What are we reading?

  1. Facebook, Google could lose over $44B of ad revenues in 2020 (here)
  2. Airlines are getting bailout money — but there are strings attached (here)
  3. Google and Facebook can’t save the advertising industry this time (here)
  4. America’s largest trucking companies won’t reveal how or if they will get sick drivers back home if they get infected (here)
  5. Berkshire Hathaway sold $390M of Delta and Southwest stock (here)
  6. Bare necessities you need for a bear market (here)
  7. Risk to jobs now unprecedented since the Great Depression (here)
  8. Delta airlines is losing $60M a day as Covid rages on (here)
  9. United airlines no longer counting on snapping back (here)
  10. The month Covid felled American business (here)

Thoughts on Buybacks and Berkshire

There are capital allocators and there are good capital allocators.

At one end of the spectrum, you have airlines who are being eviscerated for spending close to all their  free cash flow on buybacks. The management, fully aware of the operating leverage of their fixed assets, not only levered the company financially but also did not build up any resiliency in their balance sheets for any external shocks and are now looking for federal help to stem the crisis. Ditto with banks, where the supposedly Fort Knox balance sheets were tested and fed liquidity tap has opened up again and buybacks suspended. A classic case of buyback when the prices are high and not so much when they could be a bargain to their TBV.

On the other hand end of the spectrum, we have companies like Berkshire. While their equities portfolio is getting hammered with the rest of the market, they are sitting on mountains of cash ($128B+) as of Dec 2019 and an environment where they can deploy the cash effectively. Berkshire has resisted doing massive buybacks just because it had cash and is now looking smarter and better positioned than other companies that deployed a ton of cash at market highs.

Now the rubber will hit the road for Berkshire. They are in an environment where they can deploy cash more easily and furthermore the shares are trading at a multiple of book value that Berkshire has purchased stock back in the past.

H/T to @investor_bad who posts Berkshire daily BV with respect to the portfolio changes.

 

What are we reading?

  1. The surreal weekend (here)
  2. Fliers coming in from abroad (to the U.S) face long, crowded lines at airports (here)
  3. Stock futures slide after Fed slashes rate to zero (here)
  4. The Yes Bank rescue: Banks chip in, shareholders locked (here)
  5. In the end, it took a whole village to rescue Yes Bank (here)
  6. Paddling through the storm: lessons in 2019 (here)
  7. For airlines, a week that went from bad to worse (here)