What are we reading?

Crazy Investing Facts (here)

The great bribe-the-distributor program (here)

Is another tech bust coming (here)

Counter-intuitive competitive advantages (here)

Recessions: it’s been a while (here)

Short Post on Berkshire

While there are a lot of commentators out there commenting on Berkshire’s results, here is a short different take on it.

  • In 2018, Berkshire took a pre-tax mark to market losses of $22.4B on investments and derivatives and $17.8B on a post tax basis
  • Berkshire reinsurance group did not have a great year and lost $1.1B pre-tax driven by property casualty and retroactive reinsurance.
  • Berkshire’s portion of the Kraft Heinz goodwill impairment was $2.7B in 2018
  • $19.8B of Fixed Income securities compared to $172B of equities
  • $109B in Cash and treasury bills
  • Offset by strong earnings in the rest of the operating businesses and insurance companies resulting in a book value increase of 0.4% and net income of $4B for the year.

If on a year like this, Berkshire does not lose money, it talks a lot about the fortress balance sheet and the resiliency of the business model. I know that Buffett talks about not using BVPS any more. I look at it differently. It was an understated proxy for intrinsic value. Now, it is vastly understated for the intrinsic value.

It is often about return of capital before return on capital. There are a lot of commentary about Berkshire being an index fund. It might be but the risk profile is completely different.

Blast from the Past: Timely reminder to think for yourself — Munger on Valeant

This is a dated post but fun nevertheless.

It all started in April 2015 when Valeant Pharma was the toast of town.

And then Charlie said this: “Valeant is like ITT and Harold Geneen come back to life, only the guy is worse this time.”

No one really understood what Charlie meant at that point. There were some speculations but no one was sure. This was way before the entire Valeant thing unraveled. Pause a moment to think. A lot of us had access to the same information and Munger came to a radically different conclusion than the rest of the market. Bill Ackman tried to reach out to Charlie and convince him otherwise here. Charlie turned out to be correct. How many times as investors have we had a radically different opinion than the rest of the market put together and been right? Are the markets always efficient? What qualitative factor is the market not pricing in that is not evident in the numbers?

In November in 2015, he explained himself further when Valeant started to come apart. Look at the initial response from Munger.

Later, of course, Munger ended up comparing Valeant to a sewer.

Here is how Valent played out finally. They now trade as Bausch Health Companies (BHC).

Now, Charlie also said Ackman was right on Herbalife; that has not proven out yet. Independent thinking….