Spekulatius

Yes, the letter itself was disappointing. One thing they did do was participate in the Snowflake IPO. I realize it wasn’t him most likely but it should still be mentioned? What did they learn from this. BRK due to their size and diversity is a huge user of technology, can they lever the insight gained from this for investing? I would have liked to hear something about this. 2020 was such an eventful year, but this shareholder letter seems lame. It’s a missed opportunity.

What does this mean? Just a pithy comment. As others mentioned bonds trade at ~2% while equity FCF trades at ~12%. I haven't seen this for a while. Sometimes saw the inverse bonds would trade at ~10% and equity FCF trades at 3-4%. Isn’t this common? With bond yields where they are and investment grade companies borrowing for <2% many many stocks have a wide spread to their equity FCF yield. Admittedly, the yield spread for Berry is one of the widest, but there are lots of other cases in pharma , defense, tobacco, materials etc.

^ Yes, the tax angle makes this even better. When I read the annual letter, it sounded to me that Buffet wanted to go even bigger with BHE, most likely with an large acquisition of an utility. I can see the rationale for covering the entire amount of float (minus the $20B+ in spare change) with regulated investments in Railroads and Utilities. The Utilities yield about ~10% ROE and if that’s mostly tax free, it is a great deal compared to bonds yielding ~2-3%. He needs the insurance co to be overcapitalized because since is still equity, but very low risk. I think his last act may be just to do this and find a large acquisition to supplement BHE. it would be almost Malone like in terms of taxes. Then his successor can run is on autopilot and just worry about the other holdings and the unregulated business within the BRK umbrella.

It seems like he really likes to put more funds into BHE. Come to think about it, an regulated utility is an ideal bond substitute to invest insurance float in - low risk and volatility, secure and growing cash flow for decades and reinvestment potential - ROE around 10% give or take.

Yes, it could be at some point: https://twitter.com/theunemployeda1/status/1363609288913149952?s=21 Note, I was too stupid to recognize this company, despite owning a few shares.

Always liked the idea of owning SRE given the TX utility and exposure to LNG / Mexico growth stories, but never did more than a superficial look due to the CA wildfire noise. Has that been addressed at this point in the wake of PG&E? How do you get comfortable? SRE never had an issue that caused a wildfire. EIX had some smaller issues but never to the scale of PCG. SRE is the best run of the three (by far) then EIX and last PCG. Adding a few more SRE shares. Results came out and headline numbers look good. 10-k size is 77MB :o

I hear you, but the bonds only have to worry about defaults whereas the stock has to worry about the long term growth prospects for plastics. BERY can refi in 5 years is a different statement than “Berry will have >0% organic growth and adapt to changing societal views/uses regarding plastics” I think what’s going on with the liability side is a big positive because BERY is locking in super low cost debt for 5 years and can use the interest saving to invest in growth or return capital. But cheap debt doesn’t really “prove” anything. My money’s on the stock as well. I’m probably being too short term here, but it’s specifically in the Jan 2022 options. If this doesn’t re-rate if/when they prove they can sustain the level of growth and in the <4x levered range, I think I’m missing something What is a really the longer term risk here? Berry is a packaging business, not a plastic business. If plastic is at some point phased out for something more environmentally sustainable, like a plant based degradable polymer, then Berry would just use this input material instead of hydrocarbon based polymer and they should be fine. It might shift some competitive dynamics, but the business by itself is not going away. The bigger risk is with producers of polymers like DD, BASF and Lyondell who need to adapt, but the users of polymers should be fine.

Yeah, I own FNF--I got into it pretty recently, when people here were talking about Old Republic a few month back. But when I looked at the title insurance industry, Fidelity National looked more interesting to me than ORI. I like the title insurance business. I think it has a couple competitive advantages that make it less competitive than the broader insurance business, a captive sales force and proprietary databases. So, I think it's more like an oligopoly than other more commoditized insurance markets. That said, I don't think it's a good idea to just annualize their last quarter, because sales volumes of title insurance follow sales volumes of real estate. If rising interest rates crimp real estate transactions, it'll likely hurt Fidelity National's top line. That said, despite that cyclicality, I think it's a reasonable stock to hold throughout the full cycle, because, unlike the commodity cycle, I don't get the sense that title insurance prices are fluctuating much, but just volumes. I also looked at other title insurers besides ORI after I established a position and while FNF looked attractive, I did not like the acquisition of a life and annuity insurer. While I understand they it may be counter cyclical to the title insurance business in terms of interest sensitively life/ annuity insurance and sales is a much worse business than title insurance. So, I ended up buying a bit of FAF when it dunked, which worked out reasonable well. Both FNF and FAF’s title insurance business seem to be better tun than ORI and I like that FAF invests a fair bit in automation/ software to reduce cost and simplify the process for the customer.

