Semper Augustus

[crocodon]

Interesting and extensive discussion on valuing BRK: http://www.semperaugustus.com/2016BRK.aspx

[Libs]

Thanks for posting - I thoroughly enjoyed it, especially the 1999 reprise.

[John Hjorth]

crocodon,

 

Thank you very much for sharing this piece on BRK valuation. It is - by far - and so far - the best piece I have ever read about BRK valuation. H/T for this work of Christopher P. Bloomstran.

 

I started reading it yesterday at about 10:00 PM, and got "sucked into it" - like was it a black hole - and stopped reading at about 5:00 AM [this morning], without finishing it in full.

 

To me especially the sections in the piece about:

• The BRK/General Re merger
  
• Deferred taxes related to the regulated & capital intensive businesses
  
• Risk
  

are worth the read.

 

Again, thank you for sharing.

[Guest longinvestor]

Awesome. Thanks for posting.

 

FANG & LEMMINGS commentary captures very well where BRK was in 1999 and is right now. Perhaps will be in 2030...it's deja vu all over again!

[Guest longinvestor]

crocodon,

 

Thank you very much for sharing this piece on BRK valuation. It is - by far - and so far - the best piece I have ever read about BRK valuation. H/T for this work of Christopher P. Bloomstran.

 

I started reading it yesterday at about 10:00 PM, and got "sucked into it" - like was it a black hole - and stopped reading at about 5:00 AM [this morning], without finishing it in full.

 

To me especially the sections in the piece about:

• The BRK/General Re merger
  
• Deferred taxes related to the regulated & capital intensive businesses
  
• Risk
  

are worth the read.

 

Again, thank you for sharing.

 

Yes, this piece has been "sucking me in" to read again and again. It's a keeper!

 

The section on risks is very good. If I worry about anything relating to my large holding of BRK, the "kill me slowly" scenario captures it. Specifically, increasing mediocrity at the subs as leadership transitions happen in the future. Will try to understand as time goes on. Hope this is 30-50 years out. Will be quite old to dead and would be time to go all-in to index funds then, ha!

 

In the mean time, the "kill me fast" scenario playing out really soon will separate BRK away from the crowd once and for all; the perfect storm mega cat insurance event year, another big one like 2008 etc. happens soon at a time when BRK is sitting on $100B of liquidity. While the world fixates on Buffett's age or the next CEO or BRK's size, the prospects for the BRK shareholder is going to be all about what happens to the other guy, whether in reinsurance or the other utility or railroad etc. in either the "kill me fast or slow" scenarios. Not so much @ BRK. We will take the 1% return on equity over what happens to the other guy, won't we?

[LongTermView]

I like the BNSF and BHE discussions from pages 34 to 39.

 

The BNSF cash flow statement shows cash distributions of $4 billion, $3.5 billion, and $4 billion for 2015, 2014, and 2013 respectively.  BNSF is generating a lot of cash for Berkshire to spend in other areas.  BHE is different in that they're using its cash for more energy acquisitions as opposed to areas outside of energy, right?

[Charlie]

Very good analysis of Berkshire. Thanks for posting.  :)

[John Hjorth]

I like the BNSF and BHE discussions from pages 34 to 39.

 

The BNSF cash flow statement shows cash distributions of $4 billion, $3.5 billion, and $4 billion for 2015, 2014, and 2013 respectively.  BNSF is generating a lot of cash for Berkshire to spend in other areas.  BHE is different in that they're using its cash for more energy acquisitions as opposed to areas outside of energy, right?

LongTermView,

 

Yes, I understand it the same way as you do.

[John Hjorth]

Today I got confirmation from Chad Christensen for inclusion in the Semper Augustus client letter maling list [without being a client], and I replied with a "thanks a lot" and positive words about the BRK analysis also.

 

Chad replied:

 

Thanks for the feedback. We will have a follow-up on the BRK this week coming out.

 

Chad

 

So I'm eager to read whatever more to come, and will share it here.

[Nicholas]

Today I got confirmation from Chad Christensen for inclusion in the Semper Augustus client letter maling list [without being a client], and I replied with a "thanks a lot" and positive words about the BRK analysis also.

 

Chad replied:

 

Thanks for the feedback. We will have a follow-up on the BRK this week coming out.

 

Chad

 

So I'm eager to read whatever more to come, and will share it here.

 

Nice one john. It'd be much appreciated if you could share it.

