Author Topic: Buffett AGM Comments  (Read 13992 times)

cherzeca

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Re: Buffett AGM Comments
« Reply #10 on: May 03, 2020, 06:48:50 AM »
as we know the greatest value inherent in an option is time (and the fixed exercise price...which is absent here...no one can be assured of using cash to buy a stock tomorrow at today's price).  I guess warren is waiting and not seeing value now.  but if he is right that people may have changed their behavior so much that airlines are not investable, then that is a more pessimistic take than I have, on what I think will blow over within a medium term (1-2 years) investment horizon.  maybe at age 90 warren is becoming more short term.


DooDiligence

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Re: Buffett AGM Comments
« Reply #11 on: May 03, 2020, 07:54:57 AM »
I believe the ability to continue capital spending, and attracting talent, when earnings & cash flow are constrained, could be advantageous.

I'm thinking mainly about BHE, BNSF & the insurance operations.
This, of course, includes the other businesses that they don't simply let die on the vine.

You could argue that cheap credit will be available to those without a war chest but even if it's cheap, it's still a mill stone around your neck.

The analogy of BHE reinvesting cash that used to be paid out as dividends & widening their moat, comes to mind.

Could they get higher returns buying whole businesses or parts of businesses? Sure / maybe.
Anyone remember "Acres of Diamonds" by Earl Nightingale?

edit: www.nightingale.com/articles/acres-of-diamonds/

I know I'm just putting a positive spin on a subject with a ton of negative spin possibilities, but I'm definitely not putting lipstick on a pig.
AFL // BRK.B // CLB an incredibly stupid move // EW // GPC // MO an incredibly stupid ex-CEO // MTB // NVO // PSX // TRMD // ULTA // VDE // VLGEA // WFC

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rranjan

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Re: Buffett AGM Comments
« Reply #12 on: May 03, 2020, 09:30:31 AM »
as we know the greatest value inherent in an option is time (and the fixed exercise price...which is absent here...no one can be assured of using cash to buy a stock tomorrow at today's price).  I guess warren is waiting and not seeing value now.  but if he is right that people may have changed their behavior so much that airlines are not investable, then that is a more pessimistic take than I have, on what I think will blow over within a medium term (1-2 years) investment horizon.  maybe at age 90 warren is becoming more short term.

How much intrinsic value will evaporate in those 2 years for shareholders? Yes, airlines may take on lots of debt and then keep paying those debts in the next 5-6 years. Just because they survive , will shareholders get richer? If yes, then by how much and what risk they are taking?

I don't think he is thinking short-term here. I think range of outcome is wide.

Spekulatius

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Re: Buffett AGM Comments
« Reply #13 on: May 03, 2020, 09:39:39 AM »
as we know the greatest value inherent in an option is time (and the fixed exercise price...which is absent here...no one can be assured of using cash to buy a stock tomorrow at today's price).  I guess warren is waiting and not seeing value now.  but if he is right that people may have changed their behavior so much that airlines are not investable, then that is a more pessimistic take than I have, on what I think will blow over within a medium term (1-2 years) investment horizon.  maybe at age 90 warren is becoming more short term.

How much intrinsic value will evaporate in those 2 years for shareholders? Yes, airlines may take on lots of debt and then keep paying those debts in the next 5-6 years. Just because they survive , will shareholders get richer? If yes, then by how much and what risk they are taking?

I don't think he is thinking short-term here. I think range of outcome is wide.

It’s not a matter if air travel comes back. It surely will. It’s a matter of duration of the current and if current shareholders will get impaired and what the economics of the business will look like.

Buffet doesn’t know then answer and he realized that he didn’t get the deal that he thought he get when he bought into this. His process might have been correct and have worked out well in a parallel universe without the Coronavirus showing up, but it did not. So he makes the best guess and moves on. It is what it is.
« Last Edit: May 03, 2020, 11:27:42 AM by Spekulatius »
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StevieV

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Re: Buffett AGM Comments
« Reply #14 on: May 03, 2020, 10:42:23 AM »
I thought that selling out of the airlines showed a lot of discipline that is difficult for most people, myself included.  I don't exactly why Buffett bought the airlines, but presumably he though the industry had rationalized so that there were a reasonable number of competitors acting rationally.  Air travel seemed like it was on a sustained upward growth and additional capacity was at least somewhat limited.  All of those things are no longer true.

