berkshire - cheap?

[sleepydragon]

alwaysdrawing, can you share your portfolio so we can see how much better it is?

 

[Spekulatius]

Don’t think that KO and KFC are great investment at current prices, and if I owned them, I would sell them and pay my taxes. Coporate taxes are lower now, which should reduce the hurdle. I think he can find investment which will compound much better.

 

AXP for me is a questionmark. I personally like the profit, but I agree that it lost is cache with the younger generation. They need to overhaul their marketing.

[alwaysdrawing]

alwaysdrawing, can you share your portfolio so we can see how much better it is?

 

I'd consider that off topic.  <10% of my personal portfolio contains securities with a large enough market cap to be relevant for consideration for Berkshire.

 

I'm pleased but not satisfied with my returns, and they have outperformed the S&P 500 and Berkshire by a comfortable margin.

[DooDiligence]

alwaysdrawing, can you share your portfolio so we can see how much better it is?

 

I'd consider that off topic.  <10% of my personal portfolio contains securities with a large enough market cap to be relevant for consideration for Berkshire.

 

I'm pleased but not satisfied with my returns, and they have outperformed the S&P 500 and Berkshire by a comfortable margin.

 

Could you be a bit more evasive?

[alwaysdrawing]

Could you be a bit more evasive?

 

How is what I own in my portfolio related to whether or not Berkshire Hathaway stock is cheap or fairly valued?  Especially if those securities could not reasonably be purchased by Berkshire in volumes enough to move the needle on their portfolio?

 

If I want to share random tickers I hold or investment ideas, I will share them in their own threads....this thread isn't really designed to get feedback or criticism about investments unrelated to BRK.

 

 

[rb]

Alwaysdrawing, please point out which one of your posts talks about whether Berkshire Hathaway is cheap or not right now.

[Lakesider]

Could you be a bit more evasive?

 

How is what I own in my portfolio related to whether or not Berkshire Hathaway stock is cheap or fairly valued?  Especially if those securities could not reasonably be purchased by Berkshire in volumes enough to move the needle on their portfolio?

 

If I want to share random tickers I hold or investment ideas, I will share them in their own threads....this thread isn't really designed to get feedback or criticism about investments unrelated to BRK.

 

Oh please share. Is that not why we are all here?

[rb]

Give him a minute. He needs to google some outperforming small caps.

[alwaysdrawing]

Give him a minute. He needs to google some outperforming small caps.

 

I feel like I've steered this discussion off the rails here, although I'm surprised the discussion became so toxic.  That was not my intention when I posted in this thread. 

 

I did want to point out that I like Berkshire's wholly owned insurance and utility companies, however I did not like the makeup of the common stock portfolio, and tried to give a surface level criticism of the positions and my thoughts on their prospects.  I didn't want to set off a firestorm--it doesn't seem unusual or out there to think stocks like KO and AXP are not exciting or value picks today.  If you disagree, that's fine....eventually we will find out.

[Lakesider]

Well just to contribute something, I think Berkshires future out performance will come from its liquidity, buying things when at the right valuation.

 

Wasn't trying to be toxic. I was just curious to what mega caps you think brk could buy to replace holdings in KO, KFC, WFC ect in this market that would bring better returns for the next 10 years.

 

Cheers

 

 

[scorpioncapital]

What about growth? I mean, many companies like IBM, ORCL are being penalized with a flat share price for years for having growth either approaching zero, microscopically above zero or contracting slightly. Is Berkshire experiencing organic growth? Growth from acquisitions is a more lumpy process.

 

[ScottHall]

I don't get the bad reaction to alwaysdrawing. I agree with a lot of the points brought up, and think people are being too harsh. I don't see anything offensive about that contra view of Berkshire, part of which is similar to what I've expressed in the past. Berkshire is a great company but I'm not sure it's a great investment anymore, either, and sold my shares after the tax reform run-up.

 

I might buy them back at some point because a lot of its businesses are "old reliable" and there is a place for that in a portfolio, but for me, doubtful to be a "core holding" on account of I like stuff that's a bit higher octane than Berkshire but with much better growth profiles. I see Berkshire as an occasional "role player" for my "team" of stocks, but not something I would build my franchise around. I could see it playing a bigger role for others, though, depending on their risk tolerance and what they're trying to do.

 

One thing that I don't think a lot of investors appreciate is what sort of role a stock will play in their portfolios. Are its traits complementary to the stocks you already have or does adding it weaken the portfolio even if the stock itself is seemingly underpriced. It's something I have been thinking about more lately. I own Markel for similar reasons, it adds value for me because it's not another Google or Amazon or Facebook.

[clutch]

 

Especially if those securities could not reasonably be purchased by Berkshire in volumes enough to move the needle on their portfolio?

 

 

Part of the reason why Buffett is holding onto these stocks is precisely this. He probably cannot find alternative mega cap stocks that fit his investing framework other than, e.g., Apple.

