Interesting HBO documentary about Warren Buffett, his family and Berkshire Hathaway.
Showing posts with label Berkshire Hathaway. Show all posts
Showing posts with label Berkshire Hathaway. Show all posts
Monday, 14 August 2017
Tuesday, 17 May 2016
Creative Accounting
There used to be a time when creating profits would require a real effort in hard work.
These days a much more simple way is available: call in the financial engineers.
I have written many times about the ways these people are able to polish up accounts.
In the tech world creativity to make profits out of thin air seems to have reached a whole new dimension.
Article from Bloomberg: Tech Startups Come Up With Some Creative Definitions for ‘Profitable’
Some snippets:
.... the startup [SpoonRocket] calculated that the business had become "contribution margin positive," meaning that it sells an item—in this case, pre-made meals delivered to customers—for more than the cost to manufacture, distribute, and sell it.
Uber said it was profitable in the U.S. and Canada during the first quarter of this year. Lyft said it is "on a clear and defined path to profitability." Postmates said it will be profitable by the end of 2017. DoorDash is "cash-flow positive" in some markets. TaskRabbit will be "profitable profitable" by the end of this year. It "won't be too long" until Airbnb is profitable. Instacart is "gross margin profitable." Luxe Valet is "on the precipice of being profitable" in some markets. At Y Combinator's demo day in March, many bright-eyed entrepreneurs clinched their pitches with a robust "and we're already profitable!"
Tech startups are increasingly touting a mix of less common financial metrics, even as their public counterparts move more toward generally accepted accounting principles. Amazon and Facebook recently began breaking out employee stock compensation in more of their results, bowing to pressure from regulators and investors. LinkedIn and Twitter still focus on numbers that exclude equity costs.
When Uber said it is profitable, the company similarly left out equity grants to employees, along with interest and taxes. Its main ride-hailing rival in the U.S., Lyft, declined to elaborate on its "path to profitability" statement, leaving questions about how or when it will reach its destination. Airbnb also declined to provide details on an executive's profitability comments. TaskRabbit said "profitable profitable" means it will turn a net profit but declined to say whether specific costs such as equity grants and taxes were included. Postmates, the courier service, used a profitability calculation that doesn't include taxes.
Several startups slice their numbers by markets to demonstrate financial maturity in certain cities or countries. Again, the criteria for what's included in those calculations can vary. Instacart told Bloomberg in February that it was profitable in its biggest markets and that 40 percent of its volume was profitable. The company later clarified that it meant gross margin profitable, which is usually limited to direct costs such as supplies and delivery labor. Instacart's calculation leaves out other costs, such as customer service, central office salaries, rent, and the cost of acquiring its workers. Instacart also said it is gross margin profitable, on average, across all its markets.
Luxe, an on-demand valet parking service, said it's currently profitable in some cities but declined to name them. The company defined "profitable in a market" as gross profit, excluding central operations costs. DoorDash, which delivers food from restaurants, said its cash-flow positivity is limited to its "earliest markets" and includes customer service and salaries of regional workers but leaves out central rent and operations.
However, at the end of the day, when the dust has settled:
"You can always say, 'We're profitable if we don't include X,' " Behr said. "But no matter how many ways you say you're kind of profitable, if your bank account ends up lighter than when you started—eventually, that doesn't work."
This is what Warren Buffett wrote in his last annual report (page 8, emphasis mine) about GAAP:
Though we sold no Kraft Heinz shares, “GAAP” (Generally Accepted Accounting Principles) required us to record a $6.8 billion write-up of our investment upon completion of the merger. That leaves us with our Kraft Heinz holding carried on our balance sheet at a value many billions above our cost and many billions below its market value, an outcome only an accountant could love.
It definitely seems that accounting these days is more of an art than a science. I am not sure if that is a good thing though.
These days a much more simple way is available: call in the financial engineers.
I have written many times about the ways these people are able to polish up accounts.
In the tech world creativity to make profits out of thin air seems to have reached a whole new dimension.
Article from Bloomberg: Tech Startups Come Up With Some Creative Definitions for ‘Profitable’
Some snippets:
.... the startup [SpoonRocket] calculated that the business had become "contribution margin positive," meaning that it sells an item—in this case, pre-made meals delivered to customers—for more than the cost to manufacture, distribute, and sell it.
Uber said it was profitable in the U.S. and Canada during the first quarter of this year. Lyft said it is "on a clear and defined path to profitability." Postmates said it will be profitable by the end of 2017. DoorDash is "cash-flow positive" in some markets. TaskRabbit will be "profitable profitable" by the end of this year. It "won't be too long" until Airbnb is profitable. Instacart is "gross margin profitable." Luxe Valet is "on the precipice of being profitable" in some markets. At Y Combinator's demo day in March, many bright-eyed entrepreneurs clinched their pitches with a robust "and we're already profitable!"
Tech startups are increasingly touting a mix of less common financial metrics, even as their public counterparts move more toward generally accepted accounting principles. Amazon and Facebook recently began breaking out employee stock compensation in more of their results, bowing to pressure from regulators and investors. LinkedIn and Twitter still focus on numbers that exclude equity costs.
When Uber said it is profitable, the company similarly left out equity grants to employees, along with interest and taxes. Its main ride-hailing rival in the U.S., Lyft, declined to elaborate on its "path to profitability" statement, leaving questions about how or when it will reach its destination. Airbnb also declined to provide details on an executive's profitability comments. TaskRabbit said "profitable profitable" means it will turn a net profit but declined to say whether specific costs such as equity grants and taxes were included. Postmates, the courier service, used a profitability calculation that doesn't include taxes.
Several startups slice their numbers by markets to demonstrate financial maturity in certain cities or countries. Again, the criteria for what's included in those calculations can vary. Instacart told Bloomberg in February that it was profitable in its biggest markets and that 40 percent of its volume was profitable. The company later clarified that it meant gross margin profitable, which is usually limited to direct costs such as supplies and delivery labor. Instacart's calculation leaves out other costs, such as customer service, central office salaries, rent, and the cost of acquiring its workers. Instacart also said it is gross margin profitable, on average, across all its markets.
Luxe, an on-demand valet parking service, said it's currently profitable in some cities but declined to name them. The company defined "profitable in a market" as gross profit, excluding central operations costs. DoorDash, which delivers food from restaurants, said its cash-flow positivity is limited to its "earliest markets" and includes customer service and salaries of regional workers but leaves out central rent and operations.
However, at the end of the day, when the dust has settled:
"You can always say, 'We're profitable if we don't include X,' " Behr said. "But no matter how many ways you say you're kind of profitable, if your bank account ends up lighter than when you started—eventually, that doesn't work."
This is what Warren Buffett wrote in his last annual report (page 8, emphasis mine) about GAAP:
Though we sold no Kraft Heinz shares, “GAAP” (Generally Accepted Accounting Principles) required us to record a $6.8 billion write-up of our investment upon completion of the merger. That leaves us with our Kraft Heinz holding carried on our balance sheet at a value many billions above our cost and many billions below its market value, an outcome only an accountant could love.
It definitely seems that accounting these days is more of an art than a science. I am not sure if that is a good thing though.
