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David Harris

 
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  • Berkshire Hathaway: Worth Its SALT [View article]
    Briar,

    Thank you, yes it is excellent and I had not seen it before. I really like the way Fundoo Professor ties it all together. I had read about the salad oil scandal before but had not understood the significance of it in this way.

    You probably know already but for anyone who might not, the situation with the derivatives liabilities has changed a little since Fundoo Professor's article was written (by the sound of it, not sure when it was written).

    When Berkshire originally wrote the derivatives contracts, there was no requirement to put up collateral. That still applies to the existing contracts but new rules mean Berkshire would have to post collateral for any new contracts. That is not attractive to Buffett so he intends not write any new contracts. That means the derivative liabilities will not be a revolving fund, unlike the insurance float.

    On the other hand, it is quite likely that a substantial chunk of the derivatives contracts will expire with nothing to pay out and the corresponding liabilities simply become a chunk of equity. So Berkshire will get a one-off gain plus the income earned on investing other people's money in the meantime.

    This is an addition to the AMV and SALT (at most about two per cent I think) in my article above. That number jumps around a bit due to some contracts written against the level of the S&P and other stock indexes. I am not sure how to deal with that so I have left it out.
    Aug 5 12:12 AM | 1 Like Like |Link to Comment
  • Understanding Compounding: Berkshire's Not-So-Hidden Dividend Contrarian Secret [View article]
    Briar,

    Yes, I would love to find some more, sturdy, fully self-painting fences. Please let me know if you come across any. In the meantime I quite enjoy the odd bit of painting, even if it does not quite make sense!
    Aug 1 10:09 AM | Likes Like |Link to Comment
  • Understanding Compounding: Berkshire's Not-So-Hidden Dividend Contrarian Secret [View article]
    Briar,

    A very interesting and thought provoking article and wow, what a storm you caused!

    Buffett explained the benefit of compounding tax free and paying all the tax at the end in his 1993 letter, with his usual clarity and humour. (See for example David Fish's comment above, 16 May 10:47, point 2). The government ends up with more money that way too.

    I am delighted to have Buffett, Munger, Weschler and Combs investing on my behalf but there is no other company I trust as much. So I would be happy to have a dividend in many other cases (companies in cyclical industries, for example) for reasons people set out in some of the comments above.

    http://bit.ly/IkLUkV
    Jul 31 06:04 PM | Likes Like |Link to Comment
  • Berkshire Hathaway: Worth Its SALT [View article]
    u01bsb0,

    You are right that other investors actions determine price but that does not mean you have to be guided by it.

    As Buffett is fond of quoting, "In the short-run, the market is a voting machine [reflecting market sentiment]... ...but in the long-run, the market is a weighing machine. [reflecting intrinsic business value]"

    If you read the "Marketable securities" section of Warren Buffett's 1987 letter to shareholders this should become clear.

    http://bit.ly/12BRv2v
    Jul 30 10:58 AM | Likes Like |Link to Comment
  • Berkshire Hathaway: Worth Its SALT [View article]
    SanMania,

    I agree with Buffett!
    Jul 30 10:20 AM | Likes Like |Link to Comment
  • Berkshire Hathaway: Worth Its SALT [View article]
    wdjax0n,

    At the risk of a huge sidetrack, "In God we trust, all others bring data."
    Jul 30 06:03 AM | Likes Like |Link to Comment
  • Berkshire Hathaway: Worth Its SALT [View article]
    SanMania,

    As far as I know, Buffett has never said that float should not be considered a liability at all:

    "Neither item, of course, is equity; these are real liabilities."

    That is what Warren Buffett has been saying in the Owner's Manual section of the annual report for years.

    But yes, Buffett has pointed out that if there were to be any drop off in float "at some future time" it is likely to be very gradual; and yes, float keeps growing; and yes, Buffett expects it to grow again in 2013; and yes, the new commercial insurance venture may generate significant new float.

    So I agree with you that the bulk of float is likely to be perpetual (but not eternal), with the investment returns it earns going to Berkshire for many years to come.

    And yet... ...well pages 7 - 9 of the 2012 annual report say it better than I can.

