Buffett/Berkshire - general news

[Xerxes]

I think you will find this podcast interesting with Lawrence Cunningham about Berkshire and generally the genre of companies attracting what he defines as low-churn high quality investors.

 

https://www.fool.com/podcasts/industry-focus/2020-08-26-wildcard-the-tesla-of-medical

[Xerxes]

"Billionaire Warren Buffett’s Berkshire Hathaway disclosed on Friday that the investment conglomerate has slashed its stake in US lender Wells Fargo & Co to 3.3%.

 

According to a SEC filing, Berkshire (BRK.A) now owns about 137.6 million shares in Wells Fargo, worth $3.4 billion, down from the 237.6 million shares it owned as of the end of the second quarter. The US lender’s shares were down almost 1% in Friday’s after-market session."

 

i guess no surprise on the continued trimming.

used to be a 378 million share position.

 

https://finance.yahoo.com/news/buffett-berkshire-cuts-stake-wells-092522345.html

[Guest longinvestor]

I think you will find this podcast interesting with Lawrence Cunningham about Berkshire and generally the genre of companies attracting what he defines as low-churn high quality investors.

 

https://www.fool.com/podcasts/industry-focus/2020-08-26-wildcard-the-tesla-of-medical

 

Thanks for posting. Cunningham knows Berkshire well and shares insight that few others can/do. For ex. in his book on the Berkshire Hathaway shareholder, his sleuth work tracks down insider ownership in great detail.

[Xerxes]

My pleasure,

For me the takeaway from the podcast was that post-Buffet era, his controlling position holdings would take a decade until full liquidation by the Gates & Melinda Foundation, after which (or perhaps some years before) the new leadership need to perform as well as Tim Cook did on Apple with no second chances. but they got perhaps 4-5 years grace period.

[Xerxes]

https://www.cnbc.com/2020/09/08/berkshire-hathaway-salesforce-agree-to-buy-into-snowflake-ipo-.html

 

Snowflake IPO gets vote of confidence as Berkshire, Salesforce agree to buy shares

[Guest longinvestor]

My pleasure,

For me the takeaway from the podcast was that post-Buffet era, his controlling position holdings would take a decade until full liquidation by the Gates & Melinda Foundation, after which (or perhaps some years before) the new leadership need to perform as well as Tim Cook did on Apple with no second chances. but they got perhaps 4-5 years grace period.

 

My big takeaway was that the proportion of long term to total  shareholders at Berkshire has been high. It’ could dilute towards the 15% at the typical corporation. OTOH the buybacks could counteract the trend. In the long term, the new management has to earn the trust.

 

Cunningham has concluded that Abel is the heir apparent but I’m thinking it’s Todd. Capital allocation being the only job. Abel has to “operate” and his canvas arguably is narrower. We’ll see. 

[K2SO]

Banks are dead

 

BPCAP, would it be possible to share your reasoning behind this so that we can learn from your perspective?

 

...Most are holding out on the belief that banks can return to a "normal" 1% return on assets/10% return on equity. Won't happen without a lasting steepening of the yield curve.

 

Governments can't let that happen. Japan and Europe are bust if borrowing rates even double to 2%. And governments won't let that happen, especially if a rise in rates is due to inflation. Debt and deflation (which are rising) also lower the odds over time of a meaningful rise in real interest rates. And with low rates around the world, U.S. rates can't meaningfully rise.

 

I have a problem with the "governments won't let interest rates rise" narrative.

 

Yes, governments NEED rates to stay low.

 

They needed that in Zimbabwe. They needed that in 1920's Germany. But they didn't get it.

 

The Fed is telling us they will stop at nothing to generate inflation. The same way they told us in the 1980's that they would stop at nothing to STOP inflation.

 

Why don't we believe them?

 

So if they get inflation up to 3%, then nobody is buying a long term bond paying 1%.

 

Except the government itself, I guess.

 

And if they keep monetizing their debt indefinitely, we are heading down the path of Weimar Germany and Zim.

 

The thing about this inflation averaging is it reflects an amazing amount of hubris by central bankers. Yeah, we'll just get inflation up high enough and turn off the taps. Sure. People forget the economic pain inflicted by Volcker in the early years.

