Author Topic: The Berkshire Model - Why has it not been done more often since Buffett?  (Read 9232 times)

shalab

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Re: The Berkshire Model - Why has it not been done more often since Buffett?
« Reply #10 on: November 02, 2010, 02:23:54 PM »
I think company's are setup elsewhere that do this kind of thing.

e.g: Ratan Tata of Tata group of companies mentioned in CNBC that Tata is similar to Berkshire.


Myth465

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Re: The Berkshire Model - Why has it not been done more often since Buffett?
« Reply #11 on: November 02, 2010, 02:35:51 PM »
I think everyone is a bit too focused on insurance. I know at least a dozen companies that have great management which allocates capital to cheap assets that they understand.


savant

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Re: The Berkshire Model - Why has it not been done more often since Buffett?
« Reply #12 on: November 02, 2010, 04:54:15 PM »
Graeme Hart
Albert Frere
Bernard Arnault
etc. etc.

In the past we had Floyd Odlum, Gurdon Wattles, Thomas Mellon Evans, Jimmy Goldsmith, Henry Singleton, etc. etc.

Though none of them used insurance as a form of leverage the way WEB does.

scorpioncapital

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Re: The Berkshire Model - Why has it not been done more often since Buffett?
« Reply #13 on: November 03, 2010, 09:41:55 AM »
You'd think that such a successful strategy would inspire more imitators than Biglari:

Quote
He purchased Berkshire Hathaway, a dying textile mill. What began as a classic Graham value play became a longer-term investment when the business showed some signs of life. Cash flows from the textile business were used to fund other investments. Eventually, the original business was eclipsed by the other holdings. In 1985, Buffett shut down the textile business, but continued to use the name.

How come, for over 45 years, Warren Buffett has been one of the few to do this?  ???

On its surface, it seems too simple NOT to imitate!

It's subtle but I would argue that everyone who is an investor is "trying" to do the same thing. Every shareholder of every company, every mutual fund, every hedge fund, private equity, anybody who is an investor...the only distinction is are you a public company or a private one? Berkshire is actually a bit of an anomaly. Buffett didn't have any problem raising money, just like any hedge fund has no problem raising private money - so if you can start an investment pool privately why go public? Going public is if you can't get the money privately or you need more than the appetite of any given group. This is a profoundly interesting question, in a world filled with money why is any company public?

Myth465

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Re: The Berkshire Model - Why has it not been done more often since Buffett?
« Reply #14 on: November 03, 2010, 10:13:19 AM »
I would say the answer is liquidity. We do agree though Scorpion that most owner managers / investors are doing the same.

scorpioncapital

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Re: The Berkshire Model - Why has it not been done more often since Buffett?
« Reply #15 on: November 03, 2010, 01:09:36 PM »
So if public companies offer owners liquidity, the purpose of the market is for owners to sell businesses, not buy them :) We should learn an important lesson here, use the market to cash out.

It makes sense, as is actually happening, that in a world awash with money, public companies are being taken private, and many are.


motownsf

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Re: The Berkshire Model - Why has it not been done more often since Buffett?
« Reply #16 on: November 03, 2010, 02:20:13 PM »
I think everyone is a bit too focused on insurance. I know at least a dozen companies that have great management which allocates capital to cheap assets that they understand.



Myth,

Who would you put in this boat?

Myth465

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Re: The Berkshire Model - Why has it not been done more often since Buffett?
« Reply #17 on: November 03, 2010, 02:35:39 PM »
Its many of the names listed in other similar threads.

What I want is a business lead by a strong capital allocator who owns a chunk of the business. Everything else is a value trade. For me he doesn't have to us float. There are 100s of businesses and as long as he is investing his capital along side mine, sees a margin of safety, understands the business, and either is Management or trusts Management then I am fine.

Companies like - L, SSW (though they screwed us on the preferreds), LRE, LUK, BYD.UN (owned a bit back and may rebuy), FUR, LRE, FFH, BDVSY. Even a company like ATSG may eventually get there given how they are doing in terms of running their business.

Buffett is a genius not because he uses float, but because he can understand dozens of different businesses and knows when to stay the hell away (Tech). Ashner knows realty. Why knock him because thats all he knows? LUK knows distressed. If a guy can make me money buying realty or land / distressed companies why the hell do I want them using float? If they can then great, but if not, I am not going to move on. Doesnt it all spend the same?

