Berkshire Q2 2020 report

[villainx]

Not to pile on, but that's one of the more notable mistakes.

[RadMan24]

Buffett is the one who said it was a mistake.

 

On Coca-Cola and Gillette:

"I made a mistake" in not selling them at their highs in the late 1990s. "They weren't the focal point of the bubble, but they achieved bubble prices."

 

Indeed.

[wescobrk]

This has to be the closest thing to him in 1969 when he folded up the partnership saying it is a game he doesn't understand. Of course, he still had Berkshire and a few other companies but he went very high to cash.

This has to be a bizarro world for value investors right now. Apple, Tesla, and others have analysts and all of the pundits on CNBC and Bloomberg keep doubling their target price every couple of months.

[Mephistopheles]

FYI, The $125 billion Apple stake is now 25% of Berkshire's Market cap. This doesn't account for the fact that Apple is likely overvalued. I really hope he's started selling.

 

Assuming it's fairly valued though, you are paying $375 billion for the rest of Berkshire.

[boilermaker75]

FYI, The $125 billion Apple stake is now 25% of Berkshire's Market cap. This doesn't account for the fact that Apple is likely overvalued. I really hope he's started selling.

 

Assuming it's fairly valued though, you are paying $375 billion for the rest of Berkshire.

 

Sell the AAPL and buyback  an equivalent amount of BRK.

[wabuffo]

Sell the AAPL and buyback  an equivalent amount of BRK.

 

How about:

 

1) AAPL uses its large cash hoard to buy ~$125B of BRK common stock,

2) Wait two years,

3) AAPL then swaps its holdings of BRK common stock with BRK for BRK's holdings of AAPL common stock in a tax-free exchange,

4) Both companies then retire their newly-acquired own shares (in effect, equivalent to a major stock buyback).

 

8)

 

wabuffo

 

[boilermaker75]

Sell the AAPL and buyback  an equivalent amount of BRK.

 

How about:

 

1) AAPL uses its large cash hoard to buy ~$125B of BRK common stock,

2) Wait two years,

3) AAPL then swaps its holdings of BRK common stock with BRK for BRK's holdings of AAPL common stock in a tax-free exchange,

4) Both companies then retire their newly-acquired own shares (in effect, equivalent to a major stock buyback).

 

8)

 

wabuffo

 

Excellent idea!

[sleepydragon]

Sell the AAPL and buyback  an equivalent amount of BRK.

 

How about:

 

1) AAPL uses its large cash hoard to buy ~$125B of BRK common stock,

2) Wait two years,

3) AAPL then swaps its holdings of BRK common stock with BRK for BRK's holdings of AAPL common stock in a tax-free exchange,

4) Both companies then retire their newly-acquired own shares (in effect, equivalent to a major stock buyback).

 

8)

 

wabuffo

 

I think someone on this board (gfp?) mentioned before that a business division has to be one party of the exchange to get the tax break.

 

[Guest longinvestor]

It’s astounding that AAPL and BRK together hold 300 B cash. And should generate that much over again in the next 5+ years! And if I stick around, my proportional claim on that should be meaningfully higher.

 

Time to lower my finger, hard work, this lifting thing.

[wabuffo]

I think someone on this board (gfp?) mentioned before that a business division has to be one party of the exchange to get the tax break.

 

You (and gfp) are correct!  The actual relevant part of the tax code is Sections 355(a), 355©, 361(a) and 361©.

 

Basically a new corporate structure has to be created by one of the two swappers who will own 100% of the new wholly-owned subsidiary (let's call it NewSub).  The owner of NewSub throws in their assets and then NewSub makes the exchange with the other party to the asset swap. 

 

The most important element to qualifying for Sec. 355 is that the IRS must agree that NewSub's acquired assets have a maximum of 67% of total assets being investment assets.  In other words, someone has to throw in an operating biz that the IRS will recognize as having 33% or more of the total NewSub asset value.  Otherwise, NewSub becomes a disqualified investment corporation and does not qualify for the tax-free exchange.  Cash is classified as an investment asset and doesn't help.

 

In the BRK-Washington Post exchange, the Miami TV station was valued at ~33.33% of NewSub's assets.  In the BRK-PG tax-free exchange, Duracell tipped it over the 33% line. 

 

So we must find an operating business that AAPL can throw into the NewSub (Or AAPL sets up the NewSub and BRK must throw in an operating biz.  It's gonna have to be a big'un since we're talking 34% of $125B in total assets being exchanged here  ::) ). 

