Corner of Berkshire & Fairfax Message Board

General Category => Berkshire Hathaway => Topic started by: fishwithwings on May 09, 2019, 03:52:10 AM

Title: Berkshire Annual meeting - 50% a year?
Post by: fishwithwings on May 09, 2019, 03:52:10 AM
Does anyone know what he meant by arbitrage but not in the traditional sense. This is in response to the guy who asked him about 50% returns on 1mill. It was one of the last few questions
Some examples would be good.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: CorpRaider on May 10, 2019, 04:41:05 PM
Could have meant like activism.  Like Sanborne maps or even the initial Berkshire; Sanborn: you have a bag o cash and securities of  $20 a share (for example) and stock is trading at $8.  How about you distribute some $$$ or I clean this place up.

If I spoke Japanese I would probably look there and talk to some japanese lawyers and politicians about cleaning up some of the corporate recidivism.  Maybe you get away with it if you were dealing with small fries.

Charlie told us, another example would be to do what Li Lu did.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: fishwithwings on May 11, 2019, 03:56:43 AM
Thanks. Two follow up questions. Wouldn't he just have said activism instead of aribtrage in that case?  What did Liu lu do?
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: CorpRaider on May 11, 2019, 10:00:28 AM
Maybe, but I think he called them "work-outs" back in the p-ship days.  Could be talking about like the jay pritzker deal with CEFs or something.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: AdjustedEarnings on May 20, 2019, 12:34:42 PM
This 50% thing is back again! This was around almost 20 years ago (Businesweek interview) and people kept on asking WEB about it every chance they got. As far as I know, no one has achieved 50% a year even on small sums since then (if they did, they'd have a large fund by now or at least be famous). I think back then WEB just said 50% to pick a number that would indicate large returns v/s small returns. To think that WEB, CM, or anyone could do 50% for even 5 years in a row without leverage is almost silly, hopeful, and not grounded in reality (given where asset prices and rates are today). It's been 20 years but the 50% refuses to go away! It seems some part of the audience is just awed by that 50% number and wants to achieve it without much practical consideration. What do you guys/girls think?
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: Parsad on May 20, 2019, 12:44:38 PM
This 50% thing is back again! This was around almost 20 years ago (Businesweek interview) and people kept on asking WEB about it every chance they got. As far as I know, no one has achieved 50% a year even on small sums since then (if they did, they'd have a large fund by now or at least be famous). I think back then WEB just said 50% to pick a number that would indicate large returns v/s small returns. To think that WEB, CM, or anyone could do 50% for even 5 years in a row without leverage is almost silly, hopeful, and not grounded in reality (given where asset prices and rates are today). It's been 20 years but the 50% refuses to go away! It seems some part of the audience is just awed by that 50% number and wants to achieve it without much practical consideration. What do you guys/girls think?

He was fairly specific now and in the past.  He said if he was managing small sums ($1M), he could achieve 50% annualized returns no problem for a little while.  Once it got closer to 1B, things would start to slow down.  So he was talking about small investors and only achieving that 50% annualized return for say a decade or slightly more...not over 30-50 years or anything. 

In the past, he said there were many ways to make the 50%, but today, it would be based on unique arbitrage opportunities and he said he knows of a few ways, but he won't say.  That's when Charlie said or you could do what Li Lu did...create and find opportunities to make money.  Buffett then turned to Charlie and said, Charlie weren't you doing certain real estate deals in your early days which were generating close to 50%?  And Charlie said yes. 

So, both of them think gifted (1 in 5,000-10,000) investors could do 50% a year with small sums.  On this message board, we know of 3-4 people who did that over a decade or so.  There are probably another 20 or so who did well over 20%-30% over a decade as well.  Cheers!
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: matjone on May 20, 2019, 02:07:45 PM
When they asked him about it years ago he said the return would go down dramatically as AUM went from 1M - 10M.  I take that to mean to look at things that are too tiny even for a $10M fund.  So look in small stuff, find something way out of line, and bet big, cause you're probably not gonna find them that often.

Look at the ethanex bankruptcy Thomas Braziel invested in,  Norilsk Nickel arb at kiddynamite's blog, mexican restaurants (CASA) which was a regular long from oddballstocks blog a few years ago (actually just read the whole oddballstocks blog archive).
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: Parsad on May 20, 2019, 06:39:03 PM
When they asked him about it years ago he said the return would go down dramatically as AUM went from 1M - 10M.  I take that to mean to look at things that are too tiny even for a $10M fund.  So look in small stuff, find something way out of line, and bet big, cause you're probably not gonna find them that often.

