Author Topic: Annual Letter 2018  (Read 12169 times)

gfp

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Re: Annual Letter 2018
« Reply #30 on: February 23, 2019, 08:24:18 AM »
I wonder if Warren wants to regain his AAA credit rating before he passes.  The reductions in net debt, cash balances and repurchase restraint seems to show that either Berkshire deserves a AAA rating or Johnson & Johnson should lose theirs as well.  It hasn't made much of a difference - even BNSF, where BRK doesn't guarantee the debt, borrows extremely cheaply - but I do think he was miffed when they took him down from AAA.


longinvestor

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  • Never interrupt compounding unnecessarily -Munger
Re: Annual Letter 2018
« Reply #31 on: February 23, 2019, 08:26:44 AM »
The letter is in the works as we speak. Here’s my wish list for what it should contain,

1. Intrinsic value discussion- in light of the change in underlying estimation parameters. BV, retained earnings etc.
2. Float; what are the future growth prospects?  love to see a piece by the new vice Chairman, Jain😉
3. A detailed update on capital deployment opportunities, especially re-investment into capital intensive businesses like BHE and PCP. Love to hear from the new vice Chairman, Abel.
4. More on the performance relative to the S&P.


Others?

Oh well, my lone wish (#1) was addressed. The Semper Augustus estimation suggests that there's a $150+ gap from market value to intrinsic value. The forest focus gets us there as well.

To me the most significant things in this year's letter are,

1. Making the BV metric a relic of the past.
2. They are clearly hunkered down!?

There are no fireworks in this letter, perhaps it is me, the frequent (as in many-times-a-day) visitor of boards such as this one that needs to adjust my vision. I'm all in on Berkshire, need to go do other things with my life, like read biographies and listen to music. Perhaps the "In investing, wealth flows from the impatient to the patient" is true indeed.

Maybe there are fireworks at the meeting!




nickenumbers

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Re: Annual Letter 2018
« Reply #32 on: February 23, 2019, 09:20:41 AM »
Guys,

Based on a quick DCF, making loads of assumptions, I arrive at a B share value around $230.  I am being more conservative than not, to be honest.  And, I ignore the marketable securities loss.  I took the value of the securities at $173B and assumed 5% return added to the operating company FCF.

I think the assumed growth rate of FCF over the next 10 years has the most variability on the value, but based on a quick and dirty of the FCF reported today, I end up a little above $230.

I am a fan, and so I could believe a story that gets the per share price significantly higher than that, for sure..


I will put on my helmet now and let you guys CLUB me.
The fastest Cheetah still waits for the lame baby antelope.  ..patience..

shalab

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Re: Annual Letter 2018
« Reply #33 on: February 23, 2019, 09:52:29 AM »
Great letter - a lot of wisdom in those pages. Loved the jokes - especially Warren and Charlie spending the money in their old age. There is no one else like that.

Absolutely love it that they are going to manage the business for continuing share holders. My extended family and I will be buyers in the next few decades.

Berkshire is a tremendous store of value - totally see them beating out SP500 in the next decade. Sempur Augustus says 11-13%/year - I think it can go up to 15% with buy backs.

Sempur Augustus values Berkshire five different ways and average is $265/B share. It is probably the most detailed and the best analysis of Berkshire out there.

We estimate that Berkshireincreased intrinsic value during 2018 by 12.4%to $668 billion, $57billion over our assessment last year. The gain is remarkable given thedecline in the investment portfolio and what will likely appear as an89% decline in reported net earnings, from $44.9 billion to $5.1billion. Yet even more confusing and remarkable is that the $38billionlossin Berkshire’s stock portfolio (including Kraft Heinz), will exceed pre-tax earnings for the remainder of thecompany, yet the company will likely report a modest profit.


« Last Edit: February 23, 2019, 09:58:32 AM by shalab »

Viking

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Re: Annual Letter 2018
« Reply #34 on: February 23, 2019, 11:13:27 AM »
A key take-away for me was Buffett’s summary of lower taxes and the impact on BRK. This was a major one time boost to BRK value and looks to me to have been largely shrugged off by Mr Market. This also may mean that Buffett’s current intrinsic value calculation is much higher than people estimate.

