Buffett/Berkshire - general news

[dealraker]

On 10/6/2024 at 10:06 PM, Eldad said:

“Though BNSF carries more freight and spends more on capital expenditures than any of the five other  major NA railroads, it’s profit margins have slipped relative to all five since our purchase. I believe that our vast service territory is second to none and that therefore our margin comparisons can and should improve.”  WB 2023 letter

 

So not only are they behind UNP (28%) they are even behind Norfolk at 22%. Ouch. The Canadians run at close to 30%. Glad they are making a change. PSR obviously works. If the whole industry has eaten your lunch for 10+ years, maybe you are not the lone genius but in fact the sucker. 

 

 

The one metric OR stopped providing returns for shareholders long ago.  Berk's use of capital may or may not make a difference, time will tell.  The game though is well past cutting employees, cutting lines, cutting cap ex, cutting maintenance,, cutting yards, and using debt for buybacks.  The math on minimal sales growth gets downright exciting from here.

[xboojum]

On 10/6/2024 at 10:06 PM, Eldad said:

“Though BNSF carries more freight and spends more on capital expenditures than any of the five other  major NA railroads, it’s profit margins have slipped relative to all five since our purchase. I believe that our vast service territory is second to none and that therefore our margin comparisons can and should improve.”  WB 2023 letter

 

So not only are they behind UNP (28%) they are even behind Norfolk at 22%. Ouch. The Canadians run at close to 30%. Glad they are making a change. PSR obviously works. If the whole industry has eaten your lunch for 10+ years, maybe you are not the lone genius but in fact the sucker. 

 

 

I think you're misreading the statement, which says "relative to". So if their margins were five points better than Norfolk's and now they're four points better, that's relative slipping.

[alpha]

 

Looks like Warren is still bullish on Japan

 

https://www.reuters.com/markets/us/berkshire-hathaway-raises-19-bln-bond-deal-term-sheet-shows-2024-10-10/

[Eldad]

On 10/8/2024 at 2:52 PM, xboojum said:

I think you're misreading the statement, which says "relative to". So if their margins were five points better than Norfolk's and now they're four points better, that's relative slipping.

Yes that is correct. But considering that Norfolk Southern has slipped relative to itself since BRK bought BNSF it is a very ugly picture. 
 

In the years before the GFC Norfolk was running at about 25% and BNSF was around 22-23.  

 

Also, BNSF has a tremendous inherent advantage over Norfolk by being in the wide open West where it can run much longer trains and it is still lagging. 
 

[Munger_Disciple]

One thing that bothers me about BHE is that it took BHE management almost 3.5 years to recognize and reserve adequately for the legal problems resulting from 2020 wild fires. I find it strange that the equity value of BHE was $89 Billion in Q3-2022, when Abel cashed out his stock almost 2 years after the wildfires. And now after 2 more years, we find that BHE equity was marked down by 45% from 2022. It seems to me that BHE was very late in recognizing the problems. 

 

It looks like Pacificorp hired a new CEO in 2023; probably a result of the above issues. 

Edited October 10 by Munger_Disciple

[Munger_Disciple]

BAC holding now below 10%, so no more reporting outside 13-F. I won't be surprised to see it be gone by the end of 2024. 

 

https://www.cnbc.com/2024/10/10/berkshire-slashes-bank-of-america-stake-to-under-10percent.html

Edited October 10 by Munger_Disciple

[villainx]

1 hour ago, Munger_Disciple said:

One thing that bothers me about BHE is that it took BHE management almost 3.5 years to recognize and reserve adequately for the legal problems resulting from 2020 wild fires. I find it strange that the equity value of BHE was $89 Billion in Q3-2022, when Abel cashed out his stock almost 2 years after the wildfires. And now after 2 more years, we find that BHE equity was marked down by 45% from 2022. It seems to me that BHE was very late in recognizing the problems. 

 

It looks like Pacificorp hired a new CEO in 2023; probably a result of the above issues. 

 

I'm trying to get a sense whether the issues at Geico, BHE, BNSF and or others are viewed as systemic problems that will lead to big decline or perhaps serious problems that can or should be corrected.  Is it correct to say that this is a bad as Berkshire has been in a long time, and the failure to address things earlier is surely a sign of deep problems.  Or it's normal course of business to hit on dry spells, and it's bad coincidence that the problems are hitting kind of all at once.  

 

 

[crs223]

On 10/1/2024 at 9:39 AM, KPO said:

Yeah, Greg’s timing has me a little less concerned about his investing chops.
 

Whatever the case, I hope reinvesting in BHE drops to maintenance capex levels until the industry and the government arrive at a sustainable solution for wildfire liabilities. If that doesn’t happen I think Buffett and Abel need to reconsider this business altogether. 

