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Annual Letter - 2021


ValueMaven
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Let's get this started.  1 week away.  Hoping for another quarter with a decent amount of share buyback. I would expect comments on the state of the economy, inflation, and the strength of the operating businesses.  Really interested in seeing managements buyback activity/price levels.  I actually like to look at the 10K first and then read the letter.  

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Letters out. For some reason the first thing I do is jump and check the buyback info:

 

Q4: Total repurchases were 15,668 A share equivalents for a total purchase price of 6.72 billion. The average price of repurchases worked out to 428,900 per A share or 286 per B share. That's a little over 1% of the shares outstanding. There were 1,477,429 A share equivalents outstanding at the end of the year.

 

January 1 - Feb 14 2022: There were 1,476,141 A share equivalents on Feb. 14, indicating a repurchase of approximately 1288 shares for this half of the quarter. We don't know anything about the cost, but probably around $600 million. By any measure it's a big decrease from the rates of the past year, but given the share price was substantially higher that is to be expected.

 

Edit: The letter indicates 1.2 billion in repurchases as of Feb. 23. Not sure if I made a mistake somewhere else, or if Warren is implying about 600 million of additional purchases for Feb. 15-Feb. 23 which are after the amounts reported on the 10-K.

Edited by aws
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Yes - buybacks have slowed materially.  Warren suggested as much in the letter.  OXY preferred was written up and is now carried north of $700M profit.  Im still working my way through...interesting story on TTI and BNSF...I didnt know that!  

Edited by ValueMaven
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Minimum cash threshold has been raised to $30 billion. Not sure if that was mentioned elsewhere previously but it was news to me at least. Still obviously way below the actual cash levels though.

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1 hour ago, ValueMaven said:

interesting story on TTI and BNSF...I didnt know that!  

 

The chain of events leading one to another are always interesting. But does it really mean that BNSF would have never happened ? there are many path that may lead to the same outcome.

 

I just finished watching the Icahn doumnary on HBO. There is part where his son get his father involve in Apple and Netflix. One could say that, if Icahn never gave incentive to his son to flourish, he never would 'explored' Apple as potential investment, Icahn Enterprise would have never invested in Apple pushing its Board for capital return, Tim Cook would have not stepped on the gas, and later on Apple may not have seen interesting to Berkshire's T&Ts, and in turn would not have made it unto Buffett's radar as a candidate for a fat pitch, and today would have never become 1 of 4 giants and pillars of BRK.

 

I just made up an interesting series of event. But does it really mean, that Apple would have never "eventually" been on Buffett's radar, if Icahn's son didn't get involve on his dad's behalf. 

 

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I just reading it quickly but will go back and read it more closely but this is only 11 pages long.

Is this a trend to give more of a spotlight on Greg. A brief letter from Greg but no letters from Ajit or Todd and Ted.No mention at all of Todd and Ted. Is this his first letter that he didn't even put the gain in net worth at the beginning? 

Is the brevity due to he feels like he has said everything he wants to say or is it due to lack of energy and his being in his 90's?

Edited by wescobrk
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That's true he put they are managing $34 billion but we know nothing about their track record for the past 14 years managing billions of dollars.

Have they lagged the S&P for the last 14 years? If so, by how much?

It would be nice to get some information on their track record since they are now managing $32 billion.

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8 minutes ago, wescobrk said:

That's true he put they are managing $34 billion but we know nothing about their track record for the past 14 years managing billions of dollars.

Have they lagged the S&P for the last 14 years? If so, by how much?

It would be nice to get some information on their track record since they are now managing $32 billion.

 

I agree, actual returns would be nice to know, but since their AUM has increased, Warren has given them high praise several times, and they are still working for BRK…I have to assume that they are providing adequate value and their interests are aligned. Beating or lagging the S&P by a couple points here and there are immaterial to me as it probably is with any value investor. My point being, if we knew they were beating regularly or lagging occasionally would it change my perception of them knowing that Warren has picked them for the job, has utmost confidence in them and is increasing their responsibilities…I don’t think it would. I think Warrens praise and show of approval by increasing available capital is enough for me, I trust that if their performance was unsatisfactory they would no longer be in thier position.

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This quote from his letter made me think of one aspect of the great value provided by this board. When we post, should we have a picture in our mind that we are talking to an orangutan? 

 

“Teaching, like writing, has helped me develop and clarify my own thoughts. Charlie calls this phenomenon the orangutan effect: If you sit down with an orangutan and carefully explain to it one of your cherished ideas, you may leave behind a puzzled primate, but will yourself exit thinking more clearly.”

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6 hours ago, wescobrk said:

That's true he put they are managing $34 billion but we know nothing about their track record for the past 14 years managing billions of dollars.

Have they lagged the S&P for the last 14 years? If so, by how much?

It would be nice to get some information on their track record since they are now managing $32 billion.