Sold the remainder of my CBOE.

Growth stocks: A bit of AMZN (which I sold previously at lower levels ?) and a bit of FROG.

Yes, that's a real risk but manageable, at this point, IMO, for the reasons below. You may like the book that wabuffo referred to: When Money Dies (if you haven't already). Even if the macro stuff is felt to be irrelevant, the book describes several interesting social phenomena that occurred then, for example when people started to look for an alternative (any) for the fiat currency (stocks for a while, cigars, apples and even rutabagas?). The author also describes well the non-linear changes that can occur when trust is lost (ties in well with the velocity concept if you believe in this) with people buying their food in the morning before the food gets more expensive during the day. Something that the book helps with is to differentiate from the 70s or today and the essential ingredients necessary for runaway inflation. There has to be an alternative. The Weimar hyperinflation story is a currency exchange story. For the USD, what is the alternative: the euro, the yen, the renminbi, bitcoin?, asteroid mining? In the 70s, when the tie to gold was definitely severed, there was a time-limited crisis of confidence until it was realized that the USD had become the indispensable global reserve currency. I haven’t read the book, but We had studied this period in history courses in Grammar school and I actually heard Forst hand accounts from my grandparents. Germany actually had two hyperinflation periods one after WW1 and another one during and after WW2. In both cases, the economy evolved into a barter economy, Those poor souls that lived from a salary and got paid In cash would run to the sore when they got their pay and buy good right away, so money velocity would go way up. For many (including some workers who would get paid in goods) the economy evolved into a barter economy where instead of cash, good were used as a medium of exchange and store of value. After We2 those were famously cigarettes, but anything food or boozy would work almost as well. So there is always and alternative, it is just a matter how convenient and efficient it will be. I think now it may be gold, Bitcoin or foreign currencies like Euro or Swiss Franc if the USD fails. The other thing if note is the reflexivity of hyperinflation. If most people loose the trust in the currency then the currency is toast. a it was one of Hjilmar Schacht masterstroke to reverse this and issue a Rentenmark which really was nothing else than the former Reichsmarks with 9 zeros scratched out. However he could convince the populace that the way forward would be different and that was enough to break the reflexivity patterns (in addition, the printing presses would go way slower) which is really remarkable considering how far things were gone. FWIW,I think Powell made a mistake stating they he would run inflation hot for a while. I think Greenspan’s “Oracle” talk would be better as everyone interpreted what he stated it the way they like and he could do as he pleased without contradicting himself and losing credibility.

Life insurers should do well with rising interest rates. All long tail insurers will benefit from higher rates.

Why is buying a stock for whatever reason illegal? What does any of this have to do with the rule of law? Also, if you think the stock is manipulated, why deal with this stock at all? Nobody forces you to play here.

Just because the interest rates "can't go up" doesn't mean they wont go up. 8)

Apparently, Honda is going to launch a level 3 self driving car in March: https://asia.nikkei.com/Spotlight/The-Big-Story/Back-seat-driver-How-Honda-stole-the-lead-in-autonomous-cars That would be the first commercially available, Tesla’s and competitors are Level 2. (Got this from Teddy Okuyama’s newsletter, free and highly recommended).

Defining just exactly what ‘inflation’ is is part of the challenge. One example is real estate in Vancouver. Single family home prices are expected to increase this year 20-30% (maybe as soon as this spring). Crazy. And prices were already at bubble levels. This looks like asset inflation to me. Ever rising prices :-) So i agree rates and ‘inflation’ often don’t move in the same way. Relative to foreigners Vancouver RE has gone down in prices because Canadian currency has devalued significantly. That’s not correct, the CAD has been strong relative to the USD and is close to a 5 year high. https://finance.yahoo.com/quote/CADUSD=X?p=CADUSD=X&.tsrc=fin-srch

I agree that Shinoken doesn’t look like a typically Japanese value trap, but spawning née business is a very Japanese thing (that’s how the Keiretsu evolved after all) and many companies start new business lines that often waste capital and don’t work out. Shinoken does better here because their business seems to be working out. Now we we just need a CEO that is friendly to gaijin shareholders.

I agree BLUE seems too cheap with an EV ~$530M for some leading edge clinical programs. I think there is a chance that the gene therapy will get approved, but it is going to take some time. I own some BMRN (bought after the crash) and they are looking at a 1-2 year delays for what looks like smaller issue. Perhaps a larger Pharma or biotech becomes interested and takes them out. At this point, I do think the risk reward looks favorable.

