Author Topic: Wedgewood Partners on selling their BRK stake  (Read 10854 times)

Spekulatius

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Re: Wedgewood Partners on selling their BRK stake
« Reply #30 on: October 14, 2019, 04:23:12 PM »
Buffett has always made sense to me when he points out that you are buying a piece of a business when you are buying a share of common. so my takeaway has been that while timing (buying right) is always important it is not the overarching criterion (especially when your targeted holding period is forever).  now comes the great FC and Buffett does quite well being the backstop (in addition to the Treasury, buying at the right time).  it seems to me that Buffett (having done well with the FC) is not willing to swing at a good pitch and is just waiting for the fat pitch (the punchcard concept).  the problem with buying only at the right time is that you can take too many pitches that are hittable.  there is no way you can justify building up a cash portfolio of >$120B during a period of low interest rates, extremely low employment, peace, and reasonable growth.  it means you are waiting for the next FC.  too conservative

Yes, I see it in a similar way. His last really good deals with public markets was  BNSF. Everything after that was private deals (BAC, OXY etc). In a way, he has done a great deal reinventing himself, as a private market investor.

Even though he may have lost some edge as an investor, I really like BRK stock here and I dont think he really needs to hit it out of the Park here in terms of investing in commons stock to do well. If he can just get a few good deals done in the next downturn, while his operating companies and resilient insurance ops put up good results, the BRK should outperform significantly in a downturn and do Ok in an upturn with overall very satisfying results.
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John Hjorth

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Re: Wedgewood Partners on selling their BRK stake
« Reply #31 on: October 14, 2019, 05:18:15 PM »
Thats why I used Costco.

But its not about a specific name. It s about the oddity of, his macro outlook has actually been pretty spot on, but his investing style has been flaccid and completely contradicts what's he is saying. If he thinks what he thinks(ie at worst fairly valued and at best wildly undervalued...) he really can't find ANYTHING! to invest in? Especially companies he's pointed out as having missed but admires, like GOOG which was at $1000 not to long ago or Costco? Let alone myriad others? Theres something off. IMO its because he's selfishly invested in the idea of one last giant elephant hunt. But thats just my opinion and it could be any number of other things, which as a shareholder I dont like.

Greg, what's your time horizon here?

-If you think carefully about it, really! - what does then matter -real long term?
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Gregmal

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Re: Wedgewood Partners on selling their BRK stake
« Reply #32 on: October 14, 2019, 06:45:27 PM »
Thats why I used Costco.

But its not about a specific name. It s about the oddity of, his macro outlook has actually been pretty spot on, but his investing style has been flaccid and completely contradicts what's he is saying. If he thinks what he thinks(ie at worst fairly valued and at best wildly undervalued...) he really can't find ANYTHING! to invest in? Especially companies he's pointed out as having missed but admires, like GOOG which was at $1000 not to long ago or Costco? Let alone myriad others? Theres something off. IMO its because he's selfishly invested in the idea of one last giant elephant hunt. But thats just my opinion and it could be any number of other things, which as a shareholder I dont like.

Greg, what's your time horizon here?

-If you think carefully about it, really! - what does then matter -real long term?

John,

I like to think of my time horizon as forever....however...forever doesn't last forever. I could wake up tomorrow and not need the cash, I could wake up and need the cash, or I could not wake up at all. Thats true for every day for the rest of our lives! I think as investors we need to be realistic about what we expect but also mindful that consistent returns are better than inconsistent ones, and that compounding early and regularly do more for us than later and greater in amount.

Ive owned a little BRK since January because I see the value, but I also cant help but think of the security as a product at this point, more so than a business like BAM for instance. Its probably a lower beta SPY or something like that, which is good. If your investment objectives are preservation of capital and probably willing to take on risk somewhere between a junk bond fund and an index fund, I think it's great. You're not going to lose your nest egg here, but if you're looking to compound at an average to above rate with consistency, I just dont see it here.

I also think if you have certain rate hurdles or expected returns, it might leave something to be desired for quite a while. I've detailed my thoughts on the Buffett overhang, and at this point, I'm mainly just a fish swimming by a feeding frenzy to take a look, rather than dive in to the crowd. I'd like to see certain things happen first, which I've also detailed prior.

I just dont think people are being intellectually honest when they derive some of these excuses when at the same time, we're talking about a guy who was so obsessed with making money that he neglected his wife and kids in ways he now regrets, BY ACCIDENT! He still buys food from the MCD's dollar menu! So to claim he's willfully leaving dollar bills all over the street is insanity to me.

I wish he would still go with his gut. You can tell he still has it to a degree. But I dont like thats he s obviously holding back, and that he hasn't really been forthright about why.

