to do buybacks.  Wonder why it was worded that way because I am sure Buffett knew local U.S. investors would also be reading into the Press Release on Berkshire website.

 

Maybe it was always his dream to make BRK the highest valued company in the U.S. before he departs, and making that statement makes him feel he has reached that dream, and he wanted to call that out before anything happens to his health.  Hope his health is ok. 

 

Maybe he started thinking more about his mortality risk as a result of turning 90.

[sleepydragon]

Is it me or is today's press release, the first time Berkshire Hathaway has referred to itself "as the largest company in the U.S. as measured by shareholders’ equity."

 

I get that this PR was written for a Japanese audience who may not know that, but it sounds a bit like a humble brag to me:)

 

Berkshire Hathaway, the largest company in the U.S. as measured by shareholders’ equity, has a long history of substantial, passive holdings in successful businesses. For instance, Berkshire Hathaway has held major stakes in Coca-Cola for 32 years, American Express for 29 years and Moody’s for 20 years.

  https://berkshirehathaway.com/news/aug3020.pdf

 

Likely because it’s his 90 years birthday?