Thursday, 24 December 2015
Utusan crushes Buffett's track record
Utusan Melayu (Malaysia) announced that it is selling its stake in Maqamad Sdn Bhd for RM 48 Million. It had bought this stake eight months before for only RM 100K.
Kinibiz's "Tigertalk" wrote about the deal:
"What about the possibility that Utusan has been harbouring the Malaysian answer to Warren Buffett all this while? Possible, possible… the possibilities are endless. Numbers don’t lie and Utusan really is selling what it says was worth RM100,000 eight months ago for RM48 million now.
With an investment manager able to pick out an investment giving 47,900% in returns within an eight-month timeframe lurking in our midst, perhaps Khazanah Nasional extended the contract of its managing director Azman Mokhtar a tad too hastily, eh?"
Details are scant, understandably so, why would any fund manager give away his secrets? Transparency is of course for softies, while corporate governance, honestly, who cares with RM 48 Million cash in the bank?
Warren Buffett's record on Berkshire Hathaway is definitely not bad, increasing the share price from USD 13 to about USD 200,000. But that took a full fifty years, who has so much patience?
Buffett's track record shows an annualized return of about 21% per year, while Utusan scored 47,900% in only eight months time. Now we are talking business ......
Wishing all readers happy holidays.
Kinibiz's "Tigertalk" wrote about the deal:
"What about the possibility that Utusan has been harbouring the Malaysian answer to Warren Buffett all this while? Possible, possible… the possibilities are endless. Numbers don’t lie and Utusan really is selling what it says was worth RM100,000 eight months ago for RM48 million now.
With an investment manager able to pick out an investment giving 47,900% in returns within an eight-month timeframe lurking in our midst, perhaps Khazanah Nasional extended the contract of its managing director Azman Mokhtar a tad too hastily, eh?"
Details are scant, understandably so, why would any fund manager give away his secrets? Transparency is of course for softies, while corporate governance, honestly, who cares with RM 48 Million cash in the bank?
Warren Buffett's record on Berkshire Hathaway is definitely not bad, increasing the share price from USD 13 to about USD 200,000. But that took a full fifty years, who has so much patience?
Buffett's track record shows an annualized return of about 21% per year, while Utusan scored 47,900% in only eight months time. Now we are talking business ......
Wishing all readers happy holidays.
Sunday, 16 August 2015
iCapital: "Ostrich policy" will not solve the issues
I have written several times about iCapital (of which I am a long time shareholder), most notably here and here.
The two elephants in the room regarding iCapital's share performance are:
In the Netherlands this is called "Ostrich Policy": "to ignore obvious dangers or problems and pretend they don't exist; the expression derives from the supposed habit of ostriches to stick their head in the sand rather than face danger".
Lets start with the results for the latest year:
That is really disappointing, given that the funds cash level was a whopping 65% throughout the year. That cash is generating interest of about 3 per cent a year, so one would have thought that the fund would have performed clearly better than the KLCI.
One reason for this is the management fee (including relatively high expenses for advertisements and AGM), the total is about RM 7 Million. That translates to about 1.75% per year, which is not a problem if the fund is fully invested and outperforms. But it is a problem if 2/3rd is held in cash, earning about 3% per year on that cash, of which more than half is eaten away by fees and expenses.
Given the persistent high cash level, the board of directors should renegotiate the management fee, for instance a lower fee for the cash it is holding (one does not need a degree in rocket science to manage a fixed deposit), and a higher fee for the equity part. However, no indication is found in the year report that this is even considered.
All the outperformance of the fund came in the first few years. The last seven and a half years the fund has underperformed, especially if dividends are accounted for. The combined effects of the underperformance and discount is shown in the red column, showing that the share price has actually decreased since December 31, 2007.
One must therefore put question marks behind the comment by the Chairman:
Also puzzling is the comment regarding "shorter-term options which do not benefit share owners in the longer-term", how is it possible that company decides this for its share holders?
On December 31, 2013 the NAV was around RM 3.10 while the share price was around RM 2.47 for a discount of around 20%. Apparently the fund manager could not find enough value and decided to raise cash levels to 50%. If the fund had decided to discontinue and return back the money to shareholders, surely share holders would have been in a much better situation than currently (the share price is now RM 2.18).
iCapital continues to harp on its performance since its IPO. But which percentage of the shares is actually still held by the same persons who bought them at the IPO? If people bought their shares say 1, 3 or 5 years ago, would they not be interested in the performance over that period, instead of the performance since IPO? The performance over those intervals are simply disappointing.
Another puzzling comment is the following:
There is absolutely no need to seek for viable options to address the discount, they have been conveniently listed in iCapitals IPO brochure, as described in my previous posting:
Another issue is that there seems to be an "obsession" with Warren Buffett and Berkshire Hathaway. Rather surprisingly, since Berkshire Hathaway is a US based fund (and thus accounted in USD, a currency that has performed very strongly relative to all currencies including the RM), investing a lot of money in non-listed companies, and only being interested in large acquisitions while iCapital is focused on Malaysian listed companies (which might include small caps, given its small size).
In other words, if there was ever a comparison between apples and oranges, this would be it.
Another rather interesting issue is that Warren Buffett and Charlie Munger each only charge USD 100K per year in wages, versus USD 1.5 Million (RM 6.4 Million) charged by the fund manager of iCapital, despite Berkshire Hathaway having a market cap of more than a thousand times the market cap of iCapital.
I have no idea where iCapital got these charts from, but they must be completely wrong. One of the best investors in the world has an annual compound return on its NAV of -0.39% over the last ten years?
The reality is very different according to the last year report, despite its huge size it actually was able to book very decent increases in its book value:
Another matter is that Berkshire Hathaway announced the following:
In other words, it might be better to look at the market value of Berkshires shares instead of the (understated, conservative) NAV.
[1] What iCapital should have done (instead of focus on Berkshire Hathaway) is give a clear and correct (that is based on dividends reinvested, it is not giving those at the moment) comparison of iCapitals performance versus similar funds, like the Malaysian ETF or Malaysian equity based unit trusts of reputable fund managers over the last 10, 5, 3 and 1 year periods. That would be comparing apples with apples.
[2] Next to that it should have openly discussed the persistent discount to its NAV, and why it has not taken any of the six measures as described in its IPO brochure. Those measures were listed there for a good reason, to assure potential investors that if there is a persistent discount, then there are measures (and implicitly: those measures will be taken).
[3] And lastly, it should have openly discussed the expenses and fees, which have been simply too rich in the last years given the high cash levels.
I used to have a lot of sympathy for iCapital and its founder Tan Teng Boo, they have been good for Bursa in areas of educating Malaysian investors. But that sympathy is decreasing each year, at least with me.
The two elephants in the room regarding iCapital's share performance are:
- Persistent underperformance relative to its benchmark (KLCI) since 2008
- Persistent discount to its NAV price since 2008
"Underperformance, discount ...... I don't see any ...... do you?"
In the Netherlands this is called "Ostrich Policy": "to ignore obvious dangers or problems and pretend they don't exist; the expression derives from the supposed habit of ostriches to stick their head in the sand rather than face danger".
Lets start with the results for the latest year:
That is really disappointing, given that the funds cash level was a whopping 65% throughout the year. That cash is generating interest of about 3 per cent a year, so one would have thought that the fund would have performed clearly better than the KLCI.
