Kiltacular

(EDIT -- I see, reading more carefully, that you're probably not looking for this FCIC interview...I'll leave it up in case someone else finds it of use. Apologies) http://fcic.law.stanford.edu/interviews/view/19 Is this what you're looking for? There also is (or at least used to be) a transcript that I got from Santangelsreview.com I might have found the that transcript on this site, so you might try searching this board if you can't find with a search engine.

Good article -- thanks

Always a fun event. I'm sure there were more than a few CoBF readers there. I dont think i have come up with any "big takeaways" at this event, it is like the Bekshire meeting in a way, you almost know what they are going to say most of the time, but it's still fun. The insight from the CarMax guy was a surprise and something new I guess. I added an additional 5% of my portfolio to MKL a couple months ago, partially as a rebalance and partially because there are so few stocks that I can hold today that don't keep me up at night (that is becoming a much more attractive quality to me anymore). Would you expand on CarMax comments? Thanks Anyone have notes or links to same, please post. Thanks

is right, including the last part of the sentence in the article is not right [in the meaning "not said"/"misleading"/"lack of precision in written reporting by a journalist"], though Mr. Buffet states that he follows this relationship between market price of the stock and book value closely. There are a lot of shades in the statement from Mr. Buffett made on this question at the AGM that are worth noting. To me the built in qualifications in the statements af the AGM is about that what potential investment opportunities Mr. Buffett has on his desk at that particular moment when the market price is about 1.2 X BV, as an alternative investment opportunity to share buybacks, and that we will never know. Personally, after listening carefully to the above mentioned slip of the video, I - sucjectively - consider the BRK buy back scheme - at least a bit - more "firm" than "soft" without here trying to quantify it in one way or another. And I like that, going forward with this investment. longinvestor, thank you for bringing my personal attention to this BRK issue/topic. My take on the Berkshire buyback scheme: (1) He doesn't want to buy back any shares (He will...but he doesn't want to...no matter how cheap he thinks they are). (2) He implemented the buyback as a way to guarantee meeting his "beating the S&P metric" -- a dollar retained is worth more in "market value" than in book value...at least 1.2x. Why? Because, he doesn't want to pay a dividend and he doesn't want to buy back any shares...the threshold works for these purposes. But, he's committed to doing some combination of those things if Berkshire's market price doesn't keep up with its growth in BVPS. (3) He doesn't want this obvious set-up to be gamed so he is warning the smart money that, say, in a market crash, your put options might be put to you because he might let the price drop to .9x book (or whatever) for a relatively short period of time, i.e. long enough for most options to expire worthless and/or destroy the people trying to game him.

What a great story and legacy -- thank you for posting. It's still true: "Only in America!"

I like the idea of asking something with a long time horizon. It made me think. I'd probably not make the question too detailed. Like a politician, a public figure on stage like Buffett will often only answer the easiest part. Or, if it is too complex, answer something different. Based on the long horizon insight, here's a question I'd like to see Buffett asked: "You've said in recent years that America's best days are ahead -- do you think that's true even if GDP per capita shrinks over time?"

+1

To answer your question a few months after you asked: It's around 1.40€ now for me not including some gains I made. Obviously I'm not quite happy. Not sure what to do honestly. The company is doing poorish and the stock is doing worse but it's in a hated market making it cheap regardless and I'm in good company (Mittleman, Chou). What are others doing at this point? Phacelia did you end up buying? Packer are you still holding or slowly ready to throw in the towel after almost 2.5 years? I have the same questions as Tom. I'm still in this. I could never give an elevator pitch and made it a dink position. I'd say I bought it because it was in a relatively stable industry and getting pummeled because it was based in Greece. The accounting is beyond opaque. How is the debt trading? I listened to the recording of the latest call -- anyone want to post the transcript? In the call, they reference a presentation. I looked everywhere on the website and couldn't find it. One of the Mittleman brothers asked if/when dividends would be paid up to the group, as they had been in the past. Answer was along the lines of "not this year and can't tell you when". Not inspiring for equity holders. My concern is that this business is being run for the bond holders and, probably insiders that likely own stakes in the minority companies. (An insight mentioned previously by contrarian nick some months ago). If that's the case, it must to some extent be a change from the past? If it is a permanent change, then the story has changed. Opposing that is I don't want to cave on this if there's even a chance that the equity holders will get any love because, I think, if they do this will easily double and possibly much more. But, if it is dead for another 3 to 5 years, I should take my lumps. At least one or two sellers didn't like what they heard on the call and I suspect it was the same nugget I picked out above. So, I too am interested in thoughts of Packer and Nick and anyone else who wants to nudge me one way or another with some useful reasoning and experience in these types of companies.

