Corner of Berkshire & Fairfax Message Board

General Category => Berkshire Hathaway => Topic started by: DooDiligence on December 08, 2018, 07:54:45 AM

Title: 11 Reasons to Short Berkshire Hathaway
Post by: DooDiligence on December 08, 2018, 07:54:45 AM
In the interest of counterbalancing BRK bullishness and examining potential downside to the individual businesses,
the following article presents some common themes, a few of which parallel WEB's occasional gloomy warnings
about, for example, the insurance businesses, which have proven to be overly pessimistic (for now).

https://www.thestreet.com/story/10406915/1/kass-katch-11-reasons-to-short-berkshire.html

Some items, such as "what happens in the event of WEB's death?", may have implications beyond a potential mass
exodus of shareholders and any subsequent price drop. One implication being that the "trust factor", which includes
the trust he's placed in individual CEO's, and "trust" which is the cornerstone of insurance operations, could begin
to erode.

https://www.volarisgroup.com/blog/article/trust-the-building-block-to-berkshire-hathaways-success

The following article is entitled "Collateral Damage" and discusses the vagaries of contract disputes, which is one
area I'd think could seriously damage Berkshire <IF> they were to start mis-pricing insurance to aggressively
gain volume.

https://www.forbes.com/forbes/2001/1015/058.html

How would we know, in advance, if mis-pricing issues were creeping in?

How strong is the culture of trust within the organization & does it exist within the individual businesses?

I'm not asking for ideas that would put short term hurt on the stock price, but those which would harm
the individual businesses in such a way as to inflict serious and lasting damage to the entire company.

--

[edit: FWIW, I am NOT suggesting, as the title would implicate, shorting BRK. That's just crazy talk, right?]
Title: Re: 11 Reasons to Short Berkshire Hathaway
Post by: Cigarbutt on December 08, 2018, 01:39:31 PM
^Somehow I suspect your post may elicit similar visceral reactions as if you'd walk into an NRA convention with a T-shirt saying "I hate guns". :)

Not suggesting to short BRK but, in terms of a yardstick, anchor holding, or a contrarian or even relative hedge, going forward, it is possible that BRK relatively disappoints.
Another consideration is that BRK has pretty much made it to the "too-big-to-fail" category, which should provide a floor if the sky falls.

See following link with a focus on:
-graph showing declining Berkshire's alpha
-graph showing a higher level of correlation between BRK and the S&P since the last shake-up
https://realinvestmentadvice.com/the-myths-of-stocks-for-the-long-run-part-vi/
Title: Re: 11 Reasons to Short Berkshire Hathaway
Post by: John Hjorth on December 08, 2018, 04:06:24 PM
... [edit: FWIW, I am NOT suggesting, as the title would implicate, shorting BRK. That's just crazy talk, right?]

Jeff,

Please have trust in yourself. To me this [for my part] actually has nothing to do with your position in Berkshire at all. [I'm sorry for derailing the topic here, if I did that - still not sure about it.] Actually, I have problems coming up with a more demanding and lonely side gig than being a value based stock picker.
Title: Re: 11 Reasons to Short Berkshire Hathaway
Post by: mjm on December 08, 2018, 04:48:03 PM
on reading this i was reminded of buffett's tongue in cheek joke that upon dying he just hoped that BRK did not jump up too high on the news.
Title: Re: 11 Reasons to Short Berkshire Hathaway
Post by: DooDiligence on December 08, 2018, 04:59:31 PM
My intention is not to start a riot here.

I've been trying to look at everything I own & come up with events that could realistically cause harm to the businesses.

Most everyone here on COBF is intellectually honest & willing to admit mistakes & find solutions to make them good.

That's probably why we're all so attracted to Buffet, Munger & Berkshire.

I still have more faith in Berkshire than any other investment & don't hesitate to recommend it to family & friends.

I just wanted to provoke thought.

Maybe it was a bad idea.
Title: Re: 11 Reasons to Short Berkshire Hathaway
Post by: rb on December 08, 2018, 08:47:32 PM
OK, that article is dated March 10, 2008. With the benefit of hindsight I'd say that it did not age well. It also doesn't make sense. In my opinion the article doesn't even make a case to short BRK. A reason not to own it, maybe, but not a short. The only bit that actually carried some weight was valuation. In March 2008 BRK was trading at 1.75 book. That was definitely pricey and in my view overvalued somewhere in the range of 15-25%. But then in March 2008 pretty much everything was overvalued.

Those that were worried about growth back then consider this. In the 10 years that followed Berkshire grew itself by 150%. Assets in q1 2008 were 281 Bn. In q1 2018 they were 703 Bn. And they did that in a very conservative way. That's impressive! Even more impressive was GEICO. Q1 2008 premiums - 3 Bn. Q1 2018 Premiums - 8 Bn 167% growth.

