Buffett/Berkshire - general news

[thepupil]

any chance he did some huge charitable donation concurrent w/ his roth conversion, like set up a foundation? not sure how exactly the charitable deduction worked then and now. 

 

it's particularly puzzling in tha roth conversions are ordinary income which is hard to offset. 

Edited June 24, 2021 by thepupil

[Munger_Disciple]

After reading Ted's letter, in addition to being blown away by his investing prowess all I can think of is "What a Class Act!" Those of us who are Berkshire shareholders are lucky that the company has such an outstanding bench that includes Ted, Todd, Ajit & Greg ready to step up to the plate when the time comes.  

[sleepydragon]

So Ted said his IRA was at 131 millions when he converted. He paid 29 million tax. 
Also, his IRA account balance is reported to be at 264 million at the end of 2018.

264/ (131-29) -1 = 159% return.

Brk’s return from 1/1/2012 to 12/31/2018 = 168%

Spx’s return= 115%

So this is my speculation: maybe Ted IRA is full of brk stock?

P.s. Brkb was up 17% during 2012. So the number will match assuming he converted any time during 2012.

[aws]

12 minutes ago, thepupil said:

any chance he did some huge charitable donation concurrent w/ his roth conversion, like set up a foundation? not sure how exactly the charitable deduction worked then and now. 

 

it's particularly puzzling in tha roth conversions are ordinary income which is hard to offset. 

 

The most tax efficient way, donating LTCG stock to get a deduction without ever having associated income, is limited to 30% of income, which even if he maxed that out wouldn't quite get you there. He could have contributed cash of course, which has a higher deduction limit, but then how did he have so much cash without having much taxable income? Based on his statement that without the conversion his tax bill would have been under $1 million, so he would have needed something close to $60 million of deductions plus $28 million for cash taxes, without generating enough income to get over $1 million in tax.

 

I'm certainly not accusing him of doing anything improper, but as a CPA myself I can't help but be curious about the whole picture after seeing him give those quite unusual figures.

[sleepydragon]

4 minutes ago, aws said:

 

The most tax efficient way, donating LTCG stock to get a deduction without ever having associated income, is limited to 30% of income, which even if he maxed that out wouldn't quite get you there. He could have contributed cash of course, which has a higher deduction limit, but then how did he have so much cash without having much taxable income? Based on his statement that without the conversion his tax bill would have been under $1 million, so he would have needed something close to $60 million of deductions plus $28 million for cash taxes, without generating enough income to get over $1 million in tax.

 

I'm certainly not accusing him of doing anything improper, but as a CPA myself I can't help but be curious about the whole picture after seeing him give those quite unusual figures.

Maybe he has long term capital loss too.

[aws]

1 minute ago, sleepydragon said:

Maybe he has long term capital loss too.

 

That wouldn't be deductible against ordinary income, as a net capital loss is limited to a $3000 annual deduction.

 

Also, in reference to your other post, I doubt he paid the tax on the conversion out of the account balance, as that would be considered an early withdrawal and subject to a 10% penalty on top of the normal income tax on the conversion. Not only would such a move lessen the value of the conversion, it would also make the reported $28 million tax figure all the more strange as then the implied tax rate on the conversion would have been much lower still.

[Munger_Disciple]

59 minutes ago, aws said:

 

The most tax efficient way, donating LTCG stock to get a deduction without ever having associated income, is limited to 30% of income, which even if he maxed that out wouldn't quite get you there. He could have contributed cash of course, which has a higher deduction limit, but then how did he have so much cash without having much taxable income? Based on his statement that without the conversion his tax bill would have been under $1 million, so he would have needed something close to $60 million of deductions plus $28 million for cash taxes, without generating enough income to get over $1 million in tax.

 

I'm certainly not accusing him of doing anything improper, but as a CPA myself I can't help but be curious about the whole picture after seeing him give those quite unusual figures.

 

It is possible that Ted had some flow through business losses that were related to the wind down of his hedge fund management entity which partially offset the $131M income from Roth conversion. 

[villainx]

even assuming 30% over 30 years, i feel ... i'm going to have a hard time replicating that success.

[IceCreamMan]

6 hours ago, aws said:

Based on the numbers in the letter, $70,385 in 1989 to $131 million in 2012 is more like a 39% annual return, which is absolutely incredible considering he said every investment was in publicly traded stocks at market prices.

 

 

We have to account for the fact that he was probably maxing out his contributions each year, right? I wonder how much that changes the actual time-weighted return. Still probably extremely high. I'm curious what types of investments he made, i.e. typical market cap, typical holding period, type of situation/business, etc.

[villainx]

9 hours ago, IceCreamMan said:

 

We have to account for the fact that he was probably maxing out his contributions each year, right? I wonder how much that changes the actual time-weighted return. Still probably extremely high. I'm curious what types of investments he made, i.e. typical market cap, typical holding period, type of situation/business, etc.