One reason for this is the management fee (including relatively high expenses for advertisements and AGM), the total is about RM 7 Million. That translates to about 1.75% per year, which is not a problem if the fund is fully invested and outperforms. But it is a problem if 2/3rd is held in cash, earning about 3% per year on that cash, of which more than half is eaten away by fees and expenses.
Given the persistent high cash level, the board of directors should renegotiate the management fee, for instance a lower fee for the cash it is holding (one does not need a degree in rocket science to manage a fixed deposit), and a higher fee for the equity part. However, no indication is found in the year report that this is even considered.
All the outperformance of the fund came in the first few years. The last seven and a half years the fund has underperformed, especially if dividends are accounted for. The combined effects of the underperformance and discount is shown in the red column, showing that the share price has actually decreased since December 31, 2007.
One must therefore put question marks behind the comment by the Chairman:
Also puzzling is the comment regarding "shorter-term options which do not benefit share owners in the longer-term", how is it possible that company decides this for its share holders?
On December 31, 2013 the NAV was around RM 3.10 while the share price was around RM 2.47 for a discount of around 20%. Apparently the fund manager could not find enough value and decided to raise cash levels to 50%. If the fund had decided to discontinue and return back the money to shareholders, surely share holders would have been in a much better situation than currently (the share price is now RM 2.18).
iCapital continues to harp on its performance since its IPO. But which percentage of the shares is actually still held by the same persons who bought them at the IPO? If people bought their shares say 1, 3 or 5 years ago, would they not be interested in the performance over that period, instead of the performance since IPO? The performance over those intervals are simply disappointing.
Another puzzling comment is the following:
There is absolutely no need to seek for viable options to address the discount, they have been conveniently listed in iCapitals IPO brochure, as described in my previous posting:
- Shareholder activism: this is very ironic, given the way the fund and its manager have responded so far on any attempts in this direction (for instance here)
- Share repurchase: in my opinion an excellent way to decrease the discount
- Open ending
- Takeover
- Liquidation: again an excellent way to get away of the discount; after this the investors can decide themselves where they want to invest in
- Managed distribution policy
Another issue is that there seems to be an "obsession" with Warren Buffett and Berkshire Hathaway. Rather surprisingly, since Berkshire Hathaway is a US based fund (and thus accounted in USD, a currency that has performed very strongly relative to all currencies including the RM), investing a lot of money in non-listed companies, and only being interested in large acquisitions while iCapital is focused on Malaysian listed companies (which might include small caps, given its small size).
In other words, if there was ever a comparison between apples and oranges, this would be it.
Another rather interesting issue is that Warren Buffett and Charlie Munger each only charge USD 100K per year in wages, versus USD 1.5 Million (RM 6.4 Million) charged by the fund manager of iCapital, despite Berkshire Hathaway having a market cap of more than a thousand times the market cap of iCapital.
I have no idea where iCapital got these charts from, but they must be completely wrong. One of the best investors in the world has an annual compound return on its NAV of -0.39% over the last ten years?
The reality is very different according to the last year report, despite its huge size it actually was able to book very decent increases in its book value:
Another matter is that Berkshire Hathaway announced the following:
In other words, it might be better to look at the market value of Berkshires shares instead of the (understated, conservative) NAV.
[1] What iCapital should have done (instead of focus on Berkshire Hathaway) is give a clear and correct (that is based on dividends reinvested, it is not giving those at the moment) comparison of iCapitals performance versus similar funds, like the Malaysian ETF or Malaysian equity based unit trusts of reputable fund managers over the last 10, 5, 3 and 1 year periods. That would be comparing apples with apples.
[2] Next to that it should have openly discussed the persistent discount to its NAV, and why it has not taken any of the six measures as described in its IPO brochure. Those measures were listed there for a good reason, to assure potential investors that if there is a persistent discount, then there are measures (and implicitly: those measures will be taken).
[3] And lastly, it should have openly discussed the expenses and fees, which have been simply too rich in the last years given the high cash levels.
I used to have a lot of sympathy for iCapital and its founder Tan Teng Boo, they have been good for Bursa in areas of educating Malaysian investors. But that sympathy is decreasing each year, at least with me.
Sunday, 19 July 2015
Xidelang: worrying warrants
I wrote before about Xidelang's previous warrant issue.
Xidelang issued a new warrant, XDL-WC. The motivation:
The first two are of course blatant nonsense, since all shareholders receive the same deal there is no reward for any specific shareholder.
And if all shareholders exercise their warrants, then they all have more shares, but in percentage of course still exactly the same.
Let's put it differently: Warren Buffett has managed Berkshire Hathaway for 50 years, increasing the share price from around USD 20 to around USD 200,000, a ten thousand fold increase. He did this without ever issuing warrants (or bonus shares or rights shares or any other instrument).
Can Warren Buffett be accused of not having rewarded its shareholders by not issuing truckloads of warrants?
Xidelang IPO-ed on Bursa in 2009, and the share price is still lower than its IPO price. Just to put things in perspective.
Would it not be better if Xidelang would simply mend its business, instead of bothering with the attempts at financial engineering through issuing all kind of instruments?
The third and fourth reason mentioned above are potentially "dangerous", some companies who issue warrants count on the money to come in from the exercise, but when the shares suddenly go down no warrant is exercised and the company runs into financial troubles.
The Edge Malaysia (edition July 20, 2015) published a article "Why, Xidelang?" in which it wrote that Xidelang has not adjusted the exercise price of the previous warrant of Xidelang, XDL-WB, which was issued last year, leaving it at 35 sen against the mother share of 16 sen.
The Edge writes: "as of the end April 30, none of the directors surface as the 30 largest holders of XDL-WB. Could this be the reason for the nonchalance?".
This sounds outright unfair for the holders of those WB warrants.
And strangely enough, it seems to be allowed according to the rules.
I wrote a few times about the horrific treatment warrant holders get for instance at a delisting exercise (here and here).
For minority investors in shares the environment on Bursa is already difficult enough from a corporate governance point of view. So often the big guys win.
But for investors in warrants things appear to be much worse, they don't have much rights at all.
That bags the question: is the public properly informed of this, is there a label attached to warrants warning potential investors about the lack of rights that they will have?
If the rights of warrant holders are so minimal, why can Bursa not simply do away with them? These financial instruments are simply not needed. Abolishing them will not negatively impact the Malaysian economy in any way, shape or form. If there is any impact, it would be (slightly) positive.
Wishing all Muslim readers:
Xidelang issued a new warrant, XDL-WC. The motivation:
The first two are of course blatant nonsense, since all shareholders receive the same deal there is no reward for any specific shareholder.
And if all shareholders exercise their warrants, then they all have more shares, but in percentage of course still exactly the same.
Let's put it differently: Warren Buffett has managed Berkshire Hathaway for 50 years, increasing the share price from around USD 20 to around USD 200,000, a ten thousand fold increase. He did this without ever issuing warrants (or bonus shares or rights shares or any other instrument).
Can Warren Buffett be accused of not having rewarded its shareholders by not issuing truckloads of warrants?
Xidelang IPO-ed on Bursa in 2009, and the share price is still lower than its IPO price. Just to put things in perspective.