Look at the ethanex bankruptcy Thomas Braziel invested in,  Norilsk Nickel arb at kiddynamite's blog, mexican restaurants (CASA) which was a regular long from oddballstocks blog a few years ago (actually just read the whole oddballstocks blog archive).

Yes, correct.  Really obscure stuff in the past...at this year's meeting, he did say it would be very specific unique arbitrage opportunities.  He said that opportunities are much lower today to do this than say 10-20-30 years ago.  Cheers!
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: ukvalueinvestment on May 21, 2019, 02:46:59 AM
First, I think that Buffett genuinely meant 50%.  Alice Schroeder has said in the past that he is a very literal person and I don't think he would just make up a "large number".

$1mln implies 5-6 positions of $200k each.  Therefore he is investing in nano caps and I think there is a lot of opportunity out there.

Look at this: https://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary/KYG541351279GBGBXASX1.html

I got lucky and piggy backed off the tweets of an activist investor called Richard Bernstein (Crystal Amber) to get into a wonderful risk/reward situation.  But imagine if you had the intensity and brain power of Buffett.  You could definitely find 2-3 totally asymmetric investments every year globally.  Throw a little leverage into the mix and there you go.

When he talked about arbitrage situations, I thought he might mean situations where the spread is wide in a takeover, you can leverage into it, and you like the underlying company, so in the few examples where the takeover fails, you are left with a good company.  Kind of what he did recently with Monsanto...
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: matjone on May 21, 2019, 12:13:50 PM
When they asked him about it years ago he said the return would go down dramatically as AUM went from 1M - 10M.  I take that to mean to look at things that are too tiny even for a $10M fund.  So look in small stuff, find something way out of line, and bet big, cause you're probably not gonna find them that often.

Look at the ethanex bankruptcy Thomas Braziel invested in,  Norilsk Nickel arb at kiddynamite's blog, mexican restaurants (CASA) which was a regular long from oddballstocks blog a few years ago (actually just read the whole oddballstocks blog archive).

Yes, correct.  Really obscure stuff in the past...at this year's meeting, he did say it would be very specific unique arbitrage opportunities.  He said that opportunities are much lower today to do this than say 10-20-30 years ago.  Cheers!

Thatís interesting to me for a number of reasons:

1. In the not too distant past Iíve heard him say it might actually be easier now cause information is easier to access.
2. He seems to have switched his stance a little.  Before when people asked him to speak on this subject heíd talk about finding super cheap small companies and going long the stock.  Now it seems he thinks arbs are more inefficient.
3. I assume that for him to have an opinion in this he must be looking in that area from time to time.  I like the idea that Buffett loves this stuff so much that heís still taking an occasional peak at these tiny obscure situations, even as an old billionaire philanthropist who has no reason to care.

By the way, does anybody me have a transcript or audio/video of this?  Thanks in advance.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: fishwithwings on May 21, 2019, 02:27:53 PM
When they asked him about it years ago he said the return would go down dramatically as AUM went from 1M - 10M.  I take that to mean to look at things that are too tiny even for a $10M fund.  So look in small stuff, find something way out of line, and bet big, cause you're probably not gonna find them that often.

Look at the ethanex bankruptcy Thomas Braziel invested in,  Norilsk Nickel arb at kiddynamite's blog, mexican restaurants (CASA) which was a regular long from oddballstocks blog a few years ago (actually just read the whole oddballstocks blog archive).

Yes, correct.  Really obscure stuff in the past...at this year's meeting, he did say it would be very specific unique arbitrage opportunities.  He said that opportunities are much lower today to do this than say 10-20-30 years ago.  Cheers!

Thatís interesting to me for a number of reasons:

1. In the not too distant past Iíve heard him say it might actually be easier now cause information is easier to access.
2. He seems to have switched his stance a little.  Before when people asked him to speak on this subject heíd talk about finding super cheap small companies and going long the stock.  Now it seems he thinks arbs are more inefficient.
3. I assume that for him to have an opinion in this he must be looking in that area from time to time.  I like the idea that Buffett loves this stuff so much that heís still taking an occasional peak at these tiny obscure situations, even as an old billionaire philanthropist who has no reason to care.

By the way, does anybody me have a transcript or audio/video of this?  Thanks in advance.

Yeah, he was pretty specific by mentioning arbitrage in an unconventional way. mergers and acquisitions are arbitrage, but in a traditional sense. I wonder if he is talking about investments outside the stock market.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: Parsad on May 21, 2019, 03:22:47 PM
First, I think that Buffett genuinely meant 50%.  Alice Schroeder has said in the past that he is a very literal person and I don't think he would just make up a "large number".



