Berkshire Annual meeting - 50% a year?

[wabuffo]

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]

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

[LongHaul]

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

[spartansaver]

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.

[kiwing100]

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.

[gfp]

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.

[wabuffo]

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

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. 



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).



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)

And then again I could be wrong 

wabuffo

[Poor Charlie]

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 that’s 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 foundation’s smaller capital base) and still made a poor investment speaks to the fact that size isn’t the limiting factor here.  Compounding at 50%, whether it’s with $1 million or $1 billion, is tough.  That’s not to say it isn’t doable—it’s just tough.

[kiwing100]

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

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. 



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).



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)

And then again I could be wrong 

wabuffo

Wabuffo,

Many thanks to you for your very comprehensive response.

[Swedish_Compounder]

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.