- You got a free internet upgrade and then your bill went up (here)
- Interesting q2 investment commentary from horizon kinetics (here)
- Interview with Liberty Media founder and John Malone partner, Peter Burton (here)
- A dozen things I have learnt from John Malone (here)
- PershingSquare Holdings buys Berkshire Hathaway – Page 10 (here)
- Netflix’s content budget seems greater than it seems (here) (Worthwhile to read the entire series)
- How I spotted a fraud before it was too late (here)
I recently finished reading Cal Newport’s three books : 1. Deep Work 2. Digital Minimalism 3. So good they can’t ignore you. The three books are subtly different but have common threads that link them back together. The desire to find ways to do work that is deep and inspirational, controlling technology in a way that is effective and additive but not distracting and the art of deliberate practice to gain mastery are threads that repeat themselves over the course of the three books.
So good they can’t ignore you: In the field of knowledge work that most of us are engaged in, one can vastly understate the importance of a deliberate training plan that is long term, continuous and effective. The craftsman element of work in churning out something special is largely lost in our daily, multi-tasked, attention deprived work environment. Cal Newport makes the case for a craftsman mindset and hence forming a passion for one’s work rather than chasing one’s passion at the outset. The author introduces a framework for developing career capital that comes from acquiring rare, valuable skills and using them to get greater control over things you work on and the traps associated with them. The author echoes similar principles to Malcom Gladwell’s outliers such as the 10K hour rule and deliberate practice that have taken center stage in the art of gaining mastery.
Deep work: In the midst of today’s digital world that emphasizes on multi-tasking, the art of digging in and doing deep work that is effective and meaningful has been lost. Cal differentiates between the deep work that require intense focus, uninterrupted work with results that are hard to replicate with shallow work that is unfocused and easy to replicate. The author outlines the art of mastering hard things and using the ability to transform the output into something that people value through frameworks and examples on how to implement them. Newport lays out rules for having an environment that is conducive to deep work, the ability to embrace boredom and draining out the shallow work as key to getting good deep work done. The author outlines ways to use technology more effectively and not assume that all technology is good and lays out principles to use them to get more effective, deep work done.
Digital Minimalism: And lastly, the distractions of the digital world where the technologies that were supposed to aid us have started to distract us and heavily so. Newport uses various examples and stories to convince that clutter is costly and the way to a brighter future is through intentional use of technology through optimization of tools that we value. Newport advocates a break from all social media (where avoidable) for a period of 30 days and then to intentionally allow back in selective technologies and platforms that we value in our lives. The key to break existing habits is to have alternate leisure activities that we can spend our time on without falling back to the digital distractions.
The three themes that Cal Newport picks could not have more apt and more relevant in any other time in the last 30 years than it is at this point in time. There are aspects in each one of the three books that provide additional tools that one can add to the arsenal to be more effective in everyday.
- Warren Buffett’s Kraft Heinz deal was unlike any Berkshire has done. He may not want to repeat it (here)
- Charlie Munger — An idiot could diversify his portfolio (here)
- Kraft Heinz books more than $1B in charge. Profit slumps (here)
- Inflated bond ratings helped spur the financial crisis. They’re back (here)
- The rot within India’s credit agencies (here)
- Bottle of Lies — Review (here)
- Americans needs generic drugs but can they trust them? (here)
- Dirty Medicine (here)
- Top kidney charity directed aid to patients at DaVita and Fresenius (here)
- Trump proposes ways to improve care for kidney disease and increase transplants (here)
I recently finished reading Bottle of Lies. It is an absolutely fascinating account of fraud at Ranbaxy and findings at other pharma companies in India. It will do the Indian pharma industry a whole world of good in the future to heed to the underlying lessons and implications from the book.
Also, Davita evokes very mixed emotions. I exited a small position I had in the last year and but continue to be uncomfortable with the position that Berkshire has in DaVita. Of course, this is a Ted Weschler pick and he has long been associated with this.
- Five smart reasons to tax foreign capital (here)
- India’s capital bans AB Inbev for three years for tax evasion (here)
- India government is finalizing framework to tax big tech (here)
- Some things and ideas (Assorted ideas) (here)
- Apple’s high cost of living (here)
- Sanjay Bakshi and Care Ratings on Valuepicr (here)
Berkshire Hathaway announced another solid quarter on Saturday. With unrealized investment gains flowing through its P&L, the results do incorporate wild swings in equities that needs to be accounted for while evaluating the results.
Revenue for Berkshire was up almost 2% YoY from $62.2B in 2018 to $63.6B in 2019. Investment gains were $10B in Q2 2019 compared to $6.3B in Q2 2018. Energy revenues were slightly down from $3.7B to $3.6B in Q2 2019. Insurance losses were sharply up from $9.4B to $10.7B or 13.8% on a much lower revenue growth of 3%.
The results do not include the Kraft Heinz results for the first half of 2019 as the results have not been announced yet.
From an earnings perspective, significantly lower earnings from Geico, Berkshire Hathaway reinsurance and Primary group affected the overall operating earnings for Berkshire.
Berkshire continues to maintain a very conservative portfolio on the fixed income side with less than $20B compared to its $200B equity portfolio. It is a clear sign that WEB thinks that the bond market is overvalued and the returns do not justify the risk.