 

 

I wonder if there is consideration for SEP type, if he was running his own biz, he could have super charged his contributions.  Just another consideration.

 

 

[LearningMachine]

12 hours ago, IceCreamMan said:

 I'm curious what types of investments he made, i.e. typical market cap, typical holding period, type of situation/business, etc.

I'm curious here too. 

 

Because he did this in an IRA account, I wonder if he was willing to hold things for much shorter time periods as he didn't have to worry about capital gains? What do folks think? 

 

Also, has anyone figured out a way to distinguish between Ted's and Todd's investments on the Berkshire 13F?  Do we know any of the investments in Berkshire portfolio that were definitely made by Ted?

 

Also, wonder how was Todd's record before Buffett took him on?  I wouldn't be surprised if he looked for a great record there as well.

[ValueMaven]

His track-record as the GP of Peninsula Capital has been widely talked about.  Massive outperformance in a concentrated way.  Had a massive homerun in WR Grace - buying it below $1 in chapter 11, and riding it out until over $50+.  This is all from memory - however, I know this topic was covered extensively here in the past

 

[thepupil]

Todd Combs was a financials focused long/short manager. He made 34% net of fees 2005-2010 (~6%/year) during a very crazy time. Unsure if it was market neutral type of fund or what kind of net exposure. 

https://www.wsj.com/articles/BL-DLB-28105

The fund has also had strong relative performance during extremely challenging times in the financial services sector, outperforming its benchmark by roughly 80 percentage points since inception in November 2005 (positive 34% cumulative net return for Castle Point since launch vs. negative 46% for the XLF).

Edited June 25, 2021 by thepupil

[wabuffo]

Had a massive homerun in WR Grace - buying it below $1 in chapter 11, and riding it out until over $50+.  This is all from memory - however, I know this topic was covered extensively here in the past

 

That's correct - GRA was almost 50% of Peninsula Capital's (Weschler's fund) when he wound it up at the end of 2011.  He probably was even more concentrated in it in his personal funds.

 

GRA and USG both entered Chapter 11 in the early 2000s to settle their legacy asbestos liabilities.  USG is more famous because Buffett invested in it before it entered bankruptcy.  But W.R. Grace was probably an even better business.  Both businesses hit their lows in Oct 2002.   USG at $3 and change and GRA at sub-$1.   USG exited in 2006 at over $100, did a rights offering, and purchased a business/expanded right into the teeth of the housing crash.   The USG stock price collapsed after that. 

 

I owned USG back then (mainly because of Buffett) and if there is a way to break-even on an investment that went from $3 to $100 by buying and selling at all the wrong times - it me! 

 

The reason I remember GRA - is because much of the liability estimation for USG came from experts and benchmarks out of GRA's Chapter 11 case and I would review it in the PACER filings to try to estimate USG's final asbestos liability/capital structure.

 

GRA exited and went to $50 - so a 50 bagger and a heavily-concentrated position for Weschler by the end of 2011.  Of course, unlike USG, it kept right on going to $100 by 2015.   I'm pretty much convinced that this one investment probably accounts for most of Weschler's outperformance.   It did a 45%+ CAGR from 2002 to 2014-ish and he probably had over 50% of his IRA in it by the end due its monstrous CAGR.

 

But he also made money on DVA, DTV and even Dillards coming out of the housing crash and I'm sure they were featured in his personal portfolio as well.

 

wabuffo

Edited June 25, 2021 by wabuffo

[ValueMaven]

His Dillards call has been a massive homerun recently as well.  

[villainx]

Did old site use to number posts, so it could be referred back to?

 

Anyway Wabuffo,  that you for your post.  I think I heard your USG story before, but I have so many similar type stories.  Sure I still have tons of regret, but they've been invaluable in helping me stay humble, and sharper.

 

Assuming Ted did his IRAs straight, it would really be interesting if there was more description on it.  Then again, survivorship bias, and it'll be generally be unwise for most folks to emulate his approach.

[LounginMKL]

https://www.cnbc.com/2021/06/24/a-jet-owned-by-candy-giant-hershey-made-an-unusual-trip-to-omaha-analyst-says.html

 

A classic move from Bud Fox "ahhh, my boss is going to kill me. Do you know where that plane is going?"

 

[TREVNI]

On 6/24/2021 at 4:55 PM, gfp said:

Thanks for sharing the link. From the Pro Publica article, Ted had $264.4 million in his Roth IRA at the end of 2018. Safe to assume considerably more today. 
 

Amazing that Berkshire has found such rare talents to take the job. 

Which just goes to show how Berkshire has cracked the code in terms of motivating individuals to work. Weschler has won life many times over. He could be sitting on a beach having someone wait on him hand and foot for the rest of his life. Instead he chooses to read 12+ hours a day for the benefit of BRK shareholders. I count myself very lucky to have him working for us. 