Would it not be better if Xidelang would simply mend its business, instead of bothering with the attempts at financial engineering through issuing all kind of instruments?
The third and fourth reason mentioned above are potentially "dangerous", some companies who issue warrants count on the money to come in from the exercise, but when the shares suddenly go down no warrant is exercised and the company runs into financial troubles.
The Edge Malaysia (edition July 20, 2015) published a article "Why, Xidelang?" in which it wrote that Xidelang has not adjusted the exercise price of the previous warrant of Xidelang, XDL-WB, which was issued last year, leaving it at 35 sen against the mother share of 16 sen.
The Edge writes: "as of the end April 30, none of the directors surface as the 30 largest holders of XDL-WB. Could this be the reason for the nonchalance?".
This sounds outright unfair for the holders of those WB warrants.
And strangely enough, it seems to be allowed according to the rules.
I wrote a few times about the horrific treatment warrant holders get for instance at a delisting exercise (here and here).
For minority investors in shares the environment on Bursa is already difficult enough from a corporate governance point of view. So often the big guys win.
But for investors in warrants things appear to be much worse, they don't have much rights at all.
That bags the question: is the public properly informed of this, is there a label attached to warrants warning potential investors about the lack of rights that they will have?
If the rights of warrant holders are so minimal, why can Bursa not simply do away with them? These financial instruments are simply not needed. Abolishing them will not negatively impact the Malaysian economy in any way, shape or form. If there is any impact, it would be (slightly) positive.
Wishing all Muslim readers:
Tuesday, 23 June 2015
GMT on AirAsia: "New Dog, Old Tricks" (2)
AirAsia has responded, from The Star:
AirAsia rebuts claims it condones "accounting gimmicks"
AirAsia believes that consolidating its associate companies would reflect its actual performance and financial position. However, it is not allowed to have legal control or legal power over its associate companies. This is due to aviation regulations in Indonesia, the Philippines, Thailand and India. “Power in practice is, however, not legal control,” it said. It added that any change in its relationship with the associate companies, that gives AirAsia legal control, would result in a loss of the associates’ airline operating licences.
That might be true from a legal point of view, but what would prevent AirAsia to present its consolidated numbers anyhow, in an added commentary?
I would like to refer to the Owner's Manual from Berkshire Hathaway, paragraph 6:
We attempt to offset the shortcomings of conventional accounting by regularly reporting "look-through" earnings (though, for special and nonrecurring reasons, we occasionally omit them). The look-through numbers include Berkshire's own reported operating earnings, excluding capital gains and purchase-accounting adjustments (an explanation of which occurs later in this message) plus Berkshire's share of the undistributed earnings of our major investees - amounts that are not included in Berkshire's figures under conventional accounting. From these undistributed earnings of our investees we subtract the tax we would have owed had the earnings been paid to us as dividends. We also exclude capital gains, purchase-accounting adjustments and extraordinary charges or credits from the investee numbers.
In AirAsia's case, the share of earnings of its investees would be hugely negative for the past years. Including them in "look-through" earnings would have given a more realistic picture of its performance.
AirAsia rebuts claims it condones "accounting gimmicks"
AirAsia believes that consolidating its associate companies would reflect its actual performance and financial position. However, it is not allowed to have legal control or legal power over its associate companies. This is due to aviation regulations in Indonesia, the Philippines, Thailand and India. “Power in practice is, however, not legal control,” it said. It added that any change in its relationship with the associate companies, that gives AirAsia legal control, would result in a loss of the associates’ airline operating licences.
That might be true from a legal point of view, but what would prevent AirAsia to present its consolidated numbers anyhow, in an added commentary?
I would like to refer to the Owner's Manual from Berkshire Hathaway, paragraph 6:
We attempt to offset the shortcomings of conventional accounting by regularly reporting "look-through" earnings (though, for special and nonrecurring reasons, we occasionally omit them). The look-through numbers include Berkshire's own reported operating earnings, excluding capital gains and purchase-accounting adjustments (an explanation of which occurs later in this message) plus Berkshire's share of the undistributed earnings of our major investees - amounts that are not included in Berkshire's figures under conventional accounting. From these undistributed earnings of our investees we subtract the tax we would have owed had the earnings been paid to us as dividends. We also exclude capital gains, purchase-accounting adjustments and extraordinary charges or credits from the investee numbers.
In AirAsia's case, the share of earnings of its investees would be hugely negative for the past years. Including them in "look-through" earnings would have given a more realistic picture of its performance.
Sunday, 24 May 2015
Maybulk: large paperlosses on its investment in POSH (3)
Maybulk published its 2014 year report. Two excerpts, the first from the Chairman:
And from the CEO:
"Yielded satisfactory returns", "continues to contribute positively", that sounds all very good.
This is in rather stark contrast to what I wrote before (here and here) about the hundreds of millions of paper losses that Maybulk should book on its investments.
Was I wrong? Unfortunately, I was not.
"Hidden" deep in the report, somewhere in the notes on page 66 we find the following:
So Maybulk is indeed sitting on a huge paper loss of about RM 780 Million, according to market value!
However, while Buffett marks to market the Berkshire Hathaway accounts for 50 years, Maybulk decided not to write the investment down. Apparently they think they know things better than Buffett.
The reasoning can be found here:
Based on price-to-book ratio?
Firstly, they haven't bothered to substantiate the reasoning by numbers, what is the price-to-book, how are other companies in the same industry valued to their book value? Disappointing, since we are talking about a RM 780 Million difference, not exactly peanuts.
Secondly, POSH is indeed trading at a discount to it's book value, but only a discount of 30%. If we correct for that factor, then the valuation still doesn't even come close to the RM 1.3 Billion for which it is valued in the books.
Thirdly, POSH has USD 295 Million of intangibles on its balance sheet, due to take overs it made in the "goldilocks" period before the global financial crisis.
I think it is questionable that those intangibles should still remain on the books, branding wise (under the POSH name), asset wise (some ships have been sold, new ships have been bought) or employee wise (some will have moved on, new ones have been hired). I think the intangibles should have been written down to zero by now.
If POSH is indeed overstating its balance sheet (by not writing down its intangibles), then that will result in low ratio's of profitability (earnings compared to assets and equity), and that seems indeed to be the case:
Although 2014 was a difficult year for the industry, 2011 until 2013 were fine, and the ratio's should have been clearly higher. These are really low indicators, they might even be lower than the cost to borrow funds, which doesn't make sense. Why borrow money to buy assets that yield less than the interest rate to be paid?
In other words:
Maybulk's year report is very disappointing in that is does not want to face reality, although it was expected:
"Will the 2014 year report give more information on this subject? I doubt it, but hope to stand corrected."
It is the first year report after the IPO of POSH, the first time an objective (market) value is available for it's huge investment.
Nowhere in the report is the decline in price of POSH quantified (for the benefit of the readers of this blog: it is 59% down compared to its IPO price). Nowhere in the management discussion it is mentioned that the market value of it's investment has occurred huge paper losses.
This is important, since the investment is for a large part held for 6.5 years, that is rather long.
But also, Maybulk could have sold the shares in POSH for a profit a bit more than one year ago, but it decided not to do that and even to add further to the position at the IPO price, which looks like a very expensive mistake.
