Berkshire Q3 2023

[gfp]

2 hours ago, UK said:

So, excluding wildfire losses, operating pretax earning are up 59 per cent in Q3 and 27 per cent YTD? 

 

Who says elephants can't dance:)?

 

 

It really comes down to the earning power of the Insurance operation in this environment.  The biggest factor in this quarter's earnings were insurance underwriting and investment income (dividends and interest).

 

 

[adesigar]

3 hours ago, Spekulatius said:

I think AAPL went into the coffee can, just like KO and AXP did decades ago. I don’t think they will sell.

Yea I’m concerned that AAPL 2023 could turn out be like KO in 1998.

 

Edit. If only AAPL would buy a bunch of BRK shares and they could swap. 

Edited November 4, 2023 by adesigar

[aws]

Make sure when you are thinking about the operating earnings you are considering the huge impact of interest income on the cash pile, a factor that wasn't there at all a couple years ago. $150b+ at 5.25% is almost $2b a quarter in pretax operating income.

[yesman182]

3 hours ago, gfp said:

I agree with you guys except for this bit, “no other company can come close to offer an alternative.  Insane.  And nonsensical. ”

 

obviously there is a strong competitor in Android phones

Android is not a strong competitor in the high school world.  I think I lot of those students will not want to trade down to android in the years to come. 

[treasurehunt]

After tax operating earnings are at a $40 billion annual run rate roughly. Add to that about $14 billion in normalized after-tax capital gains from the equity portfolio (6% pre-tax gains on $310 billion and a 25% tax rate). That's $54 billion of total earnings on a normalized basis. At a current market cap of $760 billion, Berkshire is trading at a P/E of 14 or so. Seems fairly cheap and a better value than the S&P 500, but the stock is no screaming bargain. I'm not adding any value for the optionality of holding a lot of cash, as cash is earning 5% right now.

[yesman182]

1 hour ago, treasurehunt said:

After tax operating earnings are at a $40 billion annual run rate roughly. Add to that about $14 billion in normalized after-tax capital gains from the equity portfolio (6% pre-tax gains on $310 billion and a 25% tax rate). That's $54 billion of total earnings on a normalized basis. At a current market cap of $760 billion, Berkshire is trading at a P/E of 14 or so. Seems fairly cheap and a better value than the S&P 500, but the stock is no screaming bargain. I'm not adding any value for the optionality of holding a lot of cash, as cash is earning 5% right now.

I agree, the only way this is cheap, is if they buy some company for 100 Billion tomorrow with a 15% ROE than you are looking at like $64 billion of earning on a 760 market cap or < 12 PE. Maybe WEB thinks that a large acquisition is more likely in this environment since private equity will have a higher cost of capital and banks might have tighter underwriting standards (if higher for longer lasts)? 

[gfp]

You can wait around for a company this high quality and strong to trade at 12x their real, actual cash earnings (vs. the accounting earnings at most other firms), but you might be waiting for a really long time.  Then when it happens, few will actually buy the shares because of whatever the reason is that it got so cheap in the first place.  This isn't some microcap shitco, it shouldn't trade at 12x clean cash earnings unless something horrible is going on.

[Jaygo]

6 hours ago, sleepydragon said:

Iphone is the new tobacco— highly addictive. When my in law lost her iPhone, she immediately spent a thousand dollar to buy a new one. There’s a video online that in China when a middle school teacher took a kid’s iPhone, the kid neck choked his teacher.

 

I’m not picking on apple specifically and sure as hell am not providing stock investing advice to Buffett. I’m jaygo on the internet, he’s a billionaire genius. 

 

im just thinking along the lines of the goat investor built this incredible conglomerate that has an all weather feel to it but 1/3 of it assets are publicly traded stocks. Why not take a little pressure off the next investment manager and take that down to 15 or 20% of assets and with the proceeds shrink the equity.  
 

it makes those future investment decisions slightly less critical and it will make the mistakes less damaging. If not I’d suspect that it ends up being markel like with a quasi index tracker over time because most are too afraid to work in buffetts shadow and ruin what he built. 
 

 

[Malmqky]

47 minutes ago, Jaygo said:

I’m not picking on apple specifically and sure as hell am not providing stock investing advice to Buffett. I’m jaygo on the internet, he’s a billionaire genius. 

 

im just thinking along the lines of the goat investor built this incredible conglomerate that has an all weather feel to it but 1/3 of it assets are publicly traded stocks. Why not take a little pressure off the next investment manager and take that down to 15 or 20% of assets and with the proceeds shrink the equity.  
 

it makes those future investment decisions slightly less critical and it will make the mistakes less damaging. If not I’d suspect that it ends up being markel like with a quasi index tracker over time because most are too afraid to work in buffetts shadow and ruin what he built. 
 