 

And he waiting until Sep 28, 2022 to buy his BRK -- nailed the bottom @ $270/B-share!  (I'm proud to say I bought some that same day)

[Eldad]

12 hours ago, villainx said:

 

I'm trying to get a sense whether the issues at Geico, BHE, BNSF and or others are viewed as systemic problems that will lead to big decline or perhaps serious problems that can or should be corrected.  Is it correct to say that this is a bad as Berkshire has been in a long time, and the failure to address things earlier is surely a sign of deep problems.  Or it's normal course of business to hit on dry spells, and it's bad coincidence that the problems are hitting kind of all at once.  

 

 

It’s a decentralized model so every company is pretty close to stand alone so I don’t think you can say there are deep BRK problems. It would have to be coincidental in that respect. You could say putting Todd in charge of Geico was a mistake and a deviation from the decentralized model.

 

I would think the decentralized model has a higher risk of letting bad managers or lazy managers stay on too long. Like WB backing BNSF management for this long even though they were underperforming for over a decade. But I think that is the BRK way and decentralized is good.   
 

The bigger longterm risk in my mind is Greg and post WB BRK try to be more centralized and top down. I get that feeling from Greg but I could be wrong. 

[Hektor]

12 minutes ago, Eldad said:

The bigger longterm risk in my mind is Greg and post WB BRK try to be more centralized and top down.

+1

[MarioP]

One of the problem might be attracting top talent at the subs. If I was a rising star in insurance where would I prefer to work? The sub in a conglomerate or Progressive? If my goal is to be CEO I would prefer a S&P500 insurance over Berkshire. So as the all star managers retires we perhaps have a succession problem as top talent choose to work elsewhere than a conglomerate where mandatory retirement age is 105.

[sleepydragon]

8 minutes ago, MarioP said:

One of the problem might be attracting top talent at the subs. If I was a rising star in insurance where would I prefer to work? The sub in a conglomerate or Progressive? If my goal is to be CEO I would prefer a S&P500 insurance over Berkshire. So as the all star managers retires we perhaps have a succession problem as top talent choose to work elsewhere than a conglomerate where mandatory retirement age is 105.

maybe or maybe not. It comes down to how the compensation is calculated, whether it motivates people and fair. I don’t think Brk underpays people 

[Jaygo]

1 hour ago, MarioP said:

One of the problem might be attracting top talent at the subs. If I was a rising star in insurance where would I prefer to work? The sub in a conglomerate or Progressive? If my goal is to be CEO I would prefer a S&P500 insurance over Berkshire. So as the all star managers retires we perhaps have a succession problem as top talent choose to work elsewhere than a conglomerate where mandatory retirement age is 105.

Bingo

 

I think this is a really big headwind for the company. Working for or selling out to Warren Buffett of 20 years ago was something to be proud of, something to aspire to. Working for Greg Able is awesome but it does not have the same cache.

 

So even an exceptional company or an all star manager is going to get lost in the weeds of BRK. I think the money as a motivator is really short sighted. Money is great but once you get wealthy are you really going to dedicate your life to something when you know your never going to get any recognition for it? My guess is that's unlikely in most people.

 

Warren has always espoused mid western values, and maybe with midwestern values business fame and recognition are less important to those folks. Better start shopping in Minnesota baby.

 

 

 

 

 

[villainx]

I really enjoyed it when executives in the subs got shout out in prior annual letters.  Seems less prominent these days.  

[TB]

1 hour ago, villainx said:

I really enjoyed it when executives in the subs got shout out in prior annual letters.  Seems less prominent these days.  

The headquarters needs to do a better job in growing talent/successors for some of these businesses. The record of pampered chef after newly minted MBA was put in charge is documented here - https://en.wikipedia.org/wiki/Pampered_Chef

 

Tilson thinks the problems are fixable and let us hope that things will work out and Able, others can put order to chaos. From Tilson.

 

It's important to keep in mind that Berkshire is enormous, with nearly 400,000 employees and trailing-12-month revenue of $370 billion.

It's also highly diversified, so it's easy to miss the forest for the trees and focus excessively on certain businesses that are underperforming.

In Friday's e-mail, I shared a critique that Berkshire's two largest business – auto insurer Geico and railroad BNSF Railway – are poorly managed. To this, I have two responses...

First, they only accounted for 14% and 12%, respectively, of Berkshire's pretax earnings in the first half of this year.

More importantly, I'm happy to hear that these subsidiaries (and many others) aren't perfectly managed because that means there's likely lots of low-hanging fruit – levers that can be quickly pulled to improve profits. I suspect this won't happen, however, until Greg Abel takes over as CEO for Berkshire. He has a reputation as being more hands-on and operationally tough.

Regarding Geico, I've heard it's a "mess" operationally, in particular with outdated computer systems that impact its ability to price policies properly, resulting in Progressive (PGR) taking share from it.

That said, Geico's combined ratio (a measure of total costs and claims, so a lower number is better) improved from 96 in 2019 to 91 in 2023 and was down to 82 in the first half of this year. For comparison, the industry was 102 in 2019, and rose to 105 in 2023. If Geico performs this well despite many operational issues, imagine how well it will do once it fixes them.

