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Any good summaries of the annual meeting?


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Unlike previous years, I have not seen any good early summaries of the meeting this year.  Is it the wedding and the Osama take out that has everybody's attention?

Here's a link - courtesy Shai Dardashti.

http://valueinvestingresource.blogspot.com/2011/05/2011-berkshire-hathaway-meeting-notes.html

 

Looks like it includes Ben Claremon's note as well from Innoculated Investor.

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Guest Bronco

I like the comment about no income bears no connection to how good a quarter a company had, and that net income is the most deceptive figure.

 

I have argued that goodwill and deferred tax assets are very misleading (actually, they're crap). Add the marked-to-market rules to that.

 

$43B in cash at BRK, including GS repayment.  I'll have to check that - that is awesome.

 

It will be fun to watch this company develop from a bunch of crappy businesses to a bunch of larger businesses.  What's next?  I think we'll know by the end of year.

 

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I like the comment about no income bears no connection to how good a quarter a company had, and that net income is the most deceptive figure.

 

I have argued that goodwill and deferred tax assets are very misleading (actually, they're crap). Add the marked-to-market rules to that.

 

$43B in cash at BRK, including GS repayment.  I'll have to check that - that is awesome.

 

It will be fun to watch this company develop from a bunch of crappy businesses to a bunch of larger businesses.  What's next?  I think we'll know by the end of year.

 

 

 

Bronco - I think goodwill is crap for seeing how good the business is because goodwill is not available for use.

 

Having said that goodwill is important to evaluate how good a job the management is doing with capital allocation. If management made the decision to pay over the book in past then I would like to see the goodwill in balance sheet and also take account of goodwill while calcuating the returns(of business not stocks) in future to judge  if management allocated the capital correctly  by paying over the book in past.

 

In short - To judge, How good the business is -> we don't need goodwill figure.

              To judge, How good the management decisions have been in past -> we do need goodwill figure in statements.

 

Accountant job is to put all informations but our job should be to use the information to make decisions.  I will prefer to keep the goodwill figure because it allows me to judge the management quality.

 

Just my two cents

 

 

 

 

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Guest Bronco

I respect your viewpoint, but note:

 

1) goodwill isn't what management pays over book.  It is what management pays over the rest of the assets at FMV (cash, A/R, fixed assets). 

 

2) goodwill can be written down but not up, so I don't know what the value is to that.

 

3) valuations are made by CPA firms that are FOS

 

4) it is truly a meaningless #

 

The much better way to judge management is see what they paid for the business and how that business has performed (based on normalized earnings or FCF).

 

Accountants just get in the way.  Trust me.  I am one.  I feel bad when I write this, but it is all true.

 

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I think its helpful for the reasons rranjan outlined. Surprisingly enough I am studying for FAR right now and avoiding my multiple choice questions on deferred tax assets and liabilities by posting here. I think these are helpful too.

 

Accounting is a work of beauty once you understand it really. Its when you dont that it turns into a nightmare. The best Finance guys are the ones smart enough to understand accounting, but also smart enough to avoid having to do it.

 

Bronco has your CPA helped you much? I cant wait until this thing is over. Also whats FOS?

 

I agree though. I like the way reports are generated, but believe its up to Management to come up with a way that makes sense. Loews does a beautiful job of this. There financial statements with CNA consolidated are garbage. I agree with you though. A reconciliation of price paid, current earnings / fcf, required capex, and cumulative capex and earnings would be far more useful as an owner with regard to major acquisitions.

 

Actually come to think of it you are right. The valuations inmo are trash and include things like customer lists, and stuff like that. Goodwill is really just a plug after someone at Duff and Phelps has valued assets he hasnt even seen in an industry he doesnt work in. Damn 2 agreements this week, what the hell is going on.

 

---

 

Also Buffett said a word for word transcript is on the Website. Between that and the interviews I am good on the meeting.

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I respect your viewpoint, but note:

 

1) goodwill isn't what management pays over book.  It is what management pays over the rest of the assets at FMV (cash, A/R, fixed assets). 

 

2) goodwill can be written down but not up, so I don't know what the value is to that.

 

3) valuations are made by CPA firms that are FOS

 

4) it is truly a meaningless #

 

The much better way to judge management is see what they paid for the business and how that business has performed (based on normalized earnings or FCF).

 

Accountants just get in the way.  Trust me.  I am one.  I feel bad when I write this, but it is all true.

 

 

My bad. I was using book value and fair value interchangibly here. I should have been careful.

 

I agree though that if you keep writing off the goodwill then it becomes extra work to check back how much they have written off over the years. On top of that if initial FV is

way off the mark then having the goodwill number does not help much.

 

 

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Also Buffett said a word for word transcript is on the Website. Between that and the interviews I am good on the meeting.

Myth - Isn't the transcript only for the Sokol part of the Q&A alone?  Am I missing something?

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In short - To judge, How good the business is -> we don't need goodwill figure.

              To judge, How good the management decisions have been in past -> we do need goodwill figure in statements.

 

 

 

This is pretty much what Buffett seems to have said at the AM.

 

Question 29: Crowd- Questioner asked a question about goodwill, including goodwill when you calculate return on equity and write offs of goodwill.

Buffett: The AOL-Time Warner goodwill should have been written off. In general, goodwill should be not amortized, but should be written off when necessary. Goodwill should also not be used in evaluating a business. What the management is doing and how the operating businesses are doing are what the most important factors. In this case, the focus should be on returns on tangible assets. But when you are assessing how well he and Charlie are doing in calculating return on equity, you need to include goodwill.

 

Vinod

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Also Buffett said a word for word transcript is on the Website. Between that and the interviews I am good on the meeting.

Myth - Isn't the transcript only for the Sokol part of the Q&A alone?  Am I missing something?

 

I havent checked it. About 4 have been posted on Guru focus. I am working my way through those. I think between the 4-5 on GF and the Berkshire site + the videos and interviews its all out there.

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In short - To judge, How good the business is -> we don't need goodwill figure.

              To judge, How good the management decisions have been in past -> we do need goodwill figure in statements.

 

 

 

This is pretty much what Buffett seems to have said at the AM.

 

Question 29: Crowd- Questioner asked a question about goodwill, including goodwill when you calculate return on equity and write offs of goodwill.

Buffett: The AOL-Time Warner goodwill should have been written off. In general, goodwill should be not amortized, but should be written off when necessary. Goodwill should also not be used in evaluating a business. What the management is doing and how the operating businesses are doing are what the most important factors. In this case, the focus should be on returns on tangible assets. But when you are assessing how well he and Charlie are doing in calculating return on equity, you need to include goodwill.

 

Vinod

 

It's been few years but if I remember correctly,  there is very good example for this in "The Essays of Warren Buffet"

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