 

 

Wasn't Apple originally a Ted pick? Yes Buffett gets most of the the credit for making it a sizeable position, etc. But surely Ted should get some credit as well.

 

I think Ted and Todd are fantastic in their own right, and I don't think Berkshire should shrink the publicly traded assets for a reason that boils down to "it might make them feel less pressured". I also think Ted and Todd are mentally...strong? developed? (idk the word) to not feel pressured by working within "Buffett's shadow". I don't think we should care what the average investor thinks of their inevitable mistakes either, they're going to be compared to Buffett no matter what.

Edited November 5, 2023 by Malmqky

[Jaygo]

I think it was a Ted pick or at least the idea. But WB was likely the one to put it on in size. Ideas are a dime a dozen, knowing when to go big is the secret sauce and they really hit a home run.  
 

doesn’t it seem crazy having 156b in apple vs a market cap of 800b. Its almost 20% of cap. Taxes ect will make the numbers imprecise but wowza. Take 50 billion and buy in the stock and we’d still have a gigantic stake in apple spread over 6% fewer BRK shares.  

[CanadianMunger]

3 hours ago, gfp said:

You can wait around for a company this high quality and strong to trade at 12x their real, actual cash earnings (vs. the accounting earnings at most other firms), but you might be waiting for a really long time.  Then when it happens, few will actually buy the shares because of whatever the reason is that it got so cheap in the first place.  This isn't some microcap shitco, it shouldn't trade at 12x clean cash earnings unless something horrible is going on.

 

As usual, the best take around.

[sleepydragon]

5 hours ago, treasurehunt said:

After tax operating earnings are at a $40 billion annual run rate roughly. Add to that about $14 billion in normalized after-tax capital gains from the equity portfolio (6% pre-tax gains on $310 billion and a 25% tax rate). That's $54 billion of total earnings on a normalized basis. At a current market cap of $760 billion, Berkshire is trading at a P/E of 14 or so. Seems fairly cheap and a better value than the S&P 500, but the stock is no screaming bargain. I'm not adding any value for the optionality of holding a lot of cash, as cash is earning 5% right now.

If you are looking for screaming bargains, I have bought Baba at 85 and 120 (down from 200ish) and Porsche (which I have sold) at 70% “NAV”.. not doing too well on those ! 

 

[UK]

6 hours ago, gfp said:

 

 

It really comes down to the earning power of the Insurance operation in this environment.  The biggest factor in this quarter's earnings were insurance underwriting and investment income (dividends and interest).

 

 

 

Long live higher (normal?) interest rates. Isn't it nice, how at the same time higher rates are starting to hurt a lot of (most?) companies and sectors, BRK's insurance operation is starting to perform so good? I also remember WB talking about need for more normal interest rate envirinment, in order to achieve higher longterm BRK returns. Insurance should be also be more or less recession proof, just in case it happens in the future. All of this should also apply 100 per cent for FFH:)

[UK]

2 hours ago, Jaygo said:

doesn’t it seem crazy having 156b in apple vs a market cap of 800b. Its almost 20% of cap. Taxes ect will make the numbers imprecise but wowza. Take 50 billion and buy in the stock and we’d still have a gigantic stake in apple spread over 6% fewer BRK shares.  

 

I sometimes feel this way, especially looking only at value of their stock portfolio and Apple position size. But is it really so9 crazy at 20 per cent from total assets or value? Even if something really bad happens to Apple (China/Taiwan?) and it's stock price halves, it would be only 10 per cent hit vs BRK's market cap. It is hardly a tragedy, a week ago it was down the same amount or liitle more from it's September ATH.

[John Hjorth]

7 hours ago, Jaygo said:

... im just thinking along the lines of the goat investor built this incredible conglomerate that has an all weather feel to it but 1/3 of it assets are publicly traded stocks. Why not take a little pressure off the next investment manager and take that down to 15 or 20% of assets and with the proceeds shrink the equity.  
 

it makes those future investment decisions slightly less critical and it will make the mistakes less damaging. If not I’d suspect that it ends up being markel like with a quasi index tracker over time because most are too afraid to work in buffetts shadow and ruin what he built. 

 

If in future the guy or the guys reposible for capital allocation aren't value for the money, capable of the job requirements and start burning through billions of dollars, they should be fired swiftly. If the pressure from the job is umananageable on personal level, the is not for that person, and the person should resign on own initiative. They aren't exactly working pro bono. Weshler and Combs aren't exactly spring rabbits either, and will retire some day, too.

 

The same way the board should do the same with Mr. Buffett if signs appear of he is fading and loosing it, and starts on a spree of huge mistakes.

 

Why on Earth should Berkshire suddenly pay an enormous deferred tax, surfacing, because of sales of stocks, after spending decades building it [the deferred tax]?

