Jump to content

Buffett/Berkshire - general news


Recommended Posts

ValueMaven & backtothebeach,

No matter what the reality is [we will see soon], the observation by ValueMaven is still interesting. I've been following Statens Petroleum Fond Utland for many years now, but have not looked at it in the last two calendar years. I will take a look at it again in due course, and report back here in this topic.

Here, it's not [related to the management principles for Statens Petroleum Fond Utland] only about Berkshire ESG matters, but also about Berkshire Corporate Governance.

I'm personally really, really tempted here to go fully invested [which I haven't been since the autumn of 2017], in Berkshire, with new additions considered a trading position.

Link to comment
Share on other sites

20 minutes ago, ValueMaven said:

That idea does not make much sense.  You are talking about $1B - $1.5B per day over the last several weeks of excess trading vol compared to historical norms.  Today alone it is 1pm EST and BRKA has traded over 1800 shares vs. 15 for trailing 3M average.  Also, there are regulatory requirements when a company buys-back greater then 25% of the daily trading amount.  

The mystery continues... 

gft posted something yesterday, but I think the site crashed later and his and my replies disappeared.

his point is it might be WEB doing buyback after all. Maybe he got a forward contract with one of the banks

Link to comment
Share on other sites

Haha - I thought I had posted something about the possibility of the A-share volume being related to an "Accelerated Share Repurchase" program (essentially a forward contract with an Investment Bank - Apple has used them off and on).

But then today didn't see it and figured it was a figment of my imagination.

Link to comment
Share on other sites

4 hours ago, ValueMaven said:

That idea does not make much sense.  You are talking about $1B - $1.5B per day over the last several weeks of excess trading vol compared to historical norms.  Today alone it is 1pm EST and BRKA has traded over 1800 shares vs. 15 for trailing 3M average.  Also, there are regulatory requirements when a company buys-back greater then 25% of the daily trading amount.  

The mystery continues... 

The average volume was always a lot more than 15.  I do see that printed as the volume history on yahoo, but it's definitely not correct.

Volume is higher now, but not THAT much higher.  Volume was about 500-1000 shares a day for the last couple of years.

Link to comment
Share on other sites

If any website is reporting 15 as the average daily volume, then it is obviously wrong.  If you know it traded a couple thousands shares a day for the past month, then that alone would have to push the average much higher than that.  I'm guessing some sites are accidentally dividing the historical volume by 1500, as though it's some error trying to keep data consistent between A and B shares.

Here's a 5 year chart showing the historical volume, which in this case is monthly.

Screenshot_20210416-174336.jpg

Link to comment
Share on other sites

  Here is gfp's ghost post:

On 4/15/2021 at 5:47 PM, gfp said:

It is possible that Warren decided to try an "Accelerated Share Repurchase" plan, like Apple has done, to augment his existing direct repurchase activity.  I'm not an expert on these plans, but Apple breaks them out as a separate component of its return of capital activities.

Berkshire would do a deal with an Investment Bank, and the investment bank would have to deliver those shares at the agreed upon forward price.  It is then on the IB to find the shares / hedge their risk and make a profit on the deal.  If Berkshire tried one of these forward purchase contracts with an IB, and it covered both classes of shares (or just the A), it could be responsible for the elevated trading volume in the A-shares.

I have no idea.  But I highly doubt the volume is due to someone other than Berkshire trying to get votes.  

 

Link to comment
Share on other sites

About the ghost posts - for a couple of days, my browser bookmark for the COBF forum website address was resolving to "dev" prefix in front of the regular address.  I assumed it was some sort of testing, left in place perhaps by oversight.  Not many posts that period, gfp's was the only post I saw in Brk category. 

Link to comment
Share on other sites

On 3/21/2021 at 11:05 AM, wabuffo said:

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

This was discussed a bit then.

If into relative value investing, you may want to further adjust the BNSF's implied valuation. CN just offered a 21% premium, with a much larger component in cash vs stock, an offer CP calls inferior and illusory..

