2019 Annual Letter Out

[Munger_Disciple]

When BV was the metric until recently, Buffett used to discuss the performance of Berkshire BV change vs. S&P 500. It seems odd that the 2019 annual letter never mentioned Berkshire's stock performance which is now the new preferred metric and its comparison to the index at least in a long term sense and future expectations for the performance.

[RadMan24]

Buffett's views on corporate governance are unmatched. Always a joy to read.

[Spekulatius]

I judge Buffett by what he says but mostly by what he does. BRK has looked dirt cheap for 18 months. Berkshire has a growing mountain of cash. Yes, he has bought back 1% of shares outstanding. But that is simply not a significant number.

 

And I find it highly unlikely that BRK buying back 1.5 or 2% of shares outstanding over the course of 12 months is going to materially move the share price. Are there not a few large forced sellers out there like the Gates foundation?

 

Normally the simplest explanation is the correct one. Either Buffett does not think the shares are cheap at current levels. Or he simply has no interest in buying back Berkshire stock.

 

With all the time he has spent over the years writing and talking about what it would take for Berkshire to buy back stock the fact there has been pretty much zero repurchases tells investors all they need to know (on this issue). With regards to stock repurchases it sounds like ‘big hat no cattle’.

 

When i SEE meaningful buyback i will change my mind :-) Having said all that, i do like the company and i own shares :-)

 

Buffet is waiting for a fat pitch. If the stock trades at 80% of fair value and he buy back 10% of the stock, he moved the fair value by 2% - not a big deal really. If the stock goes to 50% of fair value and he can buy back 20% of the outstanding shares now that’s a different story.

 

I think Buffet regarding buying back his own shares the same way than buying anything else ˋ- a 20% undervaluation is just ‘meh’ and doesn’t really interest him. He wants a fat pitch and is willing to wait.

[james22]

I'm no great fan of buybacks, but I take the offer to buyback shares with a phone call as notice they intend to buy back the Gates Foundation shares.

 

No?

[Viking]

 

When i SEE meaningful buyback i will change my mind :-) Having said all that, i do like the company and i own shares :-)

 

What is a meaningful buyback for you? How many shares and up to what price?

 

Mario, taking out 3 or 4% of outstanding shares would tell me he is serious about share buybacks. My view is anything under 1.5 x BV offers decent value; Buffett of course has a different opinion.

[james22]

I'm no great fan of buybacks, but I take the offer to buyback shares with a phone call as notice they intend to buy back the Gates Foundation shares.

 

No?

 

And I'm guessing the will will have a provision to buy back his shares distributed to various foundations?

[rb]

I'm no great fan of buybacks, but I take the offer to buyback shares with a phone call as notice they intend to buy back the Gates Foundation shares.

 

No?

My guess is that the gates foundation already had the phone number.

[MarioP]

 

When i SEE meaningful buyback i will change my mind :-) Having said all that, i do like the company and i own shares :-)

 

What is a meaningful buyback for you? How many shares and up to what price?

 

Mario, taking out 3 or 4% of outstanding shares would tell me he is serious about share buybacks. My view is anything under 1.5 x BV offers decent value; Buffett of course has a different opinion.

 

We bought back 1% for 5 billions at around 1,3x book value.

 

If we want to buy 4% at up to 1,5 that will cost near 24b$ which is all of the operating earnings. I don’t think we will see that soon. I hope more for 5b being a base that will grow at the same pace of op earnings.

 

Naturally this hold only if the price remain in the range of 1,25 to 1,35 bv.

 

If the capex follow the same growth the cash pile should stabilize around 125B : 25B for the insurance need and 100B for elephant hunting.

[Guest longinvestor]

Terrific interview on CNBC! Biggest news items, Buffett gave up on his flip phone and the crypto coin he received at the charity luncheon

[LC]

If we want to buy 4% at up to 1,5 that will cost near 24b$ which is all of the operating earnings

I think that's exactly what he should be doing.

