Author Topic: Will you sell BRK?  (Read 14770 times)

giofranchi

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Re: Will you sell BRK?
« Reply #40 on: October 30, 2012, 07:46:51 AM »
While BRK is huge, many businesses have plenty of growth potential left. It's not like you are buying a $250b+ (+- intrinsic value) company with a few divisions in one general sector.

tombgrt,
you are right and I always like your posts and find something interesting!
But that is exactly true for JNJ as well. During their whole history they have been great capital allocators. And they created the largest conglomerate in the healthcare sector worldwide. Also JNJ could be seen as a collection of much smaller businesses with growth potential. But growth is far from assured! Don’t look further than the last 5 years, during which EPS growth has been negative!

My point is simply this: both in a $1 billion company and in a $200 billion company the man at the helm is very important. When JNJ gets “lucky” and chooses an outstanding CEO, growth resumes. Vice versa, when the chosen CEO is not that good, growth stalls. Why should it be different for BRK?
There is also another point, that maybe is a little bit subtler: JNJ is much more “impersonal” than BRK. JNJ might be just seen as “the healthcare sector”, or better yet as “the best of the healthcare sector”. BRK, instead, is a very personal collection of businesses. I think it is easier for JNJ to find a new very good CEO, than it is for BRK to find the right person to follow in Mr. Buffett’s footsteps…
But then again, I might be completely wrong… just food for thought!

@ Gio: Outperformance of the business in the future is one thing. You are leaving out another important factor for good investor returns: the price you are paying! Return on our investment is what should matter, not the degree of business outperformance. Current share price of BRK has put little value on future growth, if any.

As long as return on investment is concerned, what are your views on BRK? I mean, 10 years from now? At which rate do you think BRK can go on increasing shareholders equity? And which multiple of BV do you think BRK deserves?

giofranchi


Thank you for reminding us about how important it is to have a great CEO.  There is a limit to success however that constrains most companies: the returns of their industry.  Thus JNJ's returns are constrained by the molecular limitations drug companies are facing when they try to develop new drugs, although their nonprescription  business has somewhat better prospects. 

BRK is different.  It's one of the few companies that can go anywhere to pick up a good business in a good industry or a piece of a good business through the public markets.  Their culture permits and encourages this.  Therefore, having a good energetic younger CEO who understands how BRK does it could lead to increasing success for BRK.

Never the less, BRK's size does limit potential returns perhaps to  about 30% to 40% above the returns of mega cap companies in general.

Time will tell.

twacowfca,
you know very well that JNJ has 3 divisions: pharmaceuticals, devices, and consumer products. Devices are as large as pharmaceuticals, while consumer products are just a little bit smaller. JNJ is a collection of high quality businesses that encompasses the whole healthcare sector. And the healthcare sector is among the industries with the highest growth prospects for the future.

I really like JNJ. It is just that I don’t like to invest in a company that is not managed by its founder/owner… This shrinks my investment universe incredibly, and I am well aware of it! Maybe, it is just a flaw of mine. But I don’t trade, I invest. And anyone can talk about moats, competitive advantages, winning strategies, etc., and have different ideas, and different opinions. Let me give you an example that I find illuminating:

When I read “Competition Demystified” by Prof. Bruce Greenwald, I found a comparison between MSFT competitive advantages and AAPL’s. Of course, AAPL was “doomed to failure”, while MSFT was going to keep outperforming… Right?! I guess the only problem with that analysis was that Prof. Greenwald didn’t consider the fact Mr. Gates was leaving, while Mr. Jobs was coming back…! The rest, as they say, is history.

When you invest, you are partnering with someone for the long run. If you make sure that the partners you choose are great achievers, you will do very fine. Otherwise… you’d much better trade!

giofranchi
« Last Edit: October 30, 2012, 08:03:54 AM by giofranchi »
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philassor

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Re: Will you sell BRK?
« Reply #41 on: October 30, 2012, 07:29:33 PM »
Buffett has statistically 5-7 years more to guide the ship; the ship has another 5-7 years on autopilot. So without any new talent you still have up to 15 years of outperformance. I suggest we resuming this debate in 15 years.  ;)

twacowfca

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Re: Will you sell BRK?
« Reply #42 on: October 30, 2012, 08:27:22 PM »
While BRK is huge, many businesses have plenty of growth potential left. It's not like you are buying a $250b+ (+- intrinsic value) company with a few divisions in one general sector.

tombgrt,
you are right and I always like your posts and find something interesting!
But that is exactly true for JNJ as well. During their whole history they have been great capital allocators. And they created the largest conglomerate in the healthcare sector worldwide. Also JNJ could be seen as a collection of much smaller businesses with growth potential. But growth is far from assured! Don’t look further than the last 5 years, during which EPS growth has been negative!