John Hjorth

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Re: Wedgewood Partners on selling their BRK stake
« Reply #33 on: October 14, 2019, 09:05:10 PM »
Thank you, Greg,

-Actually, I think you have no idea how much I appreciate your push-back and skepticism towards being invested in Berkshire long term. For my part,  it's actually not a bet on Mr. Buffett, nor Mr. Munger [It's a quite morbid bet actually - none of those gents will last forever]. It's more a bet on that "the system " [after those gents] will not only endure, but also prosper.

- Some days, I feel extremely confident it will , and others not so much. - Right now, it's absolutely no given, at least to me ... time will tell.

But when we discuss about Berkshire long term here on CoBF, I really think it's not about Mr. Buffett nor Mr. Munger [morbid as it may seem]. More like about continued cash flow generation, combined with astute/reasonable capital allocation. [No existing Buffett/Munger patents on the last part].

In short, & to me, we need to let go of this "Buffett/Munger" angle, if we look at Berkshire [really] long term. To me, this kind of "Buffet/Munger" angle - long term - is a special kind of anchoring [if not just a real bias, that confuscates any real judgement].

- - - o 0 o - - -

Did I get away with posting this? - I'll check up on it tomorrow [ : - ) ]
« Last Edit: October 15, 2019, 03:50:39 AM by John Hjorth »
In the race of excellence there is no finish line.
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Dynamic

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Re: Wedgewood Partners on selling their BRK stake
« Reply #34 on: October 15, 2019, 02:12:28 AM »
Called me delusional, but I really like how Berkshire is positioned.
The cash balance is offset by float, so the portfolio is essentially unleveraged and the 2% earned on that cash is essentially free money. If things get REALLY cheap, Berkshire can spend $100bn or probably $150-$200 bn if they take on modest debt, which they could pay down in 2-4 years.
We don't have a clue when the next recession or bear market will come - 12 months or 4-5 years, who knows, or whether the economu will start to overheat and see interests rise to cool it off, but either way Berkshire will benefit. When it does crash, Berkshire will be ready for large investment deals with virtually no downside risk and with large upside potential, leveraged by $125bn in float capital that comes with zero-to-negative interest cost and is not callable. In the meantime, the stock portfolio is essentially matching the S&P500 even in a bull market, while the companies within it are probably much lower risk and much less debt-leveraged than the S&P500 as a whole and trading a lower mutiples.

I can imagine that a lot of the recession deals will start out as 6-8% preferred stock with warrants attached, like BAC and OXY, so they don't appear to be egregiously gouging by extracting excessive rates, but are a source of instant capital to the investee and simply benefiting from long term growth of the investee when they exercise the warrants (as with BAC), making the annualised return rise into the low-to-mid teens percent over 5-10 year horizons.

But right now, everyone's fearing a recession around the corner, and everyone's also complaining about Buffett sitting on his hands. Essentially they're shouting "swing, you bum!" at the baseball batsman mainly because the stock price has barely budged in 2 years. The patience will pay off, I believe, but it exceeds the patience of many investors looking on from the sidelines and seeing their BRK stock price going nowhere for 2 years.

Large surprises at Berkshire tend to be positive, when they make a giant acquisition, not negative like most companies missing earnings. Sure this is not Berkshire of the 1980s or 90s earning way more than the index, but it's still a fair low-risk, adequate return investment at the right price.

I think the fundamentals have not stagnated like the stock price has stagnated since Dec 2017, and that in a quarter or two, (early November or late February), short of a bear market, metrics like Price-to-Book-Value will probably see the 'soft floor' of 120%-125% of BVPS start to force even the pessimistic price upwards at a reasonable compound rate. I think 130% of BVPS is still towards the low end, and I wouldn't be surprised to see that exceed $210 per BRK.B on 2nd Nov 2019's Q3 results release, and that 120-125% soft floor would be about $195-$203 or so type of range unless markets plummet. To me, Berkshire is a good place to park capital awaiting a fat pitch, earning a respectable long-term return with very modest risk of even short-term loss. If I find a fat pitch at 50% of IV that I want to put 25-50% of my money in to earn 25%+ for a few years, I won't mind if I lose 5% or so if I find that fat pitch when Berkshire drops to 120% of IV, while earning a fairly certain 8-10% compound over the long run, if my wait exceeds a year or two. And if I don't find the fat pitch, Berkshire's compounding rate should still meet my goals and needs for many years to come.

