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fareastwarriors

By fareastwarriors
in Berkshire Hathaway

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Krapdivad
Krapdivad

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:   La

fareastwarriors
fareastwarriors

$tsm 👀     

nwoodman
nwoodman

Fascinating purchase by Berkshire.  A couple of thoughts.  1. Is this a cheap way to ride the Apple juggernaut?  2. Is this more Munger than Buffett?  Charlie being interviewed tomorrow on CNBC - coin

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longterminvestor Community Regular

longterminvestor

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I believe Mr. Buffett's genius is the ability to continue to mature and grow his sense of place in the Berkshire System.  For example, in his early years, he focused on pricing discipline - buying businesses at his price.  Lesson has been learned and now he is above the notion to have the pricing discipline - it has become a learned behavior.  Most managers spend their entire life just focused on that one lesson - price discipline.  However as Berkshire has grown, Mr. Buffett discovers more important issues to tackle. 

 

A serious problem for Berkshire and Mr. Buffett is sustaining a normalized return above market average over long period of time as organization grows shareholder equity to a size unmatched in the history of the capitalism.  For example, as headline says - "Buffett blasted for not buying".  My opinion is Mr. Buffett is playing a COMPLETLY different game than everyone else.  My hope is Berkshire shareholders are not saying, "man you idiot, you didn't buy", rather there was a complete calamity of  unseen/unthinkable proportions with outcomes too difficult to predict and having dry powder was of utmost importance.  Mr. Buffett's gut was to "buy when everyone else is selling", and anyone who doesn't know that, doesn't know the man.  Despite his gut telling him to buy, Mr. Buffett paused....in my opinion, this pause was in part to a cardinal rule at Berkshire "No big mistakes". 

 

Monday quarterback shows buying in March lows was the right thing to do...for money managers/individual portfolio managers/stock jockeys...however Mr. Buffett is not in that game, he is playing the long game where 10yr returns are minimum to be measured.  My own disappointments were mostly in the lack of share repurchase, not because the price was right, more so because the volume of shares available were enormous.  Buying in bulk is Mr. Buffett's tool today.  And he knows that, so again, when he reviews the volume of shares available during that period of time does he regret not buying...I doubt it....there were other "things" he was considering that the mere mortals and pundits would never understand or comprehend. 

 

These thoughts are all predicated upon the idea that Mr. Buffett still has his wits and is a learner everyday.  If he is losing his marbles, then its the boards discretion to execute on a change.  I trust the board, I trust Mr. Buffett ergo I am believing in something bigger than "he's washed up".  There was a reason why he didn't buy and we as shareholders may never know.  I do hope he shared that reason with Ted/Todd/Gregg.  Then the lesson will endure and as shareholders we will benefit from the lesson for the next 50 years. 

Xerxes Grand Master

Xerxes

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I remember when the Dominion deal was announced, Bloomberg reported “buffet changed tactic after pressure etc”.

 

As if the old man gives a damn what CNBC and Bloomberg commentaries are saying about him. Anyone with a deep conviction to build this $500 billion non-technology behemoth just by doing less stupid things over the long term, cares little about the pundits.

 

The article seem to fail to point out that also in Q2 Berkshire was a net seller of much more and not just the airlines.

 

On dividends, it will only come after the company has bought back the shares of those large block owners that are liquidating for tax reasons or other reasons.. I am guessing there is wave of those shareholders in the next few years, all of which have similar age. 

Jurgis Apprentice

Jurgis

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It might have been good decision for Buffett. I'm not so sure that standalone Whole Foods would be doing great today. Would depend on management clearly, but it probably would have been a tough slog.

ValueMaven Mentor

ValueMaven

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Berk still getting little love.  Rails booming, APPL all-time high again (or near it)...insurance extremely profitable - although GEICO is giving money back to customers.  Buying back stock, some pipeline deals etc.  Very interested to see next Q's earnings. 

gfp Grand Master

gfp

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Berkshire pulled out of underwriting this Covid-19 college athletics insurance product at the very last minute, citing 'reputational risks' and compliance concerns - according to the broker marketing the policies to college athletic departments.  Berkley ended up writing it.

 

https://www.espn.com/college-football/story/_/id/30170060/insurance-broker-offers-covid-19-health-coverage-college-football

 

the BRK subsidiary -

https://wellfleetinsurance.com

longterminvestor Community Regular

longterminvestor

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what amazes me is BERK got a pass from CNBC/news outlets.  Clinton sends a few emails and its a feeding frenzy, BERK negotiates with Iranian business and you dont hear a sound. 

 

I feel like I am back in High School when the teachers pet gets away with sending spit balls to the chalk board and when teacher questions class, everyone looked at me (haha). 