My point is simply this: both in a $1 billion company and in a $200 billion company the man at the helm is very important. When JNJ gets “lucky” and chooses an outstanding CEO, growth resumes. Vice versa, when the chosen CEO is not that good, growth stalls. Why should it be different for BRK?
There is also another point, that maybe is a little bit subtler: JNJ is much more “impersonal” than BRK. JNJ might be just seen as “the healthcare sector”, or better yet as “the best of the healthcare sector”. BRK, instead, is a very personal collection of businesses. I think it is easier for JNJ to find a new very good CEO, than it is for BRK to find the right person to follow in Mr. Buffett’s footsteps…
But then again, I might be completely wrong… just food for thought!

@ Gio: Outperformance of the business in the future is one thing. You are leaving out another important factor for good investor returns: the price you are paying! Return on our investment is what should matter, not the degree of business outperformance. Current share price of BRK has put little value on future growth, if any.

As long as return on investment is concerned, what are your views on BRK? I mean, 10 years from now? At which rate do you think BRK can go on increasing shareholders equity? And which multiple of BV do you think BRK deserves?

giofranchi


Thank you for reminding us about how important it is to have a great CEO.  There is a limit to success however that constrains most companies: the returns of their industry.  Thus JNJ's returns are constrained by the molecular limitations drug companies are facing when they try to develop new drugs, although their nonprescription  business has somewhat better prospects. 

BRK is different.  It's one of the few companies that can go anywhere to pick up a good business in a good industry or a piece of a good business through the public markets.  Their culture permits and encourages this.  Therefore, having a good energetic younger CEO who understands how BRK does it could lead to increasing success for BRK.

Never the less, BRK's size does limit potential returns perhaps to  about 30% to 40% above the returns of mega cap companies in general.

Time will tell.

twacowfca,
you know very well that JNJ has 3 divisions: pharmaceuticals, devices, and consumer products. Devices are as large as pharmaceuticals, while consumer products are just a little bit smaller. JNJ is a collection of high quality businesses that encompasses the whole healthcare sector. And the healthcare sector is among the industries with the highest growth prospects for the future.

I really like JNJ. It is just that I don’t like to invest in a company that is not managed by its founder/owner… This shrinks my investment universe incredibly, and I am well aware of it! Maybe, it is just a flaw of mine. But I don’t trade, I invest. And anyone can talk about moats, competitive advantages, winning strategies, etc., and have different ideas, and different opinions. Let me give you an example that I find illuminating:

When I read “Competition Demystified” by Prof. Bruce Greenwald, I found a comparison between MSFT competitive advantages and AAPL’s. Of course, AAPL was “doomed to failure”, while MSFT was going to keep outperforming… Right?! I guess the only problem with that analysis was that Prof. Greenwald didn’t consider the fact Mr. Gates was leaving, while Mr. Jobs was coming back…! The rest, as they say, is history.

When you invest, you are partnering with someone for the long run. If you make sure that the partners you choose are great achievers, you will do very fine. Otherwise… you’d much better trade!

giofranchi


Forever is a long time.   I think BRK has the potential to keep on doing what they have  been doing for a long time.  The world is their oyster, not merely one industry.  Were it not so, being a megacap would severely limit their opportunities.

You've got a guy there who has been in the position that Brindle was in before he was tapped to run Lancashire.  He has done most of the basic stuff that Warren did before BRK got so big. And, he did those things very very well.   

Our biggest hit hasn't been Lancashire.  It was USG when it was in Bankruptcy.  We were passive investors, although we wound up being involved in their reorganization.  This gave us a Birdseye view of another company in a similar fix, W.R.Grace.  Their situation was much more difficult than USG's.  It took much longer to resolve satisfactorily for all parties than USG's Cpt 11.