 

He is already sitting on 100+B of cash to make a deal. Rates are super low to provide the remainder of financing.

 

The reasonable solution is to maintain enough cash to make a big deal (if one ever comes along) and re-allocate any excess cash either internally or back to shareholders.

[gfp]

Terrific interview on CNBC! Biggest news items, Buffett gave up on his flip phone and the crypto coin he received at the charity luncheon

 

I thought it was interesting when he was talking about apple - a $75-80 Billion position for Berkshire - that he characterized it as their 3rd biggest commitment after Insurance and the Railroad.  Which indicates roughly how he values those two businesses within Berkshire. 

[thepupil]

Terrific interview on CNBC! Biggest news items, Buffett gave up on his flip phone and the crypto coin he received at the charity luncheon

 

I thought it was interesting when he was talking about apple - a $75-80 Billion position for Berkshire - that he characterized it as their 3rd biggest commitment after Insurance and the Railroad.  Which indicates roughly how he values those two businesses within Berkshire.

 

BNSF 2019 Pre-tax income: $7.2 billion which is 93% of UNP's pre-tax income. UNP is a $121 billion market cap, so it makes sense (assuming that UNP is not wildly over/undervalued) that BNSF is viewed as a bigger position. he also paid $44 billion for BNSF inclusive of debt and paid $35 billion or so for his AAPL stake so he could mean that too.

 

Either way, BNSF is very valuable and has been a great purchase. I'm a heretic and think it would be good to highlight its value through say a taxable spin-off of 5-10% of the company. it already files K's and Q's (as does Energy) and would require no effort; I also don't know this, but I think insurance regulators would like it being public, but maybe not. it's all optical in that i think it would serve a lot of purposes that aren't economic: highlight Berkshire's diversification (it's not a bank stock!) highlight th degree of transparency offered byt BE and BNSF, etc.

 

the counter would be the stub float of BNSF would trade at a discount to UNP and then people would argue for a congo discount on top of that, so it could be value destructive! i would prefer stub flotations of BE and BNSF and maybe even PCP, but I recognize that's probably not a widely held view.

[bizaro86]

Terrific interview on CNBC! Biggest news items, Buffett gave up on his flip phone and the crypto coin he received at the charity luncheon

 

I thought it was interesting when he was talking about apple - a $75-80 Billion position for Berkshire - that he characterized it as their 3rd biggest commitment after Insurance and the Railroad.  Which indicates roughly how he values those two businesses within Berkshire.

 

BNSF 2019 Pre-tax income: $7.2 billion which is 93% of UNP's pre-tax income. UNP is a $121 billion market cap, so it makes sense (assuming that UNP is not wildly over/undervalued) that BNSF is viewed as a bigger position. he also paid $44 billion for BNSF inclusive of debt and paid $35 billion or so for his AAPL stake so he could mean that too.

 

Either way, BNSF is very valuable and has been a great purchase. I'm a heretic and think it would be good to highlight its value through say a taxable spin-off of 5-10% of the company. it already files K's and Q's (as does Energy) and would require no effort; I also don't know this, but I think insurance regulators would like it being public, but maybe not. it's all optical in that i think it would serve a lot of purposes that aren't economic: highlight Berkshire's diversification (it's not a bank stock!) highlight th degree of transparency offered byt BE and BNSF, etc.

 

the counter would be the stub float of BNSF would trade at a discount to UNP and then people would argue for a congo discount on top of that, so it could be value destructive! i would prefer stub flotations of BE and BNSF and maybe even PCP, but I recognize that's probably not a widely held view.

 

I think this would be a reasonable option, but they'd probably have to sell more like 20% of the railroad/utility for there to be reasonable liquidity/not a huge discount in the new stock. The problem that runs in to is that what would they do with all that extra cash? The biggest objection to BRK right now is the cash balance, if they sell $20-30 B of subsidiary stock to the public that just makes the problem worse.

 

They could do a public tender where they offer the sub shares for BRK shares, but somehow I don't see that happening.

