Buffett/Berkshire - general news

[Lemsip]

      Mar 3rd         26-Feb           31-Dec         Feb 26 to Mar 3   Jan1 to Feb 26    Q1 TD

Class A 639747         640,586           643,931         839                           3,345                 4,184

Class B 1,335,074,355 1,336,348,609 1,340,043,471 1,274,254           3,694,862         4,969,116

Class B Eq 2,294,694,855 2,297,227,609 2,305,939,971 2,532,754           8,712,362         11,245,116

 

thats roughly ~2.5B-2.7B through March 3, assuming 230-240 average Class B eq. buying price

I don't think your calculations are correct as your share equivalents correspond to mine but your dollar amount calculations seem too low. They had already purchased $4.4b worth by 17th Feb if you use 233 as the avg price per b share till then

[wabuffo]

So it would seem that Warren cut back his purchase volume significantly in response to higher prices.  Not surprising but good data point on what price level he cools at.

 

I'm going to withdraw my point that buybacks have slowed - assuming, that BRK is under a blackout until the 10-K is released.  In 2020, the AR/10-K was released on Feb. 24, 2020.  But in 2021, it was released on March 1st, 2021.  I'm going to use the difference in share counts between the 10-K and the proxy.

 

In 2020, from 2/24/20 to 3/4/20, BRK repurchased 5,552,089 B-share equivalents over 8 trading days or 694,011 B-share equivalents per day.

 

In 2021, from 3/1/21 to 3/3/21, BRK repurchased 2,532,754 B-share equivalents over just 3 trading days or 844,251 B-share equivalents per day.

 

Its hard to know what Buffett is really doing here but assuming Buffett is adhering to a blackout period until the 10-K/AR comes out, then its possible he is still buying at the same pace as before.

 

wabuffo

[Lemsip]

      Mar 3rd         26-Feb           31-Dec         Feb 26 to Mar 3   Jan1 to Feb 26    Q1 TD

Class A 639747         640,586           643,931         839                           3,345                 4,184

Class B 1,335,074,355 1,336,348,609 1,340,043,471 1,274,254           3,694,862         4,969,116

Class B Eq 2,294,694,855 2,297,227,609 2,305,939,971 2,532,754           8,712,362         11,245,116

 

thats roughly ~2.5B-2.7B through March 3, assuming 230-240 average Class B eq. buying price

 

I thinks the error is due to the wrong B share equivalent as of Dec 31 used in your table. Per the 10-K it should be 1,543,960 A share or 2,315,940,000 B share equivalents ( page K-107 of 10-K). The B share number for Dec 31 in your table should be 1,350,043,471 rather than the one used. That will help get to the correct figure as your A share number for Dec 31 is correct from the 10-K.

 

 

[aceskc]

Thanks Lemsip...you are correct on the classB Dec 31th number.  Updated figures do map to ~5B QTD. Thx.

 

Mar 3rd 26-Feb 31-Dec Feb 26 to Mar 3 Jan1 to Feb 26 Q1 TD

Class A 639747 640,586 643,931 839 3,345 4,184

Class B 1,335,074,355 1,336,348,609 1,350,043,471 1,274,254 13,694,862 14,969,116

Class B Eq 2,294,694,855 2,297,227,609 2,315,939,971 2,532,754 18,712,362 21,245,116

 

$$ Amount 4,992,602,260

 

[ValueMaven]

I'll take about $5B in buybacks for 1Q2021.  It's about $30B over the TTM timeframe.  Not bad!!!

 

This isnt your typical buy at any price corporate buyback - its a buy at THE RIGHT price type of buyback

 

Think about it - in the FT article Buffett said it was highly likely Berkshire would return $100B or so to shareholders over the coming 10 years -- something to that effect.  $30B over the TTM's is fairly aggressive way to do this.  Bravo Warren!

[aceskc]

Yup. The old man is dollar cost averaging, started buying at $7 in 1965 and is still buying at $400,000

:D

[ValueMaven]

good summary of 1Q21 buybacks

 

Warren Buffett’s Berkshire Hathaway Appears to Have Bought Back $5 Billion of Stock in 2021

 

https://www.barrons.com/articles/warren-buffetts-berkshire-hathaway-appears-to-have-bought-back-5-billion-of-stock-in-2021-51615826952?siteid=yhoof2

[DooDiligence]

NEW YORK — A New York appellate court has upheld dismissal of claims accusing Berkshire Hathaway Inc. of participating in a fraudulent workers’ compensation scheme involving a reinsurance participation agreement (RPA), finding the plaintiffs failed to allege jurisdiction over the holding company.

