Quick: Let me ask you a question. What would you put a bet on? Which company goes to $1 trill first: Apple or Berkshire Hathaway?
Buffett: Oh, I’d bet on Apple just ’cause they’ve got a stronger position.
BERKSHIRE HATHAWAY INC.
By our estimate, a 120%-of-book price is a significant discount to Berkshire’s intrinsic value, a spread that is appropriate because calculations of intrinsic value can’t be precise.
For example, if the insurance industry should experience a $250 billion loss from some mega-catastrophe – a loss about triple anything it has ever experienced – Berkshire as a whole would likely record a large profit for the year. Our many streams of non-insurance earnings would see to that. Additionally, we would remain awash in cash and be eager to write business in an insurance market that might well be in disarray. Meanwhile, other major insurers and reinsurers would be swimming in red ink, if not facing insolvency.
GEICO’s growth accelerated dramatically during the second half of 2016. Loss costs throughout the auto-insurance industry had been increasing at an unexpected pace and some competitors lost their enthusiasm for taking on new customers. GEICO’s reaction to the profit squeeze, however, was to accelerate its new-business efforts. We like to make hay while the sun sets, knowing that it will surely rise again.
We expected significant losses in the early years while Peter built the personnel and infrastructure needed for a world-wide operation. Instead, he and his crew delivered significant underwriting profits throughout the start-up period. BHSI’s volume increased 40% in 2016, reaching $1.3 billion
Last year, for example, in a disappointing year for railroads, BNSF’s interestcoverage was more than 6:1.
To supply a very crude measure, however, our revenue per ton-mile was 3¢ last year, while shipping costs for customers of the other four major U.S.-based railroads ranged from 4¢ to 5¢.
Low prices are a powerful way to keep these constituencies happy. In Iowa, BHE’s average retail rate is 7.1¢ per KWH. Alliant, the other major electric utility in the state, averages 9.9¢.
Sometimes the comments of shareholders or media imply that we will own certain stocks “forever.” It is true that we own some stocks that I have no intention of selling for as far as the eye can see (and we’re talking 20/20 vision). But we have made no commitment that Berkshire will hold any of its marketable securities forever.
Berkshire, like most corporations, nets considerably more from a dollar of dividends than it reaps from a dollar of capital gains.
He is a hero … to me.
The annual meeting falls on May 6th and will again be webcast by Yahoo, whose web address is https://finance.yahoo.com/brklivestream. The webcast will go live at 9 a.m. Central Daylight Time.
Circle of Competence don’t means that you have to know everything about a company and you will do fine for me – you also have to know yourself – how will you react under pressure, under seductions? As Ben Graham have written, you can find the biggest danger for your portfolio in the mirror.
One of the hardest tasks in investing is finding out how to act right when selling a stock. With this article I will look at the difficulties and forces that come into play when I’m thinking of how to sell a stock. I hope this will make me better in that area.
If people commit, orally or in writing, to an idea or goal, they are more likely to honor that commitment because of establishing that idea or goal as being congruent with their self-image. Robert Cialdini on Wikipedia
Seeing oneself as a value-investor and buying a stock is a perfect commitment according to Cialdini. Buying a stock is linked with:
Once a commitment has been made, the psychological program that is called “I made that decision-I will stand to it” starts working. You can imagine easily how this affects the selling of an already owned stock.
ten Doornkaat: You then said you had an investigation conducted by Ernst & Young (EY). This is the same company that prepared the annual financial statements. What did you expect? That they would come forward and say, Oops, sorry, we’ve made a mistake, we’re returning our auditor’s licence to practice? This is laughable.
Müller:No need. The technology is so sophisticated that I can hear you even when I’mpeeing.ten Doornkaat:Good. Then perhaps you can come up with some answers while you’re peeing, too.(Laughter)
Tüngler: A clear opinion has emerged, which we at the DSW share, that the numbershave not been manipulated, massaged or falsified.
Some (almost) uncommented fun with numbers.
Revenues of US Railroads in USDmn:
Genesee & Wyoming: from $ 385 mn in 2005 to $ 2,000 mn ten years later
Hormel Foods Corporation is an American food company based in Austin, Minnesota. Hormel sells food under many brands, including the Chi-Chi’s, Dinty Moore, Farmer John, Herdez, Muscle Milk, Jennie-O and many more.