I've followed Buffett for over 20 years now.  I thought the same as you when he first mentioned 50% annualized with small sums...and I was there when he said it.  But he's been asked this a couple of other times and he's always said yes...50% annualized.  And I heard him as clear as a bell say the same thing again this year with a little more detail.  And he also said essentially that Charlie was doing better than 50% a year in his early days before the Munger Partnership through his real estate investments and deals.  It is a stunning number, but they've both said now on numerous occasions that they could do that pretty easily with very small sums...although harder now than in the past.  Cheers!
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: Parsad on May 21, 2019, 03:27:11 PM
When they asked him about it years ago he said the return would go down dramatically as AUM went from 1M - 10M.  I take that to mean to look at things that are too tiny even for a $10M fund.  So look in small stuff, find something way out of line, and bet big, cause you're probably not gonna find them that often.

Look at the ethanex bankruptcy Thomas Braziel invested in,  Norilsk Nickel arb at kiddynamite's blog, mexican restaurants (CASA) which was a regular long from oddballstocks blog a few years ago (actually just read the whole oddballstocks blog archive).

Yes, correct.  Really obscure stuff in the past...at this year's meeting, he did say it would be very specific unique arbitrage opportunities.  He said that opportunities are much lower today to do this than say 10-20-30 years ago.  Cheers!

Thatís interesting to me for a number of reasons:

1. In the not too distant past Iíve heard him say it might actually be easier now cause information is easier to access.
2. He seems to have switched his stance a little.  Before when people asked him to speak on this subject heíd talk about finding super cheap small companies and going long the stock.  Now it seems he thinks arbs are more inefficient.
3. I assume that for him to have an opinion in this he must be looking in that area from time to time.  I like the idea that Buffett loves this stuff so much that heís still taking an occasional peak at these tiny obscure situations, even as an old billionaire philanthropist who has no reason to care.

By the way, does anybody me have a transcript or audio/video of this?  Thanks in advance.

1.  Yes, easier information, but definitely not easier.  So much competition and the competitors are acting very quickly.  In the old days, you read through numerous guides and reports...you didn't run screens, you had to create the data from everything you read. 
2.  Yes, you are correct.  In the past, he would have done 50% annualized with small sums by targetting small companies.  He cannot do that now, even with small sums...too much competition.
3.  What else is he going to do with his time?  :)  Plus find a few little gem opportunities for the grandkids accounts!

Cheers!
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: Tim Eriksen on May 21, 2019, 03:57:11 PM
After the meeting at the Willow Oak event I spoke with a guy who said he was the one who asked the question.  I had skipped out of that part of the meeting so I can't confirm it was him.   He was annoyed that Buffett didn't really answer the question.  The guy said he purposely included arbitrage because he said that Alice Schroeder had told him that Buffett had said to her that he believed he could make 50% annually in treasury arbitrage.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: Orchard on May 21, 2019, 05:31:48 PM
Of course he won't give a specific answer. It all goes back to the Mozart quote.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: IceCreamMan on May 21, 2019, 08:50:59 PM
First, I think that Buffett genuinely meant 50%.  Alice Schroeder has said in the past that he is a very literal person and I don't think he would just make up a "large number".



I've followed Buffett for over 20 years now.  I thought the same as you when he first mentioned 50% annualized with small sums...and I was there when he said it.  But he's been asked this a couple of other times and he's always said yes...50% annualized.  And I heard him as clear as a bell say the same thing again this year with a little more detail.  And he also said essentially that Charlie was doing better than 50% a year in his early days before the Munger Partnership through his real estate investments and deals.  It is a stunning number, but they've both said now on numerous occasions that they could do that pretty easily with very small sums...although harder now than in the past.  Cheers!

To return 50% a year, are we sure that Buffett is talking about unleveraged securities plays and not leveraged real estate deals? The references in this thread to Munger's real estate deals and the exponential slowing of returns as a function of AUM made me wonder this.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: Poor Charlie on May 21, 2019, 10:01:01 PM
Buffett has talked a lot about the 1950s as his best decade, so I would use that as a reference.  If you look at his holdings from back then, youíll notice that most of them were (a) priced under 5x earnings, (b) growing at a decent clip (i.e., 10%) and (c) trading in some off-the-map market (think of the Atled example heís talked about a few times).  Also, most of his large investments from back then were coattailsóIDS (Murchinson); Western Insurance (Duboc); Philadelphia & Reading (Graham); Geico (Graham); North American Fire (Ahmanson); Rockwood (Pritzker); Crane (Evans); Eltra (Wattles); Getty Oil (Getty). 

