Berkshire 2020 Q1 Results

[buffetteer1984]

"I dont' know" doesn't mean I don't know EVERYTHING.  Warren clearly has an opinion of america if he once again said don't bet against it.  He also has enough of an opinion to hold 200 billion in equities and other subsidiaries.  He also has enough of an opinion that if an elephant of 30,40,50 billion came on his doorstep on monday he'd do it.  He may not have an opinion on the timing of things or how certain industries will be affected but I feel this "I don't know" message is misleading.  In investing nothing is certain, in good times or bad.  But if you make an investment you do need an opinion of the future. 

 

“I don’t know” is the biggest lesson I learned yesterday from Buffett. It’s an attitude that I hopefully can tell myself all day long as I make decisions. But saying this in an anonymous message board where lots of people seem to know and know better than Buffett is a chuckle. The important difference is that Buffett represents about $400 billion of long term shareholders wealth, including 99% of his. Happy that he’s taking me on as a partner.

[EricSchleien]

"I dont' know" doesn't mean I don't know EVERYTHING.  Warren clearly has an opinion of america if he once again said don't bet against it.  He also has enough of an opinion to hold 200 billion in equities and other subsidiaries.  He also has enough of an opinion that if an elephant of 30,40,50 billion came on his doorstep on monday he'd do it.  He may not have an opinion on the timing of things or how certain industries will be affected but I feel this "I don't know" message is misleading.  In investing nothing is certain, in good times or bad.  But if you make an investment you do need an opinion of the future. 

 

“I don’t know” is the biggest lesson I learned yesterday from Buffett. It’s an attitude that I hopefully can tell myself all day long as I make decisions. But saying this in an anonymous message board where lots of people seem to know and know better than Buffett is a chuckle. The important difference is that Buffett represents about $400 billion of long term shareholders wealth, including 99% of his. Happy that he’s taking me on as a partner.

 

The distinction of Mushen vs Mushen Mushen

[vinod1]

Transcript of the Annual Meeting.

 

https://www.rev.com/blog/transcripts/warren-buffett-berkshire-hathaway-annual-meeting-transcript-2020

 

Vinod

[steph]

Did Buffett buy a lot in 2008 - 2009?  I mean by that: did he buy directly in the market?  From what I remember he was continuously offered deals he couldn't refuse.  Lot's of preferred shares which he has always loved.  But open market buys in regular shares? 

It just doesn't seem to be his thing even when markets go down 50%.  He prefers shares with some guarantees attached or buying 100% of companies.     

[DanielGMask]

“I don’t know” is the biggest lesson I learned yesterday from Buffett. It’s an attitude that I hopefully can tell myself all day long as I make decisions. But saying this in an anonymous message board where lots of people seem to know and know better than Buffett is a chuckle. The important difference is that Buffett represents about $400 billion of long term shareholders wealth, including 99% of his. Happy that he’s taking me on as a partner.

 

I totally agree with this statement.

[sleepydragon]

Mr. Buffett is not running a casino. We shouldn’t  expect him to bet on the stock market when it’s down a merely 30%. He is running a business, and he probably see how bad this virus is effecting businesses better than us.

If you want to bet, you can always bet using your own money. But Buffett has other responsibilities, including supporting the various Berkshire businesses and survive no matter what happens.

 

[Cigarbutt]

Transcript of the Annual Meeting.

https://www.rev.com/blog/transcripts/warren-buffett-berkshire-hathaway-annual-meeting-transcript-2020

Vinod

Thank you Vinod and the transcript (even if the body language, tone etc are missing) was an efficient way to get through the event.

 

Apologies to burden this thread with historical nonsense but Mr. Buffett refers to 1955 senate hearings which has a section between Senator Fulbright and Mr. Benjamin Graham (see below if interested) and which contains delicious verbal exchanges.

https://www8.gsb.columbia.edu/sites/valueinvesting/files/files/DOC014%281%29.pdf

As Mr. Buffett says being smart doesn't correlate 100% to being wise but Mr. Graham had a unique way to explain things. i would say there are relevant comments versus where we stand today.

For those using a rule of three for the interest levels gravity rule, when Mr. Graham testified in early 1955, 10-yr rates were the same as in 2019. Since 2019, 10-yr rates got divided by four and stock market cap to GDP is now about 4 times the level in 1955 so mathematically, it makes sense..

It's fascinating that (page 527) Mr. Graham candidly reports that he "had pretty well anticipated the 1929 decline". It's what happened after that induced a post-traumatic disorder of sorts which infused a huge dose of humility and resulted in Mr. Graham, in 1955, to suggest that prudence was in order even if most indicators revealed a very reasonable risk-reward profile, especially given a long term perspective, because he always remained, after, animated by an unusual degree of fear when there was a market swing from doubt to confidence.