[John Hjorth]

On 6/25/2021 at 7:07 PM, villainx said:

Did old site use to number posts, so it could be referred back to? ...

It did, villainx,

 

Just use "targeted/focused quotes" [ref. above], and we'll do well. [Perhaps Sanjeev can do something about it also.]

[John Hjorth]

3 hours ago, TREVNI said:

Which just goes to show how Berkshire has cracked the code in terms of motivating individuals to work. Weschler has won life many times over. He could be sitting on a beach having someone wait on him hand and foot for the rest of his life. Instead he chooses to read 12+ hours a day for the benefit of BRK shareholders. I count myself very lucky to have him working for us. 

@gfp & @TREVNI,

 

I actually coulden't agree more. Here is Mr. Weschlers response to ProPublica.

Edited June 27, 2021 by John Hjorth

[ValueMaven]

I have not looked at Hersey's valuation in years.  Might be worth reading the 10K tonight - but it seems like a stretch.  CEO could simply be in town for an event.  Or maybe a deal with Warren.  I'd love to know the hit rate on these type of calls.  I mean the OXY spotting was dead-on.  Speaking of which - given the rally in oil - that is looking like an awesome deal.  

[wabuffo]

I mean the OXY spotting was dead-on. 

 

It was still hypocritical behavior on Buffett's part to finance this deal.  Demonstrated some situational ethics, IMHO. 

 

wabuffo

[ValueMaven]

How do you even figure that??  OXY gave him a sweetheart deal.  Not many places (any!) that can give you $10B of capital in an hour.

[wabuffo]

Q:  Why was OXY anxious to get that preferred from Buffett?
A:  To shift the cash-vs-stock portion of the takeover offer such that the OXY CEO could get the amount of OXY common stock to be issued in the deal under the NYSE’s 20% rule.  That rule forces a shareholder vote if the secondary issuance is greater than 20% of the shares outstanding.  The OXY CEO knew her acquisition was unpopular and she would lose the vote so she denied her owners a vote with Buffett’s help.
 

Q: Why is this hypocritical of Buffett?
A:  Because he went on CNBC and whined loudly when the Kraft CEO did the same thing to him.  Buffett was a large holder of Kraft stock (this was before the Heinz 3G deal) and was going public with his displeasure at the dilution he was going to suffer in Kraft’s acquisition of Cadbury (the secondary was greater than the NYSE’s 20% rule). The Kraft CEO sensing she was going to lose the vote w/o Buffett’s support quickly sold the DiGornio pizza biz to Nestle for cash in a lousy deal vs that division’s true value and used that cash to increase cash/reduce stock in the Cadbury deal and avoid the 20% NYSE shareholder vote.

 

Buffett howled like a stuck pig and sold all his Kraft stock soon after.

 

I love the guy but his actions here were hypocritical and anti-OXY shareholder.  One would think that with his Kraft experience he would not enable this kind of CEO behaviour towards her shareholders for whom she is a fiduciary and an employee.  I remember someone asked a question along these lines at the 2020 AGM and he dodged the question by going off tangent about falling oil prices or some such…

 

wabuffo

Edited June 27, 2021 by wabuffo

[wabuffo]

https://buffett.cnbc.com/video/2020/05/04/berkshire-hathaway-annual-meeting-qa---may-02-2020.html
 

BECKY QUICK:

All right, this next question comes from Jason (Plawner) in New Jersey. “As both a Berkshire and Occidental shareholder I was encouraged to see your investment in the company, but with passing weeks, it became evident that your investment facilitated Occidental management’s ability to avoid a shareholder vote on the Anadarko acquisition, a very shareholder unfriendly outcome.

“This deal proved to be irresponsible and expensive from an OXY perspective, and ultimately, very value destructive for OXY shareholders. In my view, it also permanently hurt Berkshire’s reputation in the marketplace.

“Please comment on this unfortunate outcome and tell me why OXY shareholders and other market observers shouldn’t feel this way.”

 

WARREN BUFFETT:

Yeah. And these are not — it’s not like they’re super-high return thing. But they’re decent returns over time. And we’re almost uniquely situated to deploy the capital, as opposed — I mean, you could have government entities do it too —but in terms of a private enterprise — and they take a long time. They earn decent returns.

I’ve always said about the energy business, it’s not a way to get real rich, but it’s a way to stay real rich, and —

We will deploy a lot — a lot of money at decent returns — not super returns, you shouldn’t earn super returns on that sort of thing, I mean — it does — you are getting rights to do certain things that governmental authorities are authorizing. And they should protect consumers and — but they also should protect people that put up the capital. And —

You know, it’s worked now for 20 years, and it’s got a long runway ahead.
 

-------------------------------------------------

I think it's very telling that Buffett avoids the crux of the actual question asked (probably because he has no defense after complaining about the Kraft-Cadbury situation…. )

 

Tsk, tsk Warren...

 

 

wabuffo

Edited June 28, 2021 by wabuffo