[gfp]

Just to address the question of BRK’s Kraft Heinz cost basis, it is $9.8 Billion. Not 17. See annual report

 

$4.25 Billion for original Heinz equity, $5.26 Billion for Kraft deal [this is $9.51 but has been reduced by cash dividends I assume]

 

$8 Billion Heinz pref, paying $720 million per year for 3 years, $300 million redemption premium in 2016.

[Cigarbutt]

I don't get the bad reaction to alwaysdrawing. I agree with a lot of the points brought up, and think people are being too harsh.

 

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I agree partly. Perhaps in addition to throwing tomatoes on stage, alwaysdrawing could give an example of a specific stock sold in exchange for another large cap bought and justify the move with some numbers. I have a feeling this is done regularly at the head office and may have something to do with recent modifications in terms of the notion of permanence of marketable securities.

 

-----

 

One thing that I don't think a lot of investors appreciate is what sort of role a stock will play in their portfolios. Are its traits complementary to the stocks you already have or does adding it weaken the portfolio even if the stock itself is seemingly underpriced. It's something I have been thinking about more lately. I own Markel for similar reasons, it adds value for me because it's not another Google or Amazon or Facebook.

 

-----

 

Constructive criticism.

I think I see what you may mean (I guess it depends how you define risk) but I submit that it may be getting dangerously close to the modern portfolio diversification definition: give up return in order to feel better.

 

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[rolling]

 

The point here is, that you don't even need growth to make good money, because of the Berkshire float financing these Berkshire positions. [so far, you have got growth, on the mentioned basket, as a whole. I think it'll still grow at a decent clip going forward.]

 

Personally, I disposed of all WFC shares recently, held directly by family members and myself, but that was just another [more or less short term] consideration [i saw better possible outcomes elsewhere with US banks], not including leverage.

 

 

 

Amazing that on a board that is devoted to Warren Buffett, people justify holding any random stock with a positive yield because it's bought using someone else's money.  Buffett got rich through buying large concentrated positions in undervalued securities using the float.  Nonetheless, the underlying investments should be analyzed on merit. 

 

I recognize that there is a large deferred tax benefit from owning hugely appreciated positions in AXP and KO, however those investments will not from today perform satisfactorily by any standard measure of investment success.  The optimistic scenario is 5% returns for those companies.  Is that OK to earn on float in a 0% interest world?  Sure, but as interest rates go up, there will be alternative investments--especially investment grade bonds--and I would guess those "blue chip" companies will be revalued to reflect that the equity in no growth companies is riskier than the cash coupons from investment grade bonds.

Disclaimer: I have no opinion on KO or AXP stocks

 

That being said:

1) tax leverage is for free, if the expected return were a safe 5% BRK would likely earn near 6% with current taxes and over 6,5% with previous taxes. So Buffett would need to find a group of investments that would give him a safe and higher return (while keeping adequate diversification in his portfolio)

 

2) not growing is not necessarily a bad thing: it means all dollars earned are available for imediate distribution. A P/E of 14 would grant him a 7.1% return before tax leverage. A P/E of 20 would grant 5%. Tax leverage adds 20%. How much do you expect from the S&P500?

 

3) brk is a big company that made shareholders rich. If you are already rich, your main objective should be to stay rich. So safety in equity investments is a must for BRK, even if at the cost of a lower return. If you are looking for the stars, you shouldn't buy. That was a mistake I made a few years back that cost me a ton of money (sold 5x and 20x baggers to buy a little more than a double). Fortunately i realized on time and had some excellent years that helped a lot). However, after a few years looking for the stars, as you get nearer them, you start changing your mind and now you just don't want to get poor again: now is finally the time to start buying BRK, at least with a decent chunk of your portfolio

 

 

 

 

[Cardboard]

"Part of the reason why Buffett is holding onto these stocks is precisely this. He probably cannot find alternative mega cap stocks that fit his investing framework other than, e.g., Apple."

 

And it is not like he is out of cash to buy the FANG stocks or something else. So he is making a conscious decision that he does not want to own that stuff. At least at this price.

 

If you think that Buffett is purely passive then you should note that Washington Post became Graham Holdings and it is now gone, effectively sold his P&G stake which had bought Gillette, recently forced the hand of executives at USG to sell out.

 

Therefore I would think that you are quite mistaken to believe that he is not having a very critical look of the portfolio at all times and looking at potential alternatives.

 

Finally, when things go on for a long time, some assume that it will continue forever. Now we have some millenials who have started to invest in the last 5 or 6 years, never experienced a bear market, never experienced a recession, never seen a true panic and are now smarter than the greatest investor of all times... They probably should read the Intelligent Investors and get a feel for history.

 

Cardboard

[DooDiligence]

Give him a minute. He needs to google some outperforming small caps.

 

I feel like I've steered this discussion off the rails here, although I'm surprised the discussion became so toxic.  That was not my intention when I posted in this thread. 