What was started in 2008 through a RPT has led to a huge destruction of capital, at a moment when there was in fact a huge opportunity. Not many companies had the luxury to sit on top of RM 1 Billion cash in the middle of the global crisis. Now the company is sitting on a large paper loss while having a net debt position, and has cut it's dividend to a measly 1ct.
The AGM will be held on May 27, 2015.
And from the CEO:
"Yielded satisfactory returns", "continues to contribute positively", that sounds all very good.
This is in rather stark contrast to what I wrote before (here and here) about the hundreds of millions of paper losses that Maybulk should book on its investments.
Was I wrong? Unfortunately, I was not.
"Hidden" deep in the report, somewhere in the notes on page 66 we find the following:
So Maybulk is indeed sitting on a huge paper loss of about RM 780 Million, according to market value!
However, while Buffett marks to market the Berkshire Hathaway accounts for 50 years, Maybulk decided not to write the investment down. Apparently they think they know things better than Buffett.
The reasoning can be found here:
Based on price-to-book ratio?
Firstly, they haven't bothered to substantiate the reasoning by numbers, what is the price-to-book, how are other companies in the same industry valued to their book value? Disappointing, since we are talking about a RM 780 Million difference, not exactly peanuts.
Secondly, POSH is indeed trading at a discount to it's book value, but only a discount of 30%. If we correct for that factor, then the valuation still doesn't even come close to the RM 1.3 Billion for which it is valued in the books.
Thirdly, POSH has USD 295 Million of intangibles on its balance sheet, due to take overs it made in the "goldilocks" period before the global financial crisis.
I think it is questionable that those intangibles should still remain on the books, branding wise (under the POSH name), asset wise (some ships have been sold, new ships have been bought) or employee wise (some will have moved on, new ones have been hired). I think the intangibles should have been written down to zero by now.
If POSH is indeed overstating its balance sheet (by not writing down its intangibles), then that will result in low ratio's of profitability (earnings compared to assets and equity), and that seems indeed to be the case:
Although 2014 was a difficult year for the industry, 2011 until 2013 were fine, and the ratio's should have been clearly higher. These are really low indicators, they might even be lower than the cost to borrow funds, which doesn't make sense. Why borrow money to buy assets that yield less than the interest rate to be paid?
In other words:
- POSH should write down its intangibles, which will decrease its book value
- Maybulk should impair it's investment in POSH, it should have marked to market it's investment.
Maybulk's year report is very disappointing in that is does not want to face reality, although it was expected:
"Will the 2014 year report give more information on this subject? I doubt it, but hope to stand corrected."
It is the first year report after the IPO of POSH, the first time an objective (market) value is available for it's huge investment.
Nowhere in the report is the decline in price of POSH quantified (for the benefit of the readers of this blog: it is 59% down compared to its IPO price). Nowhere in the management discussion it is mentioned that the market value of it's investment has occurred huge paper losses.
This is important, since the investment is for a large part held for 6.5 years, that is rather long.
But also, Maybulk could have sold the shares in POSH for a profit a bit more than one year ago, but it decided not to do that and even to add further to the position at the IPO price, which looks like a very expensive mistake.
What was started in 2008 through a RPT has led to a huge destruction of capital, at a moment when there was in fact a huge opportunity. Not many companies had the luxury to sit on top of RM 1 Billion cash in the middle of the global crisis. Now the company is sitting on a large paper loss while having a net debt position, and has cut it's dividend to a measly 1ct.
The AGM will be held on May 27, 2015.
Sunday, 1 March 2015
Berkshire Hathaway: 50 years of Value Investing
Berkshire Hathaway, the conglomerate managed by Warren Buffett and Charlie Munger, published its much anticipated 2014 year report. It is the 50th since Buffett took control of the company. A true monument of value investing.
At the end of the day, the only thing that counts is the long term returns, and they are extremely impressive:
Berkshire Hathaway always uses "marked to market" for listed securities despite their limitations, Maybulk and Noble might want to take note:
It is the hallmark of the great manager to admit mistakes, Buffett does not try to hide the mistake he made regarding Tesco, about which I wrote here and here.
The last three sentences are a proof of the amazing stock picking abilities of Buffett and Munger.
Reviews about the year report can be found at Fortune, Forbes and The New York Times.
At the end of the day, the only thing that counts is the long term returns, and they are extremely impressive:
Berkshire Hathaway always uses "marked to market" for listed securities despite their limitations, Maybulk and Noble might want to take note:
It is the hallmark of the great manager to admit mistakes, Buffett does not try to hide the mistake he made regarding Tesco, about which I wrote here and here.
The last three sentences are a proof of the amazing stock picking abilities of Buffett and Munger.
Reviews about the year report can be found at Fortune, Forbes and The New York Times.
Friday, 15 August 2014
Berkshire 200K, German 10 year bonds below 1%
CNBC reports:
"For the first time ever, a Class A share of Berkshire Hathaway will cost you more than $200,000. That's just one share for the price of a nice 6-bedroom, 4-bath house in Omaha."
While many companies use stock splits to keep their per-share price under $1000, or even below $100, Warren Buffett isn't a fan of that manuever because he thinks it encourages short-term trading rather than long-term ownership.
As a result, Berkshire's Class A has, by far, the largest dollar price per share for any stock trading in the U.S.
Bloomberg reports:
"Germany’s 10-year yields fell one basis point, or 0.01 percentage point, to 1.02 percent at 4:14 p.m. London time after touching 0.998 percent, the least since Bloomberg began tracking the data in 1989."
"Germany’s five-year rates dropped to an all-time low 0.203 percent while the two-year note yield reached minus 0.01 percent, the lowest level since May 2013. A negative yield means investors who hold a security until it matures will receive less than they paid to buy it."
We live in strange times. The global central banks (FED and the like) can be satisfied.
But what negative effects will all this have in the long run? Yield hungry investors are searching for some returns above the meagre interest rates they receive on their fixed deposits, creators of pyramid (and other fraudulent) schemes are having a great time, their business is booming.
"For the first time ever, a Class A share of Berkshire Hathaway will cost you more than $200,000. That's just one share for the price of a nice 6-bedroom, 4-bath house in Omaha."
While many companies use stock splits to keep their per-share price under $1000, or even below $100, Warren Buffett isn't a fan of that manuever because he thinks it encourages short-term trading rather than long-term ownership.
As a result, Berkshire's Class A has, by far, the largest dollar price per share for any stock trading in the U.S.
Bloomberg reports:
"Germany’s 10-year yields fell one basis point, or 0.01 percentage point, to 1.02 percent at 4:14 p.m. London time after touching 0.998 percent, the least since Bloomberg began tracking the data in 1989."
"Germany’s five-year rates dropped to an all-time low 0.203 percent while the two-year note yield reached minus 0.01 percent, the lowest level since May 2013. A negative yield means investors who hold a security until it matures will receive less than they paid to buy it."
We live in strange times. The global central banks (FED and the like) can be satisfied.
But what negative effects will all this have in the long run? Yield hungry investors are searching for some returns above the meagre interest rates they receive on their fixed deposits, creators of pyramid (and other fraudulent) schemes are having a great time, their business is booming.
Wednesday, 21 May 2014
AirAsia profit up 33%? And why does it need derivatives?