Could he and Munger still find these situations today?  I think so.  Consider, for instance, the investments Himalaya has made overseas in the last twenty-five years.  Most of these were even cleaner (better business, capital structure, price, etc.) than the investments Buffett was making in the 1950s.  I would rank them up their with Belridge, which Munger often cites as one of the best investment opportunities of his life. 

That being said, just because it can be done doesnít mean that they could do it.  Take Mungerís smaller pools of capitalóThe Daily Journal and his foundation.  Whatís the return on the Daily Journalís investments over the last five years?  Not 50%.  How about his foundation?  The only large investment he has made in the foundation in the last five years (Hyundai common and preferred) is probably down by 50%.  If it were indeed as easy as Buffett lets on, I think the returns in both these vehicles wouldíve been a lot higher.

[From my own experience, the single-most important factor to earning high returns is knowing where to look.]
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: Jurgis on May 21, 2019, 10:09:16 PM
Take Mungerís smaller pools of capitalóThe Daily Journal and his foundation.  Whatís the return on the Daily Journalís investments over the last five years?  Not 50%.  How about his foundation?  The only large investment he has made in the foundation in the last five years (Hyundai common and preferred) is probably down by 50%.  If it were indeed as easy as Buffett lets on, I think the returns in both these vehicles wouldíve been a lot higher.

I think this is a good observation. I had similar thought when Munger was running Wesco. He always said not to think of Wesco as mini-Berkshire. But since it was so much smaller, he could have fished in smaller (other) ponds and made better returns than BRK. So either he just phoned it in or he really did not want to make effort (perhaps not to appear to be favoring Wesco - and now DJCO - vs Berkshire?) or it's really hard and - at least Munger - can't do even close to 50% in these situations.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: kiwing100 on May 23, 2019, 01:00:58 AM

Take Mungerís smaller pools of capitalóThe Daily Journal and his foundation. 

How about his foundation?  The only large investment he has made in the foundation in the last five years (Hyundai common and preferred) is probably down by 50%.


Poor Charlie

1) How did you find out about the Munger foundation's investment in Hyundai?  Is there a list or filing made?
2) Which Hyundai entity is it? (There are quite a few - Hyundai Motors, Hyundai Engineering & Construction, Hyundai Dept Store, Hyundai Fire & Marine, Hyundai Green Food, Hyundai Merchant Marine, Hyundai Heavy, Hyundai Corp, Hyundai Mobis, Hyundai Steel, Hyundai Mipo)

Thanks in advance.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: Poor Charlie on May 23, 2019, 05:00:51 AM

Take Mungerís smaller pools of capitalóThe Daily Journal and his foundation. 

How about his foundation?  The only large investment he has made in the foundation in the last five years (Hyundai common and preferred) is probably down by 50%.


Poor Charlie

1) How did you find out about the Munger foundation's investment in Hyundai?  Is there a list or filing made?
2) Which Hyundai entity is it? (There are quite a few - Hyundai Motors, Hyundai Engineering & Construction, Hyundai Dept Store, Hyundai Fire & Marine, Hyundai Green Food, Hyundai Merchant Marine, Hyundai Heavy, Hyundai Corp, Hyundai Mobis, Hyundai Steel, Hyundai Mipo)

Thanks in advance.

Run a search on any database for the ĎAlfred C Munger Foundationí (named after his father).  For example:

https://projects.propublica.org/nonprofits/organizations/952462103

(See page 21 of the 2016 filing)
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: wabuffo on May 23, 2019, 06:01:30 AM
Which Hyundai entity is it? (There are quite a few - Hyundai Motors, Hyundai Engineering & Construction, Hyundai Dept Store, Hyundai Fire & Marine, Hyundai Green Food, Hyundai Merchant Marine, Hyundai Heavy, Hyundai Corp, Hyundai Mobis, Hyundai Steel, Hyundai Mipo)

By isolating the quarter-end fair value dollar amounts and comparing the Q-to-Q change in fair values to quarter-end prices (converted to USD), I believe Munger has also purchased Hyundai Motors Preferreds in the DJCO portfolio.  Specifically, the 005389.KS ticker on the South Korean stock exchange.

It hasn't been a winner for him, so far.

wabuffo
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: wabuffo on May 23, 2019, 06:04:21 AM
To think that WEB, CM, or anyone could do 50% for even 5 years in a row without leverage

I don't think WEB explicitly ruled out the use of leverage in that 50% boast.   He has always used leverage - specifically in market-neutral special situations.  Not just at BRK or the Buffett Partnership, but even in his pre-Buffett Partnership days. 

wabuffo
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: LongHaul on May 23, 2019, 09:34:27 AM
To think that WEB, CM, or anyone could do 50% for even 5 years in a row without leverage

I don't think WEB explicitly ruled out the use of leverage in that 50% boast.   He has always used leverage - specifically in market-neutral special situations.  Not just at BRK or the Buffett Partnership, but even in his pre-Buffett Partnership days. 

wabuffo

I think 50% for 5 yrs would be very hard for Buffett or Munger today or anyone else for that matter.   