 

I did want to point out that I like Berkshire's wholly owned insurance and utility companies, however I did not like the makeup of the common stock portfolio, and tried to give a surface level criticism of the positions and my thoughts on their prospects.  I didn't want to set off a firestorm--it doesn't seem unusual or out there to think stocks like KO and AXP are not exciting or value picks today.  If you disagree, that's fine....eventually we will find out.

 

TBF, I'm not particularly thrilled with the management of KO (IMHO they seem to be going off the rails with brand line extensions & executive pay.)

Can't really comment intelligently re: AXP except to say that I think Chenault was a douche.

 

https://www.bloomberg.com/features/2015-how-amex-lost-costco/

 

---

 

The point is that you boasted returns & provided nothing solid to back it up.

 

Nearly everyone on COBF will demonstrate their gains & mistakes with unflinching honesty.

(That's why I respect this place so much.)

 

If you make a claim regarding your returns (especially when you've been dogging WEB & Chuck) then put up some evidence.

[Guest longinvestor]

We’re discussing so much about the stock portfolio which has been expressly stated to become the declining value @ Berkshire. The conversion to illiquid holdings is going on unabated. Let’s keep making noise. Cheapness comes from the businesses, the float and the tax benefit there.

[John Hjorth]

"Part of the reason why Buffett is holding onto these stocks is precisely this. He probably cannot find alternative mega cap stocks that fit his investing framework other than, e.g., Apple."

 

And it is not like he is out of cash to buy the FANG stocks or something else. So he is making a conscious decision that he does not want to own that stuff. At least at this price.

 

If you think that Buffett is purely passive then you should note that Washington Post became Graham Holdings and it is now gone, effectively sold his P&G stake which had bought Gillette, recently forced the hand of executives at USG to sell out.

 

Therefore I would think that you are quite mistaken to believe that he is not having a very critical look of the portfolio at all times and looking at potential alternatives.

 

Finally, when things go on for a long time, some assume that it will continue forever. Now we have some millenials who have started to invest in the last 5 or 6 years, never experienced a bear market, never experienced a recession, never seen a true panic and are now smarter than the greatest investor of all times... They probably should read the Intelligent Investors and get a feel for history.

 

Cardboard

 

Those are good points, backed by historical Berkshire facts, Cardboard,

 

I would add Munich Re to your list.

[Jurgis]

I expected better from longtime CoBF participants. Although I don't completely agree with alwaysdrawing's opinion, I am surprised about toxic and dismissive comments. You guys can be better... I hope.

 

Peace

[Liberty]

I don't get the bad reaction to alwaysdrawing. I agree with a lot of the points brought up, and think people are being too harsh. I don't see anything offensive about that contra view of Berkshire

 

I expected better from longtime CoBF participants. Although I don't completely agree with alwaysdrawing's opinion, I am surprised about toxic and dismissive comments. You guys can be better... I hope.

 

Agreed.

[Jurgis]

Nearly everyone on COBF will demonstrate their gains & mistakes with unflinching honesty.

(That's why I respect this place so much.)

 

Actually zero people on CoBF have posted their portfolios and (audited) returns. The annual return threads do not include portfolios and are mostly anonymous polls with very few people posting their returns explicitly connected to the poster. Even the ones who post their returns, don't post their portfolios.

 

So your request is IMO out of line.

[rb]

"Part of the reason why Buffett is holding onto these stocks is precisely this. He probably cannot find alternative mega cap stocks that fit his investing framework other than, e.g., Apple."

 

And it is not like he is out of cash to buy the FANG stocks or something else. So he is making a conscious decision that he does not want to own that stuff. At least at this price.

 

If you think that Buffett is purely passive then you should note that Washington Post became Graham Holdings and it is now gone, effectively sold his P&G stake which had bought Gillette, recently forced the hand of executives at USG to sell out.

 

Therefore I would think that you are quite mistaken to believe that he is not having a very critical look of the portfolio at all times and looking at potential alternatives.

 

Finally, when things go on for a long time, some assume that it will continue forever. Now we have some millenials who have started to invest in the last 5 or 6 years, never experienced a bear market, never experienced a recession, never seen a true panic and are now smarter than the greatest investor of all times... They probably should read the Intelligent Investors and get a feel for history.

 

Cardboard

 

Those are good points, backed by historical Berkshire facts, Cardboard,

 

I would add Munich Re to your list.

And Tesco, Kraft, Johnson & Johnson, Wal-Mart's gone, back in the day Freddie Mac was a huge position that got the boot, IBM was in and out, Exxon was a real quick in and out. There is a list.

[gfp]

I'm sure Warren would love to have places to put money that would soak up the excess capital and force some long-held stock position sale decisions, but most of the time the question is - if I sell AXP or KO, then what?  Sell them to do what with the capital? 

 

AXP and KO might sound like pieces of shit to some folks, but last time I checked they both consistently earned 20-30% return on equity, and the longer you are in a business the more that basic figure matters to your outcome.  How much does this company earn on the actual capital tied up in running the thing, and how sustainable is that.