Author Topic: Buffett letter?  (Read 27326 times)

jeffmori7

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Re: Buffett letter?
« Reply #70 on: March 18, 2013, 03:43:18 PM »
Is there a way to determine what Ted/Todd picks are? 

Compare previous 13-Fs?

The easiest way (for me at least) is to watch/read the WEB interviews. People ask him why he bought Intel or GM and he will mention that they were not his purchases. This used to happen all the time with Lou's portfolio, BAC was a Lou position that people always asked Buffett about.

AFAIK these are the current holdings that WEB's picks. Anyone see any errors:

WFC
KO
IBM
PG
WMT
PSX
MCO
WPO
COST
MDLZ(kraft spin off)
KRFT
GCI
GE
USB
PSX(cop spin off)
COP
JNJ

You just omited American Express, his fourth holding :)


compoundinglife

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Re: Buffett letter?
« Reply #71 on: March 18, 2013, 03:45:32 PM »
Is there a way to determine what Ted/Todd picks are? 

Compare previous 13-Fs?

The easiest way (for me at least) is to watch/read the WEB interviews. People ask him why he bought Intel or GM and he will mention that they were not his purchases. This used to happen all the time with Lou's portfolio, BAC was a Lou position that people always asked Buffett about.

AFAIK these are the current holdings that WEB's picks. Anyone see any errors:

WFC
KO
IBM
PG
WMT
PSX
MCO
WPO
COST
MDLZ(kraft spin off)
KRFT
GCI
GE
USB
PSX(cop spin off)
COP
JNJ

You just omited American Express, his fourth holding :)

Duh! Cut and paste error :)

jeffmori7

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Re: Buffett letter?
« Reply #72 on: March 18, 2013, 03:49:50 PM »
I would think that both pharma Glaxo and Sanofi are Buffett holdings too, but maybe I am wrong on those ones.

finetrader

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Re: Buffett letter?
« Reply #73 on: March 18, 2013, 03:51:58 PM »
As an idea stealer from other respected investors, I feel like Ted, Todd, BB, and maybe Pabrai are the only one I can steal idea from with a good level of confidence simply because they run concentrated portfolio. Watsa would fit in but then we all know in what type of (controversial  to say the least) company he gets into...

Ex: I could take an idea from Tepper but then he would have only 2-3% invest in.
Live to invest, invest to live

compoundinglife

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Re: Buffett letter?
« Reply #74 on: March 18, 2013, 03:52:54 PM »
I would think that both pharma Glaxo and Sanofi are Buffett holdings too, but maybe I am wrong on those ones.

Yeah looks like it. GSK goes back to 2007:

http://www.dataroma.com/m/hist/hist.php?f=brk&s=GSK

and SNY going back to 2006:

http://www.dataroma.com/m/hist/hist.php?f=brk&s=SNY

jay21

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Re: Buffett letter?
« Reply #75 on: March 18, 2013, 06:09:15 PM »

The easiest way (for me at least) is to watch/read the WEB interviews. People ask him why he bought Intel or GM and he will mention that they were not his purchases. This used to happen all the time with Lou's portfolio, BAC was a Lou position that people always asked Buffett about.

AFAIK these are the current holdings that WEB's picks. Anyone see any errors:

WFC
KO
IBM
PG
WMT
PSX
MCO
WPO
COST
MDLZ(kraft spin off)
KRFT
GCI
GE
USB
PSX(cop spin off)
COP
JNJ

Going off memory: MTB, USG, LEE, Media General, Verisk Analytics

Phillips 66 was dumped by Buffet I believe, and then Tedd and Tod both picked it up.
@jay_21_

Kiltacular

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Re: Buffett letter?
« Reply #76 on: March 18, 2013, 07:23:32 PM »
Quote
Kiltacular,

The subtraction of goodwill is not inconsistent with Buffett's idea that the insurance businesses are worth more than they are carried for on Berkshire's books.

Goodwill (for the insurance businesses) = Price Berkshire was willing to pay for those businesses' float-generation capabilities

If you adjust book to reflect the economic value of float, then you must necessarily subtract goodwill so that you don't end up double-counting the value of the float.

Best,
Ragu

Hi Ragu,

Sometimes these types of conversations are difficult online.  With that said, I DO NOT think it is inconsistent with Buffett's commentary / explanation to subtract goodwill for the insurance businesses.

I was pointing out that it is VERY conservative if you believe Buffett when he explains that there is a lot of "economic goodwill" for the insurance companies -- at least w/r/t GEICO -- that IS NOT on Berkshire's consolidated balance sheet.

The goodwill that is on Berkshire's balance sheet related to the insurance companies is -- from memory -- mostly related to the purchase of General Re.  The goodwill represents the portion of the purchase price in excess of what can be allocated to the purchased assets once those assets that are indentifiable are written up to fair value.

What Buffett explained about GEICO in the letter I referenced was that there is a huge amount of "goodwill" that is not on Berkshire's balance sheet but would be if Berkshire "rebought" GEICO now (well, in 2010).

