zarley

Alice Schroeder on CNBC today implied something interesting about the announcement. She thinks it may be another in several steps leading to Buffett stepping down as CEO, while retaining his position as Chairman. The buyback would, in effect, place a floor under the shares in the event of a sell-off related to Buffett's change in engagement. It's clearly a theme for her, as she latched onto the use of retirement in the release announcing Weschler's hire. But, it does make some sense as a preparatory step in that case. It ultimately doesn't matter much to me if the buyback announcement is simply price driven or driven by more complicated succession machinations. It seems a welcome and sensible development either way.

Very true that you can't measure complacency. But, my experience is that things like the debt crisis in Europe seem to get brushed off as solvable if only the Europeans would execute the solution. Since I don't see many obvious good solutions for the Greece problem (perhaps some sort of Euro-TARP), and I don't know how exposed/leveraged European banks are to the problem, anxiety fills the hole in my own understanding of things. So, the aftermath of Lehman becomes a template for envisioning how things may play out. The market is down 15% from it's recent peak; that doesn't say fear to me.

Agree 100%. The complacency in the face of bad economic news and potential for serious trouble with the Euro banks is what I find most troubling. It feels a bit like early 2008 in that regard. Even so, I like my stocks and think they are all demonstrably cheap, but I'm not inclined to add to them at this point. I bought some SPY puts on one of the markets previous trips above 1,200 which will offset any serious losses if things blow up this fall. For now I'm waiting to see if/how the Euro debt issue gets resolved. If I miss out on some upside as a result of my caution, that's fine; I'll sleep well.

I'd guess part of that is a reflection of the strengthening dollar.

Buying at the point of maximum pessimism, possibly. I don't own it and haven't given it serious thought, but can a stock or company be more unloved than HP right now? Some discussion of this on Fast Money last night (my secret vice :P), and they mentioned that the whole BOD is up for re-election this year. So, an activist could come in and make serious changes pretty quickly with a little effort. Obviously, it looks cheap based on the financials, but it's such a clusterf**k right now that it would be hard to pull the trigger.

It's official . . . Whitman to be CEO http://money.cnn.com/2011/09/22/technology/hp_ceo_fired/?source=cnn_bin What's happening at HP is a travesty.

I think $3.50 EPS is a layup. Complete the current buyback (takes out another 5%-6% of shares at current prices), grow EPS by another 10% annually, and you're there. Well, I like to be a little conservative. :) This year's net benefited from a lower effective tax rate, which I assume won't carry forward. So, we may see the net margin come down a bit (last year's was 33% with is pretty high historically). My base case scenario includes slowing revenue growth and a bit of margin compression. So, I think the grow eps by 10% annually part might be a little optimistic, certainly possible, but optimistic.

Not Sanjeev, but I do own MSFT. $0.20 is higher than I expected, but I'm not overly concerned about it either way. I think they're content to slowly grow the dividend over time and continue to buy back shares over time. Dividends have been about 20% of operating cash flow over recent years, and I don't think they have a desire to change that significantly. Grow the business Shrink the share count Bump the dividend Rinse and repeat Given the really positive response to Win8 in the last couple weeks I think MSFT is positioned to do good things over the next few years. If they can execute in the tablet space there is a real opportunity for them to start to compete with the ipad, more so than the mediocre android tablets that are out there now. And, if Nokia can execute on the phone hardware, there's another good opportunity there. I don't think it's far fetched for MSFT to have $3.50 - $4.00 per share in eps and a $1.00 dividend within the next 2 years. And yet, it still sports a single digit trailing P/E multiple.

This is exactly where I am at the moment. Their streaming selection is crap. Forcing subscription customers to give serious thought to your value proposition in the way that they did is a boneheaded move. If I weren't pushed into reconsidering, I'd probably have left it alone and kept paying them every month. But, made to think about what I'm getting for my money, I realize that I don't need or want the service. With all the streaming content options I have and Redbox and PPV; why do I need Netflix?

Isn't this typical Buffett though? Stories of this kind of deal making are all over The Snowball and the Lowenstein biography. Clayton Homes jumps to mind, but there are countless others where Buffett makes a bid and refuses to budge, letting the other side sweat until they cave or go somewhere else.

