The "American Tailwind" chapter is very good read with many gems.<p>Like this:<p>>Those who regularly preach doom because of government budget deficits (as I regularly did myself for many years) might note that our country’s national debt has increased roughly 400-fold during the last of my 77-year periods. That’s 40,000%! Suppose you had foreseen this increase and panicked at the prospect of runaway deficits and a
worthless currency. To “protect” yourself, you might have eschewed stocks and opted instead to buy 3 1 ⁄ 4 ounces of gold with your $114.75. And what would that supposed protection have delivered? You would now have an asset worth about $4,200, less than 1% of what would have been realized from a simple unmanaged investment in American business. The magical metal was no match for the American mettle.<p>And close to the end:<p>> Charlie and I happily acknowledge that much of Berkshire’s success has simply been a product of what I think should be called The American Tailwind. It is beyond arrogance for American businesses or individuals to boast that they have “done it alone.” The tidy rows of simple white crosses at Normandy should shame those who make
such claims.
There's always something reassuring about Buffett's letters - don't worry about the market fluctuations and make worthwhile stuff I guess.
What you need to know about Berkshire (going forward) is that Buffet just said that there is no more low hanging fruit for him to pick as a result of private equity getting more into the game and throwing around money.<p>It's in the letter but also detailed here:<p><a href="https://www.reuters.com/article/us-berkshire-buffett-m-a/warren-buffett-says-prospects-poor-for-elephant-sized-acquisition-idUSKCN1QC0HR" rel="nofollow">https://www.reuters.com/article/us-berkshire-buffett-m-a/war...</a><p>So just like the small VC when the game was small and before (as the saying goes) everybody and their uncle got in they did well. Now it's a much different story.<p>And importantly the halo of Buffet will not win out over a much bigger offer from someone else. It maybe have in the past but the game has changed. Now add to that that it's obvious that Buffet will not be a star or around for another X years and we have a recipe for Berkshire not being a long term bet.<p>So once again two things going on here.<p>a) Warren won't be around for long enough for the tide to turn back (if it does at all). Many of the deals that got done are because of his star power (similar to Steve Jobs at Apple closing an important arrangement by force of will and halo)<p>b) Others in the game. Competition that far exceeds what it was in the past.
I calculate the intrinsic value of the first 4 “groves” to be in the neighborhood of 510 B. That comes from multiplying the after tax earnings by 12, which is a conservative multiplier, taking the market value of the equity portfolio and subtracting deferred taxes at the current tax rate, and valuing the cash (including the 20 B reserve) at face value.<p>I don’t know how to value the float. Its value is largely dependent on the record of the person deploying it I’d think.
As the annual letters go, this one seems remarkably uninteresting? No major purchases or restructurings, and the rest is canned summary & familiar from previous letters. 2018 was a quiet year at BH, seems, despite all.
Stocks do beat gold over long stretches of time except in times of crisis (obviously). There are 10 year ranges where gold does beat the market. Then it goes to sleep or down for 10 years at a time (obviously this destroys its compounding effect and puts it at a severe disadvantage to stocks)....this makes sense because its a commodity... For instance it absolutely ripped in 2000 through 2011 but fell thereafter while the global economy was full steam ahead.<p>Further, theres a reason why Ray Dalio is saying its a good time to hold some gold today. namely the absurd US entitlement schedule/unfunded pensions and global debt being absurdly high(320% of GDP). Despite what Buffet is saying, regular deleveragings (say every 10 years or so) do clearly happen as seen in 2001 and 2008 (though 2008 wasnt really a deleveraging of debt like it was in 2001 if you look at the data) - obviously it was a greater shock however... We are arguably in the "long term debt cycle/a super cycle" as Dalio writes in his latest book (which happens about every 70 years) because global interest rates are at rock bottom (central govts around the world dont have tools to bail out the economy at these levels). I know Buffet is right in the very long run, but I dont have the stomach endure the next 3 years or or so/be down like 50% for a period of time. Ill invest back in the market after this next recession.
Another great Berkshire annual letter. This one feels a bit more "subdued" than previous years. Though I love the part that Buffet's heart races at the thought of making a large acquisition.<p>It's funny that the company is so big that there simply are not enough businesses to keep it satiated.<p>If that goes on long enough... There will be a time when it's more valuable to break up the conglomerate.
There's a two hour interview with Buffett talking about the letter etc to CNBC <a href="https://www.cnbc.com/video/2019/02/25/warren-buffett-cnbc-full-interview-berkshire-hathaway.html" rel="nofollow">https://www.cnbc.com/video/2019/02/25/warren-buffett-cnbc-fu...</a>
Warren Buffett's Berkshire Hathaway swung to a $25.4 billion loss in the fourth quarter due in part to an unexpected write-down at Kraft Heinz
<a href="https://www.wsj.com/articles/warren-buffetts-kraft-heinz-bet-dragged-down-berkshire-hathaway-in-2018-11550929951" rel="nofollow">https://www.wsj.com/articles/warren-buffetts-kraft-heinz-bet...</a>
On the first page is a nice table with the yearly performance data of Berkshire versus the S&P 500.<p>I wanted to see it as a graph. So I cleaned it up in VIM and then made this chart from it:<p><a href="https://www.productchart.com/blog/2019-02-23-berkshire" rel="nofollow">https://www.productchart.com/blog/2019-02-23-berkshire</a>
Hey can you guys answer a question for me.<p>Is berkshire double taxed on the income it’s companies make?<p>Say Berkshire owns a company. Does that company pay corporate income tax on the money it makes. Then it passes the rest of the profit to Berkshire and does Berkshire pay income tax again on that money?
The Law of Active Management states that IR = IV * sqrt(n)
IV is your “edge” or conviction and n is the number of independent trades you make. So the lower your IV (closer to 50%) the more trades you need to put on.<p>So there are two ways to make money being an active manager: have a low IV with a high N or have a high IV with a low N. It’s difficult to maximize both at the same time because you won’t be able to find enough trades with a high IV, so you need to keep lowering it (the lowest you can go is obvioisly >50%) to get more trades.<p>This is why quant funds have so many positions, because they aren’t very certain about their bets. Buffet takes the opposite approach, only putting on a couple massive trades that he thinks have a high IV.