Cigarbutt

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Re: Wedgewood Partners on selling their BRK stake
« Reply #35 on: October 15, 2019, 04:40:11 AM »
Called me delusional, but I really like how Berkshire is positioned.
The cash balance is offset by float, so the portfolio is essentially unleveraged and the 2% earned on that cash is essentially free money. If things get REALLY cheap, Berkshire can spend $100bn or probably $150-$200 bn if they take on modest debt, which they could pay down in 2-4 years.
We don't have a clue when the next recession or bear market will come - 12 months or 4-5 years, who knows, or whether the economu will start to overheat and see interests rise to cool it off, but either way Berkshire will benefit. When it does crash, Berkshire will be ready for large investment deals with virtually no downside risk and with large upside potential, leveraged by $125bn in float capital that comes with zero-to-negative interest cost and is not callable. In the meantime, the stock portfolio is essentially matching the S&P500 even in a bull market, while the companies within it are probably much lower risk and much less debt-leveraged than the S&P500 as a whole and trading a lower mutiples.

I can imagine that a lot of the recession deals will start out as 6-8% preferred stock with warrants attached, like BAC and OXY, so they don't appear to be egregiously gouging by extracting excessive rates, but are a source of instant capital to the investee and simply benefiting from long term growth of the investee when they exercise the warrants (as with BAC), making the annualised return rise into the low-to-mid teens percent over 5-10 year horizons.

But right now, everyone's fearing a recession around the corner, and everyone's also complaining about Buffett sitting on his hands. Essentially they're shouting "swing, you bum!" at the baseball batsman mainly because the stock price has barely budged in 2 years. The patience will pay off, I believe, but it exceeds the patience of many investors looking on from the sidelines and seeing their BRK stock price going nowhere for 2 years.

Large surprises at Berkshire tend to be positive, when they make a giant acquisition, not negative like most companies missing earnings. Sure this is not Berkshire of the 1980s or 90s earning way more than the index, but it's still a fair low-risk, adequate return investment at the right price.

I think the fundamentals have not stagnated like the stock price has stagnated since Dec 2017, and that in a quarter or two, (early November or late February), short of a bear market, metrics like Price-to-Book-Value will probably see the 'soft floor' of 120%-125% of BVPS start to force even the pessimistic price upwards at a reasonable compound rate. I think 130% of BVPS is still towards the low end, and I wouldn't be surprised to see that exceed $210 per BRK.B on 2nd Nov 2019's Q3 results release, and that 120-125% soft floor would be about $195-$203 or so type of range unless markets plummet. To me, Berkshire is a good place to park capital awaiting a fat pitch, earning a respectable long-term return with very modest risk of even short-term loss. If I find a fat pitch at 50% of IV that I want to put 25-50% of my money in to earn 25%+ for a few years, I won't mind if I lose 5% or so if I find that fat pitch when Berkshire drops to 120% of IV, while earning a fairly certain 8-10% compound over the long run, if my wait exceeds a year or two. And if I don't find the fat pitch, Berkshire's compounding rate should still meet my goals and needs for many years to come.
Nice update on your line of thinking, which has been consistent.
Accepting the possibility that you may be right to "outsource", to some degree, the timing of investments (which really is not timing but sticking to internal yardsticks by Mr. Buffett {and IMO not thumb-sucking as implied by the Wedgewood move}), a potential weakness of the model may be that the IV floor that you describe may move down, as perceived by the markets, when fat pitches come along, given how progressively correlated BRK has become in downturns (typical time to use the elephant gun) and given BRK's relatively high exposure to financials.
As John Hjorth alludes to above, BRK is built to last but a question remains: is the relative advantage for BRK in downturns and the ensuing recoveries sufficient, on a relative basis?

Munger_Disciple

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Re: Wedgewood Partners on selling their BRK stake
« Reply #36 on: October 15, 2019, 05:06:25 AM »
https://www.cnbc.com/2019/04/25/buffett-says-investors-would-be-served-equally-well-by-sp-or-berkshire.html

I think the financial result would be very close to the same, Buffett told the FT when asked if it would be better to own the S&P or Berkshire over a lifetime.

FWIW Buffett did the FT interview in April 2019 just before the AM.

scorpioncapital

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Re: Wedgewood Partners on selling their BRK stake
« Reply #37 on: October 15, 2019, 06:14:28 AM »
This is horrendous. If Berkshire performs the same as the sp500 it has zero reason to exist. I hope he was being modest in that quote and harbored a secret desire to actually do a little better.

Vish_ram

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Re: Wedgewood Partners on selling their BRK stake
« Reply #38 on: October 15, 2019, 06:59:41 AM »
Towards the end of the bull market runs, everyone starts advising Buffett. The same thing happened in 1999 & 2007. History repeats.


CorpRaider

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Re: Wedgewood Partners on selling their BRK stake
« Reply #39 on: October 15, 2019, 07:37:23 AM »
He's been sandbagging expectations since like 1957; maybe this time he means it.  I'm not betting that way and neither is WEB.  People wax philosophical about the portfolio being too large, but then there's Munger running a ~$150MM portfolio at DJCO and he's basically 100% in banks.
« Last Edit: October 15, 2019, 07:40:06 AM by CorpRaider »