Eric Sprague

Long-term horizon
Eric Sprague
Long-term horizon
Contributor since: 2012
It's hard to see this having a big impact in the short term. I'm guessing the long term could be another story...
Interesting, DOW Chemical is one of the companies I want to study over the next month.
Thanks, Michael! Yeah, the volatility with shale is remarkable. Now I'm starting to research chemical companies that indirectly depend on shale.
Oh wow, using air to transport auto parts must have been really expensive!
Bronco Fan,
It should be interesting to see who gets to the super bowl between Manning and Brady. Thanks for bringing up the natural gas factor.
Thanks for the comment. This part of the 2009 BNSF 10-K is interesting:
Asian and European automobile companies account for approximately 83 percent of Automotive revenue.
I don't think they specify what percent of their Japanese/Korean auto company revenue comes from parts/engines/vehicles built in Asia (vs NA) but it should be higher than UP's percent.
Hi Everyone,
Thanks for reading the article. I appreciate the comments.
Hi Everyone,
Thanks for all the comments and Happy New Year!
Thanks for the comment.
I think you're right about Oakland. Living in the Sacramento area, I'm hoping to visit the port this year and talk to folks in person. I'd also like to talk to people at the UP Roseville yard. If anyone knows how to set these things up then please send me a private message.
Likewise, I follow you because your articles are always enjoyable.
There are some good companies in this group. I'm guessing 2016 will be a better year.
True, coal is on the way out in the long term. However, I think BNSF will get more revenue out of it than the other rails during the decline.
Thanks for the comment. Yes, including Santa Fe would have been better for the title and the intro. I'm not sure exactly why I didn't type it in the final version.
Good point about the UP Gulf exports, AutoDealerCFO. Thanks for the comment.
Thanks for all the comments! This article was especially enjoyable because folks like Clark Williams-Derry helped teach me a lot of things about the coal industry.
I don't like to make recommendations. There are many reasons for this:
1. Everyone has different investment requirements and expectations.
2. I have no idea what the market will do in the short run.
3. There are tax implications depending on where investors live. BPY and some of the others have tax complications that BAM does not have for U.S. investors.
I'm long BAM and I've thought about buying BPY as well. At the 2014 Investor Day presentation I got the impression that management thought BPY was the most undervalued at the time.
This is a nice article, I like the cash flow graphic.
Thanks for the comments, guys. has quite a few questions. Yeah, 400 is an exaggeration.
Yeah, it's interesting how different BNSF and UNP are right now with respect to coal. I wonder if someone will ask about it during the Q3 UNP conference call.
Good point about BNSF not being able to take as much volume last year because of equipment/operational issues.
I wish there was a way we could know what percentage of their relatively good coal numbers are due to things like the following:
1. Unique territory including the Dakotas and Montana.
2. Equipment/operational issues last year.
3. Sales of coal overseas through Canada.
4. Other factors.
Nice article.
Like you said, BNSF is doing better than the other class I rails with respect to coal:
Coal shipments were actually up 5.6% in Q3
This is good info:
BNSF has territory that UNP doesn't including the Dakotas and Montana, probably seeing more coal burned up there
We've talked about coal in other articles this year but there are still a lot of questions. I'd like to know how much of the difference with BNSF is due to territories like the Dakotas and Montana and how much is due to coal being sold overseas (through Canada).
Thanks again for the article.
Thanks for the article!
I'm in that camp (don't own one yet but probably will in the future).
Cool, this is great information. Thanks again, Briar!
Thanks again for the comments.
My thought process behind that bullet point was that Warren has said he prefers owning [whole] businesses and that the second choice is owning parts of businesses.
I was trying to say that when whole businesses are chosen over parts of businesses (equities) then it tends to widen the BV to IV gap.
Here is what he said in the owner's manual:
4. Our preference would be to reach our goal by directly owning a diversified group of businesses that generate cash and consistently earn above-average returns on capital. Our second choice is to own parts of similar businesses, attained primarily through purchases of marketable common stocks by our insurance subsidiaries. The price and availability of businesses and the need for insurance capital determine any given year’s capital allocation.
Here is the link to the owner's manual:
Thanks for the comment.
Float is probably the most important part of the BV vs IV discussion.
This thought by Charlie is great information. Do you know when he said it and if he feels the same way today? Is there a source for it?
As for equities, I am talking about "look-through earnings" which Warren discusses in #6 of the owner's manual reprinted in the 2014 ar:
We have found over time that the undistributed earnings of our investees, in aggregate, have been fully as beneficial to Berkshire as if they had been distributed to us (and therefore had been included in the earnings we officially report). This pleasant result has occurred because most of our investees are engaged in truly outstanding businesses that can often employ
incremental capital to great advantage, either by putting it to work in their businesses or by repurchasing their shares. Obviously, every capital decision that our investees have made has not benefitted us as shareholders, but overall we have garnered far more than a dollar of value for each dollar they have retained. We consequently regard look-through earnings as
realistically portraying our yearly gain from operations.
Suppose an equity like AMX has a payout ratio that is less than 50%. This means their contribution to the e in the p/e ratio under gaap is less than 50% of what it would be if we counted undistributed earnings.
what do you mean by "decrease by 'non-real" purchase accounting write-downs.
Looking at the 2014 ar/letter, it says this:
In the GAAP-compliant figures we show on page 49, amortization charges of $1.15 billion have been deducted as expenses. We would call about 20% of these “real,” the rest not. The “non-real” charges, once nonexistent
at Berkshire, have become significant because of the many acquisitions we have made. Non-real amortization charges will almost certainly rise further as we acquire more companies.
This means the e in the 2014 p/e ratio would be about $0.92 billion higher were it not for "non-real" charges required by gaap.
Thanks for the comment.
I think your statement that equities/market cap has declined is incorrect--at least over the past 10-15 years.
I think you mean this statement from the article where I mentioned information from the 2003 letter:
Equity holdings as a percentage of market cap have fallen as per the 2003 letter. Specifically, they went from an average of 114% of net worth in the 1980s to an average of 50% in the period from 2000 to 2003.
I meant to say/clarify that they fell in the period leading up to 2003. The wording could have been better. It might have been clearest to just quote the 2003 letter:
Our equity holdings, including convertible preferreds, have fallen considerably as a percentage of our net worth, from an average of 114% in the 1980s, for example, to an average of 50% in 2000-03. Therefore, yearly movements in the stock market now affect a much smaller portion of our net worth than was once the case.
Yeah, it's at 133% right now based on Q2 2015 BV: 199,650/149,735
I agree that Buffett might raise the repurchase range from 1.2 to 1.3 if the gap between BV and IV keeps expanding the way it has been over the last decade.
ggusky, I don't give financial advice but I can comment on this. I think Warren did imply in one of his writings that if an investor enters at the right price and holds for at least 5 years then he or she should do well.
Thanks for the comments!
SanMania, the p/e ratio doesn't capture all the earnings. For example, when it comes to equities, only dividends count towards gaap earnings in the p/e ratio. Also, the earnings in the p/e are decreased by "non-real" purchase accounting write-downs.
I think there are easier and safer ways to make money than to short a company that is growing like UA.