This should make sense. But, they bailed on Buffett. Buffett seems to really care about loyalty. Ruane seemed to understand that. One (Buffett) could make the case that Sequoia exists because of him. He shouldn't care about this stuff as much as he does, in my opinion. But, I think he cares about it quite a bit more than Sequoia realized. Munger made his comments at the Daily Journal meeting and Buffett put a whole section in the annual letter last year about roll-ups. These were warnings in my opinion. Then, Buffett loyalists Osberg and Lowenstein resigned. I think Sequoia should have seen that the writing was on the wall for Valeant and, at the very least, what would happen to Sequoia (in particular) if the Buffett group was correct. It can be argued the management at Sequoia has suffered more than anyone else. Abandoning Buffett was the big mistake -- I think it's the real reason Munger chimed in (in spite of his 'protesting' otherwise at this year's Daily Journal meeting). If Sequoia was going to sell Berkshire, they should have waited until Buffett was gone -- no matter how poorly they thought Berkshire was going to do. If they had, I don't think this would have gotten so bad for them -- I don't think Munger would have said what he had when he did. It shouldn't have been that way and for that I can sympathize with Sequoia's management. But, like I said, in my opinion, you don't mess with Buffett if he's been loyal to you for 40+ years and sowed the seeds for your existence and was a huge reason for your performance in your first two decades in business. Some day, I predict, Ackman will wish he hadn't made his comments about Buffett and Coke. His only hope is that when his time comes, Buffett is no longer around. Still, Sequoia was selling something different than Ackman is and had attracted a different investor base -- they neglected their particular customer base in a way that Ackman probably hasn't. In any case, Buffett won't forget.

http://www.reuters.com/article/us-twc-charter-communi-fcc-idUSKCN0WI02Z .S. Federal Communications Commission Chairman Tom Wheeler is likely to circulate a draft order approving Charter Communications Inc's (CHTR.O) $56 billion deal to buy Time Warner Cable Inc (TWC.N), the Wall Street Journal reported, citing people familiar with the matter. The order, which could be circulated as soon as this week, would levy some conditions on the deal, such as preventing Charter from including clauses in pay-TV contracts that limit a content company's ability to offer its programming online or to new entrants, the WSJ reported on Tuesday. The transaction will also likely include a requirement for Charter to build or upgrade service to more homes, the Journal said.

Can you explain how Berkshire would be valued at $480-$680 billon? Thanks. Using two of the three pillars of IV Portfolio=$160k; +Earnings=$12k x 10 = $280K per A share (30% above today) +Earnings=$12k x 12 = $304k per A share (50% above today) Actually the multiple deserves to be much higher for a business that has grown earnings at a 23.4% clip for 50 years and this decade looks on pace for 15%+. In my mind, for the earnings multiple, comparables are premier conglomerates, DHR, ITW; They are selling at 18x. Berkshire is better in important ways than these two. (I am intimately familiar with DHR, worked there for a meaningful length of time) . Some more IV to chew on (few want to go there); a factor of >1.0 for the third/qualitative pillar of IV needs to be included based on the historically disproportionate retention of earnings over the past 7 years, but we will let time tell if that was deserved or not. 1 dollar is being turned into 1+ dollars as we speak. So as to not double count, I think a higher multiple of earnings will cover that. (higher than what I used above). I suspect that it will all show through the continuing earnings growth. Willing to wait for that. Thanks for your explanation. A few follow-ups. (1) I would be careful not to equate "Berkshire is trading at a 30-50% discount to intrinsic value" with "intrinsic value is 30-50% higher than today's price" -- they are not the same. The first statement implies, as I said, that Berkshire is worth $480-$680 billion. The second statement implies (and I think is what you meant) that Berkshire is worth $440 billion - $510 billion, a far more reasonable range. (In my opinion.) Your second statement implies a 22-33% discount to intrinsic value. (2) I have seen this "two column" analysis before but one part of it does not make sense to me: Why is that $260 billion investment portfolio considered all belonging to shareholders? It is encumbered in two important ways: Deferred taxes on gains in the equity portfolio ($25 billion) and, more importantly, $88 billion belongs to policyholders in the form of float. You would correctly argue that both of these will be paid at some indeterminate future time, and thus shouldn't be counted 100% against the investments - and I would agree. That means the $113 billion of liabilities are worth somewhere between $0 and $113 billion. I'm not sure what the final figure should be, but I know it should be something. If you disagree, I would ask you: Would you rather own $260 billion of cash and securities with no liabilities against them or with $113 billion of liabilities against them? Yet I never see this deducted in the two-column analysis. Deducting $40-60 billion would lower your intrinsic value by $25K-35K per share. (3) Berkshire's operating earnings figure is pre-tax, I think the multiples you're citing for DHR and ITW are after-tax. They both also have much lower tax rates than Berkshire, which hurts the apples-to-applies comparison. (Pre-tax earnings at ITW and DHR are more valuable in that sense.) Berkshire has some great businesses in there for sure, but remember that to generate that 15% per annum growth, he's had to invest a tremendous amount of capital -- it's not happening organically. To double that earnings stream again will require a massive investment. So I would find it hard to swallow an argument that values those businesses at much more than 12x pre-tax earnings, which is roughly 19x after-tax earnings. Most of them are earn good returns, but aren't growing a whole lot anymore. (4) Regarding use of retained earnings, that could add a plus factor for sure, but I would argue that's partially captured already if you value Berkshire's businesses at a 12x multiple, moreso if you go higher. Looking at the metrics of the PCP deal for example, where Buffett had to pay 25x earnings or something in that neighborhood, tells me that BRK's operating earnings growth must slow pretty dramatically from 15%. Thanks for the discussion, really helpful. This is a good discussion. On (1) -- Buffett has laid out the numbers as clearly as ever in this year's report. It's probably worthwhile to spend some time considering how he tells us to evaluate Berkshire if for no other reason than someday he will be gone. Straight from the annual: Pre-tax earnings per share $12,304. Put a 10x multiple on those for $123,040 of value per A share. Investments per share: $159,794. Fair value: $282,834. If you buy Berkshire at that price for an A Share, what would you expect to get as a CAGR in the following 10 years -- I'd guess Buffett would say about 7%. On (2) -- If it doesn't make sense, you're arguing with the best investor ever explaining his "masterpiece" to you. Buffett's method (prior to this year, where he finally tells the investor its okay to apply a multiple to the underwriting profits) gives only a relatively small value to the insurance operations and their "intrinsic" ability to add new float and to give ongoing underwriting profits. Using Buffett's method if actually very conservative unless you think float is going to run off quickly. In this year's letter he calls the insurance operations the best in the world -- why would he lie? If you think he's right, his method of the two columns probably vastly understates the value of the insurance operations. It isn't that complicated and probably undervalues Berkshire (based on what I would guess are Buffett's assumptions about the "3rd column". As Munger would say, "your smart and Buffett's right -- figure it out." Buffett has explained this for a long time...way back when Berkshire's deferred tax and float liabilities were much smaller...they've only grown...never been paid off -- was he right back then? When can we say "yes"? On (3) Berkshire's GAAP tax (and therefore the reported tax rate) don't come close to matching up with actual cash paid for taxes. Make some adjustments and you'll see. See the top of page 57 of the annual for cash paid for taxes versus "income tax" near bottom of page 38. Cash paid for taxes hasn't exceeded 60% of GAAP reported tax expense in last 3 years. How long does the deferral have to last before it has a high present value?...It isn't "on / off" and it isn't 100% of the deferral. But, is it 80% or 5% -- because we can't know, it doesn't make sense to me just throw up our hands...what if we had this discussion 20 years ago...what was the present value of the deferred tax then? This is like Buffett's example of float being a revolving fund. On (4) I feel that investors vastly overstate the value of a company's ability to create "organic" growth. Berkshire's method proves how irrelevant that approach actually is. The better question is why, if so many other companies have such terrific organic growth -- growth that comes without additional capital investment -- where is all the extra money going? What aren't the financial statements capturing? The excellent tech companies -- MSFT, GOOG, AAPL -- are counter examples...they throw off excess cash and it just builds on the balance sheet -- they are true organic growers. But, they're also held back by the fact that they don't know what to do with the excess cash. Berkshire has two solutions -- buy new businesses and invest in others via the stock market.

