Author Topic: Buffett AGM Comments  (Read 13993 times)

rranjan

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Re: Buffett AGM Comments
« Reply #20 on: May 03, 2020, 06:58:12 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

One is drastically better business than other. Airlines are likely to use earning power to pay down debts  for the next 5-7 years. Airline was not a case of good business and overpaying.


scorpioncapital

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Re: Buffett AGM Comments
« Reply #21 on: May 04, 2020, 01:31:46 AM »
Did anyone feel Greg Abel is not exactly as witty or eloquent as Warren Buffet? If he becomes CEO it may be a different vibe.

vinod1

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Re: Buffett AGM Comments
« Reply #22 on: May 04, 2020, 05:07:06 AM »
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

He discussed this in his CNBC interview on Feb 25, 2019. It has a fantastic discussion on consumer goods industry. I am clipping a small part of his answer. He commented further in the same or a later interview, something to the effect that it would very difficult to exit without moving the prices.

BECKY QUICK: But if you see better places to deploy money, why don’t you sell?

WARREN BUFFETT: We-- well, A) we can’t as a practical matter move around tens of billions of dollars that easily. But beyond that I mean, if we’re working with a million dollars or $10 million, would I have a position in it? No. You can move around with a million or $10 million. And Ted and Todd can move around reasonably well with $13 billion. But that can be difficult. $173 billion, I mean, you dance like an elephant. Not like some guy on Dancing With the Stars.


Vinod

« Last Edit: May 04, 2020, 05:09:21 AM by vinod1 »
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Xerxes

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Re: Buffett AGM Comments
« Reply #23 on: May 04, 2020, 06:10:55 AM »
Folks, I am trying to understand this explanation.

he says CAPEX > depreciation … just means depressed earnings. How is that related to the net cash produced in the covid context remaining unchanged ? if anyone got that, a quick explanation would be appreciated.

thx


"Warren Buffett: (01:27:41)
It affects others much less. Our three major businesses of insurance and the BNSF railroad, railroad and our energy business, those are our three largest by some margin. They’re in a reasonably decent position. They will spend more than their depreciation. So some of the earnings will go, along with depreciation, will go toward increasing fixed assets.
Warren Buffett: (01:28:13)
But basically these businesses will produce cash even though their earnings decline somewhat. And if we’ll go to part two, at Berkshire, we keep ourselves in an extraordinary strong position. We’ll always do that—that’s just fundamental. We insure people. We’re a specialist to some extent and a leader. It’s not our main business, but we sell structured settlements. That means somebody gets in a terrible accident, usually an auto accident, and they’re going to require care for 10, 30, 50 years."

StubbleJumper

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Re: Buffett AGM Comments
« Reply #24 on: May 04, 2020, 06:26:37 AM »
Did anyone feel Greg Abel is not exactly as witty or eloquent as Warren Buffet? If he becomes CEO it may be a different vibe.


Frankly, I'm good with that.  As long as the next guy does not fritter away the $100B+ cash balance on value-destructive, ego-driven acquisitions I won't much fuss about whether he is the funniest guy in the room.  I just pray that the next guy won't be another Edward Bronfman Jr.


SJ

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Re: Buffett AGM Comments
« Reply #25 on: May 04, 2020, 06:37:17 AM »
Folks, I am trying to understand this explanation.

he says CAPEX > depreciation … just means depressed earnings. How is that related to the net cash produced in the covid context remaining unchanged ? if anyone got that, a quick explanation would be appreciated.

thx


"Warren Buffett: (01:27:41)
It affects others much less. Our three major businesses of insurance and the BNSF railroad, railroad and our energy business, those are our three largest by some margin. They’re in a reasonably decent position. They will spend more than their depreciation. So some of the earnings will go, along with depreciation, will go toward increasing fixed assets.
Warren Buffett: (01:28:13)
But basically these businesses will produce cash even though their earnings decline somewhat. And if we’ll go to part two, at Berkshire, we keep ourselves in an extraordinary strong position. We’ll always do that—that’s just fundamental. We insure people. We’re a specialist to some extent and a leader. It’s not our main business, but we sell structured settlements. That means somebody gets in a terrible accident, usually an auto accident, and they’re going to require care for 10, 30, 50 years."

Greg Abel gives further context later in the meeting regarding BHE, towards the end, here is the entire context:

Greg, let me ask you one of these capital allocation questions. This one comes from [Matt Libel 00:03:16:53] and he says “Berkshire directed 46% of capital expenditure in 2019 to Berkshire Hathaway Energy. Can you walk us through with round numbers how you think differences in capex spending versus economic depreciation versus gap depreciation and help explain the timeframe over which we should recognize the contract of return on equity from these large investments, as we as shareholders are making in Berkshire Hathaway Energy?”

Greg Abel: (03:17:22)
So when we look at Berkshire Hathaway Energy and their capital programs, we try to really look at it as it was highlighted, really in a couple of different packages. One, what does it actually require to maintain the existing assets for the next 10 20 30 years i.e. it’s not incremental, it’s effectively maintaining the asset, the reflection of depreciation. And, our goal is always to clearly understand across our businesses, do we have businesses that require more than our depreciation or equal or less? And happy to say with the assets we have in place and how we’ve maintained the energy assets, we generally look at our depreciation as being more than adequate if we deploy it back into capital to maintain the asset. Now the unique thing in the lion’s share of our energy businesses that are regulated and that exceeds 85% of them, 83% of them, we still earn on that capital we deploy back into that business. So it’s not a traditional model where you’re putting it in, but you’re effectively putting it into maintain your existing earnings stream. So it’s not drastically different, but we do earn on that capital.