The service sector will be interesting since essentially the min wage will be $15 (Walmart raised it to $15 after Target and Amazon did so). I assume that will set essentially the floor for wages going forward. I think this time, inflation will come from wages, not from energy and commodities like in the 70’s. That may not be that great for corporate profit margins, at least in some sectors.

If you are tradesman in the affected area, your phone is probably ringing non-stop - what do you need Angi’s list or any other intermediary for? That’s the problem with Angi’s list, currently there isn’t enough supply of services. Of there is a demand issue, then it’s a different story and Angi’s list can shine to generate demand for underutilized crafts people. Right now it’s the opposite. I have used Angi’s list years ago with great success when we moved to a new area and needed an AC system replaced. At that time, many contractors were underutilized, so we get offers. We used contacts from our realtor, Angi’s list and Costco (which ended up being the most expensive offer despite a promotion they were running). Nowadays, you are happy if anyone answers your phone or replies to an email. They don’t need Angi’s list at all right now. Angi’s list can add value, if they bring additional supply to market or help ew contractors just starting out etc. Fixed price is great from a customer perspective but sort of misses the mark when the main question is “how quickly” rather than “hoe much?”. So I don’t think Angi will benefit from this situation at least not in the short term. For the longer term, they can probably use this crisis as a customer acquisition tool (even if they can’t covert them into revenues near term).

Another thought is that the transfer of 3% of the shares to a foundation, which I assume is controlled by chairman Shinohara too, is just a move to ensure control now that more and more gaijin show up as shareholders and may make some noise. Shinohara owns ~18.5% himself, so another ~3% that he controls without really paying anything up sure doesn’t hurt in this respect.

So, I listened to Monish talk and it feel to me like he found a hammer and now everything looks like a nail. just to repeat it, a spawner is a company who’s management is able to create new business lines that aren’t just a continuation of existing ones. They are different than rollups, conglomerates or just companies that wokr one vertical really well (like McDonalds). The examples are already lacking - how is Facebook a spawner? First of all, all the business are very closely related and second, none of the new business like Instagram, Whatsup, Ocolus were purchased and developed in house. now perhaps one can say it doesn’t matter, but I think the distinction is important because FB right now doesn’t seem to be able to purchase competing or adjacent business any more so they can’t be a spawner. Similarity, how is Google a spawner? Youtube wasn’t invented in house either and the Google bets seem more like throwing a lot of stuff on the wall and hoping that something sticks? I don’t see a spawner DNA here either. I also think spawner as defined above are extremely rare and hard to find at a l scale because how do you know if they are good at this or just waste money? it boils down to finding very good managment early on, if they pursue a spawner approach, rollup or grow just one vertical doesn’t really matter as long as they are good at what they do. Spawner that fit the definition are probably Alibaba, Tencent and Amazon in tech and in a way Nestle in consumer goods.

Hi Brad, Loved the talk from Monish - hope to hear your perspective very soon. I found two but I would argue that they have appreciated in price quite a bit. Games Workshop Group PLC (GAW.L): Creates miniatures for board games, most known for Warhammer 40k, think it will grow especially with the video games they let develop. Endor AG (E2N.MU): Sells racing wheels for PC and consoles, should pick up steam with racing games becoming more popular . Helios Towers: Cellular Towers in Africa. Why do you think any of the above qualify as spawners? If so, which new business lines have they created?

Tech companies routinely compensate executives with options and dilutive share creation, so I don't see why this is seen as terrible, that he created 3% more shares to give to charity. It's certainly a negative, but are such things more common in Japan? I don’t think share based compensation is that common in Japan, outside of the tech sector perhaps. The problem with this share donation is not that it fundamentally changes the story for this in terms of valuation, it puts in question the managements fairness and capital allocation. There are plenty of cheap stocks in Japan and they are very easy to find. What is hard to find are cheap stocks with capable management and reasonable capital allocation. I think in this regard, Shinoken is now a bit more of a question mark. Well at least it has a rising dividend going for it, but that alone is unlikely to give shareholders a reasonable return.

Bluebirds sickle cell gene therapy has composition from VRTX using CRISP. VRTX is now in Phase II. a bluebird used to be in the lead, but VRTX appears to be catching up: https://www.fool.com/investing/2020/12/12/watch-out-bluebird-bio-crispr-is-on-your-heels/ I just took some interest in VRTX and bought a small position the last few days. I think it is a cheap way to own a bleeding edge biotech/Pharma hybrid that may have a lot of growth in front of them.