Mungerish

I just "cut the chord" ( really migrated to another) with comcast, and reupped with VZ for FIOS internet only. Youtube tv + NFLX, + D+, HBO, etc. Saved $2700/yr btwn 2 houses and got faster speed. Would do and have done so in the past with wireless. Creative and streaming services are much stickier and will have some pricing power me thinks but input costs will rise as well. Advertisers are clamoring for inventory now and prices are rising for same. In terms of the three players analogy, read up on FNMA and Freddie before they became wards of the state. Even though they had Oligopoly powers, they competed away the G fees down to absurd levels pre 2007-8.

Great topic, especially given the likelihood of inflation in our future with all the money printing. Definitely low capex CO's given rising input and labor costs. High ROIC companies with high Free CF. Shale drillers would be the exact kind of long tail, high cap ex CO's to avoid. I agree with MSFT above because they will be central to so many businesses life in the cloud now with all the adoption of Office 365, and FB because of coming monetization of products like What's App and Messenger. AAPL may face big push back on 30% commissions for app store and devices are already big price points where others are becoming less expensive. Payment systems that live off the vig. ( V, MC, AXP to lesser extent, PYPL, SQ maybe) Drug companies I am not so sure with gov't payment systems expanding and price regulation. More to come....

I thought some here might find this interesting. I went through my library of annual meeting and interview transcripts searching for discussions on epidemics and pandemics. What follows are the findings with the exception of the most recent CNBC transcript. I think that one should be readily available online to everyone and would have made this post too long in my opinion. MAY 2017 BECKY QUICK: Welcome back to this special edition of "Squawk Box," where we are live in Omaha, Nebraska with Charlie Munger, Warren Buffett and Bill Gates. We are calling this a meeting of the minds and trying to tackle some of the big issues facing our nation and our world today. We've already spoken about health care here in the United States and the tax reform that's under way. Bill, I thought we could talk a little bit about the budget process because this is something that matters to you at the Gates Foundation. You spend, what, about $5 billion a year in programs trying to improve people's lives? I think there's something like 122 million children's lives that have been saved through vaccinations and nutrition provided by the Gates Foundation over the years. When we start hearing things about cuts in the State Department, an 18% cut to the State Department budget, what does that mean? What would happen to the projects that you have worked on over the years? BILL GATES: Yeah, what's amazing is the success that our foundation, working in partnership with the U.S. and others has had, at improving health. And that helps stabilize these countries so that they can get out of their poverty trap. It also lets us see any health problems like a pandemic coming out of those problem countries so we can protect Americans from that. There was a proposal that the State Department would've been cut 28% which, for these health related things, would've been a much bigger cut. And so we're glad that, you know, and looks like the Congress won't make those cuts because they don't think we're so weak that we need to withdraw the malaria bed nets or the HIV medicine. I'm very lucky that I get to go and see the great success and then, you know, say to the U.S. taxpayer, "Hey, we are performing miracles here." 122 million children's lives saved, over ten million people who are alive because we helped provide the drugs, the HIV drugs, the PEPFAR program that started under President Bush. So I think we're strong enough to help stabilize these countries, see the pandemics early. And I think that Congress will maintain these investments. So I'm, you know, I think that's very smart. MAY 2013 BECKY: Yeah. Joe, you have a question as well? JOE: (LAUGH) Yeah. I— I mean, as long as— as— Gates is CI— there are big issues that I'm thinking about. And I— this is something that was in the news last week. I'm just— I'm going to ask it a certain way, Bill. Bioethics. Is it keeping up wi— with technology? And I'm talking about the Chinese scientists have put a bird flu together with the swine flu. Do you think about technology and— and things like this and— and I mean, you— you talk about a brave new world that we're in. Are— are we safe? Can we trust all these different countries though, to abide by— you know, prudent science when we've got this stuff— at— at our disposal? I mean— a very contagious bird flu virus would not help anyone. GATES: Well certainly, the whole area of genetics, though, give us a lot of ethical challenges. And if you want to think about a nightmare scenario that's even worse than— a nuclear bomb going off— bio-terrorism is the area that you— you've got to be concerned. Because, you know, the right sort of construct— either intentionally created or unintentionally created, could do so much damage. The— in the scientific community, there's been this debate about, should— should scientists figure out which mutations would cause, say, a flu to get worse? And then they can see if that's starting to happen and— be more alert. Or should they not try out those things because that information might be— get into the hands of somebody who would misuse the information? And that is a very tough discussion. Lots of reasonable scientists have disagreed— about the— the right approach there. But— it— it is an area, you know, we're lucky that we haven't had a bad flu pandemic— and the fact we had a scare and it wasn't that ba— that bad, made us get a little more prepared. But we're— we— we would still— it— it would still be a