For me I want these companies, I want them quality, and I want them Cheap. If the Management is strong and smart I will even hold them when they are slightly overvalued (if I cant find much else) because a smart Manager will use expensive stock to buy stuff. I dont care if its in Insurance or not, as long as they know what they are doing and stick to their knitting.

Zorrofan

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Re: The Berkshire Model - Why has it not been done more often since Buffett?
« Reply #18 on: November 03, 2010, 05:05:22 PM »
Myth,

I like your list (and don't disagree) but, if you don't mind, I am curious about your inclusion of BYD.UN with the likes of L and LUK? Would you mind explaining what your theis is for this company?

thanks
Zorro

Myth465

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Re: The Berkshire Model - Why has it not been done more often since Buffett?
« Reply #19 on: November 03, 2010, 06:18:03 PM »
BYD is of much lesser quality than the rest. I used to work for CGX which was a roll up of print shops started by an accountant who used to work at Aurthur Anderson. Very interesting story. Not a high quality business, but one in a mom and pop space. The guy was able to roll up a decent chunk of the industry and became filthy rich off of it.

I sold BYD a few months ago for a decent gain, only to watch it move up 15% + dividends. It was sold to raise capital for doom and gloom and due to the fact that the new tax on trusts has eaten through some of the margin of safety. They have tax loss carryforwards but from a valuation perspective these will be eaten through and they will have to pay up 30% of taxes on earnings / divs. They keep buying assets though and will grow through this. I regret selling and may buy back should we see a sell off. I included it because Management owned a significant amount of stock last time I checked.

Business Background

Boyd Group is a multi-shop operator (MSO) of auto collision repair stores.  They are the largest MSO in Canada and among the largest in North America. They are a roll up business which is something that is very easy to understand. I believe they have a lot of growth options and should do well overtime.

Investment Description

○ Investment Analysis  - Boyd is a growing rollup organization in a highly fragmented industry. They distribute 27% of their earnings via distributions, have very low leverage, are reasonably priced at 6 - 7 FCF, and grow a bit each year. The only major downside I can see is 30% of their earnings will soon be subject to tax due to changes in the income trust lows.

Filter #3 Ė Does it have management I can trust? - This was written about 9 months ago. Sense then Management has grown on me. I like the way they talk about things and how they report. I also like the acquisitions they are making and the way they are being financed.

Management owns 17% of the stock and appears to have built a nice little company. They have been at the company a while and had 1 slight blow up with the Gerber acquisition. They seem to have learned their lesson and now carry very modest debt. I donít really know Management, but so far I like what I see and they have skin in the game.


http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/23468

http://www.boydgroup.com/i/pdf/2010AGMPresentation.pdf

I heard about it on a VIC writeup and liked the idea. Accidents happen and insurance companies like for owners to go to a dealer they know. Everyone knows someone who has taken the insurance company for a ride using their own repair guy (at least I do).

I like names like these and tend to collect and watch them (BOBS is another one, but its a fast food Brazilian growth story). The small cap ones get crushed when the market pulls back massively and I will be waiting to buy these owner managers. As long as they stick to their knitting.

---

Right now I feel that the market will be very volatile and I want to hold onto cash. Due to this my core group of owner managers focuses on ones which are overcapitalized and can invest counter cyclically. In a pullback they can buy low. FUR (though they keep running through cash), LRE (via buybacks), L (something like $4 billion in cash), FFH (will buy back one day), SSW (strong backer), LUK (as Parsad said, the elephant gun is reloaded) are the main ones I either own or will own soon.

I dont mind getting screwed. Its a part of life, but I have 2 rules - I wont to know how I got screwed so it doesnt happen again, and I would prefer for the person running the business to get screwed even more. I want him up at night worrying about not getting screwed so I can sleep peacefully. The only way that happens is if he has skin in the game. I know Prem thinks about FFH way more then I care too, and I like that.

I hope to have a sable of these, 10% cash, and a handful of deep value investments. Just have to get around to writing it all up and repositioning. The problem is I like my winners.
« Last Edit: November 03, 2010, 06:25:51 PM by Myth465 »