 

Govt's can keep short term rates low, but will have a really hard time keeping long term rates low without outright market manipulation and debt monetization.

 

It seems to me inevitable that the yield curve will steepen as we emerge from this recession. I don't know if that will be later this year, or 3 years from now. But it will happen.

 

Caveat: a couple of decades ago I took a course in Macroeconomics. That's the extent of my expertise on the subject. I'm just trying to apply common sense, which I know is dangerous when it comes to this topic.

 

[Libs]

Banks are dead

 

BPCAP, would it be possible to share your reasoning behind this so that we can learn from your perspective?

 

...Most are holding out on the belief that banks can return to a "normal" 1% return on assets/10% return on equity. Won't happen without a lasting steepening of the yield curve.

 

Governments can't let that happen. Japan and Europe are bust if borrowing rates even double to 2%. And governments won't let that happen, especially if a rise in rates is due to inflation. Debt and deflation (which are rising) also lower the odds over time of a meaningful rise in real interest rates. And with low rates around the world, U.S. rates can't meaningfully rise.

 

I have a problem with the "governments won't let interest rates rise" narrative.

 

Yes, governments NEED rates to stay low.

 

They needed that in Zimbabwe. They needed that in 1920's Germany. But they didn't get it.

 

The Fed is telling us they will stop at nothing to generate inflation. The same way they told us in the 1980's that they would stop at nothing to STOP inflation.

 

Why don't we believe them?

 

So if they get inflation up to 3%, then nobody is buying a long term bond paying 1%.

 

Except the government itself, I guess.

 

And if they keep monetizing their debt indefinitely, we are heading down the path of Weimar Germany and Zim.

 

The thing about this inflation averaging is it reflects an amazing amount of hubris by central bankers. Yeah, we'll just get inflation up high enough and turn off the taps. Sure. People forget the economic pain inflicted by Volcker in the early years.

 

Govt's can keep short term rates low, but will have a really hard time keeping long term rates low without outright market manipulation and debt monetization.

 

It seems to me inevitable that the yield curve will steepen as we emerge from this recession. I don't know if that will be later this year, or 3 years from now. But it will happen.

 

Caveat: a couple of decades ago I took a course in Macroeconomics. That's the extent of my expertise on the subject. I'm just trying to apply common sense, which I know is dangerous when it comes to this topic.

 

+1

[aws]

https://www.cnbc.com/2020/09/08/berkshire-hathaway-salesforce-agree-to-buy-into-snowflake-ipo-.html

 

Snowflake IPO gets vote of confidence as Berkshire, Salesforce agree to buy shares

 

Berkshire agrees to buy over $500 million of stock in a tech IPO.  And they are locked up shares and are paying the full public offer price with no extra incentive.  Not the news I expected to see today.

[Liberty]

Looks like todd:

 

[scorpioncapital]

I'm scratching my head because I think snowflake IPOs at 25-30 billion market cap? And the financials do not look to justify this price in any shape at the moment.

[Cigarbutt]

An interesting take and a look at some numbers for the puzzling Japanese basket acquisition with no significant comments about currency exposure risk:

https://brooklyninvestor.blogspot.com/2020/09/sogo-shosha.html

[wescobrk]

Maybe Ted will sell it after the IPO.

Salesforce does this and seems to be a way to print money.

Maybe this is a stretch, but, in effect, an arb play in the IPO market since we all know how the underwriters always price it below demand?

[wabuffo]

Really not liking all this style-drift from BRK.  Just buy your own stock, dude!  Cuz it sure feels like we are scraping rock-bottom on capital allocation lately.

 

wabuffo

[bizaro86]

Maybe Ted will sell it after the IPO.

Salesforce does this and seems to be a way to print money.

Maybe this is a stretch, but, in effect, an arb play in the IPO market since we all know how the underwriters always price it below demand?

 

The prospectus says they have a market standoff agreement for 365 days. It isn't totally clear, but it seems they may not be able to sell this right away.