huge problem. BECKY: Warren, you've spent a lot of money trying to prevent nuclear— bombs from getting into the wrong hands. BUFFETT: Yeah, and nuclear, chemical and biological. I mean, there are per— people in the world that wish ill on— on— theie neighbors and— and— and— would like to— kill as many people as possible. And— the choke point— is not so much knowledge anymore, with knowledge spreading so much, but— but materials. And— and— I think we've been very fortunate and probably quite vigilant, you know, since 1945 when we unleashed the atom— in avoiding it. But the biological, you know, as Bill says, is probably more of a danger than— than the nuclear. BECKY: We're going to— go to a quick break right now. And— Joe, I think when we come back, we'll have some final thoughts from Warren Buffett and Bill Gates 2010 BECKY: I read the Swiss release, and it said that they are doing this because they think that they can get more for their money in other arenas. I think their goal is to get more than 14 times. Right, 14%., 14% for the investment they're putting in. What's your reason for why you take it on? BUFFETT: I think we'll make money. It's very simple. Now, if there's something terrible, pandemic or if there were some incredible terrorist attack that resulted in mortality in the United States, increasing by a dramatic amount because this is U.S. life business, it's spread all over. I t's not just a few policies. It's millions of policies. Probably hundreds of thousands, certainly. But anything that would change the mortality rate of the United States dramatically upward for any sustained period would be bad for us on this. But if mortality is more or less normal, and particularly if there's some improvement due to medicine over the years and so on so that mortality improves in the country, then we've got a decent, long-term deal. But they've got their own reasons in deploying capital in other areas. It can be a good deal for both sides. Buffett and Gates at Columbia 2009 QUESTION: Hi. My name is Josh Porter. I'm a first-year from North Reading, Massachusetts. It's an honor to have you both here. So we just went through the worst financial crisis of hopefully all of our lifetime. And I know it keeps a lot of Americans up at night, you know, worrying about their future. What, if anything, keeps either of you up at night? BUFFETT: I try to live my life so nothing keeps me up at night. [APPLAUSE] I don't like to sound, you know, like a mortician during an epidemic or anything, but last fall was really quite exciting for me. [LAUGHTER] I don't wish it on anybody, but there were things being offered. There are opportunities for us to do things that didn't exist a year or two earlier. So I really don't -- I don't want to be in a position where I am leveraged or something of the sort that does keep me up at night. I did not worry about the ultimate survival of our economic system. We were messed up. Wasn't any question about that. But the plants haven't gone away. The cornfields haven't gone away. The talent of the American people hasn't gone away. The innovativeness of the next Bill Gates hasn't gone away. This country was going to do fine. I knew that. We just had to get things straightened out. And we're well on the way to having that happen. BECKY: Bill, you mentioned -- [APPLAUSE] You mentioned before that you called Warren and he said, ‘Yeah, we should maybe be a little worried.’ Did you stay up late that night worrying about it? GATES: No. The financial system, fortunately, good leadership has a lot of self-correction built into it. I think there are a few things that could surprise us that are negative. You know, big terrorist event sometime in the next 20 years, that would be a big negative. And a pandemic, which we're actually having in terms of the rate of spread of a new flu, one right now. And fortunately, its actual impact is very modest, way less than any such thing. So you have to keep your eye out for a few outliers like that. Those are the two that I would point to. But overwhelmingly, the rest of the system, you know, there is self-correction built into it. The long-term thing that I don't lose sleep over but I worry about is that we do have our education system, particularly the K through 12 part, not improving as much as we should. And it's an important system for opportunity, it's an important system for the economic strength of the country, and since it hasn't improved that much, that's a bit scary and needs a lot more attention. BUFFETT: Becky, if you had a wonderful farm and you knew the next 50 years there would be five droughts but there would be 45 good years, I mean, you would not become paralyzed thinking about the five drought years. You would recognize that you've got a system that works very well over time, and that's our American economic system. BECKY: Since we just had the drought year, does that make it less likely for the -- BUFFETT: No. If you study statistics at Columbia, you'd recognize that -- [APPLAUSE] Philllip Durrel 2008 meeting and 2009 Press Conf Notes Q. Do you have any examples of unusual insurance risks written by Berkshire and how does Ajit Jain (CEO of National Indemnity and star underwriter) do it? A. We start with historical data and then figure out what else could go wrong. For example historical hurricane data has relevance but we also assess how climate change might affect it. We are pessimistic. We have insured against a pandemic and would insure against a swine flu pandemic if someone asked us but I don't think they'd like our price! We've insured A-Rod against injury, Mike Tyson against dying within 2 years when he was in his mid-twenties and a Pepsico (NYSE: PEP) competition that had a $1 billion payout. Munger - Ajit has a considerable knack for it and we could not put anyone in Ajit's place. Buffett - If Ajit's on holiday we don't write the policy. If we don't know that we have an edge we won't write.