When it comes to Berkshire, I don't even mind if the company somewhat under-performs the S&P. When you're investing you're getting paid to take risk. In my view Berkshire's risk is below the S&P risk. If it somewhat over-performs the S&P I'm getting paid handsomely for the risk I'm taking. But then I'm probably not as greedy as some on you.
Title: Re: 11 Reasons to Short Berkshire Hathaway
Post by: xo 1 on December 09, 2018, 03:25:59 AM
OK, that article is dated March 10, 2008. With the benefit of hindsight I'd say that it did not age well. It also doesn't make sense. In my opinion the article doesn't even make a case to short BRK. A reason not to own it, maybe, but not a short. The only bit that actually carried some weight was valuation. In March 2008 BRK was trading at 1.75 book. That was definitely pricey and in my view overvalued somewhere in the range of 15-25%. But then in March 2008 pretty much everything was overvalued.

Those that were worried about growth back then consider this. In the 10 years that followed Berkshire grew itself by 150%. Assets in q1 2008 were 281 Bn. In q1 2018 they were 703 Bn. And they did that in a very conservative way. That's impressive! Even more impressive was GEICO. Q1 2008 premiums - 3 Bn. Q1 2018 Premiums - 8 Bn 167% growth.

When it comes to Berkshire, I don't even mind if the company somewhat under-performs the S&P. When you're investing you're getting paid to take risk. In my view Berkshire's risk is below the S&P risk. If it somewhat over-performs the S&P I'm getting paid handsomely for the risk I'm taking. But then I'm probably not as greedy as some on you.
Nice historical perspective.  Thanks for doing the work.
Title: Re: 11 Reasons to Short Berkshire Hathaway
Post by: DooDiligence on December 09, 2018, 06:32:17 AM
OK, that article is dated March 10, 2008. With the benefit of hindsight I'd say that it did not age well. It also doesn't make sense. In my opinion the article doesn't even make a case to short BRK. A reason not to own it, maybe, but not a short. The only bit that actually carried some weight was valuation. In March 2008 BRK was trading at 1.75 book. That was definitely pricey and in my view overvalued somewhere in the range of 15-25%. But then in March 2008 pretty much everything was overvalued.

Those that were worried about growth back then consider this. In the 10 years that followed Berkshire grew itself by 150%. Assets in q1 2008 were 281 Bn. In q1 2018 they were 703 Bn. And they did that in a very conservative way. That's impressive! Even more impressive was GEICO. Q1 2008 premiums - 3 Bn. Q1 2018 Premiums - 8 Bn 167% growth.

When it comes to Berkshire, I don't even mind if the company somewhat under-performs the S&P. When you're investing you're getting paid to take risk. In my view Berkshire's risk is below the S&P risk. If it somewhat over-performs the S&P I'm getting paid handsomely for the risk I'm taking. But then I'm probably not as greedy as some on you.

Your 1st sentence mirrors my exact thought that the article "did not age well".
The idea was to start a conversation which would expand from there.

WEB himself has remarked in nearly every shareholder letter that the future prospects of insurance are gloomy & yet...

As I've said in other threads, I am primarily interested in preserving the future value of what I own & am not looking for big gains.
To this end, I am trying to follow Howard Marks comments regarding "protection from downside".

I think it's delusional, at best, to look at any company & imagine what COULD happen to make the price of the stock go up (happens a lot on Yahoo finance boards but not here) & although it may be equally insane to believe that I can imagine potential disasters, I believe that it's far more constructive to attempt to do so.

The difference between a sell side & a buy side analyst, no?

Keep in mind that this goes far to the opposite end of my normal, every day, optimistic outlook, which is nearly indomitable.

---

in·dom·i·ta·ble
/inˈdämədəb(ə)l/
adjective

impossible to subdue or defeat.
"a person of indomitable spirit"
Synonyms: invincible, unconquerable, unbeatable, unassailable, invulnerable, unshakable, unsinkable.
Title: Re: 11 Reasons to Short Berkshire Hathaway
Post by: cubsfan on December 09, 2018, 06:41:50 AM
Doug Kass loved to put these shorts out on BRK when it was a little pricey - always got the headlines and
scalped a few bucks here and there.  Even got him an invitation to be the featured short bear at the
Berkshire meeting on the panel with Becky Quick, etc - where he shamelessly promoted himself in front of 40,000 attendees.

Title: Re: 11 Reasons to Short Berkshire Hathaway
Post by: longinvestor on December 09, 2018, 07:45:04 AM
Doug Kass loved to put these shorts out on BRK when it was a little pricey - always got the headlines and
scalped a few bucks here and there.  Even got him an invitation to be the featured short bear at the
Berkshire meeting on the panel with Becky Quick, etc - where he shamelessly promoted himself in front of 40,000 attendees.
He didn’t get invited back after that. I sense that Greg Warren of Morningstar is on the Dias as somewhat of a bear(I feel that way about him). He gets into a lot of detail with his six allotted questions but imo ends up in the “precisely wrong “ category. I am also looking for someone who can ask the tough longer term questions that will get Buffett talking about things he would rather not.
Title: Re: 11 Reasons to Short Berkshire Hathaway
Post by: DanielGMask on December 09, 2018, 02:03:21 PM
Doug Kass loved to put these shorts out on BRK when it was a little pricey - always got the headlines and
scalped a few bucks here and there.  Even got him an invitation to be the featured short bear at the
Berkshire meeting on the panel with Becky Quick, etc - where he shamelessly promoted himself in front of 40,000 attendees.
He didn’t get invited back after that. I sense that Greg Warren of Morningstar is on the Dias as somewhat of a bear(I feel that way about him). He gets into a lot of detail with his six allotted questions but imo ends up in the “precisely wrong “ category. I am also looking for someone who can ask the tough longer term questions that will get Buffett talking about things he would rather not.