Canadian National Makes $30 Billion Topping Bid for Kansas City Southern -- 3rd Update | MarketScreener

Link to comment
Share on other sites

On 4/21/2021 at 9:23 AM, Cigarbutt said:

This was discussed a bit then.

If into relative value investing, you may want to further adjust the BNSF's implied valuation. CN just offered a 21% premium, with a much larger component in cash vs stock, an offer CP calls inferior and illusory..

Canadian National Makes $30 Billion Topping Bid for Kansas City Southern -- 3rd Update | MarketScreener

It probably is illusory. I can't imagine CN and KSU (with parallel North-South networks) would be allowed to merge. Some of that premium comes from potentially increased market power.

As a thought experiment, what would Union Pacific pay for BNSF? The answer is a huge number because of the giant synergies and monopoly power the combined entity would have. But that doesn't matter, because the government would never let the two merge. So that value is entirely hypothetical. 

Link to comment
Share on other sites

5 hours ago, bizaro86 said:

It probably is illusory. I can't imagine CN and KSU (with parallel North-South networks) would be allowed to merge. Some of that premium comes from potentially increased market power.

As a thought experiment, what would Union Pacific pay for BNSF? The answer is a huge number because of the giant synergies and monopoly power the combined entity would have. But that doesn't matter, because the government would never let the two merge. So that value is entirely hypothetical. 

Let's push this even further (for BNSF present valuation and future prospects), based on fundamental (not relative) aspects.

For the railways to continue present trends (bottom line, free cash flow growth), a component will have to come from pricing power related to concentration and there may be problems there. This is not an improvised move by CN and they may be ready to divest parts of the acquisition, as part of the regulatory process defining the goal posts for concentration. And CP could simply react with a higher bid..

Kansas City Southern (KSU-N) Quote - Press Release - The Globe and Mail

Just for fun, using BNSF as an example of the oligopoly, let's look at previous trends and what it means for the future (and present valuations), using 2008 (results had not deteriorated much before the GFC) to 2019 (avoiding 2020 as an anomaly, with some impact on profitability), all unaudited CAGR. Revenues grew 2.5% (note: CPI during the period: 1.5%). Operating income grew 6.8%, reflecting better efficiency ratios (is there much juice left in the lemon?). During the period, interest expense relatively went down, reflecting this era (BNSF is unusual here because Mr. Buffett engineered a 13.7B increase in low rate debt (they just SEC announced (30-yr 925M 3.30%) more) and 'acquired' 37.0B in dividends, allowing SE (accounting for acquired goodwill) to grow only slightly). Still, debt went up by 2.4 and interest expense went up by 1.95 (despite a much higher adjusted debt to equity ratio). Also, during the period, tax rates went down significantly and deferred taxes went up significantly. However, for publicly listed railways, the biggest driver of returns has been multiple expansion which should also reflect forward going trends and i wonder if those future trends have been reasonably discounted. Growing through concentration may have entered the vicinity of a limit also.

i've missed the train on this one but (absolutely and relatively) offer the opinion that present valuations are unusually optimistic.

Link to comment
Share on other sites

4 hours ago, Cigarbutt said:

the biggest driver of returns has been multiple expansion

This is so true! 

Also true for Apple!  

Also becoming true for Bank of America!

Will probably also become true for Verizon!

 

Of course, Buffett's got a knack for buying good businesses when they are cheap.  Then, after Buffett is done building his position, and starts talking about the "why", Mr. Market starts to realize as well how good of a business it is :-). 

Buffett could literally take a business that is consistently growing cashflow at single digits annual rate, and turn it into a stock that is consistently growing at double digits annual rate, up to some point!  Sometimes he screws up like he did with Kraft, where he gets it wrong whether the business will be able to grow cashflow at low-single digits because he missed the loss of pricing power to grocers, but mostly he knocks it out of the park by being able to identify whether the business has economic power to be able to extract single digit growth each year!  He has gotten better with age!

Edited by LearningMachine
Link to comment
Share on other sites

On 4/22/2021 at 5:15 PM, longterminvestor said:

3 hour podcast about Berkshire - Titled Part I.  I haven't listened start to finish but wanted to share:

 

https://overcast.fm/+Faxl9ffQE

Thanks for sharing. 