 

On March 16, the New York Appellate Division, 1st Department, said plaintiffs presented no evidence that BHI collected workers’ compensation premiums from the policyholders or exercised control over its Applied Underwriters subsidiaries.

 

www.harrismartin.com/publications/14/reinsurance/articles/27133/ny-court-upholds-dismissal-of-berkshire-hathaway-from-applied-underwriters-action/

[Cigarbutt]

NEW YORK — A New York appellate court has upheld dismissal of claims accusing Berkshire Hathaway Inc. of participating in a fraudulent workers’ compensation scheme involving a reinsurance participation agreement (RPA), finding the plaintiffs failed to allege jurisdiction over the holding company.

On March 16, the New York Appellate Division, 1st Department, said plaintiffs presented no evidence that BHI collected workers’ compensation premiums from the policyholders or exercised control over its Applied Underwriters subsidiaries.

www.harrismartin.com/publications/14/reinsurance/articles/27133/ny-court-upholds-dismissal-of-berkshire-hathaway-from-applied-underwriters-action/

i don't have complete access to the link and the official NY Supreme Court judgement doesn't seem to be immediately available.

This seems to be a conclusion of an extended process related to aggressive forms of marketing by the previously owned sub about a reinsurance (RPA) product with an embedded profit sharing (EquityComp) scheme that was too complicated for the regulators to endurably maintain but not opaque enough to reach the burden of proof necessary to be condemned in civil courts. The employers who became captive in more ways than one were often left in disbelief when adverse development occurred over the course of many years (these were typical small business owners). The business is fascinating and involves sharing some the costs saved. (From relevant personal experience on a smaller scale), it may work very well but partners need to understand and maintain trust and greed has to be kept under control.

If interested, see the following (headlines suffice with no need to go into details):

https://www.wcexec.com/investigations/applied/

This shows how Applied interacts with the California regulator and it's not elegant; and so un-Buffettesque. No wonder they're on their own now.

[DooDiligence]

NEW YORK — A New York appellate court has upheld dismissal of claims accusing Berkshire Hathaway Inc. of participating in a fraudulent workers’ compensation scheme involving a reinsurance participation agreement (RPA), finding the plaintiffs failed to allege jurisdiction over the holding company.

On March 16, the New York Appellate Division, 1st Department, said plaintiffs presented no evidence that BHI collected workers’ compensation premiums from the policyholders or exercised control over its Applied Underwriters subsidiaries.

www.harrismartin.com/publications/14/reinsurance/articles/27133/ny-court-upholds-dismissal-of-berkshire-hathaway-from-applied-underwriters-action/

i don't have complete access to the link and the official NY Supreme Court judgement doesn't seem to be immediately available.

This seems to be a conclusion of an extended process related to aggressive forms of marketing by the previously owned sub about a reinsurance (RPA) product with an embedded profit sharing (EquityComp) scheme that was too complicated for the regulators to endurably maintain but not opaque enough to reach the burden of proof necessary to be condemned in civil courts. The employers who became captive in more ways than one were often left in disbelief when adverse development occurred over the course of many years (these were typical small business owners). The business is fascinating and involves sharing some the costs saved. (From relevant personal experience on a smaller scale), it may work very well but partners need to understand and maintain trust and greed has to be kept under control.

If interested, see the following (headlines suffice with no need to go into details):

https://www.wcexec.com/investigations/applied/

This shows how Applied interacts with the California regulator and it's not elegant; and so un-Buffettesque. No wonder they're on their own now.

 

Thanks for the link. Browsing through the various investigations outlines pretty well why WEB wanted to be shut of these guys.

[DooDiligence]

It's proxy vote time again.

 

Could someone tell me what Ken Chenault brings to the board?