The story is similar for BNSF. Every other major railroad in North America has dramatically boosted its earnings by adopting "precision railroading," so I eagerly await BNSF's adoption of it.

It's also important to understand that while there can be costs to Berkshire's extreme decentralization – it has only 30 people at its Omaha, Nebraska headquarters – there are also huge benefits, as Buffett and Munger have outlined over the years:

• "By the standards of the rest of the world, we overtrust. So far it has worked very well for us. Some would see it as weakness." – Munger, May 2014

• "A lot of people think if you just had more process and more compliance – checks and double-checks and so forth – you could create a better result in the world. Well, Berkshire has had practically no process. We had hardly any internal auditing until they forced it on us. We just try to operate in a seamless web of deserved trust and be careful whom we trust." – Munger, May 2007

• "We will have a problem of some sort at some time... 300,000 people are not all going to behave properly all the time." – Buffett, May 2014

As a 2014 New York Times article about Berkshire noted:

Behavioral scientists and psychologists have long contended that "trust" is, to some degree, one of the most powerful forces within organizations.

Mr. Munger and Mr. Buffett argue that with the right basic controls, finding trustworthy managers and giving them an enormous amount of leeway creates more value than if they are forced to constantly look over their shoulders at human resources departments and lawyers monitoring their every move.

If we step back, we can see that Buffett has built one of the greatest businesses of all time. Very simplistically, every business creates value by generating a higher return on capital than its cost of capital. And the wider this gap is – and the more it can be scaled – the better.

 

 

Edited October 11 by TB

[DooDiligence]

I predict a change on #4.

 

 

https://www.berkshirehathaway.com/1999ar/acq.html

 

---

 

and many here don't want to see this but...

 

Edited October 12 by DooDiligence

[villainx]

3 hours ago, TB said:

Tilson thinks the problems are fixable and let us hope that things will work out and Able, others can put order to chaos. From Tilson.

 

Where is this from?

 

 

[Spekulatius]

I think we are seeing a lot of data that Berkshire execution is slacked off. BNSF, Geico, PCP all have lost relative to competition. Perhaps Lubrizol as well. We may also have a succession issue with Jain possibly on his way out - he is 73 and has sold quite a bit of stock. He will be very hard to replace.

 

Abel is going to have his hands full and probably will run a tighter ship holding managment or subsidies on a shorter leash if they don’t perform. Things will change at Berkshire very soon, because I don’t think WEB will be in his current role longer than Munger.

 

I could see him ceding all operational responsibilities to Abel. He may have done this already de facto, but it will be easier for Abel to bring the hammer down, if it’s official.

[Hektor]

On 10/11/2024 at 2:10 PM, Jaygo said:

Working for or selling out to Warren Buffett of 20 years ago was something to be proud of, something to aspire to

I suspect most (private?) businesses sold to Warren so that they could cash out (or ward off hostile takeover) and continue running the business they built.

[John Hjorth]

16 minutes ago, Hektor said:

I suspect most (private?) businesses sold to Warren so that they could cash out (or ward off hostile takeover) and continue running the business they built.

 

And now what would be potential candidates for that, @Hektor ? - to really move the needle for Berkshire?

[sholland]

1 hour ago, John Hjorth said:

 

And now what would be potential candidates for that, @Hektor ? - to really move the needle for Berkshire?

https://en.wikipedia.org/wiki/List_of_largest_private_non-governmental_companies_by_revenue

[Hektor]

3 hours ago, John Hjorth said:

And now what would be potential candidates for that, @Hektor ? - to really move the needle for Berkshire?

That’s a good question, John. That makes me wonder how often should the needle be moved? Once or twice a decade?

[Hektor]

2 hours ago, sholland said:

https://en.wikipedia.org/wiki/List_of_largest_private_non-governmental_companies_by_revenue

Thanks @sholland

[MarioP]

I was already a shareholder of Apple when Steve Jobs died. No doubt that Apple changed under Cook. And it wasn't for the worst. Now Berkshire will change under Abel and it doesn't mean it will be bad. We will see but there is nothing guaranty. At this point I am not confident enough to keep BRK at 20% of my portfolio like it is since 1995. I will probably put it down at 10%. There is a good chance that in the first 2 or 3 years of is tenure Able will be able to pick some low hanging fruits to boost operational earnings.

[UK]

17 minutes ago, MarioP said:

I was already a shareholder of Apple when Steve Jobs died. No doubt that Apple changed under Cook. And it wasn't for the worst. Now Berkshire will change under Abel and it doesn't mean it will be bad. We will see but there is nothing guaranty. At this point I am not confident enough to keep BRK at 20% of my portfolio like it is since 1995. I will probably put it down at 10%. There is a good chance that in the first 2 or 3 years of is tenure Able will be able to pick some low hanging fruits to boost operational earnings.

 

I think this is actually very true. No one will replace WB being WB, but BRK could very well find other/new strenghts/avenues under new management.

 

Edited Monday at 02:34 PM by UK