Very long term holding periods

[Cod Liver Oil]

15 hours ago, John Hjorth said:

 

@Cod Liver Oil,

 

Why do you consider it a dark art? It reads entertaining to me. [I may be over-interpreting your choise of words.] Likely, it's about  which tax systems we on a indiviual basis are subject to, based on where we are subject to taxation.

 

@John Hjorth I say it as a joke because long term thinking involves some sorcery. Man plans, God laughs. At least half the things I plan, do not happen.

Human intention is a weak force in the universe. Systems probably have better robustness. For instance, I have noticed a lot of generational wealth created in RE so that seems like a fertile place to look. I am looking for things that will persist and not obsolete, trophy assets like a great brand (DIS or Nintendo) or something with scarcity (a team or a well located mine), or an irreplaceable right of way (railways). These are things that supersede the frailty of the humans involved. As Buffett said, an idiot will probably manage your investment at some point, so it needs to withstand a Zaslav or two.

[dealraker]

Railways are truly long term anti-fragile.  Railroads may have times of trouble.  My view is that the over-the-top Hunter Harrison efficiency model that the railroads (all but Burlington) have implemented have brought forward quickly most of the gains that would have been gotten in the future.  At present my view is that the railroads are understaffed and have employment policies that are so awful change is inevitable.

 

I do find it so interesting that Harrison, the chain smoking cut-and-cut guy, came to CSX after his stints in Canada and did the axe job fast and furious.   Along the way he began the fast track to being out-of-here and ended up working almost none whatsoever at CSX.  All while getting hundreds of millions in compensation.

 

So once again, Harrison stood for precisely what he wasn't and he became yet another classic example of wealth transfer vs wealth build.  Over time CSX would have, or could have, gotten all the gains a tad slower giving more respect to both customers and employees.

 

We'll see how this goes.  My guess is the same as it has been for years: UNP, CSX, and NSC have not done as well - if you are a long term investor - as it appears that they have.  We shall see.  

 

Most use short term stock prices as proof of their belief.  I tend to use long term stock prices as proof of belief.  Long term is long term, not short term.  We haven't seen the long term result of all this efficiency obsession yet.    Note that Berkshire/Burlington did not do this model.

Edited December 7, 2022 by dealraker
spellin'

[Gregmal]

5 minutes ago, dealraker said:

Railways are truly long term anti-fragile.

Best railway ever went bankrupt. Today is it TPL.

[dealraker]

While we are on the railroads keep in mind that rather than cap ex UNP, CSX, and NSC have endebted themselves buying back stock.  Check the stock proce buy-backs for more clarity on all of this outlay of cash.

 

My guess is Warren Buffett isn't impressed watching the Harrison model.

[gfp]

With no stock to buy back, Buffett is busy steadily dividending out the last of his cost basis.  Who says Warren doesn't do private equity

Edited December 7, 2022 by gfp

[SharperDingaan]

Some pretty obvious choices to us ...

US weapons, booze, and the cure for venereal disease! 

 

SD

[Castanza]

In my opinion the further out you look the more boring you need to get. I don't look out 50 years with any type of confidence when it comes to my tech investments. But when I look at PG, JNJ it's easy to see humans still needing toothpaste and deodorant. I look at my GOOGL position and think I have no clue what tech will be like in 50 years let alone 20 years. We truly are in the first inning of technological advancement. 

 

For all we know, some kid in 1st grade right now will be the one who solves P vs NP 20 years from now and essentially render all modern encryption useless. That would radically change technology. But guess what? People will still need toothpaste and a place to live. 

[Gregmal]

Just now, Castanza said:

it's easy to see humans still needing toothpaste and deodorant.

This became questionable as the tech and crypto booms took over the past few years.

[Castanza]

lmao well the need is still there, but some may choose not to partake. 

[Jaygo]

This is a fun exercise but i see it as being a bit detrimental to our investing performance. We all like to think about the future but what we should look at is the past. What has stood the test of time. 

 

Booze, guns and bullets, ships, cigarettes, death, food, horses, pets, some railways, real estate, entertainment, transportation, sex and snake oil, the telephone, Banking, newspapers

 

Not many companies in the above industries have stayed in their industry and sustained that long nor have they been outperformers. 

 

If you bought into acme buggy whips two decades before the auto your out of luck, Union railroad you may have gotten lucky but i'm not sure if the performance would be the best, bankrupt in 1893. Smith and wesson founded in 1852 has stood the test of time but id rather have held amazon for the past 20 years. ATT no thanks, some of the baby bells have crushed it though, what one did you pick? Wells Fargo has almost zeroed a few times even though banking is still around, lehman and a whole host gone forever. Coke has been a home run and it is one of very few who has stayed in one industry and never went bankrupt.

 

If we want to buy and never sell for some kind of shits and giggles fine but i dont see how that is the best investment decision. I know for a fact that Buffett didn't buy blue chip stamps with 50 years in mind. He bought it and him and charlie used it to buy new stuff with a better future.