Many news sites reported about the good numbers of AirAsia, for instance Business Times / New Straits Times:
AirAsia profit up 33.3pc
BRIGHT SKY: Carrier earns RM139.7m in first quarter on flat revenue of RM1.3b
LOW-cost carrier AirAsia Bhd’s net profit for the first quarter ended March 31 2014 rose 33.3 per cent to RM139.71 million from RM104.79 million registered in the corresponding quarter last year.
....
“(I am) very pleased with what we have achieved despite (the) turmoil in (the) industry. Well done all stars. The future is bright,” AirAsia group chief executive officer Tan Sri Tony Fernandes posted in his tweet yesterday afternoon before the company’s results announcement.
That sounds all very optimistic.
But if we analyse the bare numbers, then a very different picture appears:
1st quarter results 2014 2013
Revenue 1302M 1300M
Operating Profit 224M 251M
Net finance -97M -86M
Net Operating Profit 127M 165M
Foreign Exchange gain 7M -33M
PBT 134M 132M
Taxation -3M -4M
Deferred Taxation 9M -23M
PAT 140M 105M
From the above we can easily see that operationally the result in 2014 was much worse than in 2013: minus 23%.
Only because of a foreign exchange loss in 2013 and the difference in Deferred taxation does the PAT suddenly grow by 33%.
Frequent readers of this blog will know that I don't like the aggressive accounting of AirAsia by using deferred taxation (I like it even less in the case of AirAsia X). Good companies should account in a conservative way, in my opinion.
But there is something else in the accounts that worries me much more:
AirAsia has burned their fingers in the paste with derivatives in oil, why do they need such large contracts regarding interest rates and foreign currencies, almost RM 7 Billion in Notional Value?
This is from their 2008 results, losses of more than RM 1 Billion on derivatives:
Warren Buffett wrote in the 2002 annual letter to the shareholders of Berkshire Hathaway:
AirAsia profit up 33.3pc
BRIGHT SKY: Carrier earns RM139.7m in first quarter on flat revenue of RM1.3b
LOW-cost carrier AirAsia Bhd’s net profit for the first quarter ended March 31 2014 rose 33.3 per cent to RM139.71 million from RM104.79 million registered in the corresponding quarter last year.
....
“(I am) very pleased with what we have achieved despite (the) turmoil in (the) industry. Well done all stars. The future is bright,” AirAsia group chief executive officer Tan Sri Tony Fernandes posted in his tweet yesterday afternoon before the company’s results announcement.
That sounds all very optimistic.
But if we analyse the bare numbers, then a very different picture appears:
1st quarter results 2014 2013
Revenue 1302M 1300M
Operating Profit 224M 251M
Net finance -97M -86M
Net Operating Profit 127M 165M
Foreign Exchange gain 7M -33M
PBT 134M 132M
Taxation -3M -4M
Deferred Taxation 9M -23M
PAT 140M 105M
From the above we can easily see that operationally the result in 2014 was much worse than in 2013: minus 23%.
Only because of a foreign exchange loss in 2013 and the difference in Deferred taxation does the PAT suddenly grow by 33%.
Frequent readers of this blog will know that I don't like the aggressive accounting of AirAsia by using deferred taxation (I like it even less in the case of AirAsia X). Good companies should account in a conservative way, in my opinion.
But there is something else in the accounts that worries me much more:
AirAsia has burned their fingers in the paste with derivatives in oil, why do they need such large contracts regarding interest rates and foreign currencies, almost RM 7 Billion in Notional Value?
This is from their 2008 results, losses of more than RM 1 Billion on derivatives:
Warren Buffett wrote in the 2002 annual letter to the shareholders of Berkshire Hathaway:
Tuesday, 6 August 2013
Weekly roundup
Several interesting articles in Singaporean newspapers:
[1] Article about Claire Barnes and the Apollo fund managed by her, one of the best performing funds in Asia. Warren Buffett often warned investors in Berkshire Hathaway that the performance of the previous years would not be able to sustain. This humility is typical of good fund managers and Claire Barnes is no exception, she explains the stellar performance of her fund for a good part on the initial years which coincided with the Asian crisis, when some unbelievable bargains were available. Peter Lynch was a successful fund manager for Fidelity, but he was very much disappointed once he found out that investors on average had actually lost money in his fund. The reason was that much more money was invested when the index had gone up a lot, and money was withdrawn when the index had gone down a lot. The Apollo Fund has closed on occasions, when Claire Barnes had problems finding value. This seems to make perfect sense.
[2] Article about AirAsia X CEO Azran Osman Rani and his entrepreneurial background. Great story, also touching on his twitter against racism. I have issues with Corporate Governance in both AirAsia and AirAsia X and have written several times about them, but I do admire the people who run these businesses.
[3] Article about BFM 89.9 founder and CEO Malek Ali and his entrepreneurial journey, another great story. However, also a less great paragraph, Malek was summoned to Malaysia's Communications & Multimedia Commission (MCMC) where he had to explain why his radiostation invited someone from the Economist Intelligence Unit (EIU) to discuss its Global Democracy Index. More about this index can be found here and here. Malaysia was classified as a "flawed democracy", which is less bad than it sounds, it means Malaysia is in the 2nd category out of 4, and ranked 71st out of 167 countries. Apparently the results from the EIU were deemed to be not favourable enough for the powers that be, hence the need to call Malek, a very worrisome development.
[4] Article in The Business Times about the important role that short sellers play in governance, highlighting the case of China Metals Recycling (CMR), which is the latest China company to come under official scrutiny amid allegations involving inflated accounts:
"What's interesting from a markets and governance perspective is that the allegations about CMR's finances first surfaced in January when US short-selling firm Glaucus Research Group published a report recommending a "strong sell" because, among various reasons, CMR's claim (on its website) that it is China's largest scrap metal recycler was a "lie" and that "many of the company's key financial and operational metrics deviate so significantly from other scrap metal recyclers that its reported performance defies credibility".
"Those which act responsibly like Glaucus by providing full disclosure can complement regulatory efforts and should be viewed as an important component of the governance framework."
[5] Everything was going nicely with MISC, minority investors rejected the low offer from PETRONAS (a nice and rather rare victory for shareholder activism in Malaysia) and the share recovered to a price that was higher than the offer price (again, indicating that the offer was really not sufficient). But things have changed quickly, PETRONAS wants to ship the liquid gas themselves. With PETRONAS controlling MISC (whose main source of input is the transport of liquid gas), a clear conflict of interest situation will be created. I hope that PETRONAS will reconsider their plans, this new development doesn't sound like a good idea at all. KiniBiz's "Tiger" asked the following pertinent questions:
• Is it Petronas’ intention to deliberately undermine MISC’s prospects so that the price can be depressed for another future takeover offer by Petronas?
• If it is, is it the right way for Petronas to behave as a national oil corporation which has or should have high standards of corporate governance?
• Is this what we can expect from Petronas in terms of its other listed subsidiaries — go to the market, get investors, try and privatise for a low price and if that fails, deliberately sabotage that listed company so as to mount another takeover on it?
• Is this an act of vengeance that the misguided management is trying to impose on minority shareholders for rejecting the offer, even if the move will ultimately undermine and perhaps even destroy its very own subsidiary?