The format of the q&a during the AM makes it impossible to get direct responses. A complex question usually needs follow up questions, more so when the person answering is capable of directing attention to what he wants to teach. Because of this format people pack their questions with lots of information and WEB usually gives vague responses.
Title: Re: 11 Reasons to Short Berkshire Hathaway
Post by: DanielGMask on December 09, 2018, 02:14:53 PM
OK, that article is dated March 10, 2008. With the benefit of hindsight I'd say that it did not age well. It also doesn't make sense. In my opinion the article doesn't even make a case to short BRK. A reason not to own it, maybe, but not a short. The only bit that actually carried some weight was valuation. In March 2008 BRK was trading at 1.75 book. That was definitely pricey and in my view overvalued somewhere in the range of 15-25%. But then in March 2008 pretty much everything was overvalued.

Those that were worried about growth back then consider this. In the 10 years that followed Berkshire grew itself by 150%. Assets in q1 2008 were 281 Bn. In q1 2018 they were 703 Bn. And they did that in a very conservative way. That's impressive! Even more impressive was GEICO. Q1 2008 premiums - 3 Bn. Q1 2018 Premiums - 8 Bn 167% growth.

When it comes to Berkshire, I don't even mind if the company somewhat under-performs the S&P. When you're investing you're getting paid to take risk. In my view Berkshire's risk is below the S&P risk. If it somewhat over-performs the S&P I'm getting paid handsomely for the risk I'm taking. But then I'm probably not as greedy as some on you.
Nice historical perspective.  Thanks for doing the work.

I don’t agree with the statement BRK’s risk is below the S&P. I define risk as the possibility of loss of principal and I consider the probability of BRK going to zero much bigger than the S&P. Having said that, I don’t have any investment in the index and more than 50% of my portfolio in BRK.

Shorting is risky business and shorting something as profitable and solid as BRK more so. The right question is not if this is the right time to short Berkshire, I think it’s not. The appropiate question is if BRK may suffer as a company once WEB is no longer at the helm or alive, and that probably is going to happen during the next 10 years.

BRK is less attractive because is huge and compounding at this size is not that easy, but those who are familiar with the concept of antifragility will conclude that this is as antifragile as a public company may get!
Title: Re: 11 Reasons to Short Berkshire Hathaway
Post by: rb on December 09, 2018, 02:28:05 PM
I don't think that BRK will get less profitable after WB passes. It may even get more profitable as the smaller subs get whipped up into shape. I think that the smaller subs carry some sentimental value for VB and he cuts them a lot a slack. That won't be the case with the new management. The new management will also probably be more aggressive and more open to 3G type deals. On the flip side, without WB there will probably be less BAC type special deals and/or the terms will not be as usurious.

On the investment side T&T seem quite capable. They were into Apple way before WB started blasting it with his elephant gun and Precision Castparts was a T&T deal.

I agree that their size will make it more difficult for them to grow. But they somehow managed it the past. See the past 10 years. If they do reach that point where it gets too hard they'll start to return some capital. So what? That's far from the worst things.
Title: Re: 11 Reasons to Short Berkshire Hathaway
Post by: clutch on December 10, 2018, 08:22:38 AM
In light of this topic (and a sell-off today), I bought more BRK.b.
Title: Re: 11 Reasons to Short Berkshire Hathaway
Post by: John Hjorth on December 10, 2018, 08:47:52 AM
I don't think that BRK will get less profitable after WB passes. It may even get more profitable as the smaller subs get whipped up into shape. I think that the smaller subs carry some sentimental value for VB and he cuts them a lot a slack. That won't be the case with the new management. The new management will also probably be more aggressive and more open to 3G type deals. ...

From Mr. Mungers "special Past, Present & Future" Letter (http://berkshirehathaway.com/SpecialLetters/CTM%20past%20present%20future%202014.pdf), p. 42, lower part :

Quote from: Charles Munger
... But, under this Buffett-soon-leaves assumption, his successors would not be “of only moderate ability.” For instance, Ajit Jain and Greg Abel are proven performers who would probably be under-described as “world-class.”  “World-leading” would be the description I would choose. In some important ways, each is a better business executive than Buffett.

And I believe neither Jain nor Abel would (1) leave Berkshire, no matter what someone else offered or (2) desire much change in the Berkshire system. ...

-A bit striking that Mr. Munger cherry picked exactly those two particular Berkshire sub CEOs in his letter now almost four years ago, right? [ ; - ) ]
Title: Re: 11 Reasons to Short Berkshire Hathaway
Post by: 5xEBITDA on December 10, 2018, 01:30:12 PM
the article doesn't even make a case to short BRK. A reason not to own it, maybe, but not a short.

Most people think these are the same thing.