Seeking Alpha
View as an RSS Feed

The Finance Pupil  

View The Finance Pupil's Comments BY TICKER:
Latest  |  Highest rated
  • Loews Corporation: An Underperforming Conglomerate In Search Of An Activist [View article]
    great article!
    Aug 28, 2014. 03:42 PM | 2 Likes Like |Link to Comment
  • Berkshire Hathaway Looks Overextended [View article]
    Net income is a pretty narrow way to look at Berkshire

    a) securities appreciation (and depreciation) flows to other comprehensive income (not included in net income), if you think equities will return 0% over the next 10 years, ya you are probably right that book will only grow by 7% or so (i see 6.5% book value growth from non insurance operating income + investment income), but book value growth does not necessarily equal intrinsic value growth

    b) GAAP net income may not accurately reflect earnings power, please read up about Berkshire's deferred tax liability related to BNSF MidAmerican and securities appreciation and overstated tax rate, please look into the actual cash tax rate versus gaap tax rate over time

    c) Berkshire has $70B of cash and short term fixed income that earns nothing, your model assigns no value to this, if you say $20B cannot be counted because of working capital requirements for insurance, that is still $50B that just went poof and has no value according to your model

    d) it is exceedingly conservative to say that berkshire is worth book value considering that burlington norther was purchased in 09/10 (look what UNP and CSX and Norfolk have done since), Progressive trades for 2X book (GEICO is just as good a company, with a spectacular underwriting record),things like See's Candy have no book value, you are basically assigning 0 value to the insurance franchise and deducting float and the deferred tax liability right off the top.

    e) I like your articles, particularly your bank preferred writeups where you find decent yielding paper and profile it, but this isn't your best work.
    May 2, 2014. 09:31 AM | 14 Likes Like |Link to Comment
  • What Is Berkshire Hathaway Really Worth? A Comprehensive Look [View article]
    BRKA 440 shares / day: $81MM
    BRKB 4MM shares/day: $480MM

    You all must be trying to build a very large stake if liquidity is an issue : )
    Mar 27, 2014. 06:52 PM | 11 Likes Like |Link to Comment
  • What Is Berkshire Hathaway Really Worth? A Comprehensive Look [View article]
    Robert, the reason you are/were "skewered" is that BRK/Buffett enthusiasts do not believe that Warren is "keeping value from shareholders" as you put it. Warren pays himself a hundred grand + security of a few more hundred per year and otherwise owns the same stock we shareholders do.

    He is perfectly aligned to do what is in all shareholders interests. Breaking up would possibly impose lots of tax realizations, eliminate the ability to shift earnings from businesses with poor reinvestment opportunities to businesses with great ones and is not ideal as long as Buffett and team can deploy capital in a way that builds earnings power at a healthy rate of return. Considering earnings have gone from about $7B to $20B in the past decade with but a smidgeon of equity issuance, I think shareholders are most pleased with the results.

    You may point out that BRK underperformed over X time period. Most current shareholders are unlikely to fault Buffett for the mistakes of past shareholders paying a bit too much for shares of Berkshire.
    As owners of a business, we care about business performance and it has been spectacular.

    Berkshire headquarters' corporate costs as a percentage of equity is counted in the basis points, so I see no evidence that Warren is keeping anything for himself. To repeat ad nauseum, shareholders and Buffett are equal partners. His partnership stake is just a lot bigger.

    Warren has built tremendous earnings power and value at Berkshire. Anyone who owns Berkshire does not equate market value to intrinsic value, which you seem to do; this is the reason you are unlikely to see eye to eye with anyone who owns Berkshire.

    Shareholders such as Yorkville and myself see a discount to the sum of the parts as an opportunity to purchase a world class business at a great price, whereas you see the market's discount as evidence that Buffett has destroyed value and should break the company up. If the discount closes will you say Buffett generated value? Buffett's value creation and whatever Mr. Market decides to bid for shares of Berkshire on a given day are only loosely related. Remember, Short term = voting machine, long term = weighing machine. Yorkville (and many others' analyses) point to the tremendous weight (earnings and asset value) being built at Berkshire.

    If you agree there is a SOTP discount, why not buy shares for yourself? Are you adverse to sales? Do you insist on paying full price?

    Anyways, i'm glad you commented here, that way when anyone argues with any of your trolling or ignorant statements (it's hard to tell in your articles on Berkshire), the author will earn a well deserved penny.
    Mar 27, 2014. 06:10 PM | 20 Likes Like |Link to Comment
  • Don't Judge Berkshire Hathaway By Its Book Value Cover [View article]
    Mr. Wagner,
    You are either trolling and successfully generating controversy on purpose or are completely ignorant with respect to Berkshire and other companies.