 

I'm asking because of the following article excerpt,

 

"When Chenault made the reverse trip to Issaquah, the Costco guys were tickled by how meticulously Amex choreographed his movements. “Ken Chenault would have an advance team come to our office before he visited,” says Paul Latham, Costco’s vice president for membership and marketing. “They planned everything—where he would enter the building, the route to the boardroom, where he’d sit at the table.” After breakfast, Chenault would often give an elaborate presentation about the performance of Amex’s Costco affinity card, using PowerPoint decks that looked like they took weeks, maybe months, to prepare. Costco just jotted down some notes for their CEO, Craig Jelinek, to talk about.

 

The Amex people, most of whom had MBAs, sometimes found it amusing to deal with Costco veterans who spoke about starting out stocking warehouse shelves. Less endearing was the habit Costco executives had of referring to Amex as a “vendor.” That made the Amex people seethe. After all, they represented one of America’s oldest corporations. But they smiled and said nothing, and the corporate marriage endured for 16 years."

 

www.bloomberg.com/features/2015-how-amex-lost-costco/

 

This kind of makes him look like an ass. Is this characterization even fair?

[wabuffo]

If I apply the Kansas City Southern EV/EBITDA C-P deal multiple on BNSF, I get an implied equity value of $142.8B for the railroad.  Perhaps that's too high without factoring in giving up a control premium but still an interesting datapoint.  I had the impression, Buffett ranked BNSF in third place (behind insurance, Apple stake, but ahead of Energy biz).

 

Total BRK market cap is $580B.

 

wabuffo

 

 

 

 

[thepupil]

If I apply the Kansas City Southern EV/EBITDA C-P deal multiple on BNSF, I get an implied equity value of $142.8B for the railroad.  Perhaps that's too high without factoring in giving up a control premium but still an interesting datapoint.  I had the impression, Buffett ranked BNSF in third place (behind insurance, Apple stake, but ahead of Energy biz).

 

Total BRK market cap is $580B.

 

wabuffo

 

my lazy method is 0.9x UNP which is $125B, and then +/- 20% or so for rough bear/bull, depending on how I feel that day. A nice round $100-$150B seems adequately wide but not to the point of meaningless range. 

 

there was also loose/subtle corroboration of $100B+ when Buffett in the most recent letter talked about BNSF/AAPL being similarly sized / valued parts of Berkshire with the AAPL state at $120B at the time/$110B now.

 

Our second and third most valuable assets – it’s pretty much a toss-up at this point – are Berkshire’s 100% ownership of BNSF, America’s largest railroad measured by freight volume, and our 5.4% ownership of Apple

 

they are pretty comparable (though UNP has adopted PSR to a greater degree)

 

UNP

Revenue 2018-2020: $21, $20.2, $18.2

Net Income: $5.3, $5.9, $5.9

OCF: $8.5, $8.6, $8.6

 

BNSF

Revenue $20, $23, $23

NI: $5.1, $5.4, $5.2

OCF:$7.9, $8.1, $7.9

[ValueMaven]

great stuff regarding the rails ... BNSF & BHE also gives Berkshire massive reinsurance optionality. 

 

BNSF was a brilliant acquisition.  period. 

[LearningMachine]

BNSF was a brilliant acquisition.  period.

 

I remember watching it in slow motion.  BNSF was cash-flowing well its rights to scarce physical pathways across U.S. 

 

After learning about Bill Gates' railroad purchase, I had started following it before Berkshire bought it.  I started paying more attention as Berkshire started buying shares.  As the # of shares purchased kept on going up, I remember realizing that Berkshire is probably looking to purchase it outright.

 

My memory is a little faint, but I think Buffett tried to hide the purchase of shares on that also a little bit.  During the big recession, I remember when price was around $70 per share, I was waiting for it to fall further, and then Berkshire snapped up the remaining shares at $100 per share.

 

Now, I see VZ with its cash-flowing rights to scarce spectrum across U.S. in similar situation and wonder if it might be too big to swallow, or if there is a probability that it might be a way to pick up BRK shares for cheap.  In inflationary times, VZ's rights also don't need as much higher maintenance as would BNSF's rolling stock.

 

Wonder how the ratio of VZ's Market Cap of $230B to Cashflow from operations of $41.8B compares to BNSF's valuation in Buffett's mind.  That $41.8B annual cashflow from operations ideally belongs in Buffett's hands to invest further as he will likely be able to make better investments with it than arguably VZ has been.