When he said that this year I immediately thought the odds were low it could be achieved, right now, over 5 years.

The 1950's in the US were the best decade since 1950 for the stock market.  19.3% annually. 
But stocks were really cheap in 1950.  Perhaps he remember that time.

http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm



Title: Re: Berkshire Annual meeting - 50% a year?
Post by: spartansaver on May 23, 2019, 09:40:48 AM
To think that WEB, CM, or anyone could do 50% for even 5 years in a row without leverage

I don't think WEB explicitly ruled out the use of leverage in that 50% boast.   He has always used leverage - specifically in market-neutral special situations.  Not just at BRK or the Buffett Partnership, but even in his pre-Buffett Partnership days. 

wabuffo

I think 50% for 5 yrs would be very hard for Buffett or Munger today or anyone else for that matter.   

When he said that this year I immediately thought the odds were low it could be achieved, right now, over 5 years.

The 1950's in the US were the best decade since 1950 for the stock market.  19.3% annually. 
But stocks were really cheap in 1950.  Perhaps he remember that time.

http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm

This is W.E.B. we are talking about. The O of O! With the number of situations he's seen throughout his life, he would have the world as his oyster with $1mn. I'm guessing when he was up on stage answering 50% a year, he wasn't daydreaming back to 1950. I would be highly skeptical of anyone else saying 50%, but this is Grandaddy Warren.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: kiwing100 on May 24, 2019, 03:17:51 AM
Which Hyundai entity is it? (There are quite a few - Hyundai Motors, Hyundai Engineering & Construction, Hyundai Dept Store, Hyundai Fire & Marine, Hyundai Green Food, Hyundai Merchant Marine, Hyundai Heavy, Hyundai Corp, Hyundai Mobis, Hyundai Steel, Hyundai Mipo)

By isolating the quarter-end fair value dollar amounts and comparing the Q-to-Q change in fair values to quarter-end prices (converted to USD), I believe Munger has also purchased Hyundai Motors Preferreds in the DJCO portfolio.  Specifically, the 005389.KS ticker on the South Korean stock exchange.

It hasn't been a winner for him, so far.

wabuffo

Wabuffo,

Thank you for that.  Where can you see 005389.KS in the DJCO portfolio? Is there some filing? 

FYI, I looked in the 10K and nothing was mentioned.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: gfp on May 24, 2019, 04:19:16 AM
I believe what wabuffo is saying is that he has inferred the identity of the undisclosed foreign security by looking at the end of quarter marks for DJCO's entire investment portfolio and backing out the known, disclosed positions.   005389.KS lines up with those marks, which as more quarters are reported becomes less and less likely to be a coincidence.  Good old-fashioned sleuthing...

The identity of the security is not officially disclosed.  Someone may have asked Charlie about it though.


Which Hyundai entity is it? (There are quite a few - Hyundai Motors, Hyundai Engineering & Construction, Hyundai Dept Store, Hyundai Fire & Marine, Hyundai Green Food, Hyundai Merchant Marine, Hyundai Heavy, Hyundai Corp, Hyundai Mobis, Hyundai Steel, Hyundai Mipo)

By isolating the quarter-end fair value dollar amounts and comparing the Q-to-Q change in fair values to quarter-end prices (converted to USD), I believe Munger has also purchased Hyundai Motors Preferreds in the DJCO portfolio.  Specifically, the 005389.KS ticker on the South Korean stock exchange.

It hasn't been a winner for him, so far.

wabuffo

Wabuffo,

Thank you for that.  Where can you see 005389.KS in the DJCO portfolio? Is there some filing? 

FYI, I looked in the 10K and nothing was mentioned.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: wabuffo on May 24, 2019, 07:22:55 AM
Where can you see 005389.KS in the DJCO portfolio? Is there some filing?  FYI, I looked in the 10K and nothing was mentioned.

I believe what wabuffo is saying is that he has inferred the identity of the undisclosed foreign security by looking at the end of quarter marks for DJCO's entire investment portfolio and backing out the known, disclosed positions.   005389.KS lines up with those marks, which as more quarters are reported becomes less and less likely to be a coincidence. 


gfp is correct.  To my knowledge Charlie has never disclosed the identity of the South Korean manufacturing company in the DJCO portfolio.  He did disclose that the other foreign manufacturing company on the Hong Kong exchange is BYD (1211.HK) at the AGM last year:
https://www.sec.gov/Archives/edgar/data/783412/000143774918002649/djco20180215_8k.htm (https://www.sec.gov/Archives/edgar/data/783412/000143774918002649/djco20180215_8k.htm)

Using publicly available information, one can easily identify the mystery South Korean stock.  Here's a table that shows the start of how to do that. 

