Buffet - Value Investing Masters

By pjain      Published May 16, 2020, 9:11 p.m. in blog Invest   

Part of Masters Series - Masters STR


## BRK.B as an investment in Q2'2020

Buffet Portfolio and Lessons


  • Intelligent Investor - Ben
  • Margin of safety
  • Burnt-up cigar - Short term

  • Charlie Munger

  • Lattice of models => understand ..

  • best book from mary Buffet

  • Lowest cost basis in its industry

  • Pricing power - can it pass on costs
  • Earnings predictability going up even 10+ yrs
  • LT holding needed For Buffet
  • Accepts
  • Not just D/E but should be able to repay all debt with 2-5yr EPS
  • RoE > 15% for investor, RoIC > 12%
  • Positive FCF - money can be spun out to ...
  • Divs or If retained earnings .. should get 15%+ return if not fail

Tips in Reading 13F moves

  1. It is hard to move big blocks of stocks. BRK does not want to disclose when he is about to sell his entire position to receive a better price.

  2. Buffet often drops below 10% where he only has to report AT END OF QUARTER even 45 days after. But this frees up selling out of positions which could massively plummet if he was to liquidate.

Interesting maneuver to reduce holdings from 151M to 150.5M shares to get under 10% ownership, thereby eliminating the requirement to file prompt disclosure of future sales. Mr. Buffett did the same thing with his airline holdings. In that case, he got under 10% and shortly thereafter sold all his holdings.

  1. It takes 2 quarters to exit a position

  2. Tax on positions that have gone up 20, 50x is so huge that even a 50% plunge does not justify liquidating.

  3. Buffet gets ALL OUT if chances are of bankruptcy - eg Airlines - drove it down a LOT - but he sees equity disappearing.

  4. HINT HINT - come to me on knees begging to swallow Warren's capital and "branding". But "Good enough" Corporates did not do so, as OXY, GE, GS etc. in past have hurt his reputation as too costly. Buffet/Munger said - "we are waiting" no one coming! But now Fed and US Federal have pumped SO MUCH money that corporates that are "good enough" for Buffet/Munger screens can raise money there anyway!

  5. Buffet's holding on to cash balance, in fact selling losing positions like airlines and select financials indicate that he is FEARFUL not at all greedy - indicating he thinks bottom and real visibility/bargains are not right now.

    Sentiment is still optimistic on Trump/Fed talk/handouts. Worst economic data of our lifetime but are intent on riding the market at age 60+. I think people are not nearly fearful enough and the pain to come is going to be brutal.

BRK.B, Warren Buffet is a hard to follow act

Buffet public Holdings - 1970s Bought

KO 14%

Buffet public Holdings - Older bought ~1990s

KHC - kraft 20%
PG .02% got out 
WPO  sold to ?bezos
USB 3%
AXP 7% - not increasing share
V .6%
MA .4% v
BK .6%
MCO 2% - monopoly
MTB .5%
x USG finally

Post 2008 Buffet public Port

PSX  5% ^
WMT  3% v
COST .5%
GM 1.2%
MDLZ - bid for? - .01%
SU .6%
KMI .4%

r DVA 2% kidney care SNY .12% DE 1.4% ^ x PCP got out GE .3% ~ TMK torchmark? WBC Wabco holdings GS 1.3% guaranteed pref shares & upside .. VRSN x IBM 10% hurt bad CHTR 1.6% STRZA .6% FOX .2% LBTY .5% ^ AAPL .8% NEW VZ .6% x T

Buffet Mistakes

WFC 18%

Fantastic Record of Beating S&P over 20 year horizon

BRK.B is a proxy for the S&P and JPM over 3, 5, and 10 years. At 20 years, Warren shines big time. Add in dividends and JPM is likely to continue to be a better investment than both the S&P and BRK.B for the next several years.

Recent 2015+ Severe Underperformance

  • Lost its shine, underperforming since 2015

BRK looked like a great investment until two months ago (and truthfully for a few years previous). Those of us who are investors in the company should have read the writing on the wall: Inertia, signs of a frozen apparatus at the top perhaps caused by age and lackluster performance by the two heirs apparent. In retrospect, it should have been obvious, but blinders due to semi-ancient performance probably had an impact. Now, do I wait this out with BRK's mountain of cash earning about nil and a portfolio of suspect companies with several notable exceptions and hope for fresh leadership in a couple of years? Or, cut bait and re-invest when the company acts it's stature? I see the present BRK as nothing more than a below average mutual fund.

Recent 2020 Covid-19

  • Berkshire ended March with a record $137.3 billion of cash, disappointing investors unhappy with the low yields it generates for the company.

  • As of Q2'2020, Berkshire has more than 90 operating units which are FULLY OWNED including Geico, the BNSF railroad, Dairy Queen ice cream and its namesake energy business. These are probably more important in terms of book value percentage than the usually older holdings in mega public companies like KO, WFC, etc.

OIL - stuck in OXY/Pref-divs, PSX

Berkshire sold its remaining small stakes in the oil refiner Phillips 66.

SVCS Dumps Airlines across the Board

FIN Slashes most of GS, Travelers Cos, Keeps WFC even down -50%

  • Buffet assured at May 2,2020 meeting that the banking sector was not a "primary worry" for him during the coronavirus pandemic.

    "If problems become severe enough in an economy, even strong banks can be under a lot of stress, and we'll be very glad we've got the Federal Reserve system standing behind them."

BRK's holdings are all dogs. The banks, where he is loaded up, all the bag holders of a mountain of bad debts coming.

  • GS SOLD OFF - Goldman stake fell 84% to 1.9 million shares, from 12 million at year-end, with the stake's market value dropping to $297 million from $2.76 billion. Goldman's stock price fell about 33% during the quarter, and some of Berkshire's selling appears to have occurred after the slide began. The Goldman stake originated in a $5 billion preferred stock investment at the height of the 2008 financial crisis, in a vote of confidence by Buffett for the Wall Street bank. While Buffet said he was selling all of airlines at annual meet May 2, the GS bombshell only came out on the 13F filings.
  • Q4'2019 6.3m sold off - so Q1'2020 stock sale "not surprising,"

  • TRV SOLD its remaining small stakes in the insurer Travelers Cos.

  • WFC - KEPT its stake in Wells Fargo & Co was unchanged, though the stock's price fell 47%.

  • AXP - Kept

  • BAC - Kept

  • BNY Mellon - Kept

  • JPM - reduced some.

    BRK.B is a proxy for the S&P and JPM over 3, 5, and 10 years. At 20 years, Warren shines big time. Add in dividends and JPM is likely to continue to be a better investment than both the S&P and BRK.B for the next several years.

  • USB - sold tiny to get below 10%

  • PNC Financial - ?

Future post-Buffet 90yr, Munger

Warren Buffet 101

Bought at deep drops - 1973, 2008

Extortion - 10% dividends, Warrants - GE, GS

Made Money from Monopolies with Deep Connections like Soda, Goldman Sachs

PR value - donated mainly to Gates influenced



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