 

Mr. Buffett refers also to those hearings and to Mr. William McChesney Martin who also testified but the punchbowl comment was made by Mr. Martin later in 1955 when he presented to a group of bankers:

"The Federal Reserve, ... , after the recent increase in the discount rate, is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up."

So, who knows where we are now, in terms of party momentum?

Maybe a way to try to answer is to use the opening passage of Mr. Martin's speech, that fall when referring to the teacher who, year after year, kept asking the same exam questions: "When he was asked how his students could possibly fail the test, he replied simply, ''Well, it's true that the questions don't change, but the answers do.""

[mattee2264]

As I remember what really got Graham into trouble during the Crash was leverage. Like a good value investor he sold too soon and bought too early but the combination of modest use of leverage and an unprecedented further decline in the market wiped him out.

 

I like the idea of doubling the high grade interest rates to get to a multiplier. It is a lot more conservative than the Fed model especially as Treasury rates have been very distorted by monetary manipulation. And it also builds in a margin of safety because I don't think the current AA bond yield of just under 2% adequately reflects the risks in corporate credits. On the other hand at very low interest rates it translates into a very low absolute risk premium of only 200 basis points. I would probably want at least a 500 basis point premium to the risk free rate (which is currently close to zero) so would be more comfortable with a 20 x multiple.

 

Also difficult to figure out what earnings number to use. The Shiller 10 year past average is just over 100 while the 2019 trailing number is 140. Probably the correct number is something in between.

 

Slap a 20 x multiple on 120 and you get to 2400 for a fair value. That feels about right. Of course usually bear markets bottom well below fair value. But I think at 2400 you could expect decent long term returns.

 

 

 

[Cigarbutt]

As I remember what really got Graham into trouble during the Crash was leverage. Like a good value investor he sold too soon and bought too early but the combination of modest use of leverage and an unprecedented further decline in the market wiped him out.

...

That and the fact that, during the first leg down, he let the large long-short part of his fund go net long (typically long convertible preferred vs short common). 1930 was a year when Mr. Graham tried to limit the damage by 'covering' and bringing down margin debt.

 

Results:

                Benjamin Graham Joint Account*    Dow Jones Industrials 1930

1929                        -20%                                        -15%

1930                        -50%                                        -29%

1931                        -16%                                        -48%

1932                        - 3%                                          -17%

For entire period        -70%                                        -74%

*numbers integrating regular distributions made along the way

Note: on a money-weighted basis, results are even more brutal as fund investors withdrew amounts during the earlier years.

 

The above results are illustrative only, have little predictive power and perhaps should be used only as some kind of stress test if you enter the period with about 44% leverage, like Mr. Graham did.

It looks like Mr. Buffett wants to enter this period with a slightly excessive cash position. Who could blame him?

It's been said that Mr. Graham eventually regretted not following the advice of Mr. Dix, the 93-year old retired businessman whom he met in early 1930.

 

[nickenumbers]

Guys,

 

After watching WEB at the shareholder's meeting this past weekend, I am coming to the conclusion that he has changed.  And, that is fine.  We all change.  It depends on where we are at in our life and what life throws at us.

 

But, I am thinking that Bayesian Thinking is in order here with WEB and BRK.  We all want what WAS, this historical WEB and CM.  But, so much has changed to them and to BRK, that old reality is gone, forever and for good.  And, listening to WEB this weekend, he is a different guy.  He is in capital preservation mode, slow down mode.

 

With Bayesian Thinking, now with new information about WEB and BRK, I need to forget the past, or reduce it's weight in the present.

 

I will respect and listen to WEB and CM, but I will NOT rely on them as much to make capital allocation decisions for me.  I sold some BRK-B today.

[jgyetzer]

I think he would agree with you about being more focused on wealth preservation than maximizing returns. It seems to me he’s been saying that for quite a while.

[petec]

I have never been to Woodstock for Capitalists and now I know why. Wasted 4 hours of my life watching the AGM this morning. Great for non-shareholders (all the stuff about betting on America and index funds) and grandstanders (all the questions about how do we change society) but very few insightful questions (and therefore answers) about the business.

 

Not Warren's fault, and I don't really think he can do anything else given how high profile he is, but a great shame in my view. There is far more of long term value in the average quarterly call, which is saying something.

 

Edit: oops. Wrong thread.