 

Thanks

[Guest longinvestor]

http://www.loschmanagement.com/content/operating-earnings

 

 

Here's another nice one on BRK. While not as deep an analysis, it is the first one (what I've seen) that breaks out how capital is being allocated into the 5 buckets (priorities mentioned in the chairman's letter). Roughly $200 B into wholly owned businesses/PPE versus $22 B into equities from 2006-16.

[John Hjorth]

http://www.loschmanagement.com/content/operating-earnings

 

 

Here's another nice one on BRK. While not as deep an analysis, it is the first one (what I've seen) that breaks out how capital is being allocated into the 5 buckets (priorities mentioned in the chairman's letter). Roughly $200 B into wholly owned businesses/PPE versus $22 B into equities from 2006-16.

longinvestor,

 

Also a very good read - this with a new angle on things [straight cash flow vs. allocation of capital]. Thanks for sharing.

[jberkshire01]

Chris Bloomstran's follow-up interview with Kate Welling: http://www.valueinvestingworld.com/2016/04/kate-welling-talks-with-chris-bloomstran.html

 

[John Hjorth]

Today I received an email from Chad, containing the SA client letter. Basicly, the client letter was contained as two attachments to the email, consisting of a cover letter [in pdf] and the document [in pdf] linked to by jberkshire01 above.

 

 

Attached is the cover letter, as promised [nothing material news in that].

16_Apr_25_WOWS_Listening_In_Chris_Bloomstran_Cover_Page.pdf

[stahleyp]

Did you guys see his returns?

 

Since inception net of fees is 5.4% vs 5.1% with the S&P 500. take taxes into consideration and I bet the index wins by a decent margin.

[John Hjorth]

Did you guys see his returns?

 

Since inception net of fees is 5.4% vs 5.1% with the S&P 500. take taxes into consideration and I bet the index wins by a decent margin.

 

Paul,

 

Yes, I [for one] noticed that. [However I'm not sure I understand your comments about the S&P 500 - as I understand things, S&P 500 is measured before tax].

 

Earlier [after my first post in this topic] I looked up the quaterly holdings for SA on Edgar, and what stoke my mind [from a quick view on it] was that XOM was the second biggest position, next to BRK, in the fund. I would really like to read more about that SA thesis [based on value investing [pricing power etc.], but I'm not entitled to, as a non client.

 

However, that does not change my mind on or my perception of the SA BRK analysis.

[ZenaidaMacroura]

Did you guys see his returns?

 

Since inception net of fees is 5.4% vs 5.1% with the S&P 500. take taxes into consideration and I bet the index wins by a decent margin.

 

Paul,

 

Yes, I [for one] noticed that. [However I'm not sure I understand your comments about the S&P 500 - as I understand things, S&P 500 is measured before tax].

 

Earlier [after my first post in this topic] I looked up the quaterly holdings for SA on Edgar, and what stoke my mind [from a quick view on it] was that XOM was the second biggest position, next to BRK, in the fund. I would really like to read more about that SA thesis [based on value investing [pricing power etc.], but I'm not entitled to, as a non client.

 

However, that does not change my mind on or my perception of the SA BRK analysis.

Is XOM a relatively recent pickup?

[John Hjorth]

Did you guys see his returns?

 

Since inception net of fees is 5.4% vs 5.1% with the S&P 500. take taxes into consideration and I bet the index wins by a decent margin.

 

Paul,

 

Yes, I [for one] noticed that. [However I'm not sure I understand your comments about the S&P 500 - as I understand things, S&P 500 is measured before tax].

 

Earlier [after my first post in this topic] I looked up the quaterly holdings for SA on Edgar, and what stoke my mind [from a quick view on it] was that XOM was the second biggest position, next to BRK, in the fund. I would really like to read more about that SA thesis [based on value investing [pricing power etc.], but I'm not entitled to, as a non client.

 

However, that does not change my mind on or my perception of the SA BRK analysis.

Is XOM a relatively recent pickup?

 

ZenaidaMacroura,

 

I haven't checked it out, so I don't know.

 

Disclosure : I have a small position myself in XOM [less than 2% for myself, less than 0,5% on overall level], and I'm [personally] up about 9% [ex. dividends, in my own obscure functional currency [DKK], related closely to EUR] since I bought it, about the same time that BRK invested in XOM.

[doughishere]

http://www.loschmanagement.com/content/operating-earnings

 

 

Here's another nice one on BRK. While not as deep an analysis, it is the first one (what I've seen) that breaks out how capital is being allocated into the 5 buckets (priorities mentioned in the chairman's letter). Roughly $200 B into wholly owned businesses/PPE versus $22 B into equities from 2006-16.

 

That was really good.

[stahleyp]

Did you guys see his returns?