 

wabuffo

[rolling]

I think someone on this board (gfp?) mentioned before that a business division has to be one party of the exchange to get the tax break.

 

You (and gfp) are correct!  The actual relevant part of the tax code is Sections 355(a), 355©, 361(a) and 361©.

 

Basically a new corporate structure has to be created by one of the two swappers who will own 100% of the new wholly-owned subsidiary (let's call it NewSub).  The owner of NewSub throws in their assets and then NewSub makes the exchange with the other party to the asset swap. 

 

The most important element to qualifying for Sec. 355 is that the IRS must agree that NewSub's acquired assets have a maximum of 67% of total assets being investment assets.  In other words, someone has to throw in an operating biz that the IRS will recognize as having 33% or more of the total NewSub asset value.  Otherwise, NewSub becomes a disqualified investment corporation and does not qualify for the tax-free exchange.  Cash is classified as an investment asset and doesn't help.

 

In the BRK-Washington Post exchange, the Miami TV station was valued at ~33.33% of NewSub's assets.  In the BRK-PG tax-free exchange, Duracell tipped it over the 33% line. 

 

So we must find an operating business that AAPL can throw into the NewSub (Or AAPL sets up the NewSub and BRK must throw in an operating biz.  It's gonna have to be a big'un since we're talking 34% of $125B in total assets being exchanged here  ::) ). 

 

wabuffo

I’m not sure I understood your last paragraph. But in that line, does Apple have a 43B subsidiary that would be splitable without value loss?

Berkshire has lots if those but Apple does not own berkshire shares (and to put 125B if Apple shares in the transaction it would have to be a huge deal (There aren’t enough brk shares around for such a deal

[ValueMaven]

Barron's had some really interesting comments on BRK in this weekends paper.  I'd suggest you read it.  Nothing we already dont know.  Said BRK is cheap on a P/BV basis @ below 1.2x; comments on more buybacks from WEB, and an estimated 2% divy yield after WEB is no longer around.  Pegged A-share b/v $267,000; which would put the B's @ $178 or so. 

[RadMan24]

Barron's had some really interesting comments on BRK in this weekends paper.  I'd suggest you read it.  Nothing we already dont know.  Said BRK is cheap on a P/BV basis @ below 1.2x; comments on more buybacks from WEB, and an estimated 2% divy yield after WEB is no longer around.  Pegged A-share b/v $267,000; which would put the B's @ $178 or so.

 

Saw that.  Meryl Witmer, a member of the roundtable on Barron's and Berkshire director, bought $2m of Berkshire shortly after annual meeting. At the time-, it was believed Berkshire was trading below 1.1x book, with B-shares around $173. Though the return since then is not Apple like, the near 20% return has done better than the S&P. Like many investors, not all of her picks on the Barron's roundtable pan out, though its always telling when she doesn't have that many, as was the case for the mid-year roundtable in June (just one). 

[omagh]

Barron's had some really interesting comments on BRK in this weekends paper.  I'd suggest you read it.  Nothing we already dont know.  Said BRK is cheap on a P/BV basis @ below 1.2x; comments on more buybacks from WEB, and an estimated 2% divy yield after WEB is no longer around.  Pegged A-share b/v $267,000; which would put the B's @ $178 or so.

https://www.barrons.com/articles/tech-tesla-and-apple-star-as-stocks-keep-rising-51598052420 -- a couple of 'fair use' quotes below:

Berkshire’s class A shares (BRK. A), at around $311,000, look appealing, valued at under 1.2 times estimated Sept. 30 book value of about $267,000. That’s up from a recent low of 1.1 times, but below an average of about 1.4 book value in recent years. The class B shares (BRK. B) trade at about $207.

 

The book value estimate comes from Edward Jones analyst James Shanahan, who has a Buy rating on the shares. “The stock is cheap here,” he says. “Some of the businesses that are struggling are poised to start performing better later this year and in 2021.”

Lately, however, investors have been encouraged about Berkshire’s stock buyback activity. It repurchased $5.1 billion in the second quarter—more than in all of 2019. And buybacks remained strong in July, at an estimated $2 billion-plus, based on Berkshire’s 10-Q filing.

 

Apple’s surging stock is another plus. Berkshire’s stake is now worth about $120 billion, or nearly 25% of Berkshire’s market value.