[LC]

I have never been to Woodstock for Capitalists and now I know why. Wasted 4 hours of my life watching the AGM this morning. Great for non-shareholders (all the stuff about betting on America and index funds) and grandstanders (all the questions about how do we change society) but very few insightful questions (and therefore answers) about the business.

 

Not Warren's fault, and I don't really think he can do anything else given how high profile he is, but a great shame in my view. There is far more of long term value in the average quarterly call, which is saying something.

 

Edit: oops. Wrong thread.

 

I think the transcript is the best. You can skip the stuff you aren't interested in.

[petec]

I have never been to Woodstock for Capitalists and now I know why. Wasted 4 hours of my life watching the AGM this morning. Great for non-shareholders (all the stuff about betting on America and index funds) and grandstanders (all the questions about how do we change society) but very few insightful questions (and therefore answers) about the business.

 

Not Warren's fault, and I don't really think he can do anything else given how high profile he is, but a great shame in my view. There is far more of long term value in the average quarterly call, which is saying something.

 

Edit: oops. Wrong thread.

 

I think the transcript is the best. You can skip the stuff you aren't interested in.

 

Sure. Still a missed opportunity though.

[vinod1]

I have never been to Woodstock for Capitalists and now I know why. Wasted 4 hours of my life watching the AGM this morning. Great for non-shareholders (all the stuff about betting on America and index funds) and grandstanders (all the questions about how do we change society) but very few insightful questions (and therefore answers) about the business.

 

Not Warren's fault, and I don't really think he can do anything else given how high profile he is, but a great shame in my view. There is far more of long term value in the average quarterly call, which is saying something.

 

Edit: oops. Wrong thread.

 

I went through the Berkshire meeting transcripts from 1994 to 2019. Copied the most interesting ones into the attached document. Getting an error. Will try later.

 

Should go some way towards mitigating your 4 hour loss :)

 

Vinod

[vinod1]

Still getting an error. Uploaded here.

 

http://vinodp.com/documents/investing/BRK%20Key%20Questions.pdf

 

Vinod

[LC]

Still getting an error. Uploaded here.

 

http://vinodp.com/documents/investing/BRK%20Key%20Questions.pdf

 

Vinod

 

Wow, what a contribution. Thank you!

[Munger_Disciple]

I thought this was the best question of the annual meeting.

 

Becky Quick: (03:08:37)

I got a number of variations on this next question, some more polite than others. This one’s right about down-the-middle. But this is from [Mark Blakely 00:03:08:44] who writes in from Tulsa, Oklahoma, and he says “Like many, I’m a proud Berkshire Hathaway shareholder. However, in comparing the performance of Berkshire with the S&P 500 over the last 5, 10 or 15 years, I’ve been disappointed in Berkshire’s under-performance. Even year to date, Berkshire is trailing the S&P 500 by 8%. To what would you attribute Berkshire’s under-performance? While I can’t imagine ever selling my Berkshire stock at some point, money is money.”

 

Warren Buffett: (03:09:11)

No, I agree with everything that, I forgot his name, but just said. I mean the truth is that I recommend the S&P500 to people. And I happen to believe that Berkshire is about as solid as any single investment can be, in terms of earning reasonable returns over time. But, I would not want to bet my life on whether we beat the S&P500 over the next 10 years. I obviously think there’s a reasonable chance of doing it, and we’ve had periods, I don’t know how many out of the 50 55 years we’ve been doing it or, I don’t know how many we’ve beaten or not. I mentioned earlier that 1954 was my best year, but I was working with absolutely with peanuts, unfortunately. And, I think if you work with small sums of money, I think there is some chance of a few people that really do bring something to the game.

 

In the pre-meeting interview, he said the gap between FAANGM stocks & others actually widened in the crisis because (except for Netflix) they don't need capital to grow. It is hard not to reach the conclusion that Warren now thinks it is much harder and less optimistic about BRK's chances to beat the index than he used to even a couple of years back. I used to think Warren was low balling shareholder expectations in the past annual meetings, but I am not so sure now.

 

 

[scorpioncapital]

So why doesn't he just plunk down the 130b into the sp500 index?

 

[Munger_Disciple]

So why doesn't he just plunk down the 130b into the sp500 index?

 

 

I am assuming you know he cannot plunk down the entire $130B because of insurance liabilities. Even if does so with most of the "free" cash, that is no guarantee BRK will beat the index. That depends on the performance of operating subs.

[Viking]

Still getting an error. Uploaded here.

 

http://vinodp.com/documents/investing/BRK%20Key%20Questions.pdf

 

Vinod

 

Wow, what a contribution. Thank you!

 

+1