Seems simple enough - all the reasons he wanted to own the airlines are no longer applicable, so he no longer wants to own them.  Straightforward, but not easy.

DooDiligence

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Re: Buffett AGM Comments
« Reply #15 on: May 03, 2020, 11:06:56 AM »
I thought that selling out of the airlines showed a lot of discipline that is difficult for most people, myself included.  I don't exactly why Buffett bought the airlines, but presumably he though the industry had rationalized so that there were a reasonable number of competitors acting rationally.  Air travel seemed like it was on a sustained upward growth and additional capacity was at least somewhat limited.  All of those things are no longer true.

Seems simple enough - all the reasons he wanted to own the airlines are no longer applicable, so he no longer wants to own them.  Straightforward, but not easy.

I agree. He's not afraid to admit mistakes, although it must hurt especially so with airlines given his historical opinion on them.
AFL // BRK.B // CLB an incredibly stupid move // EW // GPC // MO an incredibly stupid ex-CEO // MTB // NVO // PSX // TRMD // ULTA // VDE // VLGEA // WFC

Investable cash 16% + 18 months of survival $

petec

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Re: Buffett AGM Comments
« Reply #16 on: May 03, 2020, 11:54:16 AM »
As a long-standing Fairfax watcher, all this talk of depression gives me deja-vu. I have learned my lesson and wonít listen to it this time, which almost guarantees that it will happen.
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Viking

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Re: Buffett AGM Comments
« Reply #17 on: May 03, 2020, 01:33:45 PM »
as we know the greatest value inherent in an option is time (and the fixed exercise price...which is absent here...no one can be assured of using cash to buy a stock tomorrow at today's price).  I guess warren is waiting and not seeing value now.  but if he is right that people may have changed their behavior so much that airlines are not investable, then that is a more pessimistic take than I have, on what I think will blow over within a medium term (1-2 years) investment horizon.  maybe at age 90 warren is becoming more short term.

How much intrinsic value will evaporate in those 2 years for shareholders? Yes, airlines may take on lots of debt and then keep paying those debts in the next 5-6 years. Just because they survive , will shareholders get richer? If yes, then by how much and what risk they are taking?

I don't think he is thinking short-term here. I think range of outcome is wide.

Itís not a matter if air travel comes back. It surely will. Itís a matter of duration of the current and if current shareholders will get impaired and what the economics of the business will look like.

Buffet doesnít know then answer and he realized that he didnít get the deal that he thought he get when he bought into this. His process might have been correct and have worked out well in a parallel universe without the Coronavirus showing up, but it did not. So he makes the best guess and moves on. It is what it is.

Listening to Buffett yesterday, I think the key reason he punted on the airlines is because they are such a capital intensive industry. And they are going to need a massive amount of new money just to survive the next year or two. And governments will want national champions (Italy nationalized itís airline) so there will likely be lots of dumb things done there. So existing shareholders are at high risk of permanent loss of capital. Not an investment today but a speculation.

cherzeca

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Re: Buffett AGM Comments
« Reply #18 on: May 03, 2020, 06:29:18 PM »
I respect WEB greatly, so no quibbles on the airlines sale.  not sure he would do it if he had an OXY-like pref in them, but no matter...but why does he continue with the larger investment in Kraft Heinz if he sells loser airlines as a matter of discipline?  which you might recall he did not discuss in his last annual letter

Viking

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Re: Buffett AGM Comments
« Reply #19 on: May 03, 2020, 06:37:15 PM »
As a long-standing Fairfax watcher, all this talk of depression gives me deja-vu. I have learned my lesson and wonít listen to it this time, which almost guarantees that it will happen.

The challenge with macro calls is you have to get not only the call right but also the timing. My view is the timing is the more difficult of the two to get right.

In time, we may learn that Fairfax was positioned properly in 2015 (with their very bearish position). They reversed in 2016 and locked in losses. Then got fully invested and may now be facing steep (paper) losses once again. If we get a severe bear market in stocks Fairfax may need to do a complete reset In terms of investment strategy to re-build investor confidence. What a crazy ride the past 25 years :-)
« Last Edit: May 03, 2020, 06:43:15 PM by Viking »