Yes, he did. Not sure if Ted or Todd has bought some back recently. This looks very cheap to me and has a good yield. Trying to get up to speed on the what this oil price dislocation will do crack spreads. Before the Saudi/Russia thing the average price target was 110+...Not that I put much stock in that but they are not all biased buffoons. At $49 here and a 7.76% yield....

Thought this would be of interest here given the discussion around Charter vs. the rest https://www.cnbc.com/video/2020/01/30/att-regulation-media-earnings-squawk-box-panel.html If the road to Charterization within UK and Euroland became clear and visible, LBTYA would be a unique opportunity provided they had the right guy to execute it. Fries may not have many Rutledge-like characteristics.

"Why do you think they won't be given credit because of the lower ARPU's. Ultimately if they do "Charterize" it and increase cash flow, isn't everyone focused on aggregate FCF? and if so, why wouldn't they get credit?" If you read the Liberty investor day transcript on CNBC, Rutledge talks about how the thesis of video being less profitable is generally correct but it's still a profitable and VERY important piece to the business. The overall economics are different at LBTYA as I understand them than at CHTR in terms of revenue per sub, skinny bundles, etc. All of that being said, I only know what I read in the papers when it comes to UK/EUR cable and have no direct experience...which adds to the Too Hard pile lean for me

The more work I do on this, the more I am beginning to think it belongs in the Too Hard pile. So many regulatory agency/issues to deal with. Risk of Technological obsolesce. Risk of Capital Misallocation by Fries. Declining subs/users ( Shared passwords on OTT platforms is a real thing in US among milennials), etc, etc. It's not a melting ice cube, but potentially not a great business going forward and betting on cash flows could result in getting into almost like a Tontine with no catalyst. Malone is great and can't see him letting that go on forever, but he's not getting any younger. Again, it seems like they will follow a CHTR like playbook, but not sure they will be rewarded in the UK and Euro land the same way given the lower ARPU's etc. I'd be curious to hear the other side of this argument

Comments re: CHTR Benjamin Daniel Swinburne Morgan Stanley, Research Division Yes. Yes, because I think in video, you are seeing some of what we see in the U.S., which is your content costs are growing, what, high single digits this year, somewhere along those lines. It's not a sustainable... Charles H. R. Bracken Executive VP & CFO I agree with that. And the danger in our content deals is basically 2 guys, BT Sport and Sky, and these are essentially 4- to 5-year renegotiations. So that will taper down and measure off, depending on where you are in the cycle. But I think you're making the right point, that the model on video -- I'm [indiscernible] Eric Zinterhofer, who is the Chairman of Charter, a couple of weeks ago, and he was saying, to some extent, the U.S. is very relaxed because it's a totally variable model. They don't really mind. And I mean really, the key cash flow growth is coming out of broadband. And I would say Virgin, particularly, that's very much an analogy. We're similar in that respect to the U.S.