[Cigarbutt]

^Triangulating a few methods and adjusting for KSU specifics and control premium, i come to a 130-135B for current relative valuation for BNSF.

KSU has some significant differences.

Question: But is this implied 'value' appropriate to:

-help derive current IV for BRK?

-assess the return on the 2010 BNSF investment?

-decide if railways are an opportunity now?

My answer is a humble no, at least not quite.

 

In the last 10 years or so, return on major NA railways were derived from:

-top-line revenue growth (low)

-decreasing operating ratios (1-OPM); i think this was a major insight by Mr. Buffett in 2010 when he bought for 44B ie the expectation that efficiency gains would be realized

-lower tax rates

-lower interest rates

-buyback activity (this will always look good when share price and multiple expand)

-multiple expansion

 

Since 2010,  the multiple on railways earning power has doubled and explains a significant part of the return, reflecting underlying growth in operating earnings. Efficiency gains are still possible but it will be hard to obtain the same rate of improvements. In sum, many tailwinds could become relative headwinds and wonder if there is a rearview mirror issue here. And of course some of the above drivers are correlated so..

 

It's interesting to note that the KSU purchase is financed two thirds with CP stock..

 

We know Mr. Buffett would not sell BNSF in the open market now even with present valuation levels and the 2010 looks impressive, timing wise.

https://www.fastgraphs.com/buffetts-burlington-northern-santa-fe-move-foreshadowing-the-growth-of-american-rail/

Disclosure: i've had CNR on a watchlist for more than 20 years and still hope to catch it at some point.

 

Also, BNSF seems to be going against the current by staying away from the 'PSR' strategy. i understand that you don't need a name for an effective strategy but i've been struggling with this aspect.

[boilermaker75]

BNSF was a brilliant acquisition.  period.

 

I remember watching it in slow motion.  BNSF was cash-flowing well its rights to scarce physical pathways across U.S. 

 

After learning about Bill Gates' railroad purchase, I had started following it before Berkshire bought it.  I started paying more attention as Berkshire started buying shares.  As the # of shares purchased kept on going up, I remember realizing that Berkshire is probably looking to purchase it outright.

 

My memory is a little faint, but I think Buffett tried to hide the purchase of shares on that also a little bit.  During the big recession, I remember when price was around $70 per share, I was waiting for it to fall further, and then Berkshire snapped up the remaining shares at $100 per share.

 

Now, I see VZ with its cash-flowing rights to scarce spectrum across U.S. in similar situation and wonder if it might be too big to swallow, or if there is a probability that it might be a way to pick up BRK shares for cheap.  In inflationary times, VZ's rights also don't need as much higher maintenance as would BNSF's rolling stock.

 

Wonder how the ratio of VZ's Market Cap of $230B to Cashflow from operations of $41.8B compares to BNSF's valuation in Buffett's mind.  That $41.8B annual cashflow from operations ideally belongs in Buffett's hands to invest further as he will likely be able to make better investments with it than arguably VZ has been.

 

I remember writing a lot of puts on BNI, from around 60-strike all the way up to 90-strike in 2008-2009. It was like an ATM spitting out cash.

 

I've written some 55- and 56-strike puts on VZ, but at an order of magnitude smaller volume for now than I was doing with BNI.

[LearningMachine]

BNSF was a brilliant acquisition.  period.

 

I remember watching it in slow motion.  BNSF was cash-flowing well its rights to scarce physical pathways across U.S. 

 

After learning about Bill Gates' railroad purchase, I had started following it before Berkshire bought it.  I started paying more attention as Berkshire started buying shares.  As the # of shares purchased kept on going up, I remember realizing that Berkshire is probably looking to purchase it outright.

 

My memory is a little faint, but I think Buffett tried to hide the purchase of shares on that also a little bit.  During the big recession, I remember when price was around $70 per share, I was waiting for it to fall further, and then Berkshire snapped up the remaining shares at $100 per share.

 

Now, I see VZ with its cash-flowing rights to scarce spectrum across U.S. in similar situation and wonder if it might be too big to swallow, or if there is a probability that it might be a way to pick up BRK shares for cheap.  In inflationary times, VZ's rights also don't need as much higher maintenance as would BNSF's rolling stock.