    You are spouting false and misguided statements about a stock and company that is deservedly admired by knowledgeable investors. Every misstatement is responded to by those more knowledgeable than you and then you go find some more "data points" to support your wacky analysis and then make another misstatement.

    It is irresponsible to make some of the statements you are making.

    First of all you said, Berkshire has not done well on a risk adjusted basis. This is false. You said Berkshire is more volatile than indices, this is also false. I've plotted the monthly returns of Berkshire for the past 20 years. Over the past 5 years, Berkshire has a beta of 0.55 to the S+P and generated annualized alpha of 4%. For 10 years it is 0.5 and alpha of 5%. Berkshire has a higher sharpe ratio, lower maximum drawdown, and has generated higher returns in almost all periods (excluding the trailing 5 years). The dow should not be used to measure performance; it is a 30 stock dollar weighted index that is poorly constructed. I have no idea why you use it, but Berkshire wins there too in terms of all relevant measures of risk adjusted performance.

    So if you believe in all the "risk adjusted" stuff about beta and alpha and sharpe ratio, Berkshire's stock performance has been absolutely spectacular in that regard, so you are incorrect when you say that it has underperformed on a risk adjusted basis. Berkshire's stock has performed very well over its history and recently, even if its stock has not produced excess return over a given 5 year period (the first time ever in like 50 years, btw, I don't see how one 5 year period invalidates the other 95% of times berkshire has killed it on a rolling 5 year basis, do you buy all your stocks on one random day and then wait five years?). Also "only beating the Dow by 2% for 10 years means berkshire shareholders have made 122% more money vs 105% and have paid no taxes on dividends or from rebalancing (the Dow changes a fair bit), so you don't seem to be making a case there.

    I have no earthly idea why you find Berkshire's performance in 2008 to be anything less than stellar. The company survived and thrived. I don't understand your point about the Lehman bailout. Why is it Berkshire's job to bail out Lehman? It is Berkshire's job to make money and preserve capital for its shareholders; it did this in fine form. As for what "unsystematic risk" Berkshire was taking, I think shareholders would rather have not taken part in AIG, GE, LEH, MER, BAC, etc's "systematic risk". How on earth is avoiding armageddon a bad thing?

    There is no reason to be baffled about Buffett's use of book value. It is a measure of the net worth of a company and is relevant for capital intenstive and financial companies.

    Every bank reports book value per share as one of the first bullet points on its earnings releases, REITs report net asset values (which are adjusted book values), insurance companies speak in book value. There is nothing crazy about it and if you read more, you will find book value being thrown around a lot. The stock comparisons you found in the SEC filings are standard disclosures found in the SEC filings of all companies. the managers of those companies do not point to those comparisons as the sole measure of their performance.

    Tracking the change in book value is very similar to tracking earnings, do companies that focus on earnings growth baffle you?

    In a given year Berkshire's operating units make money which adds to book value; he then reinvests those earnings into other operating companies. Book Value can also increase by the portfolio of investments going up in value. Change in book value is Earnings - Dividends +- Other comprehensive income.

    Since Berkshire doesn't pay a divvy, the change in book value is just the operating earnings + the tax adjusted increase in the value of the portfolio. It is an expression of the way Berkshire builds earnings power.

    For 2013, Berkshire increased book value by 18%. About 9% was from earnings and 9% was from the rise in value of the equity portfolio. There is nothing strange about measuring the increase in worth of a company.

    As Berkshire owners, we care about the growth in earnings power of our company. We cannot control the price paid for Berkshire. Warren can't control the price of his stock and it is not his direct goal to increase the price of his stock. It is his goal to build earnings power and asset value. The stock should follow, and in general it has. No one can control the price/book ratio. It used to be a lot higher and has come down over time. That is not Warren Buffett's fault and is out of everyone but Mr. Market's control.

    But if book value grows and earnings grow, Berkshire's stock will rise over time.

    Read his own words:
    For the forty years, our compounded annual gain in pre-tax, non-insurance earnings per share is 21.0%. During thesame period, Berkshire’s stock price increased at a rate of 22.1% annually. Over time, you can expect our stock price to move in rough tandem with Berkshire’s investments and earnings. Market price and intrinsic value often follow very different paths –
    sometimes for extended periods – but eventually they meet.
    Mar 12, 2014. 05:28 PM | 14 Likes Like |Link to Comment
  • Incentive fees boost Oaktree results [View news story]
    OAK = Oaktree , not Oakmark
    Feb 13, 2014. 09:44 AM | 1 Like Like |Link to Comment
  • Is Altisource Residential A House Of Cards? [View article]
    BPY's current dividend is at $1.00, inflation and growth in rents and any accretive acquisitions will get you into the IDR territory pretty soon (which seems more sustainable and easy than making ginormous ROE's doing distressed NPL workouts and worth a higher multiple). BIP's and BREP's IDR's are already being paid to the mothership.