From the Hormel Foods 2Q 2016 report
The company reported fiscal 2016 second quarter record net earnings of $215.4 million, up 20 percent from net earnings of $180.2 million last year. Diluted earnings per share for the quarter were $0.40, up 21 percent from $0.33 last year. Sales for the quarter were $2.3 billion, up 1 percent from last year.
The stock lost about 8,5% on that news – wall street is a crazy planet.
I played around with some numbers. I am calculating with an EPS of 2,11 US$ for 2020 which is a very conservative assumption. Considering a PE-ratio of 16 (decreasing ratio, this could be wrong) in the future the stock would sell at 33,76 US$ in year 2020 – which is lower than now.
Effective May 16, 2016, the company paid its 351st consecutive quarterly dividend, at the annual rate of $0.58.
At 35,48 USD for the share the dividend yield is at 1,6%
Hormel Foods is without questions a high-quality business but for me it is selling at a to high price, even after the drop yesterday.
Bayer AG is exploring a potential bid for U.S. competitor Monsanto Co. (link)
The Staples/Office Depot Merger got killed (link). I am curious how/if this will affect the Walgreen’s/Rite Aid merger and how the merger will turn out in general
Famous short seller Jim Chanos on Cheniere, Energy Industry and LendingClub
Royal Dutch Shell’s net debt is the largest of any company in western Europe (here)
WorldCom annual report 2002 (here) note: On July 21, 2002, WorldCom filed for Chapter 11 bankruptcy protection
I have already looked at Foot Locker Inc here and now have researched the shoe retailer further. And I mostly liked what I saw. This are my additional notes as pros and cons:
Of course not everything is clear in the future: I am a bit concerned that their profitability will go down in a “reverse to the mean” manner – maybe their success will attract competitors and copycats. On the other handit seems like they have some fanbase (link, german)
Eddy Elfenbein today wrote this:
One area of concern for the economy and the market is consumer spending. This week, several retail stocks fell sharply after Macy’s and Nordstrom reported disappointing sales … The online retailing giant seems to gobble up everything in its path. This week, Amazon broke $700 per share.
I see eCommerce as threat to them but people mostly buying shoes in stores because they want them to fit. At least that’s the case with me (and I am buying online lot). Nevertheless this is clearly something to have an eye on in the future.
They have a strong Cash Flow, low debt and net cash. And they have grown nicely (Sales & Sales per Gross Square Foot ) in the past few years. The management have definitely done a lot of things right in the past.
I looked at their 2011 annual report (wich includes the numbers from 2007 till 2011) and they got quite passable through the financial crisis. Revenues were down but I think that’s O.K. – they recovered quickly.
As seen on Insider Monkey:
…Foot Locker also received a boost of confidence from the hedge fund community as a whole, as 35 of the funds followed by Insider Monkey held a position in the company at the end of 2015, up from 25 registered a quarter earlier. Foot Locker, Inc. (NYSE:FL) has a market cap of $8.62 billion and pays an annual dividend of $1.02 per share, the equivalent of a 1.78% dividend yield….
…Billionaire Ken Griffin is also bullish on Foot Locker, Inc. (NYSE:FL), with his fund Citadel Investment Group having reported a massive increase in its Foot Locker holding over the fourth quarter, to 2.75 million shares.
I looked at their debt situation to define a discount rate: Morningstar Debt/Bonds overview FL
They have a year 2022 – 8.5% bond outstanding which is currently trading at 4.93% yield to maturity. I assumed a 6.5% discount rate for the equity.
I calculated with the assumed sell price for the year 2020 which I see at 107,85$ (of course things could turn out quite different). I discounted this price with a rate of 6,5% and came up with a “net present value” of about 82$. (note: this calculation does not include or consider dividends).
Considering the stock is now somewhere around 60 US$, this produces a 30% upside. So I bought a small amount.
As the market has rallied (or at least not crashed) for about 7 years and I defiantly want to have enough cash arround. So I bought just a small position for my portfolio. I am willing to add to the Position if the price will decline while the business-outlook stays the same. This Investment case needs at least some modest growth to turn out well.
The content contained on this site represents only the opinions of its author(s). I may hold a position in securities mentioned on this site. In no way should anything on this website be considered investment advice and should never be relied on in making an investment decision. As always please do your own research!