(http://i68.tinypic.com/2efpctk.jpg)

DJCO has to file a 13F every quarter and outline its holdings of its four US-listed stocks (WFC, USB, BAC, PKX).  One can back into the quarter-end fair values of its two foreign-listed stocks by subtracting the amounts in the 13-Fs with their total holdings of common stocks reported in the 10-Qs, 10-Ks.  We can see that the bigger position is BYD.  We can use the BYD information to calculate the quarter-end fair values of the South Korean stock (and then figure out what stock it is).

(http://i65.tinypic.com/2eoce55.jpg)

To calculate the quarter-end fair values of DJCO's holding of BYD (1211.HK) we need to peg it to the quarter-end reported fair values of BYD by BRK Energy (a more-or-less permanent holding) in its 10-Qs, 10-Ks.  You can see that the annual values (9/30) declared in the foreign currency risk section in the DJCO 10-K tie with the calculated values using BRK Energy's fair values of its BYD holding.   

Using the fair value of DJCO's BYD holding, we can then back into the quarter-end fair values of DJCO's mystery South Korean exchange-listed security.  If we compare the index vs the 9/30/17 fair value of this holding with the calculated USD-value of Hyundai Pfd Series 3 (005389.KS) quarter-end prices converted to USD from South Korean won, you can see that the quarterly index values match exactly.   This makes it virtually certain that this is the South Korean-listed stock that DJCO owns.   

There's other circumstantial evidence that supports this hypothesis.  One is the Alfred Munger Trust holdings of Hyundai securities.  A second data point is that Li Lu (who manages Munger's money in his Himalaya Capital fund) presented South Korean preferreds (which are actually non-voting common shares) being mispriced versus their voting common equity pairs at a Sohn Conference in 2013 and has probably influenced Munger's thinking in this area (Munger first started buying Hyundai Series 3 Preferred for DJCO during late 2014).
https://www.marketfolly.com/2013/05/li-lus-sohn-conference-presentation-on.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+MarketFolly+(Market+Folly) (https://www.marketfolly.com/2013/05/li-lus-sohn-conference-presentation-on.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+MarketFolly+(Market+Folly))

And then again I could be wrong  8)

wabuffo
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: Poor Charlie on May 24, 2019, 04:59:58 PM

By isolating the quarter-end fair value dollar amounts and comparing the Q-to-Q change in fair values to quarter-end prices (converted to USD), I believe Munger has also purchased Hyundai Motors Preferreds in the DJCO portfolio.  Specifically, the 005389.KS ticker on the South Korean stock exchange.

It hasn't been a winner for him, so far.

wabuffo

The Hyundai investment is interesting.  The whole premise behind the small-size caveat is that it enables them to take their skillset to a bigger investment universe.  But if thatís the case, why did Munger buy Hyundai?  When he was making his investment (2013-2014), I remember finding many opportunities in Korea that looked a lot better than Hyundai.  I also know Munger knew about some of these because Li Lu presented one at CBS.  The fact that Munger had direct knowledge of these opportunities (via Li Lu) and had access to them (via the foundationís smaller capital base) and still made a poor investment speaks to the fact that size isnít the limiting factor here.  Compounding at 50%, whether itís with $1 million or $1 billion, is tough.  Thatís not to say it isnít doableóitís just tough.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: kiwing100 on May 24, 2019, 06:45:18 PM
Where can you see 005389.KS in the DJCO portfolio? Is there some filing?  FYI, I looked in the 10K and nothing was mentioned.

I believe what wabuffo is saying is that he has inferred the identity of the undisclosed foreign security by looking at the end of quarter marks for DJCO's entire investment portfolio and backing out the known, disclosed positions.   005389.KS lines up with those marks, which as more quarters are reported becomes less and less likely to be a coincidence. 


gfp is correct.  To my knowledge Charlie has never disclosed the identity of the South Korean manufacturing company in the DJCO portfolio.  He did disclose that the other foreign manufacturing company on the Hong Kong exchange is BYD (1211.HK) at the AGM last year:
https://www.sec.gov/Archives/edgar/data/783412/000143774918002649/djco20180215_8k.htm (https://www.sec.gov/Archives/edgar/data/783412/000143774918002649/djco20180215_8k.htm)

Using publicly available information, one can easily identify the mystery South Korean stock.  Here's a table that shows the start of how to do that. 