    So I feel comfortable adding back 85% of the roughly $122bn of float and deferred taxes, but that is only a guess. You may yet be right about value!
    Jul 30 03:20 AM | Likes Like |Link to Comment
  • Berkshire Hathaway: Worth Its SALT [View article]
    NL TInvestor,

    My guess is that Berkshire will continue to prosper way in to the future with or without Buffett and Munger.

    They have assembled a collection of excellent businesses and a source of low risk, low cost gearing via the float from Berkshire's insurance companies, which are themselves unusually effective. I think that will endure long in to the future.

    How the market might react is another matter, but that causes me no concern at all as a long-term investor.
    Jul 29 12:24 PM | 1 Like Like |Link to Comment
  • Berkshire Hathaway: Worth Its SALT [View article]
    JackSparrow,

    Thank you for flagging up Daily Journal. Size gives Charlie a huge advantage (Buffett has been quoted as saying he could average 50% p.a. with small sums), I will investigate further!
    Jul 29 12:12 PM | Likes Like |Link to Comment
  • Berkshire Hathaway: Worth Its SALT [View article]
    Chuck,

    Yes you have understood correctly.

    Over the past few years there has been a fairly unusual double margin of safety from Berkshire's attractive growth prospects and low price. At the current price, I think Berkshire's growth outlook still provides a margin of safety, more typical of the past 17 years.
    Jul 29 11:52 AM | Likes Like |Link to Comment
  • Berkshire Hathaway: Worth Its SALT [View article]
    Arnim,

    On your question about Berkshire's effective tax rate, were you thinking about a possible boost to earnings if the tax rate fell back in future? I have not looked in to that.
    Jul 29 10:44 AM | Likes Like |Link to Comment
  • Berkshire Hathaway: Worth Its SALT [View article]
    Michael,

    That depends how big a margin of safety you want.

    To me, the thick lines on the charts (AMV and SALT) indicate that Berkshire has grown robustly over the past 17 years, undaunted by all that has happened.

    If you think about Berkshire's subsidiaries such as Geico, BNSF, MidAmerican Energy and the 70+ others, and you think about Berkshire's equity holdings such as American Express, Coca-Cola, IBM, Wells Fargo and the rest, how do you rate Berkshire's future prospects? If you think those businesses have above average growth potential, does that give you a big enough margin?

    Short-term I have no idea what will happen but long-term, Berkshire looks good to me.
    Jul 29 10:14 AM | 3 Likes Like |Link to Comment
  • Berkshire Hathaway: Worth Its SALT - 2012 Update [View article]
    quinet,

    Yes, you identify some very important issues. However, the point of the SALT calculation is that even if Todd and Ted were duffers, and even if everyone were to shun the new CEO, Berkshire still looks very cheap.

    If you think the existing businesses will match the US average, Berkshire is worth its SALT. It is worth more than SALT if the subsidiaries continue to beat the average. And that is all without Todd, Ted, Warren, Charlie or Jamie doing anything at all.

    Warren and Charlie add value over and above that. So, your nagging questions are perhaps about how much additional value the new team can contribute. My guess is quite a bit.
    Oct 9 02:54 PM | Likes Like |Link to Comment
  • Berkshire Hathaway: Worth Its SALT - 2012 Update [View article]
    Luis,

    Well, I think it is always easy to lose money buying stocks! And as Berkshire does not pay a dividend you only make money if you can sell it for more than you paid.

    But I agree with your general idea. What it says to me is that Berkshire has continued to prosper in spite of all that has been happening. (Buffett loves a cheap market.) I strongly suspect the market will recognise that in due course and that the price will adjust accordingly, but I do not know when.
    Jul 24 03:50 AM | 2 Likes Like |Link to Comment
  • Berkshire Hathaway: Worth Its SALT - 2012 Update [View article]
    Sean,

    Very good point on the puts. Yes, if you take those in to account the discount is even greater.

    It would be interesting to see look-through earnings over the years but they do not always publish the figures. Someone asked about that at the shareholder meeting so perhaps we will see some numbers in the next annual report... ...or perhaps you could do an article?
    Jul 24 03:37 AM | Likes Like |Link to Comment
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