Thanks tom, his points in 2000 are, of course, correct and are applicable today. I'm lukewarm on Tilson generally, but I agree with his overall perspective on BRK. I think he's a bit optimistic in his valuation approach, but not wildly so. Your post reminded me that a conglomerate discount and size penalty probably also apply to BRK. Unfortunately, that means my list of reasons for a price discount to IV is populated mostly with items that aren't likely to change significantly going forward. But, eventually, the value and earning power will be so compelling that a move toward IV is inevitable. Buyback talk from Buffett would be an obvious catalyst for that; but I'm not really counting on it.

My guess about the 1x earnings thing is that he's talking about the implied valuation of the operating subs in a two-column valuation. I haven't looked at the numbers, but that's about the only thing that makes sense of what was written. Perhaps 1x projected normalized earnings for this year or next. "Is BRK cheap?" isn't really a question to me at this point. Yes, it's very cheap. It's hard to come to any other conclusion when looking at the numbers. I'm mostly curious about why, and what will trigger a correction of that situation. My guesses about the "why" include some combination of: Buffett retirement penalty -- triggered and/or exasperated by the Lubrizol/Sokol issue (the opposite of the Buffett Premium) Treated like a generic financial, thus getting taken down with the sector. Similarly, the addition to the S&P 500 probably has the effect of making BRK trade more like a generic stock with flows into and out of index funds and ETFs People simply don't understand BRK Gates Foundation selling - a marginal impact at most I think

I've refinanced twice in the last 4 years. I went from 6.0% to 5.25% to 4.25%. Took more than $500 per month off my mortgage payments in the process. I've simply added most of that back as an extra payment each month and will wind up paying off the loan well in advance. Just looked at current rates and could probably get down to 3.75% if I pay a point to buy down the rate; but i don't think it's worth it at this point.

Bloomberg story on Ted Weschler: http://www.bloomberg.com/news/2011-09-13/buffett-s-new-hire-weschler-is-marathoner-whose-bofa-bet-beat-berkshire.html I don't know anything about his house, but this part sounded like pure Buffett. My initial/gut reaction to this hire is much more positive than the Combs hire.

Huntsman does appear to be far more moderate. "To be clear. I believe in evolution and trust scientists on global warming. Call me crazy," - Ron Huntsman Which explains why he's running at about 1% in the GOP polls right now. :)

Hmmm . . . another hire for BRK. Thanks for the link saumil.

Thanks Sanjeev; that's interesting. Despite my collection of unknown unknowns about Europe, I don't think the situation is comparable to 2008 at this point. As you note, the Fall of 2008 included seizing credit markets and absolute uncertainty about the financial system. Europe's debt issues have not yet reached that point (obviously). My worry is that I can't assign a probability to something equivalent happening as a result of the Euro mess. And, even if Europe's problems are substantially contained, the value destruction of writing down those assets would, I think, affect the US markets. So, I'm trying to prepare for a significant down move without giving up too much upside potential.

As always, Howard Marks has a great summation of the current situation: http://www.gurufocus.com/news/144983/howard-marks-of-oaktree--whats-behind-the-downturn He appears to have many of the same questions about Europe and how things play out. And Parsad, I don't disagree with you much about volatility and opportunity. But, my current position is that of heads I win, tails I don't lose too much. I'll be better positioned to capitalize on a significant downturn (if it occurs), while retaining good upside potential of my current holdings. I'll sleep a little better forgoing more potential upside while insuring against significant pain to the downside. A question for you though. Aside from your own ability to deal with extreme volatility (or a replay of 2008) what about your responsibility to your clients? Que sera sera is fine when you make that a conscious choice, but your investors may not be so sanguine. Not intended as a slight, or a critique of how you fulfill your fiduciary responsibilities to your investors, just curious about if/how your investors feel about the volatility and how that informs your decision making.