Subtracting the goodwill related to the insurance companies that is on Berkshire's balance sheet is very, very conservative if you believe Buffett about GEICO. And, GEICO's "economic goodwill" (what would be balance sheet goodwill if Berkshire rebought GEICO today on the same basis that it bought it when it did) is likely more related to GEICO's ability to produce enormous underwriting profits on premium volume than it is related to GEICO's ability to produce float.  Though, that is likely not true for the Gen Re purchase -- which was for the float (very long-tailed) -- and less for the underwriting profits.

Again, this is wordy and likely worthless.  The point is simply that subtracting the goodwill that is on the balance is very, very conservative IF you believe Buffett about GEICO.

My 2 cents.

ragu

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Re: Buffett letter?
« Reply #77 on: March 18, 2013, 08:37:10 PM »
The point is simply that subtracting the goodwill that is on the balance is very, very conservative IF you believe Buffett about GEICO.

Kiltacular,

IMO, this has very little to do with conservatism and all to do with assigning a value to Berkshire's float. If you assign a value to Berkshire's float and adjust Berkshire's BV upwards accordingly, then you must subtract goodwill.

Why? Because they represent the same thing i.e. the value of the float, only at different points of time (goodwill: at the time of acquisition, estimate of the value of float on the books: current).

It's the estimation of the value of the float that will take care of the discrepancy between goodwill on the books and current economic value. If the estimate is reasonable, then that number will be larger, likely significantly larger, than the goodwill on the books. 

Best,
Ragu
 

Kiltacular

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Re: Buffett letter?
« Reply #78 on: March 18, 2013, 09:27:29 PM »
Quote
IMO, this has very little to do with conservatism and all to do with assigning a value to Berkshire's float. If you assign a value to Berkshire's float and adjust Berkshire's BV upwards accordingly, then you must subtract goodwill.

Why? Because they represent the same thing i.e. the value of the float, only at different points of time (goodwill: at the time of acquisition, estimate of the value of float on the books: current).

It's the estimation of the value of the float that will take care of the discrepancy between goodwill on the books and current economic value. If the estimate is reasonable, then that number will be larger, likely significantly larger, than the goodwill on the books.

Hi Ragu,

I see how you're looking at it -- well explained.  But, what you say is true if Berkshire simply always writes a combined ratio of 100.  No underwriting losses but also, no underwriting profits.

But, I would add, again, that in the case of GEICO, the discrepancy you describe is not just attributable to GEICO's float. 

So, while I would agree with you that if we're just talking about valuing Berkshire's float, you are correct, I was adding the idea in my original comment that, even if you subtract the goodwill on the books associated with the insurance companies, it isn't insane to think that this is conservative (and I'll amend that with) if you consider that the value of GEICO [if not the other insurance operations] is not just its existing float and its future float but also its ability to create massive underwriting profits.

So, if you assume that GEICO will produce large and growing underwriting profits for a long time and that the rest of Berkshire's insurance operations will write at breakeven, I would still argue that you are not double-counting if you write up Berkshire's books for the unrecorded value of GEICO's goodwill even if you subtract the rest of the goodwill associated with the insurance operations that are recorded on Berkshire's books (as Buffett suggests should be done in this year's letter).

Does this make any sense?  I may still be double counting it but I don't think I am if the conditions I describe are met.


ragu

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Re: Buffett letter?
« Reply #79 on: March 19, 2013, 05:45:48 AM »
Kiltacular,

Firstly, thank you for the kind words.


[...]even if you subtract the goodwill on the books associated with the insurance companies, it isn't insane to think that this is conservative (and I'll amend that with) if you consider that the value of GEICO [if not the other insurance operations] is not just its existing float and its future float but also its ability to create massive underwriting profits.

Setting aside the question of whether it is appropriate (or even useful) to add a separate measure of value for GEICO's u/w profits,  I'd suggest that any measure of said value is completely independent of the goodwill paid in acquiring GEICO, because these two measures aren't like for like.

Quote from: Kiltacular
Does this make any sense?

My understanding is that you believe that adding back an estimate for the value of float still causes the insurance operations to be undervalued because u/w profits are essentially being ignored. Buffett disagrees with the notion that u/w profits ought to be capitalized, although he seems to ignore both float and deferred taxes entirely when coming up with a value for the insurance operations.

From the 2008 letter (in the section titled 'Yardsticks'):

Quote
Berkshire has two major areas of value. The first is our investments: stocks, bonds and cash equivalents. At yearend those totaled $122 billion (not counting the investments held by our finance and utility operations, which we assign to our second bucket of value). About $58.5 billion of that total is funded by our insurance float.

Berkshire’s second component of value is earnings that come from sources other than investments and insurance. These earnings are delivered by our 67 non-insurance companies, itemized on page 96. We exclude our insurance earnings from this calculation because the value of our insurance operation comes from the investable funds it generates, and we have already included this factor in our first bucket.
(emphasis supplied)

Quote from: Kiltacular
I may still be double counting it but I don't think I am if the conditions I describe are met.

I believe you are. If you'd really like to value u/w profits, then you'd need an estimate of what normalized u/w profits over an entire cycle might be and then capitalize them appropriately.

Best,
Ragu