Author Topic: Berkshire Annual meeting - 50% a year?  (Read 9271 times)

AdjustedEarnings

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Re: Berkshire Annual meeting - 50% a year?
« Reply #30 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, you’ll 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 he’s talked about a few times).  Also, most of his large investments from back then were coattails—IDS (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 doesn’t mean that they could do it.  Take Munger’s smaller pools of capital—The Daily Journal and his foundation.  What’s the return on the Daily Journal’s 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 would’ve 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.


fishwithwings

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Re: Berkshire Annual meeting - 50% a year?
« Reply #31 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...
« Last Edit: May 29, 2019, 05:26:13 PM by fishwithwings »

Swedish_Compounder

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Re: Berkshire Annual meeting - 50% a year?
« Reply #32 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.

fishwithwings

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Re: Berkshire Annual meeting - 50% a year?
« Reply #33 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...

DTEJD1997

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Re: Berkshire Annual meeting - 50% a year?
« Reply #34 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.

cm2

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Re: Berkshire Annual meeting - 50% a year?
« Reply #35 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. 
« Last Edit: June 10, 2019, 06:26:40 AM by cm2 »