 

Wonder how the ratio of VZ's Market Cap of $230B to Cashflow from operations of $41.8B compares to BNSF's valuation in Buffett's mind.  That $41.8B annual cashflow from operations ideally belongs in Buffett's hands to invest further as he will likely be able to make better investments with it than arguably VZ has been.

 

I remember writing a lot of puts on BNI, from around 60-strike all the way up to 90-strike in 2008-2009. It was like an ATM spitting out cash.

 

I've written some 55- and 56-strike puts on VZ, but at an order of magnitude smaller volume for now than I was doing with BNI.

 

Way to go!

 

If I remember correctly, Berkshire also picked up some BNI shares by writing puts perhaps in an attempt buy shares without raising the price.

 

Did your puts end up getting exercised?  In hindsight, did you make more money by selling puts than you would have made by buying BNI shares at the time to get BRK shares for cheap?

 

Just so that I understand, is your volume with writing VZ puts lower than it was for BNI because you like to be more diversified now or because you're not as sure yet if BRK will acquire VZ as you were with BNI?  If the April 13F shows a lot more VZ share purchases, would that change your mind?

[thepupil]

My answer is a humble no, at least not quite.

 

I agree; we can't take the market's valuation of KSU or UNP at face value. But it is a good data point. Even if you haircut the $120-$130B or whatever by a significant amount (say to $80 billion), this still compares very favorably to BNSF's $44 billion of equity value at Berkshire.

 

Said more succinctly, BNSF is 10% of Berkshire's equity and market comps are at 2.7x Berkshire's book value. Even if the market's too hot, a big haircut will get you to 1.8x. So when buying Berkshire at 1.3x, knowing 10% is "worth" 2.7x to the discounting mechanism that is Mr. Market (who could be off), is a helpful data point re potential margin of safety / upside.

 

I also think it's useful in thinking about Berkshire's concentration / relative position sizes. It tells me the order in which I should worry about things.

 

For example, I should give about 8-15x as many shits about railroads as Kraft Heinz. Or 4-8x as many shits about railroads, as Coca Cola

 

you do have to be careful and not double count though. For example, I've caught myself writing up BNSF/BE and then writing down the DTL separately (a big portion of which is attributable to BNSF and BE).

 

 

Railroad Utes, Energy @ Berkshire has $209B assets and $98B of liabilities ($111 billion of equity) but then has ~$25B / $74B Deferred tax liabilities which is on a separate line item. So the book value (using the 10-Ks of BNSF and BHE to corroborate) of BNSF and BE is about $87 billion, pretty much evenly split between Berkshire Hathaway Energy and BNSF.

 

 

 

 

[rolling]

^Triangulating a few methods and adjusting for KSU specifics and control premium, i come to a 130-135B for current relative valuation for BNSF.

KSU has some significant differences.

Question: But is this implied 'value' appropriate to:

-help derive current IV for BRK?

-assess the return on the 2010 BNSF investment?

-decide if railways are an opportunity now?

My answer is a humble no, at least not quite.

 

In the last 10 years or so, return on major NA railways were derived from:

-top-line revenue growth (low)

-decreasing operating ratios (1-OPM); i think this was a major insight by Mr. Buffett in 2010 when he bought for 44B ie the expectation that efficiency gains would be realized

-lower tax rates

-lower interest rates

-buyback activity (this will always look good when share price and multiple expand)

-multiple expansion

 

Since 2010,  the multiple on railways earning power has doubled and explains a significant part of the return, reflecting underlying growth in operating earnings. Efficiency gains are still possible but it will be hard to obtain the same rate of improvements. In sum, many tailwinds could become relative headwinds and wonder if there is a rearview mirror issue here. And of course some of the above drivers are correlated so..

 

It's interesting to note that the KSU purchase is financed two thirds with CP stock..

 

We know Mr. Buffett would not sell BNSF in the open market now even with present valuation levels and the 2010 looks impressive, timing wise.

https://www.fastgraphs.com/buffetts-burlington-northern-santa-fe-move-foreshadowing-the-growth-of-american-rail/

Disclosure: i've had CNR on a watchlist for more than 20 years and still hope to catch it at some point.