 

The capital allocated to public listed stocks is mainly capital in the insurance companies, subject to dividend restrictions, and what may regulatory surplus insurance capital affects the underwriting capacity of the insurance subs.

 

I want more of the same as in the past, I do not want derisking and by that diminishing returns.

[Luca]

My biggest worry is that deals become harder and harder to find due to the size of assets, which stand at a Trillion now. They are basically unable to buy big positions in businesses below 20b Marketcap and even then it will be hard to buy enough shares over time. Those positions also dont do much of a dent to the performance either, even if they 10x. 

Edited November 5, 2023 by Luca

[treasurehunt]

5 hours ago, sleepydragon said:

If you are looking for screaming bargains, I have bought Baba at 85 and 120 (down from 200ish) and Porsche (which I have sold) at 70% “NAV”.. not doing too well on those ! 

 

Berkshire is almost 25% of my portfolio and I have concluded that my foray into BABA was a mistake, so I am not fixated on screaming bargains. Just pointing out that Berkshire doesn't look particularly cheap. I won't be buying any at the current price, but I have no plans to sell any either.

[Charlie]

"It's not an elephant dancing, it's a crowd of elephants, dancing! "

 

Yeah it is a crowd of very profitable elephants dancing, but when I sometimes hear people argue that Berkshire is too big to grow, 

I always think of a Munger quote of the annual meeting 10 years ago:

 

"If your system is decentralization to the point of abdication, what difference does it make how many subsidiaries you have?" 

[gfp]

It should be noted, though, that Berkshire’s operating subsidiaries outside of Insurance are not performing particularly well. They are profitable, but a not shooting the lights out. This is partially due to economic weakness, partially due to their particular mix of industries.   Business is hard - they ain’t all Apples and Googles

[Charlie]

"It should be noted, though, that Berkshire’s operating subsidiaries outside of Insurance are not performing particularly well. They are profitable, but a not shooting the lights out. This is partially due to economic weakness, partially due to their particular mix of industries.   Business is hard - they ain’t all Apples and Googles"

 

The flowers will grow, the weed will get cut. 

[Munger_Disciple]

1 hour ago, gfp said:

It should be noted, though, that Berkshire’s operating subsidiaries outside of Insurance are not performing particularly well. They are profitable, but a not shooting the lights out. This is partially due to economic weakness, partially due to their particular mix of industries.   Business is hard - they ain’t all Apples and Googles

 

+1. Utility earnings were impacted due to reserves for wildfire law suit costs. From 10-Q:

 

After-tax earnings of BHE declined 68.9% in the third quarter and 46.3% in the first nine months of 2023 compared to 2022. The earnings decline in the first nine months reflected lower earnings from the U.S. regulated utilities, reflecting increased wildfire loss estimates, as well as lower earnings from other energy businesses and real estate brokerage businesses.

 

It is crazy that regulated utilities (where all the capex needs to be approved by regulators) have to pay for wildfire costs.  

[Charlie]

Munger in a recent interview:

 

Andrew: What do you think about the predictability of… there were a number of companies back when you started where you could have said this business will be the same in 10 years? Do you think that number is the same today, or do you think it's much higher than that?

 

Charlie: I think most places have a lot of change and threat in their future.

 

Ben: Do you think most places had a lot of change and threat in their future even 50 years ago, and this story is over-blown?

 

Charlie: There’s a difference with some of what I call a specialized industrial company, and Berkshire has a lot of them. We have a lot of companies that are quite insulated from really tough competition, just because they've been so long, and they’re so good at what they do and have a good reputation, high value, and so on.

[Munger_Disciple]

More on wildfire looses at PacifiCorp. from 10-Q (underlined emphasis mine):

 

PacifiCorp increased its liability for estimated pre-tax probable Wildfire losses, before expected related insurance recoveries, by $1.4 billion in the third quarter and by $1.9 billion in the first nine months of 2023. Expected probable Wildfire losses, net of expected insurance recoveries, were approximately $1.3 billion in the third quarter and $1.7 billion in the first nine months of 2023. Such amounts were included in energy operating expenses in the accompanying Consolidated Statements of Earnings. PacifiCorp’s cumulative charges to date for estimated probable Wildfire losses were $2.4 billion through September 30, 2023.

 

It is reasonably possible PacifiCorp will incur significant additional Wildfire losses beyond the amounts currently accrued; however, we are currently unable to reasonably estimate the range of possible additional losses that could be incurred due to the number of properties and parties involved, including claimants in the class to the James case, the variation in those types of properties and lack of available details and the ultimate outcome of legal actions.

[Spooky]

Channelling Phil Fisher, my view on a wonderful company like Apple is that the right time to sell is never.

[Gregmal]

Exhibit A for market stupidity 

 

Great earnings… nothing not to like

 

Some asshole in a sweatervest at Cuck Asset Management…”too rich, I’m selling today!”