I'm ambivalent about Europe. I have a hard time even laying out the scenarios for how Europe plays out over the next 6-12 months. Does a Greek default lead to an unavoidable crack up of the Euro-zone (via defaults in Italy and Portugal)? What does a scenario with multiple sovereign defaults do to European bank balance sheets? Can Germany overcome its distaste for bailing out the peripheral Euro spendthrifts and backstop a bailout? How big would that bailout need to be? As a practical matter, how does a shrinking or dissolution of the Euro-zone play out? How linked are US banks and markets to the fallout of a default scenario? Frankly, I can't answer any of those questions with any conviction. I'm just a guy with a day job trying to make good decisions. I like my portfolio; my stocks are cheap and financially strong (BRK, MSFT, FFH are biggest holdings). I have about 10% cash in my account with another 20% available in case of extreme bargains. And, I have a small hedge in place (SPY puts) mostly as insurance against a return to a sub 1,000 SP500. A replay of 2008 wouldn't kill me, but it would probably make me lose some sleep. But, I'd have a good store of cash available for bargains in that scenario. I'd prefer a clean resolution to the Euro debt issues that avoids a messy aftermath, but I'm not even sure what that would look like.

Updated browser speed test at Tom's Hardware: http://www.tomshardware.com/reviews/web-browser-performance-standard-html5,3013.html#t70059 For Win7, they crown Chrome 13 the winner, but the summary placing tables show how close the competition really is. Chrome, Firefox, and IE all place pretty well, and I'd guess from a performance perspective, they're all about the same.

I disagree. There is simply not that much fiscal stimulus and it's hard to say how any spending is supported by the actions of the Fed. We have structural deficits and a handful of counter-cyclical stabilizers, but very little in the way of stimulus spending. Would the amount of current and planned government spending be more, less, or the same if QE2 didn't happen? IMO, it would be about the same. Absent QE2 would current treasury rates be higher or lower than they are now? Again, I would guess they would be about the same possibly a bit higher (although the 10 yr rate has dropped slightly since the end of QE2). IMO, it was/is a mechanism for transferring money to the financials not supporting an expansion of federal spending. It's all consistent with Friedman's critique of the failures of the Fed during the Great Depression -- which is monetarist scripture.

Monetary policy is not being used to finance fiscal stimulus. It's being used to prop up the M (and possibly a bit of the V) in the quantity theory identity (MV=PQ). It's monetarist in the vein of Fisher and Friedman, not Keynsian. Using fiscal policy for stimulus has been effectively removed from the discussion of how to deal with economic weakness. See the debt ceiling debate.

If QE were some mechanism for financing stimulative government deficits, I might go along with it. But, it's not. It's an alternative to stimulative fiscal policy because the government cannot or will not run larger deficits. As a result, I think blaming Keynes for QE is a bit like blaming Wilbur Wright for 9/11. Sure, you can draw a long circuitous line to get from here to there, but I find it to be quite a stretch. Your definition of keynesian seems to be any policy that attempts to influence the overall economy, that strikes me as way to broad to be useful. With all that said, I don't think an explicit QE3 program is likely or desirable. I think we've reached the point where it is likely to be ineffective and potentially dangerous in the longer term.

Myth, Keynes set the precedent for fiat money, without Keynes doctrine spreading like a virus throughout academia the concept of QE would not even exist in it's present form. LOL so much wrong packed into so few words. Fiat money predates Keynes by several centuries. QE programs (nearly all monetary policy really) is more a result of Monetarists like Milton Friedman, not Keynes. Quick quiz: What economists did Ben Bernanke jokingly apologize to on behalf of the Federal Reserve for making the Great Depression worse? Although, more contemporary "New" Keynesians accept the importance of both monetary and fiscal policy as tools for stimulating economic activity. Monetary policy is not really an important part of Keynes' work. Blame Keynes for the, at best marginally effective, stimulus bill. But, don't blame him for QE.

Here's a link to the BOD: http://h30261.www3.hp.com/phoenix.zhtml?c=71087&p=irol-govboard Most haven't been on the board very long. Other than Andreesen and maybe Whitman, it seems to be filled with non-descript c-suite flunkies, private equity and software people. No wonder HPQ is so screwed up. Who are the owners that voted in that board? http://moneycentral.msn.com/ownership?symbol=HPQ&Holding=5%25+Ownership Looks like it's all institutional ownership, insiders own less than 1%. Might be the poster-child for what happens when the owners are entirely detached from the running of the business. Kind of amazing really, given its history as a partnership / start-up.