 

Seriously though, I don't know implications of this settlement and from limited research OFAC is willing to allow trade with Iran - you just need permission.  Small blemish on the record of a great company however not the end of the world.  The operating sub was out of Turkey so doubt the sales guy doing the deal cared about trade sanctions, probably just wanted his commission.  Act was self reported so that is a saving grace. 

omagh Explorer

omagh

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what amazes me is BERK got a pass from CNBC/news outlets.  Clinton sends a few emails and its a feeding frenzy, BERK negotiates with Iranian business and you dont hear a sound. 

 

I feel like I am back in High School when the teachers pet gets away with sending spit balls to the chalk board and when teacher questions class, everyone looked at me (haha). 

 

Seriously though, I don't know implications of this settlement and from limited research OFAC is willing to allow trade with Iran - you just need permission.  Small blemish on the record of a great company however not the end of the world.  The operating sub was out of Turkey so doubt the sales guy doing the deal cared about trade sanctions, probably just wanted his commission.  Act was self reported so that is a saving grace.

Importantly, Berkshire's reputation is still intact.  With 400,000 employees, the odds of 1 of them doing something shady get pretty high to the point of certainty in any given year.  Find it, stamp it out immediately and move on.  Wells Fargo learned the hard way about letting shady practices fester.

  • 4 weeks later...
gfp Grand Master

gfp

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Anyone happen to have a transcript of the speech Buffett made at a recent Goldman Sachs event for small business?

 

I don't think there is a video or transcript online yet.  Closest I've seen are these articles with quotes that you have likely already seen if you are asking about a transcript.

https://markets.businessinsider.com/news/stocks/warren-buffett-discussed-fed-small-business-ukeleles-goldman-sachs-event-2020-11-1029828697

ValueMaven Mentor

ValueMaven

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Anybody else but me taking notice of the difference between the ending of this Press Release :

 

... Contact Investor Relations

i[email protected]

402-978-5413

 

, and basically all others ending by :

 

... Contact

Marc D. Hamburg

402-346-1400

?

 

I think that is a very interesting point John.  Might have to do with the International/Japanese time difference...or could mean something more.  I dont know. 

sleepydragon Veteran

sleepydragon

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Anybody else but me taking notice of the difference between the ending of this Press Release :

 

... Contact Investor Relations

i[email protected]

402-978-5413

 

, and basically all others ending by :

 

... Contact

Marc D. Hamburg

402-346-1400

?

 

I think that is a very interesting point John.  Might have to do with the International/Japanese time difference...or could mean something more.  I dont know.

 

 

Maybe written by someone in the Japanese office

John Hjorth Grand Master

John Hjorth

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Anybody else but me taking notice of the difference between the ending of this Press Release :

 

... Contact Investor Relations

i[email protected]

402-978-5413

 

, and basically all others ending by :

 

... Contact

Marc D. Hamburg

402-346-1400

?

 

I think that is a very interesting point John.  Might have to do with the International/Japanese time difference...or could mean something more.  I dont know.

 

 

Maybe written by someone in the Japanese office

 

Please don't take my questions here too seriously ... - I mean, what will be in that particular e-mail inbox will be something similar to this :

 

親愛なるバフェットさん、

最終的にどの会社を最初に購入しますか？

 

 

-And rest assured, I think too Mr. Hamburg is perhaps too old for this kind of stuff. [in the end : Not in any way our problem ... The advantage of being a global conglomerate investor!]

omagh Explorer

omagh

Posted
Posted

Anybody else but me taking notice of the difference between the ending of this Press Release :

 

... Contact Investor Relations

i[email protected]

402-978-5413

 

, and basically all others ending by :

 

... Contact

Marc D. Hamburg

402-346-1400

?

 

August 31st on that press release.  So Marc Hamburg was likely on vacation and a general number was provided.  I wouldn't read too much into it.

Xerxes Grand Master

Xerxes

Posted
Posted

Berkshire phone was not going off the hook in March-April, but seem to be getting calls from Japan nowadays ....

it is crazy how global these Japanese conglomerate are compared to Berkshire's mostly U.S.-centric set of businesses.

 

"Already, some are unveiling plans for closer collaboration with their new shareholder, perhaps conscious of the opportunity to accelerate changes across their portfolios in an era of digital upheaval. Mitsui would like to collaborate with Berkshire to expand its Asia healthcare business, Tatsuo Yasunaga, Mitsui CEO, told Nikkei Asia in a recent interview."

