Buffett/Berkshire - general news

[Eldad]

3 hours ago, yesman182 said:

Vickie’s ability to separate oil from rock

This one made me roll my eyes a little. It is a pretty common talent and that’s the problem. 

[MMM20]

17 hours ago, ValueMaven said:

WEB sounded almost depressed.

+1 and I wouldn’t be able to write anything if my best friend just died. Re BNSF and BHE, even if we take his comments at face value and assume they might really invest the minimum incrementally (and maybe even take capital out), investors have to keep in mind that ~10 years from now BRK’s assets should be ~60-70%+ about the incremental investment decisions between now and then. It’s still about the cash generation and capital allocation rather than any particular asset. Do you trust Greg, Ajit, Ted and Todd? That’s almost all that matters. And maybe WEB actually lives to 112. 
 

Edited February 25, 2024 by MMM20

[gfp]

For those that didn't feel the letter was a little dour or whatever - consider the juxtaposition between prior years' "our managers are all star hall of famers" with this year's "we've had our share of disappointments." 

 

Buffett's well-well worn, "tap dancing to work" with this year's "managing Berkshire is mostly fun and always interesting."  Mostly fun???  I believe him but that is a change in his public tune.  I had to throw some italics in my post to honor the hundreds of italics Buffett used in the annual letter this year.  The man likes italicized words almost as much as Prem likes exclamation points!

[anony208]

I doubt CA regulators are going to change course due to this letter. CA over-regulates everything not just utilities.

 

So I expect this to eventually lead to a slim down of BHE perhaps even a complete exit.

[Munger_Disciple]

1 hour ago, gfp said:

For those that didn't feel the letter was a little dour or whatever - consider the juxtaposition between prior years' "our managers are all star hall of famers" with this year's "we've had our share of disappointments." 

 

Buffett's well-well worn, "tap dancing to work" with this year's "managing Berkshire is mostly fun and always interesting."  Mostly fun???  I believe him but that is a change in his public tune.  I had to throw some italics in my post to honor the hundreds of italics Buffett used in the annual letter this year.  The man likes italicized words almost as much as Prem likes exclamation points!

 

On BHE there was a big change in Buffett's thinking from 2021 to 2023.

2021 AR: "Berkshire will always be building."

 

2022 AR: "And yes, our shareholders will continue to save and prosper by retaining earnings. At Berkshire, there will be no finish line."

 

2023 AR: "Berkshire can sustain financial surprises but we will not knowingly throw good money after bad......

I did not anticipate or even consider the adverse developments in regulatory returns and, along with Berkshire’s two partners at BHE, I made a costly mistake in not doing so."

 

 

[valueinvesting101]

Yeah Mr. Buffett definitely seems to have soured on investing additional sums in BHE and BNSF given the regulatory environment. 

He also highlighted the fact that "Berkshire does not currently pay dividends". Going back to last 5 letters from 2018 onwards, dividend was only reference when Berkshire was receiving dividends from investee or subsidiary.  

May be with rising valuation, reduced investment and acquisition opportunities, rising net equity sales, growing cash flows and cash balances, Berkshire dividend might be coming in 12-24 months. 

[Eldad]

12 minutes ago, valueinvesting101 said:

Yeah Mr. Buffett definitely seems to have soured on investing additional sums in BHE and BNSF given the regulatory environment. 

He also highlighted the fact that "Berkshire does not currently pay dividends". Going back to last 5 letters from 2018 onwards, dividend was only reference when Berkshire was receiving dividends from investee or subsidiary.  

May be with rising valuation, reduced investment and acquisition opportunities, rising net equity sales, growing cash flows and cash balances, Berkshire dividend might be coming in 12-24 months. 

It’s time. He didn’t get an elephant or significantly deploy capital in 2020. He probably will not get a better opportunity. 
 

He has now shifted from 

we can narrowly beat the S&P to

we can beat the average S&P company. Obviously 20% plus of the S&P is making 20+ ROIC annually and growing revenue at an amazing clip. So that kind of feels like the white flag. 
 