From the MS conference in Nov 19 RE CAPEX: Charles H. R. Bracken Executive VP & CFO So if you look at 2018, we spent about $1.06 billion of OpEx and CapEx at the center, which sounds like, wow, that's a big number. And I would split that into 2 numbers. We spent $800 million on what we call technology and innovation. And we spent $260 million on what I would describe as classic corporate. But let me kind of talk a bit about it. So technology and innovation, what we essentially did before we started breaking the company up was we centralized an enormous amount of our technology spend. So what does that mean? We didn't bother to develop a different set-top box platform in every market. We did not bother to develop a separate connectivity platform in every market. We did not ask every company to negotiate its own backhaul across Europe. We did that centrally. We did not ask them to develop a central product suite for things like mobile and B2B. And we also, from a legacy, we also ran a lot of the IT centrally. This is back -- way back in the day when we had a lot of small countries when, in fact, Holland was our biggest country. We had a system called [ Darby ]. So Ireland and Slovakia and Switzerland, all these countries have shared a common IT platform. So that, we spent $800 million. And what we did internally was re-charge that back into the countries. And it was never particularly explicit to investors because we didn't provide that level of disclosure because we were doing an integrated story. It became explicit when we did these TSAs because, in effect, Austria can't work without access to our video platform. Vodafone Ziggo can't work without access to... well, that was the first one. And so -- and also, we'd reached the peak in the investment cycle. So the numbers are that technology and investment number goes from $800 million in 2018, $700 million this year and will go $600 million next year. That's the first piece of news. Secondly, and you've got to be quite an analyst to kind of figure this out, but if you annualize all the TSAs, you reach the conclusion that the operations that we retain, Switzerland, U.K., Poland, Slovakia and Ireland, are bearing $300 million of the cost this year. Of the $700 million, $400 million is the stuff we sold, $300 million is what we retained. And we believe that, that $300 million a year re-charge will be flat to down over the next 6, 7 years. And why are we so confident in that? Because a lot of this cost is third-party flex costs. Our internal labor is only about 10%. It's contracts and licenses. So for example, when Vodafone Ziggo goes off the Darby platform, we will cancel or end those licenses and the flex costs will flex down. And so we're very comfortable that the net re-charge -- just to reiterate, the $300 million, which is divided between those retained companies, will remain. And we're going to start breaking that out for you in our 10-K or -- I think we do in 10-K, but certainly in 10-Qs next year, we're going to show you the cost before and after that re-charge. So investors can see the underlying free cash flow of each of the assets. And then the last bucket was the corporate overhead, which is $260 million. We have reduced that by 30%. So it's going to be about $230 million this year, it will be $200 million next year, which has gone through with significant headcount reduction because it's largely headcount. And that's obviously been painful, but it's done. And so that's hopefully where we stand. So the way to think about it is you look at the underlying free cash flow of our businesses, and we try to break that out; and then there's a $200 million corporate overhead and you should decide how you want to value that.

I am getting the feeling the they are going to try and Charterize LBTYA. Let some subs roll off and focus on free cash flow and data thru fiber and your CAPEX drops due to few set atop box investments, etc. CHTR is a US only story, so slightly different, but the CFO of LBTYA mentioned that same idea at a MS conference and Malone has been highlighting that thesis in these transcripts https://www.cnbc.com/2019/11/21/cnbc-exclusive-cnbc-transcripts-cnbcs-david-fabers-interviews-from-liberty-media-investor-day-today.html https://www.cnbc.com/2018/11/14/cnbc-exclusive-cnbc-excerpts-liberty-media-chairman-john-malone-speaks-with-cnbcs-david-faber-today.html

I have alos enjoyed the conversation here on JEF and do not want the following to sound argumentative. I'm not happy with Handler et al. I do however have a different view on using the Capital Asset Pricing Model and applying a cost of capital of 10% Here's what Buffett said about JPM in the current interest rate climate recently on CNBC (2/20/19): BECKY QUICK: JP Morgan is a relatively new stake. You had 35 million in the third quarter and that was a new stake. You raised it to 50 million – or 50.1 million shares, I should say, in the fourth quarter. Is that your purchase? WARREN BUFFETT: Yeah. BECKY QUICK: Because for a long time, you held it in your own portfolio. Why now? WARREN BUFFETT: I've still got a little bit. But that goes back years and years and years, yeah. BECKY QUICK: So why JP Morgan now? WARREN BUFFETT: Well, the better question is, why we were so dumb about not buying it earlier? And the answer, I was dumb not buying it earlier. But it's a very well-managed bank. And banks are – you can find a bank like JP Morgan THAT EARNS, maybe 15%, maybe 17%, even, on net tangible equity. A business that earns 15% or 16% or 17% on net tangible equity, that's incredible in a world of 3% bonds. I mean, just imagine that you had a deposit account with JP Morgan that they made a mistake and they gave you 15% on it. And they couldn't redeem it. What would you sell that account for? You wouldn't sell it for 100 cents on the dollar. You wouldn't sell it for 200 cents on the dollar. You wouldn't even sell it for 300 cents on the dollar. You have an FDIC-guaranteed instrument that would now be at 300 cents on the dollar. If it was 15% on equity, you'd be earning 5% on it, which is way better than treasuries. Now, if on top of that, your deposit allows you to let your interest compound to some extent, now, that instrument becomes even worth way more. Because if you have an instrument that could compound at 15% for ten years and use the added capital, that's worth way more than three times tangible equity at current interest rates, way more Now CLEARLY, JEF is not JPM.....Lets just say it's earning 6-7% on TBV. Does that make a dollar worth $.70 because your not earning 15%? I would say a volatile bond earning 6-7% in a 2.1% 10 year world is not worth less than par. It's not going out of business soon. It may have managerial issues that are sub optimal, but it's not worth less than TBV Here's a few references from Buffett/ Munger on CAPM that I have always enjoyed when I read or heard them at the meetings: We think all the capital asset pricing model-type reasoning with different rates of risk adjusted return and all that, we tend to think it is — well, we don’t tend to — we think it is nonsense. But we do think it’s also nonsense to get into situations, or to try and evaluate situations, where we don’t have any conviction to speak of as to what the future is going to look like. And we don’t think you can compensate for that by having a higher discount rate and saying it’s riskier, so then I don’t really know what’s going to happen and I’ll have a higher discount rate. That just is not our way of approaching things. https://buffett.cnbc.com/video/2001/04/28/afternoon-session---2001-berkshire-hathaway-annual-meeting.html?&start=5268.81 https://buffett.cnbc.com/video/2001/04/28/afternoon-session---2001-berkshire-hathaway-annual-meeting.html?&start=5721.64