On the equity side, Berkshire sold more than it bought in the first six months and the cost basis remained roughly the same at $102.6B. Berkshire sold $4.6B of equities and bought around $2.8B in the first six months. The only notable news is that Wells Fargo continues to be a key part of the portfolio and BAC has now crossed the 10% ownership threshold for Berkshire. In the first six months of the year, $29.3B of net unrealized gains was recognized on the income statement.
Interestingly, the derivatives that Berkshire wrote before 2008 are starting to expire. Out of the notional exposure of $24B, over $10B will expire in 2019.
The buyback from Berkshire was also pretty lukewarm in Q2. $440M was repurchased in Q2 2019. With the cash balances further swelling to $122.3B, hopefully the repurchases will get more meaningful over time.
Brief thoughts on valuation:
Another robust quarter for Berkshire. Our thoughts on the valuation is a simple SOTP that many other value investors do. Berkshire can be divided into operating earnings of the business and the portfolio investments. Berkshire earned $10.8B pre-tax in their operating business (excluding insurance) in the first six months, with a run rate of $21.6B for the year. At a safe multiple of 10 given the robustness and the mix of the businesses, it amounts to $216B. I prefer to take the insurance earnings as zero given the cyclical nature of the business even though Berkshire has made profits very consistently. Portfolio investments at the face value of equity + fixed income + equity method investments and cash is approx. $358B. In total, the intrinsic value is about $574B with 2.452B B shares outstanding resulting in a conservative intrinsic value of $234 / B share.
Disclosure: Long BRK.B
Not a recommendation.
We had written about Piramal Enterprises before here recently. Last night, they announced their results. Strong revenue and profit growth at 21% YoY. As expected, the focus on was their financial services portion of the business. The book was flat quarter or quarter with about 5K crores of repayment and 4.8K crores of disbursements.
The real estate book is starting to show signs of diversification with a lower wholesale residential RE portion but it is still 47% of the book.
The ROA and ROE seems to be holding up well for the business. GNPA actually fell in the quarter based on 90 dpd. It does look like payments are coming in through for Piramal as of now. I suspect there is a lot of advance payments that is going on here that is causing this to look very strong and probably some better risk management as well.
A detailed book sensitivity shows that there are probably around 10% of the deals that need attention which is not concerning given that Piramal has shown an ability to actually implement corrective action and fix them in the last few quarters.
The key news was on the liability and equity side. The company informed that they were planning to bring in 8K-10k crores of equity on what they called significant growth and consolidation opportunities that are opening up on the NBFC.
I will also link here the CNBC transcript that shows a more aggressive yet cautious contrarian waiting for the right opportunities to open up in the NBFC space. It was good to see that they are treading with caution and watching instead of jumping into the first deal they get. With a solid quarter behind them, will this be a case of yet another counter cyclical aggression from Piramal? Only time will tell.
Disclosure: Long Piramal.
Last night Shriram City Union Finance announced its quarterly results. Assets under management is up from 29,582 crores in March 2019 to 30,352 crores at the end of June 2019. RoA is marginally down to 3.41% in June from 3.44% in the prior quarter. RoE is down to 15.44% from 16.48% at the end of March. Disbursements are marginally down 5% QoQ. EPS was INR 38.4, Book value at INR 1005, CRAR at 22.5%. Asset quality only very marginally declined with net stage 3 assets holding almost flat at 5.03% with provisions just marginally up. Looking at the ALM statement, looks like their short term liquidity is fine.
And this was supposed to be a bad quarter. Results have help up well and the business model seems more steady than what the news will lead you to believe. It does look like this blood bath will eventually open up interesting opportunities for the patient investor.
Disclosure: Long Shriram City. Also read disclosure here
With all the bearishness around the NBFC and the liquidity situation surrounding the industry, we are closely monitoring the status of several NBFC’s. Amongst them is Piramal. Depending on which source you read at or talk to, you have Piramal, either an overexposed real estate NBFC lender in a liquidity crunch, selling investments to fund liquidity issues OR a savvy predator hungry for more deals in the market when there is blood on the streets. Either way, when the results come out tomorrow, it will be a good indicator of what the reality looks like.
With so many stories swirling around, it is really tough to separate out the truth from the rumor. All we can say is, given the sheer number of permutations and combinations of the stories out there, it is evident that Piramal is talking to investors. But for what and as what? A distressed seller or as a bloodhound on a trail. We will have to wait and see how this plays out.
Some of the links to articles around Piramal:
- Piramal capital eyes $600M of buyouts in NBFC space (here)
- Can Piramal enterprises weather the NBFC storm (here)
- Softbank set to infuse capital into Piramal capital (here)
- LIC, IFC come to the aid of Piramal’s financial services business (here)
- Piramal’s INR 2500 Crore debt up for redemption in next 18 months (here)
- Piramal sharply cuts short term debt as NBFC crisis lingers (here)
- Piramal raises 1500 Crores from Stanchart through NCD’s (here)
- Reliance Jio and Piramal might setup a joint venture for financial services lending (here)
- Consumer finance focus can bring softbank to Piramal (here)
- The pathetic performance of the IndiaReit V fund (here)
- Piramal sells entire stake in Shriram Transport (here)
- Piramal is in talks to sell stake in Shriram group of companies (here)
Update: Added a few more links to the Lodha issue
- Piramal capital offloads 2,000 crore linked to Lodha (here)
- Piramal to pare 1,000 crore of Lodha developers debt (here)
Disclosure: Long Piramal.