(http://i68.tinypic.com/2efpctk.jpg)

DJCO has to file a 13F every quarter and outline its holdings of its four US-listed stocks (WFC, USB, BAC, PKX).  One can back into the quarter-end fair values of its two foreign-listed stocks by subtracting the amounts in the 13-Fs with their total holdings of common stocks reported in the 10-Qs, 10-Ks.  We can see that the bigger position is BYD.  We can use the BYD information to calculate the quarter-end fair values of the South Korean stock (and then figure out what stock it is).

(http://i65.tinypic.com/2eoce55.jpg)

To calculate the quarter-end fair values of DJCO's holding of BYD (1211.HK) we need to peg it to the quarter-end reported fair values of BYD by BRK Energy (a more-or-less permanent holding) in its 10-Qs, 10-Ks.  You can see that the annual values (9/30) declared in the foreign currency risk section in the DJCO 10-K tie with the calculated values using BRK Energy's fair values of its BYD holding.   

Using the fair value of DJCO's BYD holding, we can then back into the quarter-end fair values of DJCO's mystery South Korean exchange-listed security.  If we compare the index vs the 9/30/17 fair value of this holding with the calculated USD-value of Hyundai Pfd Series 3 (005389.KS) quarter-end prices converted to USD from South Korean won, you can see that the quarterly index values match exactly.   This makes it virtually certain that this is the South Korean-listed stock that DJCO owns.   

There's other circumstantial evidence that supports this hypothesis.  One is the Alfred Munger Trust holdings of Hyundai securities.  A second data point is that Li Lu (who manages Munger's money in his Himalaya Capital fund) presented South Korean preferreds (which are actually non-voting common shares) being mispriced versus their voting common equity pairs at a Sohn Conference in 2013 and has probably influenced Munger's thinking in this area (Munger first started buying Hyundai Series 3 Preferred for DJCO during late 2014).
https://www.marketfolly.com/2013/05/li-lus-sohn-conference-presentation-on.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+MarketFolly+(Market+Folly) (https://www.marketfolly.com/2013/05/li-lus-sohn-conference-presentation-on.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+MarketFolly+(Market+Folly))

And then again I could be wrong  8)

wabuffo

Wabuffo,

Many thanks to you for your very comprehensive response.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: Swedish_Compounder on May 28, 2019, 11:05:37 AM
I think that he would be looking at share issuances in poorly marketed very small companies where it would be possible to find opportunities. For example Peter Lynch S&L strategy where you would need to open up accounts in the S&L:s to be allowed to participate in the share issuance taking palce far below market value. There might from time to time be similar situations in other companies, such as real estate companies etc, where you would need to have a savings account to participate. He might try to oversubscribe the share issuance in a huge way, which might be fruitful if it is poorly marketed. He might not be inclined to describe these sorts of situations, because there can be cases when the issuer does not expect someone to subscribe for 1.000 times more shares than everyone else and even though it is not illegal, it can be perceived as un-ethical, since it is against the intentions of the issuer.

There would also be share redemption situations where it can be possible to make 20-30% in a few weeks in a very safe way. I have encountered one such situation myself in a very small stock with no analyst or mutual fund coverage and made lots of money from it.

If I did not have a regular job and was planning to put 1 MUSD to work, I would probably try to read everything I can find in order to try to find these kinds of situations and bet hard when I find them.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: AdjustedEarnings on May 29, 2019, 07:34:36 AM
Buffett has talked a lot about the 1950s as his best decade, so I would use that as a reference.  If you look at his holdings from back then, youíll notice that most of them were (a) priced under 5x earnings, (b) growing at a decent clip (i.e., 10%) and (c) trading in some off-the-map market (think of the Atled example heís talked about a few times).  Also, most of his large investments from back then were coattailsóIDS (Murchinson); Western Insurance (Duboc); Philadelphia & Reading (Graham); Geico (Graham); North American Fire (Ahmanson); Rockwood (Pritzker); Crane (Evans); Eltra (Wattles); Getty Oil (Getty). 

Could he and Munger still find these situations today?  I think so.  Consider, for instance, the investments Himalaya has made overseas in the last twenty-five years.  Most of these were even cleaner (better business, capital structure, price, etc.) than the investments Buffett was making in the 1950s.  I would rank them up their with Belridge, which Munger often cites as one of the best investment opportunities of his life. 

That being said, just because it can be done doesnít mean that they could do it.  Take Mungerís smaller pools of capitalóThe Daily Journal and his foundation.  Whatís the return on the Daily Journalís investments over the last five years?  Not 50%.  How about his foundation?  The only large investment he has made in the foundation in the last five years (Hyundai common and preferred) is probably down by 50%.  If it were indeed as easy as Buffett lets on, I think the returns in both these vehicles wouldíve been a lot higher.