[6] My article "Maemode: accurate predictions by Ze Moola, but why did nobody notice?" received quite a lot of web traffic. I uncovered some more issues and hope to revisit this subject in the future in more detail.
[7] There has been speculation in the press of an IPO of POSH Semco, a subsidiary of POSH in which Maybulk has invested close to RM 1 Billion. I don't like to react on speculation (which has been proven so often to be wrong), I just like to point out that POSH itself (the mother company of POSH Semco) was supposed to be listed within 5 years, a term that will expire before the end of this year. Also, there is still a put option by Maybulk to sell back their stake in POSH at a premium of 25% to their purchase price. I have written many times about the extremely pricey purchase of POSH by Maybulk during the depth of the global crisis, especially regarding the questionable valuation report and the biased independent report. I hope that the minority investors are given the right to decide if the put option will be exercised or not, and that the majority investors will abstain from voting, although I doubt this will actually happen.
[8] And lastly some good news reports KiniBiz, which can be seen as another victory for shareholder activism in Malaysia:
"Final ‘voluntary termination’ payments were issued today in a media conference called by the management company of the beleaguered Country Heights Grower Scheme.....
Today’s payment by the management company of the scheme, Plentiful Gold-Class to CIMB Commerce Trustee comprised a 90% capital refund of RM182.9 million, unclaimed monies with regard to the first 10% capital refund and a goodwill payment of RM25 million by Lee Kim Yew, the founder and head of the Country Heights Grower Scheme."
[1] Article about Claire Barnes and the Apollo fund managed by her, one of the best performing funds in Asia. Warren Buffett often warned investors in Berkshire Hathaway that the performance of the previous years would not be able to sustain. This humility is typical of good fund managers and Claire Barnes is no exception, she explains the stellar performance of her fund for a good part on the initial years which coincided with the Asian crisis, when some unbelievable bargains were available. Peter Lynch was a successful fund manager for Fidelity, but he was very much disappointed once he found out that investors on average had actually lost money in his fund. The reason was that much more money was invested when the index had gone up a lot, and money was withdrawn when the index had gone down a lot. The Apollo Fund has closed on occasions, when Claire Barnes had problems finding value. This seems to make perfect sense.
[2] Article about AirAsia X CEO Azran Osman Rani and his entrepreneurial background. Great story, also touching on his twitter against racism. I have issues with Corporate Governance in both AirAsia and AirAsia X and have written several times about them, but I do admire the people who run these businesses.
[3] Article about BFM 89.9 founder and CEO Malek Ali and his entrepreneurial journey, another great story. However, also a less great paragraph, Malek was summoned to Malaysia's Communications & Multimedia Commission (MCMC) where he had to explain why his radiostation invited someone from the Economist Intelligence Unit (EIU) to discuss its Global Democracy Index. More about this index can be found here and here. Malaysia was classified as a "flawed democracy", which is less bad than it sounds, it means Malaysia is in the 2nd category out of 4, and ranked 71st out of 167 countries. Apparently the results from the EIU were deemed to be not favourable enough for the powers that be, hence the need to call Malek, a very worrisome development.
[4] Article in The Business Times about the important role that short sellers play in governance, highlighting the case of China Metals Recycling (CMR), which is the latest China company to come under official scrutiny amid allegations involving inflated accounts:
"What's interesting from a markets and governance perspective is that the allegations about CMR's finances first surfaced in January when US short-selling firm Glaucus Research Group published a report recommending a "strong sell" because, among various reasons, CMR's claim (on its website) that it is China's largest scrap metal recycler was a "lie" and that "many of the company's key financial and operational metrics deviate so significantly from other scrap metal recyclers that its reported performance defies credibility".
"Those which act responsibly like Glaucus by providing full disclosure can complement regulatory efforts and should be viewed as an important component of the governance framework."
[5] Everything was going nicely with MISC, minority investors rejected the low offer from PETRONAS (a nice and rather rare victory for shareholder activism in Malaysia) and the share recovered to a price that was higher than the offer price (again, indicating that the offer was really not sufficient). But things have changed quickly, PETRONAS wants to ship the liquid gas themselves. With PETRONAS controlling MISC (whose main source of input is the transport of liquid gas), a clear conflict of interest situation will be created. I hope that PETRONAS will reconsider their plans, this new development doesn't sound like a good idea at all. KiniBiz's "Tiger" asked the following pertinent questions:
• Is it Petronas’ intention to deliberately undermine MISC’s prospects so that the price can be depressed for another future takeover offer by Petronas?
• If it is, is it the right way for Petronas to behave as a national oil corporation which has or should have high standards of corporate governance?
• Is this what we can expect from Petronas in terms of its other listed subsidiaries — go to the market, get investors, try and privatise for a low price and if that fails, deliberately sabotage that listed company so as to mount another takeover on it?
• Is this an act of vengeance that the misguided management is trying to impose on minority shareholders for rejecting the offer, even if the move will ultimately undermine and perhaps even destroy its very own subsidiary?
[6] My article "Maemode: accurate predictions by Ze Moola, but why did nobody notice?" received quite a lot of web traffic. I uncovered some more issues and hope to revisit this subject in the future in more detail.
[7] There has been speculation in the press of an IPO of POSH Semco, a subsidiary of POSH in which Maybulk has invested close to RM 1 Billion. I don't like to react on speculation (which has been proven so often to be wrong), I just like to point out that POSH itself (the mother company of POSH Semco) was supposed to be listed within 5 years, a term that will expire before the end of this year. Also, there is still a put option by Maybulk to sell back their stake in POSH at a premium of 25% to their purchase price. I have written many times about the extremely pricey purchase of POSH by Maybulk during the depth of the global crisis, especially regarding the questionable valuation report and the biased independent report. I hope that the minority investors are given the right to decide if the put option will be exercised or not, and that the majority investors will abstain from voting, although I doubt this will actually happen.
[8] And lastly some good news reports KiniBiz, which can be seen as another victory for shareholder activism in Malaysia:
"Final ‘voluntary termination’ payments were issued today in a media conference called by the management company of the beleaguered Country Heights Grower Scheme.....
Today’s payment by the management company of the scheme, Plentiful Gold-Class to CIMB Commerce Trustee comprised a 90% capital refund of RM182.9 million, unclaimed monies with regard to the first 10% capital refund and a goodwill payment of RM25 million by Lee Kim Yew, the founder and head of the Country Heights Grower Scheme."
Sunday, 30 June 2013
Irish banks abusing state guarantee
Bank bailouts are a terrible moral hazard: "Heads I win, Tail you lose".
In Ireland the economy is doing really badly, partly by the 2008/2009 crisis and the subsequent bank bailouts, to be paid by the taxpayers. Details are emerging that are not exactly pretty, from an article of The Irish Times:
David Drumm, former chief executive of Anglo Irish Bank, laughed at the prospect of abusing the State guarantee, the latest revelations from tapes reveal.
The victims? The ordinary people, as usual:
Mr Gilmore said that the decision cost the Irish people billions of euro. “I think we need to get to the bottom of how the decisions were made and what was behind them.”
I often complain about the slow enforcement in Malaysia, but Ireland is also not exactly quick in taking actions either.