[wescobrk]

I don't know if it was Ted or the other chap but I bet they wish they didn't sell Amazon earlier in the year. Not sure how they missed that one. They could have put several hundred million of their cash to work.

I know they have helped Buffett in a lot of ways outside of portfolio management but they haven't exactly hit the ball out of the mark with the money they have managed over the last several years.

[gfp]

I don't know if it was Ted or the other chap but I bet they wish they didn't sell Amazon earlier in the year. Not sure how they missed that one. They could have put several hundred million of their cash to work.

I know they have helped Buffett in a lot of ways outside of portfolio management but they haven't exactly hit the ball out of the mark with the money they have managed over the last several years.

 

Berkshire is only 4000 Amazon shares off their all time high share count.  I don't think it was a meaningful sale of Amazon shares and it may not have been a sale at all with various subsidiary divestitures over the last year making it look like Berkshire was selling shares (DVA for instance) when they were not.

[Jurgis]

Their STNE purchase (at IPO? - I don't remember) was a success.

 

But, yes, if they go into tech companies, I think there have been more (attractive) opportunities in last couple years compared to Snowflake IPO.

[bizaro86]

I have circle-of-competence concerns about them buying money-losing tech stocks at IPO.

[Jurgis]

Well, IMO this is clear indication that people who claim that Berkshire will be the same after Buffett dies are talking out of their asses slightly misguided.  8)

[ValueMaven]

Really interesting to see how not a single comment on the BRK board regarding Llyod's $3.3B loss due to Covid-19 exposure this week.  Just think about that --- while insurance was profitable for BRK in the quarter ... granted we are more diversified and GEICO underwriting wont be as profitable going forward (combined ratio at 77%!!) ... but wow - so interesting... thoughts from others?? 

[Viking]

Really interesting to see how not a single comment on the BRK board regarding Llyod's $3.3B loss due to Covid-19 exposure this week.  Just think about that --- while insurance was profitable for BRK in the quarter ... granted we are more diversified and GEICO underwriting wont be as profitable going forward (combined ratio at 77%!!) ... but wow - so interesting... thoughts from others??

 

Where you do business (and local norms around policy wording) matters a great deal in terms of covid and financial impact. Looking at FFH, Brit is (once again) experiencing very large losses due to wording on UK contracts.

[bookie71]

What effect will all these forest fires have on the insurance industry?

[Guest longinvestor]

What effect will all these forest fires have on the insurance industry?

 

Surely glad that PG&E not part of BHE. CA desperately wanted to unload it on to Omaha’s hands.

[longterminvestor]

London has written sloppy contracts.  They accepted risk without charging a rate for the exposure.  This reflects overall change of Lloyds from "names" to corporations looking to juice return.  And it shows.  Do not fear, Lloyds will be fine long term.  They are also struggling with a transition from paper to tech platforms.  Lots of deals are still done today without email (can you believe that?).  Think of the same issues surrounding Lloyds of London (management/future - not underwriting) to the transition at NYSE and "specialists firms", trading commissions, computerized trading, dark pools, ect.  Today's tech world took out alot of dinosaurs at NYSE and Lloyds is filled with them.  But everyone still says "insurance is different, you cant put commercial insurance online"......we will see.

 

With regards to Cal Fire exposure.  Over the past 18-24-36 months carriers have been reducing exposure to Cal Fire BIG TIME!  And price has increased 200-300-400%.  There are 2 very distinct and separate markets: residential (homes) and commercial.  State fund is taking much of the residential risk.  And names you know are still writing commercial accounts with large rate increases.  I have seen where a bunch of homogeneous enterprising corps (think a bunch of Hotel Operators, or guys who own 30+ chain restaurants) pool together and buy something called "Shared Limit Program".  If that sounds sketchy, don't worry, IT IS.  Its the insurance industry's version of the Synthetic CDO linked to a Mortgage Backed Security.  Banks (and I bet a lot of brokers who sell it) dont even know what it is but they accept it.  and its "cheaper".  Here's the tell tale sign things are getting weird in that market, when you call a broker you have to specifically ask for "traditional risk transfer insurance" because they will assume you want the cheapest thing available - shared limit program.