[From my own experience, the single-most important factor to earning high returns is knowing where to look.]

See also: WEB's investment in Seritage. Large, high conviction investment equaling over 10-15% of his non-BRK portfolio. It has under-peformed badly. Now he has more than $1mm in that portfolio, to be sure. But it's less than a billion. I believe that portfolio looks something like:

10-15% SRG
10-12ish% WFC
10-12ish% JPM
Some other REITs he uses for income
and US Treasuries

He could be in smaller investments, if he wanted to be, had time to find them, and actually found them.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: fishwithwings on May 29, 2019, 07:37:03 AM
I think that he would be looking at share issuances in poorly marketed very small companies where it would be possible to find opportunities. For example Peter Lynch S&L strategy where you would need to open up accounts in the S&L:s to be allowed to participate in the share issuance taking palce far below market value. There might from time to time be similar situations in other companies, such as real estate companies etc, where you would need to have a savings account to participate. He might try to oversubscribe the share issuance in a huge way, which might be fruitful if it is poorly marketed. He might not be inclined to describe these sorts of situations, because there can be cases when the issuer does not expect someone to subscribe for 1.000 times more shares than everyone else and even though it is not illegal, it can be perceived as un-ethical, since it is against the intentions of the issuer.

There would also be share redemption situations where it can be possible to make 20-30% in a few weeks in a very safe way. I have encountered one such situation myself in a very small stock with no analyst or mutual fund coverage and made lots of money from it.

If I did not have a regular job and was planning to put 1 MUSD to work, I would probably try to read everything I can find in order to try to find these kinds of situations and bet hard when I find them.

I think you're on the right track...  Do you have an example of these situations with real estate companies?

Another thing worth noting down is that investors like Alphavulture are earning very high IRRs on special situation investments.  Not sure about the specifics tho...
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: Swedish_Compounder on June 03, 2019, 09:24:18 AM
I do know of an example where a company in the real estate / consultancy business wanted to spread ownership in advance of a stock listing. Therefore, they issued stock at a big discount to equity value to their 20.000 members who had "savings accounts" where they could save to invest in future properties. These savings accounts could be very small.

They did not put a cap to how many shares could be subscribed by each saver and one guy had shortly before the share issue become a "home saver" and subscribed so many shares that he got to own almost 10% of the whole company. This was made possible because the other "home savers" did not subscribe to enough shares to fill up the share issue.

The year after the stock listing, he sold his shares at a 700% profit.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: fishwithwings on June 03, 2019, 05:27:26 PM
I do know of an example where a company in the real estate / consultancy business wanted to spread ownership in advance of a stock listing. Therefore, they issued stock at a big discount to equity value to their 20.000 members who had "savings accounts" where they could save to invest in future properties. These savings accounts could be very small.

They did not put a cap to how many shares could be subscribed by each saver and one guy had shortly before the share issue become a "home saver" and subscribed so many shares that he got to own almost 10% of the whole company. This was made possible because the other "home savers" did not subscribe to enough shares to fill up the share issue.


The year after the stock listing, he sold his shares at a 700% profit.

Thanks. Now if there was a way to find these ideas...
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: DTEJD1997 on June 08, 2019, 04:56:48 PM
When they asked him about it years ago he said the return would go down dramatically as AUM went from 1M - 10M.  I take that to mean to look at things that are too tiny even for a $10M fund.  So look in small stuff, find something way out of line, and bet big, cause you're probably not gonna find them that often.

Look at the ethanex bankruptcy Thomas Braziel invested in,  Norilsk Nickel arb at kiddynamite's blog, mexican restaurants (CASA) which was a regular long from oddballstocks blog a few years ago (actually just read the whole oddballstocks blog archive).

I was privileged/lucky enough to be invested in 2/3 of the situations you mentioned.

As an interesting aside, it appears that the successor to CASA (Williston Holdings) is bidding to take out KONA from bankruptcy.
Title: Re: Berkshire Annual meeting - 50% a year?
Post by: cm2 on June 08, 2019, 10:15:43 PM
The guy that asked the question was John D'Urso from Kahuna Capital, he is a very smart, successful distressed and special situations investor.  At one point I believe he was MD of Special Situations for Bob Robotti.  I have personal knowledge of several situations that he has invested in where he has made 500%+ returns, including some secured real estate transactions. 

He's very gregarious as well, kind of like a Peter Cundill.

If anyone has anything interesting to share with him I can put you in touch - just send me a PM.