Guess who the main guy was who pulled that off: Ted Weschler.  He wants so much to be a part of BRK that he has actually paid to join up.  A few million for two lunches with Warren, and then mid double digit millions in a haircut he took to liquidate most of his portfolio at an inopportune time before joining BRK.  That is high motivation that goes way beyond being a typical corporate executive.
« Last Edit: October 30, 2012, 09:21:44 PM by twacowfca »

giofranchi

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Re: Will you sell BRK?
« Reply #43 on: October 31, 2012, 12:04:13 AM »
While BRK is huge, many businesses have plenty of growth potential left. It's not like you are buying a $250b+ (+- intrinsic value) company with a few divisions in one general sector.

tombgrt,
you are right and I always like your posts and find something interesting!
But that is exactly true for JNJ as well. During their whole history they have been great capital allocators. And they created the largest conglomerate in the healthcare sector worldwide. Also JNJ could be seen as a collection of much smaller businesses with growth potential. But growth is far from assured! Don’t look further than the last 5 years, during which EPS growth has been negative!

My point is simply this: both in a $1 billion company and in a $200 billion company the man at the helm is very important. When JNJ gets “lucky” and chooses an outstanding CEO, growth resumes. Vice versa, when the chosen CEO is not that good, growth stalls. Why should it be different for BRK?
There is also another point, that maybe is a little bit subtler: JNJ is much more “impersonal” than BRK. JNJ might be just seen as “the healthcare sector”, or better yet as “the best of the healthcare sector”. BRK, instead, is a very personal collection of businesses. I think it is easier for JNJ to find a new very good CEO, than it is for BRK to find the right person to follow in Mr. Buffett’s footsteps…
But then again, I might be completely wrong… just food for thought!

@ Gio: Outperformance of the business in the future is one thing. You are leaving out another important factor for good investor returns: the price you are paying! Return on our investment is what should matter, not the degree of business outperformance. Current share price of BRK has put little value on future growth, if any.

As long as return on investment is concerned, what are your views on BRK? I mean, 10 years from now? At which rate do you think BRK can go on increasing shareholders equity? And which multiple of BV do you think BRK deserves?

giofranchi


Thank you for reminding us about how important it is to have a great CEO.  There is a limit to success however that constrains most companies: the returns of their industry.  Thus JNJ's returns are constrained by the molecular limitations drug companies are facing when they try to develop new drugs, although their nonprescription  business has somewhat better prospects. 

BRK is different.  It's one of the few companies that can go anywhere to pick up a good business in a good industry or a piece of a good business through the public markets.  Their culture permits and encourages this.  Therefore, having a good energetic younger CEO who understands how BRK does it could lead to increasing success for BRK.

Never the less, BRK's size does limit potential returns perhaps to  about 30% to 40% above the returns of mega cap companies in general.

Time will tell.

twacowfca,
you know very well that JNJ has 3 divisions: pharmaceuticals, devices, and consumer products. Devices are as large as pharmaceuticals, while consumer products are just a little bit smaller. JNJ is a collection of high quality businesses that encompasses the whole healthcare sector. And the healthcare sector is among the industries with the highest growth prospects for the future.

I really like JNJ. It is just that I don’t like to invest in a company that is not managed by its founder/owner… This shrinks my investment universe incredibly, and I am well aware of it! Maybe, it is just a flaw of mine. But I don’t trade, I invest. And anyone can talk about moats, competitive advantages, winning strategies, etc., and have different ideas, and different opinions. Let me give you an example that I find illuminating:

When I read “Competition Demystified” by Prof. Bruce Greenwald, I found a comparison between MSFT competitive advantages and AAPL’s. Of course, AAPL was “doomed to failure”, while MSFT was going to keep outperforming… Right?! I guess the only problem with that analysis was that Prof. Greenwald didn’t consider the fact Mr. Gates was leaving, while Mr. Jobs was coming back…! The rest, as they say, is history.

When you invest, you are partnering with someone for the long run. If you make sure that the partners you choose are great achievers, you will do very fine. Otherwise… you’d much better trade!

giofranchi


Forever is a long time.   I think BRK has the potential to keep on doing what they have  been doing for a long time.  The world is their oyster, not merely one industry.  Were it not so, being a megacap would severely limit their opportunities.

You've got a guy there who has been in the position that Brindle was in before he was tapped to run Lancashire.  He has done most of the basic stuff that Warren did before BRK got so big. And, he did those things very very well.   

