Author Topic: Berkshire Annual meeting - 50% a year?  (Read 9267 times)

fishwithwings

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Re: Berkshire Annual meeting - 50% a year?
« Reply #10 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!

That’s interesting to me for a number of reasons:

1. In the not too distant past I’ve 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 he’d 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 he’s 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.


Parsad

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Re: Berkshire Annual meeting - 50% a year?
« Reply #11 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!
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Parsad

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Re: Berkshire Annual meeting - 50% a year?
« Reply #12 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!

That’s interesting to me for a number of reasons:

1. In the not too distant past I’ve 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 he’d 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 he’s 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!
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Tim Eriksen

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Re: Berkshire Annual meeting - 50% a year?
« Reply #13 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.

Orchard

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Re: Berkshire Annual meeting - 50% a year?
« Reply #14 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.

IceCreamMan

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Re: Berkshire Annual meeting - 50% a year?
« Reply #15 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.

Poor Charlie

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Re: Berkshire Annual meeting - 50% a year?
« Reply #16 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, 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.]

Jurgis

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Re: Berkshire Annual meeting - 50% a year?
« Reply #17 on: May 21, 2019, 10:09:16 PM »
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.

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.
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kiwing100

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Re: Berkshire Annual meeting - 50% a year?
« Reply #18 on: May 23, 2019, 01:00:58 AM »

Take Munger’s smaller pools of capital—The 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.

Poor Charlie

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Re: Berkshire Annual meeting - 50% a year?
« Reply #19 on: May 23, 2019, 05:00:51 AM »

Take Munger’s smaller pools of capital—The 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 ‘Alfred C Munger Foundation’ (named after his father).  For example:

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

(See page 21 of the 2016 filing)