There is still a place for the super safe 8-10% annual gainer but I think they need to pay a dividend. 

 

 

 

Edited February 25, 2024 by Eldad

[Munger_Disciple]

18 hours ago, Munger_Disciple said:

I found the following comments from Buffett's letter noteworthy:

 

1. Buffett basically declared that the days of acquiring large private businesses is over due to Berkshire's size & increased competition from PE.
2. He said "Berkshire does not currently pay dividends". Perhaps preparing shareholders for the day they might have to given the potential issues facing BHE?

 

 

Yes, I pointed out the possibility of a dividend in an earlier post. I hope they don't have to pay a dividend, and find some decent opportunity to reinvest the earnings. But the reality is that if investing big sums in BHE is off the table, Buffett is signaling that they may have to pay a dividend (instead of buying back a ton of shares) if the stock trades closer to its intrinsic value, as it seems to currently. 

Edited February 25, 2024 by Munger_Disciple

[Eldad]

3 hours ago, anony208 said:

I doubt CA regulators are going to change course due to this letter. CA over-regulates everything not just utilities.

 

So I expect this to eventually lead to a slim down of BHE perhaps even a complete exit.

And yet I would bet money that WB will publicly endorse Gavin N if they replace Biden with him. What exactly his he getting for his allegiance to the kleptocracy? 

[MMM20]

1 hour ago, Eldad said:

And yet I would bet money that WB will publicly endorse Gavin N if they replace Biden with him. What exactly his he getting for his allegiance to the kleptocracy? 

I always assume his top priority by far in any political thing is avoiding nuclear war. It’s been that way for 6+ decades now, right?

[Cigarbutt]

4 hours ago, anony208 said:

I doubt CA regulators are going to change course due to this letter. CA over-regulates everything not just utilities.

So I expect this to eventually lead to a slim down of BHE perhaps even a complete exit.

Then, you may want so send a memo to Omaha to help them realize they are doing some regulated business in California.

[anony208]

26 minutes ago, Cigarbutt said:

Then, you may want so send a memo to Omaha to help them realize they are doing some regulated business in California.

Buffett in 2023 letter just issuing an empty threat then? I suppose he learned nothing at all when he finally jettisoned the namesake business(textile) and admitted numerous times that he carried that dead weight for far too long.

 

When did the insurance businesses become part of BHE?

Edited February 25, 2024 by anony208

[Cigarbutt]

1 hour ago, anony208 said:

Buffett in 2023 letter just issuing an empty threat then?

From my understanding, Mr. Buffett suggests that 'we' have to figure out what 'we' want (for energy delivery to clients) and i guess that should be the result of rational and constructive discussions (with COBF as a microcosm of these discussions). 

-----

In the previous post, you suggest that as a result of "CA over-regulates everything not just utilities", "I expect this to eventually lead to a slim down of BHE perhaps even a complete exit." (my bold)

The logical extension of this statement would be for BRK to exit all regulated businesses in CA.

So why will they continue to write a massive amount of insurance contracts in the "over-regulated" state of CA?

-----

Maybe Mr. Buffett's long term assumption that people in charge will do "the right thing", as recently as in 2008, no longer holds?

[LC]

I think it’s a lot easier to stop writing insurance policies when regulations become too onerous, versus energy where the upfront capital is much more expensive. 

[Munger_Disciple]

14 minutes ago, LC said:

I think it’s a lot easier to stop writing insurance policies when regulations become too onerous, versus energy where the upfront capital is much more expensive. 

 

Excellent point. Plus BHE projects tend to be very long term projects like the transmission project Buffett referred to in the 2023 letter. 

[anony208]

My speculation on BRK slimming down(or eventually exiting) only BHE was based on the various comments in the letter -- broken social contract, increasing regulatory burden, not throwing good money after bad, "costly mistake"

 

Very different situation with insurance compared to energy -- no mention of regulatory pressure, still gushing mucho $$ and BRK is a master at operating in this area.