 

Because it is a fun exercise I will play.

 

1. I say one one of the oil sands companies will be here in 50, we will burn every hydrocarbon available and that's a big pile of em. 100 plus years of reserves

2. I'm going to put Coke and Pepsi on here because people will still want shitty food and drinks no matter what.

3. Its kind of random but i will put big paint on the list. Sherwin, BM and PPG. Paint is a low luster industry but incredibly important to maintaining our infrastructure. The pace of technological change is slower than watching... nevermind.

4. Nutrien probably keeps its corporate structure but i dont think it will be a homerun.

 

I would have said cigarettes, bayer and the chemical companies but i could see the wrong governments bankrupting these guys for their sins one day.

 

[Gamecock-YT]

Things that people get legally addicted to: Nicotine, Alcohol, Sugar, Gambling, and Caffeine seem the most stable. Smartphones, Social Media, Harder drugs, and the internet seem a bit more harder to lock down.

[zzzyx]

15 hours ago, LearningMachine said:

U-Haul is an example of a business that Munger and Buffett would say is one of the worst in inflation.

 

LOL....appeal to authority without really looking at the business.  OK.

[LearningMachine]

41 minutes ago, zzzyx said:

 

LOL....appeal to authority without really looking at the business.  OK.

 

UHaul PP&E: $10,469 million

Uhaul highest annual FCF to date: $631 million

 

$10,469/631 = 16.59

 

That is extremely high.  This means they need many many years of FCF to replace their fleet at inflated prices. 

 

In other words, won't be able to give that FCF to shareholders. 

 

I realize these numbers are from https://www.macrotrends.net/stocks/charts/UHAL/amerco/free-cash-flow, not from 10K, and so there might be some accuracy issues, but I don't need to look deeper to be more accurate when numbers are this bad.  

 

There is a lot of info out there to digest.  So, I've to filter out what not to look at deeper quickly.

 

Edited December 7, 2022 by LearningMachine

[Masterofnone]

Just look at the Berkshire wholly owned companies. WEB gets his extra value over goodwill from the durability of the earnings stream. Shoes didn't work, but the vast majority of these businesses will be profitable in 20-50 years. None of them are sexy.

[thepupil]

7 minutes ago, LearningMachine said:

 

UHaul PP&E: $10,469 million

Uhaul highest annual FCF to date: $631 million

 

$10,469/631 = 16.59

 

That is extremely high.  This means they need many many years of FCF to replace their fleet at inflated prices. 

 

In other words, won't be able to give that FCF to shareholders. 

 

I realize these numbers are from https://www.macrotrends.net/stocks/charts/UHAL/amerco/free-cash-flow, not from 10K, and so there might be some accuracy issues, but I don't need to look deeper to be more accurate when numbers are this bad.  

 

There is a lot of info out there to digest.  So, I've to filter out what not to look at deeper quickly.

 

 

how do you know all that was maintenance capex?

 

Uhaul is a low leverage conservatively run self storage business (short leases, small % of customer budget, low maint capex) and the leading DIY truck rental biz (scale buyer, cheapest way move shit, etc). I think it would have many qualities that make it a good LT inflation hedge and that your assumption that all investment is maintenance capex is misguided and runs counter to what I've heard from many long term owners/students of the business. 

 

Since '94, UHAL has returned 14%/annum, 10 yr = 18%/yr, 5 yr = 12%/yr

 

I think Berkshire would buy UHAL in a heartbeat if given the chance (as Berkshire has been speculated as a potential LT home for the company).  

 

 

[thepupil]

also you may wish to consider their land/building ownership regarding replacing their "fleet".

 

like at least open a financial statement before making a sweeping authoritative statement about the business...

 

[zzzyx]

25 minutes ago, LearningMachine said:

That is extremely high.  This means they need many many years of FCF to replace their fleet at inflated prices. 

 

You do understand the difference between replacing the fleet and buying/building new self-storage buildings, right?  From this statement it doesn't really seem like you do.

[thepupil]

 

not to beat a dead horse, but the company went from 153,000 units to 638,000 units (12.5mm to 53mm sf) over the last decade w/o share issuance. gonna go out on a limb and say some of the capex was growth capex. 

 

 

 

[zzzyx]

7 minutes ago, thepupil said:

not to beat a dead horse, but the company went from 153,000 units to 638,000 units (12.5mm to 53mm sf) over the last decade w/o share issuance. gonna go out on a limb and say some of the capex was growth capex. 

 

LOL

[tnathan]

Would also add things like the aggregates businesses here (VMC, MLM)...volume is set by market demand which fluctuates, but there is no substitute and the market is so localized (it's not economical to transport rocks long distances) that pricing power is immense, assuming all local queries are acting rationally (not always the case but as the big players get more share over time it is becoming that way).