[indythinker85]

Full CNBC video from today (would love whole thing in one if anyone sees it)  https://www.google.com/search?q=cnbc+buffett&client=firefox-b-1-d&tbs=qdr:d&tbm=vid&sxsrf=ALeKk02X0A_qfHCa-HyT6XmgN5PkiQV7bQ:1582566122123&tbas=0&source=lnt&sa=X&ved=0ahUKEwjSsquc3urnAhWfgnIEHdZoC40QpwUIIA&biw=1920&bih=923&dpr=1

 

Transcript here http://www.valuewalk.com/2020/02/billionaire-investor-warren-buffett-cnbc/

[alwaysinvert]

I don't think it's comfortably below. If it was comfortably below then they would be buying ooodles of stock but they're not. They weren't buying ooodles around the 200 level either.  So I'd say that they're probably not overly excited the discount.

 

This would be a foolproof argument if they *could* easily buy oodles of stock over the market. But they can't. I'm not saying that he thinks it's at 50% of IV, but probably - at most - something like 80%. There is room to be somewhat more aggressive with bids over the market, but likely not as much as people seem to believe. If suddenly buyback volumes in a quarter were ratcheted up 100% from these levels, the stock would take off, making further buybacks that much harder. There is both a volume problem and a serious front-running issue. Also, as Munger expresed recently, other opportunities are dwindling while cash is growing.

 

He has every incentive to undersell the fact that they were doing buybacks all the way up until Dec 31 and that's what the overall effect of the letter was, while still, oh-so-galantly, offering to relieve people of large blocks of stock. Just like he last did in the 1999 letter, mind you:

 

Recently, when the A shares fell below $45,000, we considered making repurchases. We decided, however, to

delay buying, if indeed we elect to do any, until shareholders have had the chance to review this report. If we do find

that repurchases make sense, we will only rarely place bids on the New York Stock Exchange (“NYSE”). Instead, we

will respond to offers made directly to us at or below the NYSE bid. If you wish to offer stock, have your broker call

Mark Millard at 402-346-1400. When a trade occurs, the broker can either record it in the “third market” or on the

NYSE. We will favor purchase of the B shares if they are selling at more than a 2% discount to the A. We will not

engage in transactions involving fewer than 10 shares of A or 50 shares of B.

Please be clear about one point: We will never make purchases with the intention of stemming a decline in

Berkshire’s price. Rather we will make them if and when we believe that they represent an attractive use of the

Company’s money. At best, repurchases are likely to have only a very minor effect on the future rate of gain in our

stock’s intrinsic value.

I'm sorry, but I'm with Viking on this one.

 

I don't buy the it's hard to buy stock argument. You have to keep in mind that this is Buffett we're talking about. He may be a geezer but he's probably one of the savviest stock traders that ever walked the face of the Earth. He didn't have a problem buying huge amounts of stock in ANY company if it meant making money. And we're not talking here just large companies like Coke and Apple. We're talking obscure shit like Sanford Map and other stuff. The man know how to buy stock if he wants to. But all of a sudden it's hard for him to buy stock in the 5th largest corporation in America? Nah man.

 

If he's not buying huge amounts of stock is because he doesn't want to, not because he can't or doesn't know how.

 

I guess Buffett is just completely full of shit here then:

[John Hjorth]

Terrific interview on CNBC! Biggest news items, Buffett gave up on his flip phone and the crypto coin he received at the charity luncheon

 

I thought it was interesting when he was talking about apple - a $75-80 Billion position for Berkshire - that he characterized it as their 3rd biggest commitment after Insurance and the Railroad.  Which indicates roughly how he values those two businesses within Berkshire. 

 

Good one!, gfp,

 

I did not personally catch that one on the fly. [Letters are good to have, interviews are good to have also, the combination of both is the best, - unfortunately not so much of the latter within the last year or so, ref. what alwaysinvert has posted recently in another topic not so long ago.]