Our biggest hit hasn't been Lancashire.  It was USG when it was in Bankruptcy.  We were passive investors, although we wound up being involved in their reorganization.  This gave us a Birdseye view of another company in a similar fix, W.R.Grace.  Their situation was much more difficult than USG's.  It took much longer to resolve satisfactorily for all parties than USG's Cpt 11.

Guess who the main guy was who pulled that off: Ted Weschler.  He wants so much to be a part of BRK that he has actually paid to join up.  A few million for two lunches with Warren, and then mid double digit millions in a haircut he took to liquidate most of his portfolio at an inopportune time before joining BRK.  That is high motivation that goes way beyond being a typical corporate executive.

twacowfca,
as usual, you have convinced me! :)
Thank you for all the valuable information you provided about BRK’s future leadership: Mr. Ted Weschler certainly is a manger anyone would wish to partner with!

I have a question, just curious: you said your biggest hit has not been LRE, but USG. Was it so just in percentage terms, or in absolute terms too? I mean, did you have the confidence to keep as large a portion of your portfolio in USG, as you did in LRE?

giofranchi
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twacowfca

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Re: Will you sell BRK?
« Reply #44 on: October 31, 2012, 03:04:41 AM »
It was larger in proportion in one sense, but about the same in another sense.  In retrospect, it was much too large because there were too many moving parts to the situation.  I wouldn't have touched USG with a ten foot pole if Warren and Marty hadn't been involved and pulling together, a most  unusual situation Cpt11 when Equity and creditors are typically at each others throats.  :)

 The key known variables were:

     1) USG was a gem that was minting money during the housing boom.  Warren owned a lot of it along with other steady investors like Knauf.

     2) The CEO and Chairman of USG, Bill Foote, was highly ethical and followed Warren's lead.  The CEOs and BODs of W. R.
          Grace and Owens Corning were also determined to fight the bogus claims and not give up their
         whole companies as previous asbestos defendants had done.

     3) Marty Whitman controlled the Unsecured Creditors Committee, and he was determined to be paid in full
         without shafting Warren.

     4) USG's asbestos liability was real although almost all of the claims were bogus and could not be
         verified.  However, all the legitimate liability was confined to one subsidiary.  The other subsidiaries
         were worth then about six times what we paid at the low point in Cpt 11.

Despite these strengths, there was a black swan weakness that was unknown at the time of the original investment.  The district judge handling their case and others as a special situation to relieve the overwhelmed bankruptcy courts was unethically close to the plaintiffs with the bogus claims.
A committee of the US Court of Appeals voted to remove him from the case, and he resigned from the bench before that ruling took effect.  The removal of a US District Judge from a case is almost unheard of.   :)

« Last Edit: October 31, 2012, 03:59:32 AM by twacowfca »

giofranchi

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Re: Will you sell BRK?
« Reply #45 on: October 31, 2012, 04:30:47 AM »
It was larger in proportion in one sense, but about the same in another sense.  In retrospect, it was much too large because there were too many moving parts to the situation.  I wouldn't have touched USG with a ten foot pole if Warren and Marty hadn't been involved and pulling together, a most  unusual situation Cpt11 when Equity and creditors are typically at each others throats.  :)

 The key known variables were:

     1) USG was a gem that was minting money during the housing boom.  Warren owned a lot of it along with other steady investors like Knauf.

     2) The CEO and Chairman of USG, Bill Foote, was highly ethical and followed Warren's lead.  The CEOs and BODs of W. R.
          Grace and Owens Corning were also determined to fight the bogus claims and not give up their
         whole companies as previous asbestos defendants had done.

     3) Marty Whitman controlled the Unsecured Creditors Committee, and he was determined to be paid in full
         without shafting Warren.

     4) USG's asbestos liability was real although almost all of the claims were bogus and could not be
         verified.  However, all the legitimate liability was confined to one subsidiary.  The other subsidiaries
         were worth then about six times what we paid at the low point in Cpt 11.