The chairman of the Oireachtas Finance Committee Ciaran Lynch said the latest disclosures were proof-positive that an inquiry into the banking collapse was urgently required.
Urgently? After five whole years?
Even Warren Buffett invested in two Irish banks just before the crisis, although not in the Anglo Irish Bank. He is, apparently, human after all. The good thing is, he did acknowledge his mistake.
For more background on the Irish crisis, a long but very interesting article by Michael Lewis: "When Irish Eyes Are Crying"
In Ireland the economy is doing really badly, partly by the 2008/2009 crisis and the subsequent bank bailouts, to be paid by the taxpayers. Details are emerging that are not exactly pretty, from an article of The Irish Times:
David Drumm, former chief executive of Anglo Irish Bank, laughed at the prospect of abusing the State guarantee, the latest revelations from tapes reveal.
“We won’t do anything blatant, but . . . we have to get the money in . . . get the f***in’ money in, get it in,” he tells a senior manager at the bank, John Bowe.
In another recording, Mr Bowe and another senior executive at the bank, Peter Fitzgerald, are heard laughing about the prospects of nationalisation. They see it as “fantastic” and are delighted at the prospect of becoming civil servants.
The victims? The ordinary people, as usual:
Mr Gilmore said that the decision cost the Irish people billions of euro. “I think we need to get to the bottom of how the decisions were made and what was behind them.”
I often complain about the slow enforcement in Malaysia, but Ireland is also not exactly quick in taking actions either.
The chairman of the Oireachtas Finance Committee Ciaran Lynch said the latest disclosures were proof-positive that an inquiry into the banking collapse was urgently required.
Urgently? After five whole years?
Even Warren Buffett invested in two Irish banks just before the crisis, although not in the Anglo Irish Bank. He is, apparently, human after all. The good thing is, he did acknowledge his mistake.
For more background on the Irish crisis, a long but very interesting article by Michael Lewis: "When Irish Eyes Are Crying"
Saturday, 2 March 2013
Berkshire Hathaway's year report 2012
There are two events important for followers of Berkshire Hathaway (BH), Warren Buffett and Charlie Munger:
The report is very basic, no photo's, no fancy colour schemes, and the first page immediately gets down to business: the performance of the book value per share of Berkshire Hathaway versus the S&P 500.
The compounded annual gain of BH from 1965 to 2012 is 19.7% per year, the overall gain is a whopping 586,817%! Outstanding numbers.
But the outperformance versus the S&P 500 has significantly come down:
The numbers for the S&P 500 are also quite good, 9.4% per year, overall 7,433%. Yes, people who invested in US stocks over the last 4 to 5 decades would have done very well.
I estimate the comparable long-term gains for the Malaysian stock market to be much lower, and that while Malaysia's GDP has been growing much faster than the GDP of the US. A disconnect that I think has to do with the much lower corporate governance.
In plain English: majority shareholders and or management in the US have been more willing to share the spoils with the minority shareholders than in Malaysia.
Higher corporate governance standards and increased enforcement should improve this situation.
- the AGM of BH which will be held May 4, 2013
- the issuing of the yearly shareholder letter, which was done yesterday.
The report is very basic, no photo's, no fancy colour schemes, and the first page immediately gets down to business: the performance of the book value per share of Berkshire Hathaway versus the S&P 500.
The compounded annual gain of BH from 1965 to 2012 is 19.7% per year, the overall gain is a whopping 586,817%! Outstanding numbers.
But the outperformance versus the S&P 500 has significantly come down:
- from 1981 until 1998 BH outperformed the index every single year, often by a wide margin
- from 2004 until 2012 BH underperformed 4 years out of 9 years, and only outperformed the index by a wide margin in one single year (2008)
The numbers for the S&P 500 are also quite good, 9.4% per year, overall 7,433%. Yes, people who invested in US stocks over the last 4 to 5 decades would have done very well.
I estimate the comparable long-term gains for the Malaysian stock market to be much lower, and that while Malaysia's GDP has been growing much faster than the GDP of the US. A disconnect that I think has to do with the much lower corporate governance.
In plain English: majority shareholders and or management in the US have been more willing to share the spoils with the minority shareholders than in Malaysia.
Higher corporate governance standards and increased enforcement should improve this situation.
Sunday, 26 February 2012
Warren Buffett Admits To 5 Big Mistakes
There are two big events each year for Berkshire Hathaway fans, the Annual General Meeting and the publishing of its year report with the accompanying letter of Warren Buffett. The last event happened yesterday and can be found here: here.
It is rather long (21 pages), a selection of the most important quotes can be found here.
Just a single $100 bill invested in Berkshire Hathaway in 1964 would have turned into $513,055, enough to buy a nice house in the US (especially since the recent crash in housing prices). All capital gains, since the company does not pay a dividend.
The good thing about Warren Buffett and Charlie Munger is that they openly admit their mistakes, something that is vey rare in those (and many other) circles:
From: http://www.businessinsider.com/warren-buffett-admits-to-5-big-mistakes-2012-2
It is rather long (21 pages), a selection of the most important quotes can be found here.
Just a single $100 bill invested in Berkshire Hathaway in 1964 would have turned into $513,055, enough to buy a nice house in the US (especially since the recent crash in housing prices). All capital gains, since the company does not pay a dividend.
The good thing about Warren Buffett and Charlie Munger is that they openly admit their mistakes, something that is vey rare in those (and many other) circles:
From: http://www.businessinsider.com/warren-buffett-admits-to-5-big-mistakes-2012-2
Tuesday, 8 November 2011
4 Major Secular Bear Markets, Warren Buffett is buying
"There are three issues worth noting here plus one important caveat:
1. The long 10-20 year secular bear moves seem to have lots of major rallies and sell offs; the ups and downs are intense, but make little in the way of net progress. After 15 years, the average secular bear is essentially unchanged.
2. The roller coaster ride leaves investors psychologically exhausted. They come to forget the good times of so long ago, and believe there is no way out of the morass. Naturally, they are reluctant to believe in the new bull market once it begins.
3. The major bottom seems to occur about halfway through; this implies that the March 2009 lows will not be revisited (note I only wrote IMPLY and not guarantee or forecast!) If we look at the current Bear versus the ’66-’82 (with lows like ’73-’74), it suggest that 8500-9000 on the Dow is possible, but barring another crisis 6500 is much less likely. And it also suggests that the next secular bull might begin around 2016-18.
Now for the caveat: We have but one century of data, and within that 100 year span, only four examples of long term secular bear markets. We really need 500-1000 years of data, 20-40 secular bears during the era of modern capital markets. That would allow us greater confidence that these four patterns aren’t merely coincidences.
See you around 2900 to validate the data . . ."
The good news is that if the above graph is an indication, the secular bear market might soon be over in the US, which has implications for the Global share market as well. But the end of the bear market also might still be a few years away.
Warren Buffett has started to buy in a pretty big way. Getting the timing right is simply impossible, but in general when he buys there is profit to be made, although it might be on the horizon, and there might be moments in the future where shares are cheaper.
Buffett Broadens Portfolio by Spending $23.9 Billion
"Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) invested $23.9 billion in the third quarter, the most in at least 15 years, as he accelerated stock purchases and broadened the portfolio beyond consumer and financial-company holdings."
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