+1 Find cheap stocks -- cheap blue chips right now: aapl, bac, wfc, axp, ibm, xom, brkb If interest stay low, these will be homeruns (on a blue-chip return scale) 10 years from now. If interest rates tend back to 4 or 5%, they will only do very well -- 10% to 12% annually averaged for the decade. The macro won't matter in either case.

You and nine friends have discovered a sunken pirate ship. You borrow $1M to launch an expedition and retrieve the treasure. You find the ship and the treasure. On your first trip down, you bring back $100k. You guess that the total treasure is worth $2M, so the net will be $1M. You give your first partner $100k to buy back his (net) share of the treasure. Each time you go down, you bring back $100k and buy off your remaining partners. In the end, you have: 1 share (owning all remaining treasure and debt) $1M in debt A pile of treasure (that you think is worth $1.1M) So there are three possible outcomes: A - Your initial estimate of the treasure was exactly right (and your share is worth $100K just like your partners) B - Your initial estimate was low (say the remaining treasure is $1.2 M, then your share is $200k - double your partners) C - Your initial estimate was high (say the remaining treasure is worth $900k, then your share is worthless) -- This is a simplified version of the OUTR thesis. If you think the stock is undervalued (and you're right), the buybacks will create value for those that don't sell. But if you are wrong, there is a very real chance of a $0 (because all of the value went to the people who got bought out at $85 or $60 or ...). -- You can't trust this management to only do buybacks when the stock is undervalued. They are going to pay out 75%+ regardless. So you need to be very confident in your valuation AND you need to be right. -- Given these dynamics, you need to do your own work. DO NOT RELY on "Guru X" endorsement. DO NOT RELY on management statements. Make sure the margin of safety is very large. This encapsulates the problems with a cash flowing declining business for ongoing owners. The best place for these types of businesses is inside a conglomerate (Berkshire). I know someone can think of a decliner like this that has worked out great but I can't....what happened with the yellow pages one...did it work out for those that held to the own...newspapers (small town or national) might hang on. Any great examples from someone that can think of a standalone decliner that worked out for the equity holders -- I guess Berkowitz and Lampert are giving a good try at Sears (adding back the spinouts and assuming they're sold immediately).