Despite these strengths, there was a black swan weakness that was unknown at the time of the original investment.  The district judge handling their case and others as a special situation to relieve the overwhelmed bankruptcy courts was unethically close to the plaintiffs with the bogus claims.
A committee of the US Court of Appeals voted to remove him from the case, and he resigned from the bench before that ruling took effect.  The removal of a US District Judge from a case is almost unheard of.   :)


Thank you!
I am very cautious to bet big on any idea of another investor… whoever the other investor is… it is one thing to invest in FFH, it is completely a different thing to invest in RIM, just because Mr. Watsa did it… I don't like it and I don't do it. I hope you agree with me!
Mr. Martin Whitman is no exception: I remember I read in “Confidence Game” that Mr. Whitman held a large stake in MBIA and he had this to comment about Mr. Ackman: “He is a young man, very good at advertising himself, but doesn’t understand insurance!”
Really?!? ???

giofranchi
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twacowfca

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Re: Will you sell BRK?
« Reply #46 on: October 31, 2012, 06:10:09 AM »
It was larger in proportion in one sense, but about the same in another sense.  In retrospect, it was much too large because there were too many moving parts to the situation.  I wouldn't have touched USG with a ten foot pole if Warren and Marty hadn't been involved and pulling together, a most  unusual situation Cpt11 when Equity and creditors are typically at each others throats.  :)

 The key known variables were:

     1) USG was a gem that was minting money during the housing boom.  Warren owned a lot of it along with other steady investors like Knauf.

     2) The CEO and Chairman of USG, Bill Foote, was highly ethical and followed Warren's lead.  The CEOs and BODs of W. R.
          Grace and Owens Corning were also determined to fight the bogus claims and not give up their
         whole companies as previous asbestos defendants had done.

     3) Marty Whitman controlled the Unsecured Creditors Committee, and he was determined to be paid in full
         without shafting Warren.  He didn't mind waiting as the interest on USG's good yielding debt accumulated, another remarkable circumstance as most creditors in Cpt 11 want to get paid ASAP.

     4) USG's asbestos liability was real although almost all of the claims were bogus and could not be
         verified.  However, all the legitimate liability was confined to one subsidiary.  The other subsidiaries
         were worth then about six times what we paid at the low point in Cpt 11.

Despite these strengths, there was a black swan weakness that was unknown at the time of the original investment.  The district judge handling their case and others as a special situation to relieve the overwhelmed bankruptcy courts was unethically close to the plaintiffs with the bogus claims.
A committee of the US Court of Appeals voted to remove him from the case, and he resigned from the bench before that ruling took effect.  The removal of a US District Judge from a case is almost unheard of.   :)


Thank you!
I am very cautious to bet big on any idea of another investor… whoever the other investor is… it is one thing to invest in FFH, it is completely a different thing to invest in RIM, just because Mr. Watsa did it… I don't like it and I don't do it. I hope you agree with me!
Mr. Martin Whitman is no exception: I remember I read in “Confidence Game” that Mr. Whitman held a large stake in MBIA and he had this to comment about Mr. Ackman: “He is a young man, very good at advertising himself, but doesn’t understand insurance!”
Really?!? ???

giofranchi


Warren is in a class all by himself in investing.  Virtually all of Warren's major investments in publicly traded companies have worked out very well when he made the investment decision, not always when he allowed someone else to make the decision.  When a sizeable investment has gotten in trouble, Warren has gone to great lengths to do everything possible to retrieve the investment, for example Sal. Brothers, Geico.

Marty, Bill, Mason and other value investors bailed out of USG stock, and Marty bought USG's debt because he knew it would be safe if he got most of it so that he could control the Unsecured Creditors Committee.  Even so, the good will and mutual respect between Marty and Warren was key to a successful outcome for both debt and equity. 

By the way, Marty didn't make out all that badly.  He bought USG's debt at 50 cents on the dollar.  He got paid 100 cents on the dollar plus five years of accumulated interest.  :)
« Last Edit: October 31, 2012, 08:44:35 AM by twacowfca »

giofranchi

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Re: Will you sell BRK?
« Reply #47 on: October 31, 2012, 06:23:50 AM »
Warren is in a class all by himself in investing. 

I agree 100%!
Thank you!

giofranchi
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shalab

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Re: Will you sell BRK?
« Reply #48 on: October 31, 2012, 06:57:20 AM »
> it is completely a different thing to invest in RIM, just because Mr. Watsa did it

Probably this was done by some other folks in HWIC with Prem's approval. It is not clear to me how much Prem is involved in the day to day operations at FRFHF. Sanjeev mentioned that leadership succession is taken care of at FRFHF. Prem is still the CEO and his family owns a good chunk of FRFHF.