[LearningMachine]

1 hour ago, thepupil said:

 

not to beat a dead horse, but the company went from 153,000 units to 638,000 units (12.5mm to 53mm sf) over the last decade w/o share issuance. gonna go out on a limb and say some of the capex was growth capex. 

 

 

 

 

 

1 hour ago, thepupil said:

also you may wish to consider their land/building ownership regarding replacing their "fleet".

 

like at least open a financial statement before making a sweeping authoritative statement about the business...

 

 

 

I acknowledged above getting numbers straight from macrotrends, and not opening up financial statements because PP&E numbers were so terrible. 

 

Given your snapshot above, Rental trucks, rental trailers and other rental equipment, furniture and equipment add up to $6.69 billion.

 

If cost of replacing that doubles to $13.38B, where is the extra cash going to come from? 

 

You will answer that they can increase prices. 

 

However, if you do the math, by increasing prices per year at rate of inflation, you realize the extra cash from price increase minus extra opex, doesn't add up to you getting all the extra cash needed to replace, while maintaining your FCF to shareholders at rate of inflation. 

 

The reason this happens is because cost of replacing PP&E is going up at rate of inflation, while your operating profits could also be going up at rate of inflation. However, PP&E is a much bigger base number compared to operating profits, and so, cost of replacing PP&E ends up being a much bigger number than the increases in operating profits. 

 

Edited December 7, 2022 by LearningMachine

[Dinar]

Most of the cap ex comes from the self-storage business, which requires very little maintenance cap ex.

[thepupil]

1 hour ago, LearningMachine said:

 

 

 

 

I acknowledged above getting numbers straight from macrotrends, and not opening up financial statements because PP&E numbers were so terrible. 

 

 

right, but they're actually like 1/2 of what the numbers indicated, so you're making an asusmption with bad data. No one is forcing you to look at UHAL, and in the end you can prioritize what you wish, but just think you mischaracterized the biz w/o doing any work (which i sometimes do too, and like when people correct my high level impression w/ data). 

 

About 1/2 of gross capex is purchases of rental equipment. If you net this w/ sales of PP&E (which I'm not sure one can do fully, but I think that line is them disposing old trucks), it's more like 1/3. One has a very different view of the capital intensity/maint capex when looking at the company as a self storage company with a truck rental biz. vs just a truck rental biz.

 

Also you seem to assume higher inflation / much higher rates as fact, when in my opinion it is one scenario of many (we've had this discussion multiple times though, so no need to rehash ad nauseum)

[LearningMachine]

6 hours ago, thepupil said:

 

right, but they're actually like 1/2 of what the numbers indicated, so you're making an asusmption with bad data. No one is forcing you to look at UHAL, and in the end you can prioritize what you wish, but just think you mischaracterized the biz w/o doing any work (which i sometimes do too, and like when people correct my high level impression w/ data). 

 

Also you seem to assume higher inflation / much higher rates as fact, when in my opinion it is one scenario of many (we've had this discussion multiple times though, so no need to rehash ad nauseum)

 

Thanks @thepupil for coming back with real data and accurately summarizing the bad assumption I made by looking at macrotrends only. From my perspective, in this case, I was willing to rule out looking at it deeper, because the PP&E numbers were so so terrible that I realized that even if they were quiet a bit off of what was in macrotrends, it would still be terrible for me to look any deeper. 

 

Hold behold, even half the PP&E of what is in macrotrends is still terrible compared to their highest annual FCF-to-date. 

 

Yes, we have had the discussion multiple times even prior to any inflation showing up on me considering what would happen to each investment candidate if interest rates/inflation shot up and stayed there.  It was a very unorthodox view when I raised it before inflation showing up.  Hoping it is not that unorthodox anymore. 

 

Don't want to rehash it, but for completeness, this doesn't mean I am saying with certainty that inflation/interest rates will be running high forever, but I'd like to do ok if that were to happen for a long time.   

 

The reason I am not looking at UHAL deeper is I won't do ok if inflation were to run high for a long time.   If that does happen, and cash starts getting eaten up, market will finally realize hey what is happening to the cash.   If it doesn't happen, perhaps, market won't realize that this business is at the mercy of inflation shooting up anytime. 

Edited December 8, 2022 by LearningMachine

[UK]

17 hours ago, dealraker said:

Most use short term stock prices as proof of their belief.  I tend to use long term stock prices as proof of belief.  Long term is long term, not short term.  We haven't seen the long term result of all this efficiency obsession yet.    Note that Berkshire/Burlington did not do this model.

 

I agree with this and am tired from all these questions about not implementing precision railroading at BRK agm. 3g already has prooven that it could be not necessarily good idea even in unregulated consumer staples business, I think it is dangerous in somewhat regulated oligopolly market, providing essential services. I had so many painfull expierences with regulated business outside US, that sometimes it is almost unbelievable, how good these regulated companies are treated in US. Better it stays this way:)))