 

 

 

 

Edited February 26, 2024 by anony208

[gfp]

1 hour ago, anony208 said:

My speculation on BRK slimming down(or eventually exiting) only BHE was based on the various comments in the letter -- broken social contract, increasing regulatory burden, not throwing good money after bad, "costly mistake"

 

Very different situation with insurance compared to energy -- no mention of regulatory pressure, still gushing mucho $$ and BRK is a master at operating in this area.

 

 

 

 

 

Don't hold your breath on Berkshire exiting BHE.  He specifically alluded to the bulkheads within Berkshire Hathaway Energy in the letter.  It's just a message to regulators not to count on multi-decade capital projects in the tens of billions absent a predictable regulatory framework.  PG&E might not have been in a good position to negotiate, but Berkshire isn't a helpless patsy here.  These are decisions for the communities.  Berkshire will be fine no matter what.  I highly doubt it will ever happen, but if pacificorp were to disappear to creditors 10 years from now I don't think it will be a big deal for 2034 Berkshire Hathaway.  But I would bet that someone figures out you can't treat the utility this way and expect what you got in the past.  

[Xerxes]

@gfp

 

Was wondering if you had any theory on why BNSF was dividend out of National Indemnity to BRK’ proper balance sheet. 

 

Is it about the roll-up of liabilities that the insurance outfit might have, capping exposure to the railroad. Any thought ?
 

https://www.bnsf.com/about-bnsf/financial-information/pdf/8k-20231005.pdf

[RadMan24]

55 minutes ago, gfp said:

 

Don't hold your breath on Berkshire exiting BHE.  He specifically alluded to the bulkheads within Berkshire Hathaway Energy in the letter.  It's just a message to regulators not to count on multi-decade capital projects in the tens of billions absent a predictable regulatory framework.  PG&E might not have been in a good position to negotiate, but Berkshire isn't a helpless patsy here.  These are decisions for the communities.  Berkshire will be fine no matter what.  I highly doubt it will ever happen, but if pacificorp were to disappear to creditors 10 years from now I don't think it will be a big deal for 2034 Berkshire Hathaway.  But I would bet that someone figures out you can't treat the utility this way and expect what you got in the past.  

We'll see what differences are noted in the 2023 BHE investor presentation, whether there are any chnages to capital allocation plans or the like.

 

Nevertheless, it is letters like these that make you realize how fortunate it is we have a whole weekend to ponder the results and outlook, without any 'trading' dynamic distractions influencing our thinking. 

[gfp]

24 minutes ago, Xerxes said:

@gfp

 

Was wondering if you had any theory on why BNSF was dividend out of National Indemnity to BRK’ proper balance sheet. 

 

Is it about the roll-up of liabilities that the insurance outfit might have, capping exposure to the railroad. Any thought ?
 

https://www.bnsf.com/about-bnsf/financial-information/pdf/8k-20231005.pdf

 

I think it would be a good question to ask at the annual meeting and I think Warren would answer it.  If I had to guess I would guess that it was a combination of the railroad not counting for very much in terms of insurance regulatory capital (something like $40 billion) vs. various valuations in the real world between Berkshire's stated $85 Billion and UNP's $155 Billion market cap currently.  You combine that with National Indemnity's absurd overcapitalization and it wasn't important to have BNSF in there, but also that is where the billions of dollars in annual dividends would end up (and have been landing).  BNSF pays a lot of cash out to their owner every quarter - in stark contrast to Berkshire Hathaway Energy.  (I don't know what all this talk about BNSF consuming capital at Berkshire is about - they have paid out the entire purchase price and more in cash dividends)

 

But since it wasn't important to National Indemnity's capital (Nat. Indemnity's capital barely changed after BNSF was removed because of stock market fluctuations and the fact BNSF was only counting for like $40B.), the decision probably was about bulkheads and fortifying the structure of the enterprise.  Every time you can add bulkheads and non-recourse walls below the holding company level you increase the resilience / bulletproof-ness of the whole enterprise.  There aren't any tax consequences so no real downside.  National Indemnity is in no way capital constrained on the business they can write.

