Author Topic: Berkshire Annual meeting - 50% a year?  (Read 9294 times)

fishwithwings

  • Full Member
  • ***
  • Posts: 115
Berkshire Annual meeting - 50% a year?
« 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.


CorpRaider

  • Hero Member
  • *****
  • Posts: 2216
    • The Corpraider
Re: Berkshire Annual meeting - 50% a year?
« Reply #1 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.

fishwithwings

  • Full Member
  • ***
  • Posts: 115
Re: Berkshire Annual meeting - 50% a year?
« Reply #2 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?

CorpRaider

  • Hero Member
  • *****
  • Posts: 2216
    • The Corpraider
Re: Berkshire Annual meeting - 50% a year?
« Reply #3 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.

AdjustedEarnings

  • Jr. Member
  • **
  • Posts: 59
Re: Berkshire Annual meeting - 50% a year?
« Reply #4 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?

Parsad

  • Administrator
  • Hero Member
  • *****
  • Posts: 8772
Re: Berkshire Annual meeting - 50% a year?
« Reply #5 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!
« Last Edit: May 20, 2019, 12:46:44 PM by Parsad »
No man is a failure who has friends!

matjone

  • Hero Member
  • *****
  • Posts: 601
Re: Berkshire Annual meeting - 50% a year?
« Reply #6 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).
When stocks are high, money rates rising, and business prosperous, at least half a given fund should be placed in short-term bonds. - Philip Carret

Parsad

  • Administrator
  • Hero Member
  • *****
  • Posts: 8772
Re: Berkshire Annual meeting - 50% a year?
« Reply #7 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!
No man is a failure who has friends!

ukvalueinvestment

  • Full Member
  • ***
  • Posts: 249
Re: Berkshire Annual meeting - 50% a year?
« Reply #8 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...
@ukvalueinv

matjone

  • Hero Member
  • *****
  • Posts: 601
Re: Berkshire Annual meeting - 50% a year?
« Reply #9 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.
When stocks are high, money rates rising, and business prosperous, at least half a given fund should be placed in short-term bonds. - Philip Carret