It was a good reminder how he realized at such an early age that he had a unique market power to be able to successfully sell more (magazine subscriptions) to his existing well-off customers (who were on Washington Post subscription), compared to others who didn't have that existing positive & direct subscription relationship with well-off customers. 

Edited by LearningMachine
Link to comment
Share on other sites

Thank you for sharing, ValueMaven,

I listened to the podcast with Mr. Bloomstran interviewed today. I think it's good, however nothing new, compared to the Semper Augustus Client Letters. A bit to my surprise, I found out, that the interviewer - Stig Brodersen - is actually a Dane, located in Århus, Denmark.

Edited by John Hjorth
Link to comment
Share on other sites

There was a pre-Berkshire meeting by Yahoo Finance today with Laurence Cunningham, Robert Hagstrom, Carol Loomis, and Tom Gayner. 

 

Took a few notes if anyone was interested:

 

Larry Cunningham: The annual meeting at Berkshire was created to attract a certain kind of shareholder base that was focused on owning a business for the long term.
 

What makes Berkshire so distinctive and why don’t more companies copy it?

  • Larry Cunningham
    • Buffett sees himself being in a partnership with his shareholders. He makes the decisions for the company as a whole
    • Berkshire is highly decentralized with good managers in place with their own strategies, in a trust based environment.
    • Other companies have an overwhelming pressure to conform to short term results and quarterly guidance
    • Some companies that have been able to adopt a long term/ Berkshire style:
      • Markel
      • Fairfax
      • Constellation
      • Post
      • Johnson and Johnson
      • Danaher
      • Alphabet
  • Robert Hagstrom
    • Warren’s best success was building a culture of rational allocation of capital 
    • This created the most successful conglomerate in history that will last for decades
  • Tom Gayner
    • There’s a degree of personal responsibility that Buffett and Munger have assumed with a culture of stewardship and trust

 

Tom Gayner quotes someone named Chad:

“At any point in the investment arena, there are times where you look smarter or dummer than you really are.”

  • Most people can’t endure the period when they look dummer
    • I.e. Buffett whenever Berkshire is lagging the market
      • Buffett is always accused of not doing enough during these periods and he’ll probably be asked “have you ever thought of … crypto, SPACs, etc”

 

Carol Loomis:

Has been editing Buffett’s letters for 50 years now. She gets a draft in October and they mail each other comments, because if they did it over the phone they’d get upset at one another.

Since she’s the first person to ask a question, she feels some pressure to ask the question everyone wants to know. If not, the two other anchors next to her will.

 

How will Berkshire evolve?

Larry Cunningham:

  • Buffett put in place great leaders for the future of Berkshire
    • Insurance (Ajit Jain)
    • Businesses (Greg Abel)
    • 2 portfolio managers (Ted and Todd)
  • Loyal shareholder base

 

Robert Hagstrom mentions his new book Warren Buffett: Inside the Ultimate Money Mind

  • Took him a very long time to realize that Buffett’s temperament was a large part of his success

 

Tom Gayner on Berkshire’s evolution:

  • Berkshire has changed in size, scale, skill, and as the world changed
    • In the early days it was essentially Buffett’s investment partnership, and his investment skills in stocks that drove Berkshire
    • Once he bought National Indemnity then it also became an insurance company
    • With the purchase of the utility assets it morphed into a conglomerate and into an enterprise that was more multifaceted and larger than it used to be
    • Buffett tells you what you own over time in a simple way
    • On Berkshire’s future after Buffett, thinks about other businesses that have survived past their genius founder I.e. Dupont

 

Why did Buffett take so long to buy stock?

Robert Hagstrom: Believes Berkshire wasn’t at a huge discount to intrinsic value, and that Buffett allocated a modest amount to share repurchases

 

With all the cash do you see more share buybacks or business purchases being made in the future?

Tom Gayner: The beauty is that they’ve had both options open over the years. Buffett and Munger have the skill of business purchases and ability to repurchase shares.

  • Like 1
Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...