 

Neither one has worked at Berkshire for 14 years - so not sure what you are referencing here...

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For the longest time, Warren Buffett was against buybacks because it was like stealing from current owners -- even though it was accretive in general. He changed his tune over the last few years...  Did anyone else catch that change of heart? Also, he doesn't talk too much about 3G or Heinz -- it's a footnote.. if anything.

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6 hours ago, schin said:

For the longest time, Warren Buffett was against buybacks because it was like stealing from current owners -- even though it was accretive in general. He changed his tune over the last few years...  Did anyone else catch that change of heart? Also, he doesn't talk too much about 3G or Heinz -- it's a footnote.. if anything.

Is this true? I always assumed he was for the repurchase of shares.

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One thing on which I totally disagree with Warren.  If anything, BRK repurchasing shares generally helps selling shareholders.

 

It is not like BRK goes in and takes away shares from holders who would otherwise keep them.  The selling shareholders decide to sell for whatever reason - move to something else; buy a house; fund retirement.  They put in the order and it gets filled.  Doesn't matter who's on the other side.  If anything, BRK being in the market helps the buyer get a better price.

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15 hours ago, ValueMaven said:

 

Neither one has worked at Berkshire for 14 years - so not sure what you are referencing here...

I was off 3 years. One joined in 2011 and the other in 2012 so 11 years. 

My point stands. 

Over a decade managing billions and not one peep as to their performance.

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Well, if it wasn't for Ted and Todd, chances are we would never have owned Apple.  So what's that worth?

 

And I think in reference to WEB saying that repurchases were bad for shareholders, was only if he knew the shares were very undervalued and did not disclose that prior to buying them back.  He's been very transparent to how he quantifies share repurchases.

 

Cheers!

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23 hours ago, Viking said:

This quote from his letter made me think of one aspect of the great value provided by this board. When we post, should we have a picture in our mind that we are talking to an orangutan? 

 

“Teaching, like writing, has helped me develop and clarify my own thoughts. Charlie calls this phenomenon the orangutan effect: If you sit down with an orangutan and carefully explain to it one of your cherished ideas, you may leave behind a puzzled primate, but will yourself exit thinking more clearly.”

 

 

hahaha. that is funny !

 

 

Food for thoughts:

2018 letter talked about "groves and branches" => Focus on the Forest – Forget the Trees.

2019 letter -- i dont remember it anymore

2020 letter talked about "jewels"

2021 letter talked about "giants"

 

Whether called, giant, jewel or groves, he was talking about the Big 4 just frame differently in each letter.

Almost as if he has nothing much else to say year over year. Maybe there should be 1 letter every 2 years. Like a portfolio manager that knows he is got the best hand and just sticking with what he knows with little or no churn at the macro-portfolio level.

 

perhaps, once FFH letters shrink from +20 pages to like ~10 pages than we can be assured the churn is over as the Chairman no longer feels he needs explaining eloboratly.

 

 

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10 hours ago, StevieV said:

One thing on which I totally disagree with Warren.  If anything, BRK repurchasing shares generally helps selling shareholders.

 

It is not like BRK goes in and takes away shares from holders who would otherwise keep them.  The selling shareholders decide to sell for whatever reason - move to something else; buy a house; fund retirement.  They put in the order and it gets filled.  Doesn't matter who's on the other side.  If anything, BRK being in the market helps the buyer get a better price.

" When the price/value equation is right,

this path is the easiest and most certain way for us to increase your wealth." WEB in this report. What is unclear about that which you disagree with.

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10 hours ago, StevieV said:

One thing on which I totally disagree with Warren.  If anything, BRK repurchasing shares generally helps selling shareholders.

 

It is not like BRK goes in and takes away shares from holders who would otherwise keep them.  The selling shareholders decide to sell for whatever reason - move to something else; buy a house; fund retirement.  They put in the order and it gets filled.  Doesn't matter who's on the other side.  If anything, BRK being in the market helps the buyer get a better price.

I understand the thought/sentiment here and find it curious that Mr. Buffett is ruthless when buying assets he finds at a discount however he has mixed feelings when it comes to buying Berkshire.  Still looking for the lesson - there's usually a lesson to learn with Mr. Buffett's actions.  

 

$27B in buy backs for 2021 and $24B in 2020. For context, largest deal in Berkshire history was Precision Cast for $37B (admittedly overpaid) followed Apple at $36B - purchased over 3 years and lastly BNSF - $34B (debatable to come up with ultimate cost - partial ownership at acquisition and paid for with cash+stock). 

 

 

Energy Business is another place Berkshire is stuffing capital.      

 

Was hoping for more buybacks but I'll take it.  

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In other random news, Yahoo Finance got the boot!  CNBC is now hosting the live feed via internet.  Wonder what caused that change.  Daily Journal had Becky doing questions with Yahoo doing the feed.  Just an interesting note, obviously no financial implication to the business.  

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