 

I think National Indemnity is where the original stock position in BNI was accumulated and National Indemnity is where there was plenty of money to come up with the cash portion of the merger consideration.  So it's kind of an accident of history that BNSF was always a wholly owned subsidiary of National Indemnity.  I don't think it was some master plan that the railroad should be in the insurance company.

[Cigarbutt]

34 minutes ago, gfp said:

 

Don't hold your breath...

But I would bet that someone figures out you can't treat the utility this way and expect what you got in the past.  

Maybe it's a way to play the regulatory competition game across states of the union or just a way to cap damages and obtain a pass-through mechanism to clients.

Yes, don't hold your breath because, if BHE plans to leave Oregon (or hyper-regulated California or whatever), they certainly don't act that way presently. 

Just following a significant rate increase obtained last January in Oregon, Pacific Power filed 10 days ago for a plan aiming at a 16.9% rate "adjustment" including innovative insurance-related solutions and an inspired by PC&G recent travails but improved catastrophic fire fund with significant contributions from parties other than the utility itself (which keeps skin in the game obviously).

Oregon rate proposal (pacificpower.net)

06_Joelle_R_Steward_Direct_Testimony.pdf (pacificpower.net)

They also just produced an extensive 420-page document (date Feb 22, 2024, 2 days after the annual report release, what a coincidence..) which would provide a framework to sort of ring-fence this issue across the following relevant states (perceived as less friendly? and relevant to BHE liabilities, known and to be reported), Oregon, Washington, California and Utah. The report's main theme is Lessons Learned, which may be the carrot that Greg Abel will be seen to carry.

Charlie Munger on Greg Abel: The Warren Buffett of Tomorrow? | Collection: Charlie Munger #304 (yapss.com)

Opinion: What Mr. Buffett is doing appears to be an assist (with the meaning associated to ice hockey).

Adapted meaning of an assist: In ice hockey, an assist is attributed to the player of the scoring team who shot, passed or deflected the puck towards the scoring teammate.

Apologies for the hockey example but i played outside hockey today and the girl taking care of the ice rink (who happened to play very well) told me this was likely the last day of the year (very very unusual for this time of year at this latitude, from memory first time ever in February) so one has to adapt to changing circumstances (players, climatic conditions) i guess.

[bargainman]

I never really understood the rationale for the railroad purchase.  The hailing of it as a high capital requirement business as if that was a huge positive.  Now years later bemoaning that high capital requirement.  I mean the higher that requirement, the higher the risk of a low ROE/ROIC no?  I guess he did mention that he got it for a good price.  Has anyone done an analysis of that part of the business since purchase?  I wonder if he'd have made better by just buying back shares?

[gfp]

20 minutes ago, bargainman said:

I never really understood the rationale for the railroad purchase.  The hailing of it as a high capital requirement business as if that was a huge positive.  Now years later bemoaning that high capital requirement.  I mean the higher that requirement, the higher the risk of a low ROE/ROIC no?  I guess he did mention that he got it for a good price.  Has anyone done an analysis of that part of the business since purchase?  I wonder if he'd have made better by just buying back shares?

 

He has received his entire cost basis back in dividends and retains an extremely profitable, durable enterprise that has comparable valuations  (UNP = $155 Billion, replacement cost ~$500 Billion ??) that are favorable and the "capital eating enterprise" continues to pay out several billions of cash every year in tax free dividends to the owner.  I think it was a once in a lifetime opportunity to buy an irreplaceable productive asset that is almost impossible to buy out of the public markets.  He was pretty psyched.

[LC]

The railroads are a good asset but you know, when your “moat” is the political and regulatory minefield that makes it impossible to create competitors, it makes it hard to complain about those same politicians and regulators  taking their pound of flesh. You make the bed, you need to sleep in it…

[scorpioncapital]

17 minutes ago, LC said:

The railroads are a good asset but you know, when your “moat” is the political and regulatory minefield that makes it impossible to create competitors, it makes it hard to complain about those same politicians and regulators  taking their pound of flesh. You make the bed, you need to sleep in it…

 

Very astute observation. It is why I limit the capital I deploy to monopolies that are no doubt going to be heavily regulated in various ways. Even V/MA I am weary about.