 

https://asia.nikkei.com/Business/Business-Spotlight/Warren-Buffett-s-Japan-trade-The-changing-world-of-sogo-shosha

 

TOKYO -- At a FamilyMart convenience store in Tokyo, shoppers grab fresh bananas and pay using their smartphones. A familiar scene, but few would know that one company is orchestrating almost the entire transaction -- from growing the bananas to owning the store and even developing the smartphone payment system.

 

The company, Itochu, is one of Japan's venerable "sogo shosha," or trading houses -- a quintessential feature of the country's corporate landscape, sprawling across dozens of business sectors.

 

Itochu not only owns FamilyMart, which it recently took full control of in a 580 billion yen ($5.5 billion) transaction. It also produces bananas and pineapples on Mindanao island in the southern Philippines as the owner of Dole's Asian fresh food business, and ships them to Japan, South Korea and -- an anticipated growth market -- China.

 

CEO Masahiro Okafuji has been determined to strengthen Itochu's non-resources businesses. "I decided to attack areas related to household consumption," he said in a recent interview with Nikkei.

 

Itochu also owns a 25% stake in a unit of Thai conglomerate Charoen Pokphand Group, 10% of Chinese financial conglomerate Citic, 33.8% of British fashion house Paul Smith and 40% of apparel maker Descente, as well as iron ore and coal mines in Australia.

 

Itochu and its sogo shosha peers attracted global attention when well-known U.S. investor Warren Buffett's Berkshire Hathaway announced in August that it had acquired slightly more than 5% of five of them -- Itochu, Mitsubishi Corp., Mitsui & Co., Sumitomo Corp. and Marubeni. Berkshire has said it may boost its stake in each company up to 9.9% and is eyeing opportunities for the trading houses to strike partnerships with its own businesses.

 

It was a rare boost for a sector that has been unloved by investors for whom the conglomerate is out of fashion, and which also runs many "old economy" businesses hit by the inevitable fallout from the COVID-19 pandemic.

 

Itochu is putting its sprawling business network, which spans everything from food to IT, to work at its FamilyMart convenience store chain. (Photo by Makoto Okada)

For Buffett, the deal was a bet that the world's third-largest economy can overcome myriad challenges including slow growth and demographic decline. "I am delighted to have Berkshire Hathaway participate in the future of Japan," Buffett said.

 

His interest has spurred more scrutiny of the trading houses' role in Japan Inc. -- and optimistic talk within the sogo shosha themselves.

 

Already, some are unveiling plans for closer collaboration with their new shareholder, perhaps conscious of the opportunity to accelerate changes across their portfolios in an era of digital upheaval. Mitsui would like to collaborate with Berkshire to expand its Asia healthcare business, Tatsuo Yasunaga, Mitsui CEO, told Nikkei Asia in a recent interview.

 

Change is something the sogo shosha are familiar with -- as epitomized by Itochu, which has grown from a 19th-century textile merchant into a diversified business group covering sectors including apparel, foodstuffs, steel, information technology and natural resources.

 

Itochu and Marubeni -- which has its roots in the same linen trader -- are to some extent relative upstarts among the sogo shosha. Their grander rivals are Mitsubishi, Mitsui and Sumitomo -- often referred to as zaibatsu member trading houses. The zaibatsu, once family business conglomerates, dominated the Japanese modern economy and forged strong connections with the government before the second world war.

 

Those structures were broken up by the U.S. and its allies after the war, but while the family holding companies have lost their control, the companies that were once under one umbrella remain tied together, albeit loosely, by their historic bonds.

 

In the postwar era, the trading houses supported Japan's manufacturing resurgence by importing resources and food, and exporting finished goods including electric appliances, cars and machinery. But as manufacturers started to eliminate the trading houses as a middleman, the sogo shosha responded by branching out -- partnering with food processers, oil producers or retailers to make profits throughout the "value chain."

 

Today, they depend more on returns from investment than on the trading commissions that used to be their major profit source.

 

Trading houses "have adapted their business models in an incredibly agile way over the [many] years and have done really well, not just for the economy but also for themselves," said Kei Okamura, director of Japan investment stewardship at Neuberger Berman East Asia.

 

Yet the sogo shosha and their diversified businesses have fared badly in their reputations with investors, lagging behind automakers, telecom carriers, tech companies, banks and drug companies in market capitalization and valuations.

 

And their diversification is no foolproof defense against losses: Marubeni reported its biggest loss ever for the last fiscal year ended in March, and Sumitomo warns of the biggest loss in its history in the current fiscal year.

 

Mitsubishi, long seen as reigning over the other sogo shosha, epitomizes the industry's struggle to transform and move away from "old economy" roots.