    BAM has a decent track record doing distressed acquisitions, namely Olympia and York, General Growth Properties, and countless others, as do other asset management companies like Oaktree.

    How different is AAMC from any other general partner or asset manager? they charge fees to conduct investment activities. Can't any institution do what AAMC does? Or is the Ocwen umbrella just that special?

    Like I said, we can probably debate this without end. I'm short AAMC in small size at $900 and you (Jay) are long RESI/AAMC so the market will be the ultimate arbiter of this discussion.
    Dec 18, 2013. 09:59 AM | Likes Like |Link to Comment
  • Is Altisource Residential A House Of Cards? [View article]
    And BAM doesn't have a sweetheart deal with BPY, BIP, and BREP?

    Let's take just the BAM/BPY relationship.

    BAM charges BPY a $50MM management fee + 1.25% of the increase in market cap of BPY + 15% of dividends over $1.10/share + 25% of dividends over $1.20/share.

    That's not quite AAMC "50% above a certain threshold territory", but its not a bad stream of fees!

    BPY manages $31B of assets and $13B of equity today, right now, not after 10 years of growing in a huge addressable NPL market that AAMC bulls like to talk about.

    Given that BPY is already a gigantic collection of assets (there is no waiting period for the growth in AUM, only a waiting period for BAM to reduce its own ownership of BPY to a lower level, on which they've already made some progress.

    I just don't see how AAMC stacks up and cannot make sense of an asset manager worth multiples of its AUM, even if that AUM is going to grow tremendously. I can't make sense of a complany projecting ridiculous ROE's and ROA's and people accepting that they will hit those targets year after year.

    If BAM spun out its Asset Management (to isolate the pure play fee gatherer vs. its interest in the LP vehicles) what would it be worth relative to AAMC? Sure it charges lower fees but it has much more in assets and equity already and Bruce Flatt has a cult following to rival that of Bill Erbey.

    Maybe it is an argument to be had without end until the concept and valuation are proven/disproven, but I just don't get it.
    Dec 18, 2013. 09:23 AM | 1 Like Like |Link to Comment
  • Is Altisource Residential A House Of Cards? [View article]
    Friendly question from a skeptical "non-believer":

    At the year end of 2012, Brookfield Asset Management estimated that their Asset Management "franchise value" was $4.8B. BAM is not exactly known being overly conservative in their accounting (for the record I like BAM, but I'll be the first to admit they do some aggressive things) so I'm going to assume they are not vastly underestimating their own worth (though I think it is worth more and own the stock).

    BAM manages over $70B of fee bearing capital and $150B+ in total AUM, much of which is in listed vehicles (permanent capital) with relatively high fees and a decent amount of incentive distribution rights. Their assets are diversified across real assets and they have many clients including the largest sovereign wealth funds and many sophisticated clients

    How do I reconcile AAMC's valuation of $2.4B relative to the BAM's asset management franchise value when AAMC manages just over $1B in assets in a single strategy that is unproven thus far? How is AAMC worth 1/2 of BAM when BAM has, depending on how one counts, 70-150X the amount in AUM?

    I am legitimately trying to understand this here. If AAMC is cheap, aren't BAM, OAK, BX, etc. all much much cheaper? They all have a "huge addressable market" (all real assets and other alternatives) and actually have tons of employees and infrastructure and what have you for growing AUM.

    Is the answer that AAMC charges higher fees than those other more established and diversified asset managers? Is the Ocwen relationship enough to account for this massive dispersion? Will the fact that AAMC eventually takes 50% of the upside with no downside have no effect on convincing people to buy into RESI?

    I am trying to understand the bull case here but I just cannot wrap my head around it. If someone did not tell me anything about BAM and AAMC and asked me the about the relative worth of a company that manages $1B vs $150B, I would not intuitively say the first one is worth 1/2 the other.

    Dec 18, 2013. 08:56 AM | 1 Like Like |Link to Comment
  • Is Altisource Residential A House Of Cards? [View article]
    I am familiar with the delay and the positive feedback loop at work here and it is very dangerous for those short RESI/AAMC.