[mjs111]

Full CNBC video from today (would love whole thing in one if anyone sees it)  https://www.google.com/search?q=cnbc+buffett&client=firefox-b-1-d&tbs=qdr:d&tbm=vid&sxsrf=ALeKk02X0A_qfHCa-HyT6XmgN5PkiQV7bQ:1582566122123&tbas=0&source=lnt&sa=X&ved=0ahUKEwjSsquc3urnAhWfgnIEHdZoC40QpwUIIA&biw=1920&bih=923&dpr=1

 

Transcript here http://www.valuewalk.com/2020/02/billionaire-investor-warren-buffett-cnbc/

 

 

full 2 hour interview is here:

https://www.cnbc.com/video/2020/02/24/watch-cnbcs-full-interview-with-berkshire-hathaway-ceo-warren-buffett.html

[indythinker85]

Was just posting this thank you~!!!

[Viking]

Just finished watching the full interview. Here are some of my takeaways:

1.) Buffet is running Berkshire for shareholders but mostly for long term shareholders and the big foundations. He feels an enormous responsibility/loyalty to the long term shareholders. And he feels an enormous responsibility to the foundations that expect (and need) to receive ever growing sums of money in future years. As a result of this obligation to long term shareholders and the foundations safety of principal is of primary importance.

 

(He is NOT running Berkshire to benefit short term shareholders who may see the shares as undervalued and who also see share buybacks as an obvious solution. Rather Berkshire should be viewed as a substitute to traditionally holding a bond in your portfolio. Safe, secure, safety of principal, adequate return. Much better than holding a bond is what i heard over and over again during the interview.)

 

2.) he expects BRK to outperform the S&P500 in a down market (he was quite emphatic about this).

 

3.) both he and Charlie do not understand negative interest rates and they have no idea how things will play out in the coming years.

 

4.) he is mystified who would want to lend money to the government for 10 years and get paid a 1.4% return (and pay taxes on that return) when the policy goal of that same government is to achieve a 2% inflation rate.

 

5.) he is mystified why anyone would pay 2% to own a 30 year government bond. It has a PE of 50 with no ability to grow interest payments over time.

 

6.) Banks pay a nice growing dividend and Berkshire’s share of ownership of the total business is growing 8% per year due to stock buybacks. Compare this to a 30 year government bond where you will earn 2% per year. He thinks Berkshire will do very well over the long term owning banks versus owning bonds.

[MarioP]

Just finished watching the full interview. Here are some of my takeaways:

1.) Buffet is running Berkshire for shareholders but mostly for long term shareholders and the big foundations. He feels an enormous responsibility/loyalty to the long term shareholders. And he feels an enormous responsibility to the foundations that expect (and need) to receive ever growing sums of money in future years. As a result of this obligation to long term shareholders and the foundations safety of principal is of primary importance.

 

(He is NOT running Berkshire to benefit short term shareholders who may see the shares as undervalued and who also see share buybacks as an obvious solution. Rather Berkshire should be viewed as a substitute to traditionally holding a bond in your portfolio. Safe, secure, safety of principal, adequate return. Much better than holding a bond is what i heard over and over again during the interview.)

 

 

Amen! This is the mindset that you have to have to be happy to own Berkshire. And it is nothing new. Back in 1999 when there was a lot of crictism for not buying techno I told to my clients : « you don’t have bond in your portfolio, Berkshire is your bonds. Longterm it is as save and will produce a better return. Don’t expect anything more that a bond from it and you will be happy »

 

Ouf I hope that it is understandable. I’m at the edge of my english.

[LC]

3.) both he and Charlie do not understand negative interest rates and they have no idea how things will play out in the coming years.

 

On this point, I would suggest reviewing the performance of Eurozone banks in their era of negative rates. The banks simply cannot make money in such an environment.

[Guest longinvestor]

I’ll go with Munger’s line on the environment we’re in; “If you’re not confused by it, you’ve not thought about it”. I’d leave it at that.