 

Also, BNSF seems to be going against the current by staying away from the 'PSR' strategy. i understand that you don't need a name for an effective strategy but i've been struggling with this aspect.

 

https://www.breakthroughfuel.com/blog/precision-scheduled-railroading/

After reading this, I would be surprised if BNSF addopted the PSR schedule... lowering service quality to improve profitability while simultanously restricting future growth seems agains BRK ethos

[thepupil]

has anyone ever looked into how insurance regulators treat the BNSF stake?

 

National Indemnity owns 100%

100% of the membership interests of Burlington Northern Santa Fe, LLC outstanding as of March 1, 2021 is held by National Indemnity Company, a wholly-owned subsidiary of Berkshire Hathaway Inc.

 

 

Questions that spring to mind:

 

How is BNSF valued by regulators? (book? comps? haircut to comps for illiquidity?)

If UNP went up/down by 30% does that have any effect on Berkshire/NICO's relationship with regulators?

 

Here are NICO's "financials" . It has $306 billion of assets. How is BNSF figured in that? I've never taken the time to figure that out / delve into NAIC filings.

http://www.nationalindemnity.com/files/financialreports/nico.pdf

 

Here is something from 2018, as of Year end 2016. See page 25. there's a line item "other invested assets" that's a very stable $46-$48 billion. I think that's BNSF.

https://doi.nebraska.gov/sites/doi.nebraska.gov/files/doc/National%20Indemnity%20Company%20%28NICO%29%202016%20NE%20Exam%20Report-FINAL%20REPORT_0.pdf

 

 

 

[wabuffo]

How is BNSF valued by regulators?

 

https://prod.stb.gov/reports-data/economic-data/annual-report-financial-data/

 

I've never looked deeply - but all the Class 1 railroads have to file financial reports with the US Surface Transportation Board.  There might be some information here about how BNSF is regulated.  I think you need to cop a squint at the Schedule 250s.

 

wabuffo

[Cigarbutt]

...

Also, BNSF seems to be going against the current by staying away from the 'PSR' strategy. i understand that you don't need a name for an effective strategy but i've been struggling with this aspect.

https://www.breakthroughfuel.com/blog/precision-scheduled-railroading/

After reading this, I would be surprised if BNSF addopted the PSR schedule... lowering service quality to improve profitability while simultanously restricting future growth seems agains BRK ethos

i guess one has to delegate to top management in these cases because there are trade-offs and what works for a company may not work for another. i've followed 3rd-party logistics intermediates (eg CH Robinson and Expeditors) and it's an area (supply chain management) that is tricky to manage. i remember for example the trade-offs when CH Robinson described the dynamics of a truck route and multi-stopping vs costs, pricing, efficiency and customer satisfaction. Hunter Harrison's name has become synonymous with the PSR logo but maybe he was just a great operator.

has anyone ever looked into how insurance regulators treat the BNSF stake?

...

How is BNSF valued by regulators? (book? comps? haircut to comps for illiquidity?)

If UNP went up/down by 30% does that have any effect on Berkshire/NICO's relationship with regulators?

...

Here's a student-level answer and the risk-based evaluation varies from state to state so..

The regulators will reduce capital according to various perceived risks including for investments held. Then they compare this net surplus to underlying insurance business (policyholder perspective). The regulators typically have a schedule, for example, that shaves off capital (0.023 to 0.3) from bonds and preferred stock according to credit grade and adjusted for diversification. For stocks, the capital penalty is typically 30%.

The regulators are not in the business of revaluation or reacting to mark-to-market moves. i assume they take the BNSF stake reported at book value and remove 30% from that in order to define the risk-based adjusted capital. For NI, it does not really matter since they are so massively over-capitalized.

[bizaro86]

I would be pissed if I was a policyholder of a firm and their regulator let them mark privately held equity to a public comp.

 

Where's the line there? Maybe with NI and BNS its fine, but what about a little lifeco that has a venture investment in a meal delivery service. Should that get marked to Door Dash EV/sales for the purpose of determining if they have enough capital to write your Grandma an annuity?

 

Book value at a discount, imo.

[ValueMaven]

Great point about stated book value vs. true economic book value.  I've never seen any fair market adjustment for the operating assets under Berkshire's ownership structure.  Ie: Fair Market Adjustments to Price