 

Mitsubishi first brought liquified natural gas from Alaska for Japanese power plants 50 years ago and now supplies 55% of the nation's imports. The company has been a steady supplier of iron ore and coal for steelmakers, and this has supported Japan's vital auto industry. It owns one of the world's largest metallurgical coal mines in Australia with BHP, and its metals division accounted for 40% of the company's profit in the last fiscal year.

 

"Our clients have confidence in our ability to ensure a steady supply of essential resources," a Mitsubishi manager says.

 

But the company expects profit to drop by nearly two-thirds this year, hit by the coronavirus-induced global recession. Demand for coal, Mitsubishi's cash cow, has slumped while prices for natural gas have slackened. And Mitsubishi Motors, where the trading house owns 20%, is bracing for a huge loss after car sales collapsed.

 

Mitsubishi also faces a longer structural shift away from thermal coal and oil. "Essential energy has been changing from oil to LNG and renewable energy. We have to suit this change," Mitsubishi CEO Takehiko Kakiuchi told Nikkei in an interview.

 

Kakiuchi also emphasized the need to review the business portfolio, doing more using digital technology and artificial intelligence. "With digitalization, it has become possible to quantify demand forecasts and so on that were previously done by experience and intuition," he said. "The knowledge of employees who have raw data can be further utilized and ... new businesses can be developed."

 

A case in point is a recent initiative to use AI to predict day-to-day changes in sales at the Lawson convenience store chain, a subsidiary, to help cut waste.

 

One advantage sogo shosha managers stress is their style of running their portfolio companies. In contrast to private equity firms, investment banks or management consultants, they say they are much more hands-on and accept a longer time horizon to recoup their investment.

 

Mitsui's Yasunaga said their "functions are trading as well as marketing, financial arrangement and business restructuring."

 

Take Marubeni, for example. It manages 290,000 hectares of dense forest on the Indonesian island of Sumatra, making pulp for paper manufactures, mainly in Asia, for 15 years. There, 10 of the company's expat staff patiently wrestle with how to renew the forest's tree species, which have been hit by disease since 2013, dealing with the odd scorpion, snake or tarantula spider along the way.

 

"We find at least one thing to be improved every week," said Terutoshi Fukuoka, the 25-year-old deputy general manager at Musi Hutan Persada, Marubeni's operating subsidiary, who is in charge of quality control and innovation and oversees 100 staff members. After being in the red for five years, MHP became profitable again in 2017.

 

Sumitomo -- which is leading a $4.3 billion smart city project near Hanoi, in Vietnam's largest urban development -- stresses its thorough training. Employees need to pass exams in import-export practice, accounting, project investment and management before being dispatched to a company in which Sumitomo has invested, to learn and practice management.

 

Employees are even taught liberal arts subjects -- unusual in Japan -- on the grounds that such education helps managers to gain respect from their overseas counterparts. Sogo shosha have consistently ranked high in terms of popularity for Japanese graduates, because they offer good pay, job security and opportunities to work overseas.

 

But whatever their attention to management practices, the sogo shosha are not being rewarded in one vital aspect: their share prices. For the past seven years the price-to-book ratio -- a measure of the market's valuation of a company relative to the value of the assets it owns -- has stayed below one for all except Itochu.

 

The persistent undervaluation is often explained by reference to the concept of a "conglomerate discount" -- a recognition that a company cannot gain synergies from a very diverse range of business units. The result, critics argue, is inefficient use of capital. Most investors would rather assemble their desired portfolio themselves on the stock market.

 

Some within the sector acknowledge the point. "We have 1,700 group companies. That is too many and each company is too small," said Kakiuchi of Mitsubishi, who would like to merge many units to increase efficiency.

 

 

The trading houses still offer one of the best returns in terms of dividend payments among large-cap stocks, points out Hidenori Kusunoki, analyst at Mizuho Securities. He says that sogo shosha have increased their dividends on a sustained basis. "In the last 10 years, their dividend yield, or the ratio of dividends to share price, has stayed around 3-5%," he said.

 

Nevertheless, the key for them to achieve higher valuation will be whether they can keep up with an accelerating pace of change, as the global economy shifts from manufacturing to services and from physical to digital.

 

Investors -- now, of course, including Buffett -- might need patience, suggests Neuberger Berman's Okamura. "We don't think trading houses will be able to change their business model dramatically over the next three to four years," he said.

 

But as Itochu moves to cement its control of FamilyMart -- an extraordinary general shareholders meeting to delist the retailer was held on Oct. 22 -- CEO Okafuji is convinced that standing still is not an option.

 

"We have to understand the changes taking place in the world and follow without delay. And we must change ourselves accordingly," he said.

  • 2 weeks later...

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