 

Since inception net of fees is 5.4% vs 5.1% with the S&P 500. take taxes into consideration and I bet the index wins by a decent margin.

 

Paul,

 

Yes, I [for one] noticed that. [However I'm not sure I understand your comments about the S&P 500 - as I understand things, S&P 500 is measured before tax].

 

 

 

Hey John,

 

The S&P 500 is super tax efficient so the returns are very close to what you'd have since turnover is so low. Granted, once you eventually sell it you'll owe taxes but on year to year basis, not much is going on besides dividends.

[karthikpm]

FANG's and Lemmings ;)

 

http://www.marketwatch.com/story/facebook-races-past-berkshire-hathaways-market-cap-2016-07-28

[John Hjorth]

Christopher P. Bloomstran, Semper Augustus Investments Group LLC, released a new Client Letter on 12^th February 2017 with the title: "Symphaty for the Dog - 2016 Letter to Clients: Challenging Dogma, Death of the Profit Margin, and a (Brief) Berkshire Redux".

 

[longinvestor linked to it in the recent BRK IV topic on this board - thanks!].

 

It is - like the 2015 Client Letter discussed earlier in this topic - at least to me, a very good read for BRK investors, and also very entertaining!:

 

Just an example here as an appetizer: p. 5:

 

... While we sincerely doubt any preternatural correlation with our writing about Prince and his untimely demise last year, we played it safe regardless by awarding this year’s theme to the Stones, because everyone knows they’re going to live forever, especially Keith Richards, the co-author of Sympathy, the epic lead guitar and occasional lead vocalist. With a dedicated effort, I finally finished Keith’s memoir, Life, last year. It was written with James Fox in 2010, and occupied a place among the stack on the nightstand for four years. It’s an incredibly incoherent but interesting history, especially for a lifelong Stones fan. Keith’s remaining brain cells allow him to recount wandering stories while Fox interprets. I found you could only read a few pages and then had to decompress and set it aside for a few days, or weeks, but couldn’t help but come back at times ...

 

To me, that actually gave me association as being the best description I have seen for how I have felt while reading the last two books from Mr. Taleb! - Without implying other similarities to any extent! And from what I have read so far of Mr. Talebs next book "Skin in the Game", that does not appear to be much different.

 

- - - o 0 o - - -

 

There are a lot of interesting topics covered in the Semper Augustus 2016 Client Letter - BRK-related and general. Perhaps we could continue discussing the Letter in this topic.

 

- - - o 0 o - - -

 

My take on this, based on these two Semper Augustus Letters: I will start buying BRK again, after a break of about a half year, based on the prevailing market conditions, and the recent relationship between market price and intrinsic value of BRK.

[Valuehalla]

According to Semperaugustus valuation and the BRK letter, the situation is like this:

 

On 31.12.2016, per B share:

BV (not KHC adjusted)    114,74 $

IV  app                          209,00 $

Marketprice                    162,98 $

GAP app 28 % upside potential to reach IV

 

1.3.2017, my estimation, per B share:

BV (not KHC adjusted)      118,80 $ (incl. est. InVestGains, BAC, APPL accumulation, minus defferred tax, plus operative

IV app                            216,00 $

Marketrpice                      177,28 $

GAP app 22 % upside potential to reach IV

[Guest longinvestor]

The Semper augustus letter is good! Here are my endorsements of their insights,

1. They've held BRK continuously since 1999. Surely, besides improving the depth of their understanding of their anchor holding, they increasingly see just how much better BRK is versus their other holdings! This is my single biggest lifetime lesson. The contrast is so stark but you have to experience this over a long period of time. Clearly they've. Going down the rabbit hole of BRK's numbers is their way of not suffering from anchoring in past convictions. You have to do that with all investments. Even with gravity defying BRK.

 

2.  I really applaud them for sharing this insight with their clients. In Poor Charlie's Almanac, Munger talks about how this could be conflicting for a money manager. If you hold, say 50% in a single position, what's to keep your client from doing the same without having to pay you for it? If Semper Augustus manages to do this for such a long period, more power to them. What do you say about their long term clients? You get what you truly deserve. More power to them for that!

 

3. The contrast they draw between the S&P index companies' terrible track record with retained earnings versus BRK's is the elephant in the room. At the end of the day the BRK that is unfolding today is all about this. Why they will continue to leave others in the dust. To hell with size or other urban myths. We'll see in due course.

 

 

 

[CorpRaider]

Yeah, good read.  Checked it out this weekend.  Koster's blog/links is amongst my very favorites.  Interesting thoughts about ROICs and profit margins and the impacts of QE.