From Page 7: “Begin with an economic reality: Like it or not, the U.S. Government “owns” an interest in Berkshire’s earnings of a size determined by Congress. In effect, our country’s Treasury Department holds a special class of our stock – call this holding the AA shares – that receives large “dividends” (that is, tax payments) from Berkshire. In 2017, as in many years before, the corporate tax rate was 35%, which meant that the Treasury was doing very well with its AA shares. Indeed, the Treasury’s “stock,” which was paying nothing when we took over in 1965, had evolved into a holding that delivered billions of dollars annually to the federal government.

Last year, however, 40% of the government’s “ownership” (14/35ths) was returned to Berkshire – free of charge – when the corporate tax rate was reduced to 21%. Consequently, our “A” and “B” shareholders received a major boost in the earnings attributable to their shares.

This happening materially increased the intrinsic value of the Berkshire shares you and I own. The same dynamic, moreover, enhanced the intrinsic value of almost all of the stocks Berkshire holds.”
« Last Edit: February 23, 2019, 11:15:11 AM by Viking »

Munger_Disciple

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Re: Annual Letter 2018
« Reply #35 on: February 23, 2019, 12:17:40 PM »
My two cents on the annual report:

The buyback amount is certainly disappointing. Buffett says on page 7: "Obviously, repurchases should be price sensitive." But there were more repurchases during Q2 2018 and October 2018 (when the BRK prices were higher) than in December 2018. The most generous explanation is that Warren thinks the cash could be better spent on future acquisitions. But then he goes on to lament the lack of opportunities on page 6: "Prices are sky-high for businesses possessing decent long-term prospects. That disappointing reality means that 2019 will likely see us again expanding our holdings of marketable equities." Adding to the confusion, there were no net purchases of common stock during Q4!

I am just hoping that this can explained by:

1. Buffett thinks there is a significant possibility of a large deal before 2020, and/or

2. Since Buffett changed the intrinsic value metric from being based on book value to one based on five pillars, he wanted to give sellers an opportunity to digest the 2018 letter and the annual report before he begins a multi billion dollar buyback in earnest.
« Last Edit: February 23, 2019, 12:32:06 PM by Munger_Disciple »

obtuse_investor

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Re: Annual Letter 2018
« Reply #36 on: February 23, 2019, 01:29:09 PM »
To all who are disappointed in the buyback volume last quarter: please be patient.

Buffett has been playing a multi decade game; and he is still playing it. He isn’t going to let his mortality stop him.

I thought the letter was short and sweet. We should get used to that anyway.

Value Investor who manages his personal portfolio with a 25-45 year time horizon | @obtuse_investor

Charlie

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Re: Annual Letter 2018
« Reply #37 on: February 23, 2019, 11:36:53 PM »
"I thought the letter was short and sweet. We should get used to that anyway. "

+1

I liked this part:

"Let’s now look further at Berkshire’s most valuable grove – our collection of non-insurance businesses – keeping in mind that we do not wish to unnecessarily hand our competitors information that might be useful to them. Additional details about individual operations can be found on pages K-5 – K-22 and pages K-40 – K-51.
Viewed as a group, these businesses earned pre-tax income in 2018 of $20.8 billion, a 24% increase over 2017. Acquisitions we made in 2018 delivered only a trivial amount of that gain.
I will stick with pre-tax figures in this discussion. But our after-tax gain in 2018 from these businesses was far greater – 47% – thanks in large part to the cut in the corporate tax rate that became effective at the beginning of that year. Let’s look at why the impact was so dramatic."




skanjete

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Re: Annual Letter 2018
« Reply #38 on: February 24, 2019, 02:01:00 AM »
Does anyone know why the amounts of stocks Berkshire holds and lists on page 12 don't seem to match (in most cases) the amounts as listed in their 13F on Q42018?

gfp

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Re: Annual Letter 2018
« Reply #39 on: February 24, 2019, 04:03:26 AM »
Berkshire files two 13Fs, and then there are some pension fund holdings that are eliminated in the Annual Report presentation but may creep in to other SEC filings.  Most people just forget about General Re New England Asset Management holdings that are tagged as belonging to Berkshire.  Dataroma and CNBC have always had that part wrong.

Does anyone know why the amounts of stocks Berkshire holds and lists on page 12 don't seem to match (in most cases) the amounts as listed in their 13F on Q42018?