    But don't you mean RESI's projected ROE using a model that could very easily undershoot or overshoot the actual economic returns is 25%?

    Neither the shorts nor the longs have any idea what the true economics of the investment operation is and i think that's what WeighingMachine and Paulo are getting at here.

    All we know is:
    1) the incentive structure in place is incredibly favorable to AAMC over RESI
    2) the valuation of RESI/AAMC is dependent upon future equity issuance at a premium to book and we don't know if RESI's underlying investment operation is deserving of such a premium; we have only management's bullish predictions that contradict those of other large PE players in the space
    3) RESI committed to a $40MM/year dividend before it has produced a material amount of operating cash flow

    all we have so far is projections and models and trust in Bill Erbey (who has made a ton of money for shareholders), but the market appears to be giving RESI/AAMC an enormous benefit of the doubt and is slapping a combined 4X P/B on RESI/AAMC.

    it's a tough leap to make and call me old fashioned but "there will be more offerings at a higher premium to book because management said they are going to make a much greater than market return buying real estate" just doesn't strike me as a sound investment thesis.

    maybe it all works out, but the whole thing seems so fragile and more than a bit sleazy, ingenious, but sleazy.

    Consider that AAMC trades for over $2B in the context of Blackstone, KKR, Oaktree's, and Brookfield's (when stripping out their equity LP stakes) market caps. They all manage huge diversified alternative asset management platforms. Is AAMC going to become one of those in 10 years?

    If so what would the market cap and return be? How much growth is already priced in?
    Dec 15, 2013. 11:43 AM | Likes Like |Link to Comment
  • Is Altisource Residential A House Of Cards? [View article]
    Does anyone here denouncing WeighingMachine's analysis want to provide factual/numerical/quan... evidence to the contrary?

    Until the NPL workout operations produce actual real recurring cash flows, Is not RESI/AAMC completely dependent upon equity issuance at a premium to book to fund its dividends?

    This reminds me of Allied Capital, which scares me in terms of shorting. That took 6 or 7 years to work out.
    Dec 14, 2013. 10:53 AM | 3 Likes Like |Link to Comment
  • Believers In Sears Holdings Transformation Are Ignoring Eddie Lampert's 9-Year Failure [View article]
    I like this idea and that you took the trouble to account for all the spinoffs and dividends. Thank you for the work.

    The only problem I have with this analysis is you are taking a single day's stock price to argue that Eddie has failed. What if you moved the stock price to 1 year earlier (KMart Stock Price 11/2003: ~$30)? Or used his cost basis in the Kmart debt he converted into equity?

    That would tell an entirely different story. One might say, Eddie took overpriced shares of Kmart and issued them to buy Sears.

    I'm not saying Eddie has done well, but I'm not sure if taking the pre-merger price is a reflection of his performance. It is a reflection of the performance of those who bought his stock the day before he announced he was going to use that stock as currency for an acquisition.

    So I could look at your article and say "wow, Eddie was a capable capital allocator; the shares he used to buy Sears were indeed expensive, look how poorly they did in the following years"

    I understand that seems a bit twisted and I'm stretching here, just wanted to throw it out there.
    Nov 26, 2013. 09:00 AM | 2 Likes Like |Link to Comment
  • A Highly Profitable Micro Cap Bank With Great Asset Quality At A Massive Discount [View article]
    Hi Aristides, I sent you a PM with some questions about BKUTK. Let me know if you have any thoughts. Thanks!
    Aug 17, 2013. 11:42 AM | Likes Like |Link to Comment
  • The Fresh Market Growth Story Is High Risk [View article]
    Can't agree more with the sentiment in the article, but shorting these type of growth stocks in this market is pretty tough!
    Jul 16, 2013. 01:26 PM | Likes Like |Link to Comment
  • Measuring Market Highs And Lows With Discounts To Great Asset Allocators [View article]
    I really like your article because it deals with a lot of my core holdings and I largely agree with your thoughts. A minor quibble is that I think Loews is still cheap.

    $40.35 (CNA, DO, BWP)
    $8.19 Net Cash
    $1.46 BWP B Class units (apply 15% discount to normal units) these convert in Spring 2013 to normal units
    $1.53 BWP GP $600MM estimate of value

    $51+ (10% discount) before Highmount and Hotels

    Hotels is worth at least a few bucks a share and is getting a big revamp and Highmount was worth $4.1B in enterprise value before natural gas fell off a cliff. They've sold some reserves and it's obviously not worth that, but that's a big embedded free call option within Loews that cheapens the holdco.
    Mar 28, 2013. 09:10 PM | 1 Like Like |Link to Comment