Greg Abel: (03:18:43)
But what we do spend a lot of time, and that’s what when Warren and I think about the substantial amounts of opportunities, that’s incremental capital that is truly needed within new opportunities. So it’s to build incremental wind, incremental transmission, that services the wind or other types of renewable, solar. That’s all incremental to the business and drives incremental both growth in the business. It does require capital, but it does drive growth within the energy business. So there’s really the two buckets. I think we would use a number a little bit lower than the depreciation. We’re comfortable the business can be maintained at that level and as we deploy amounts above that, we really do view that as quote incremental or growth CapEX.

Warren Buffett: (03:19:33)
Yeah, we have what, 40 billion or something? What do we have in sort of kind of in the works?

Greg Abel: (03:19:42)
So we have basically, as Warren’s highlighting 40 billion in the works of capital. That’s over the next effectively nine years, 10 year period, a little approximately half of that we would view as maintaining our assets. A little more than half of it’s truly incremental. And those are known projects we’re going to move forward with. And I would be happy to report, we probably have another thirty billion that aren’t far off of becoming real opportunities in that business.

Greg Abel: (03:20:16)
As Warren said, that it takes a lot of time. It’s a lot of work. The transmission projects, for example, we’re finishing in 2020, were initiated in 2008 when we bought Pacific Corp. I remember working on that transmission plan, putting it together, thinking “Six to eight years from now, we’ll, we’ll have them in operation.” 12 years later and over that period of time we earned on that capital, we have invested and then when it comes into service, we earn on the whole amount. So we’re very pleased with the opportunity, but we plant a lot of seeds, put it that way.

Warren Buffett: (03:20:48)
Yeah. And these are not, it’s not like they’re super high return thing, they’re decent returns over time. And we’re almost uniquely situated to deploy the capital. As opposed, you could have government entities do it too, but, but in terms of the private enterprise. And they take a long time, they earn decent returns. I’ve always said about the energy business, it’s not a way to get real rich, but it’s a way to stay real rich.

Warren Buffett: (03:21:23)
And we will deploy a lot of money at decent returns, not super returns. You shouldn’t earn super returns on that sort of thing. I mean, you are getting rights to do certain things that governmental authorities are authorizing and that they should protect consumers, but they also should protect people that put up the capital. And, it’s worked now for 20 years and it’s got a long runway ahead.

« Last Edit: May 04, 2020, 06:41:23 AM by LC »
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jasonchin

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Re: Buffett AGM Comments
« Reply #26 on: May 04, 2020, 06:37:55 AM »
Folks, I am trying to understand this explanation.

he says CAPEX > depreciation … just means depressed earnings. How is that related to the net cash produced in the covid context remaining unchanged ? if anyone got that, a quick explanation would be appreciated.

thx


"Warren Buffett: (01:27:41)
It affects others much less. Our three major businesses of insurance and the BNSF railroad, railroad and our energy business, those are our three largest by some margin. They’re in a reasonably decent position. They will spend more than their depreciation. So some of the earnings will go, along with depreciation, will go toward increasing fixed assets.
Warren Buffett: (01:28:13)
But basically these businesses will produce cash even though their earnings decline somewhat. And if we’ll go to part two, at Berkshire, we keep ourselves in an extraordinary strong position. We’ll always do that—that’s just fundamental. We insure people. We’re a specialist to some extent and a leader. It’s not our main business, but we sell structured settlements. That means somebody gets in a terrible accident, usually an auto accident, and they’re going to require care for 10, 30, 50 years."

My personal interpretation: he meant that earnings will be depressed relative to new capex because it takes time to ramp up the new capex (esp. in those industries). It's like building an extension to your property. You can still enjoy the fruits of your existing property, but you will have to fork out capital for your extension which may take some time to be up and running. However, your existing property is cash generative.

mattee2264

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Re: Buffett AGM Comments
« Reply #27 on: May 04, 2020, 08:31:37 AM »
 I think Greg is a safe pair of hands and a humble guy who won't go on an ego trip if he became #1. Given the size of the empire that Buffett has assembled that isn't the worst thing in the world. He will probably make sure the businesses continue to run well and make sensible bolt-on acquisitions. But it is difficult to imagine him stepping into Warren's shoes and making transformative acquisitions that really move the needle for Berkshire. I assume that is where Ted and Todd are expected to contribute more but it is a big step up from being hedge fund investors. Perhaps the idea is the three of them work together?

longinvestor

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Re: Buffett AGM Comments
« Reply #28 on: May 04, 2020, 09:18:55 AM »
I think Greg is a safe pair of hands and a humble guy who won't go on an ego trip if he became #1. Given the size of the empire that Buffett has assembled that isn't the worst thing in the world. He will probably make sure the businesses continue to run well and make sensible bolt-on acquisitions. But it is difficult to imagine him stepping into Warren's shoes and making transformative acquisitions that really move the needle for Berkshire. I assume that is where Ted and Todd are expected to contribute more but it is a big step up from being hedge fund investors. Perhaps the idea is the three of them work together?

Thinking the same. I doubt the committee type management. There will be one person in charge. He can get opinions from the other two but will make decisions. If I had to guess, Todd. He’s going through OJT at Geico, JPM, Haven etc.

bci23

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Re: Buffett AGM Comments
« Reply #29 on: May 04, 2020, 09:35:34 AM »
If you can read past the normal fluff optimism I think this was the most bearish Buffett has been. Heck, he started out the meeting talking about comparisons to the Great Depression. Combine that with the fact he has essentially bought nothing so far I think that tells you all you need to know.

I also liked this set up for Q&A much more, the quality of the discussion was soo much better. The only truly dumb question was the one from the guy that didn't know you could convert A shares to B shares.
« Last Edit: May 04, 2020, 09:38:10 AM by bci23 »