The above is very true. However, the first few years after the shorting debacle were so restrictive in terms of who got in to investor day, you practically needed a blood test to be eligible. One of the two meetings is still done in a basement auditorium with no web cast or transcript. On the valuation: LUK was never a GAAP earnings story. They were turn around guys that were going to get very lumpy results by the nature of what they did. When they merged with JEF, Handler made a point that much of the better deal flow that came to LUK (Think Fortescue Mines) came from Jefferies. Not so much lately: FXCM + Vitesse Energy+ Garcadia and then the asset management start up has been a dud. I'm sure Handler would say the current results are subdued because of all the investments they have made in hiring new bankers, technology, asset management that have been expensed as opposed to being ordinary Capex wherever possible. I still believe TBV to be a conservative benchmark, but in years past 1.5X TBV would have been a reliable historical benchmark for either LUK or JEF independently based on how they actually traded. Given the lack of regard for their shareholders and the way the world has changed, I would not be waiting around for anything near that now.

I forgot to add that if you do a chart of the comp set since the merger the results are disgraceful. I don't want to sound like a bear or a short term oriented long....But the merger was announced in 11/2012. At some point in time, there need to come a rational judgment of the results to shareholders who want more than leaving behind an undervalued stock in their estate.

I agree with you, but the lack of visibility is a Leucadia trait, not Jefferies. Handler used to do quarterly calls before they were acquired. I suspect Joe Steinberg as Chair was dictating some of the public relations/visibility. In the last two years, I think they've loosened up and are now realizing that Handler can't do his job with his hands tied. The Investor Presentation day last year was a good start in helping the market understand the business and its valuation. Hasn't taken yet, but as intrinsic value widens from market price, they eventually will notice. Cheers! There in lies the problem. Handler and Freedman do not have the cred that Ian and Joe had and they can't pull it off. FWIW, I think they all would like to just continue in low profile mode, but its been chronically undervalued for a long time. Joe actually shut down the meeting in March because the audience was really pissed and asking tough questions. Rich and Brian spent the first 20 minutes or so talking about the stock price and not much changes.

The stock price sucks in part because they really suck at Investor Relations and as shareholder stewards. Jamie Dimon can make time to do Quarterly calls and be the ambassador of a great bank... but not Handler. Jamie's even called out the Health Care Banker at JEF on the January call as doing a hell of a job. How is this good for JEF? Handler chalks it up to not wanting to give guidance, etc but that is BS in my opinion. Guidance and visibility are two different things Ever since the MF Global and subsequent shorting campaign that drove them into merging with LUK, they have acted like a black box with no quarterly calls and one investor day per year. Value is not always its own catalyst and even LT shareholders suffer the opportunity costs of sitting in dead money and having to chose to either sell below liquidation value or just keep grinding it out. The one saving grace is that they raised the dividend some and now there is some yield at the current depressed price I believe that the attitude on "the street" is something like: "What professional manager in his/her right mind wants to buy a black box/value trap that's going to kill their performance numbers for god knows how long?" If it weren't for Handler's compensation news, the only time they would get any press for themselves ( excluding analysts appearances) is when Tilman Fertitta and Handler announce something in their Bromance. They got one analyst to cover JEF a while back....But then he changed jobs...so that ended. Really? You're an investment bank and can't get any coverage of your own bank? Kind of hard to believe that it isn't tough on morale to be an investment bank and have your own stock trading at 70% of TBV. They do their own NAV every year that shows substantial upside, but obviously no one is buying in to it, even after they have executed well on monetizing some assets in the merchant bank recently It's worth $27 per share at TBV. Typically that would be a great buy for a bank without huge problems. It's one of my longs and has been a big disappointment for all of the above