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- Manlobbi
Halls of Shrewd'm / US Policy❤
No. of Recommendations: 4
I don't think was posted already. Good Rationalwalk piece, as usual:
The Berkshire Hathaway Playbook
Competition tends to eliminate unusually high profits resulting from business models that have worked spectacularly well for decades.
Will Berkshire's playbook continue to perform well in the future?
https://newsletter.rationalwalk.com/p/the-berkshir...
No. of Recommendations: 19
Competition tends to eliminate unusually high profits resulting from business models that have worked spectacularly well for decades.
Will Berkshire's playbook continue to perform well in the future?
It is an essential character of moats that they have a finite lifespan as a rule.
But Berkshire's model isn't simply buying those companies, it's buying them and using the proceeds from the current collection to buy more. As the old ones fade, new ones are added to the fold. A decade from now it's likely that most of Berkshire's assets will be allocated to things we don't already own, mainly because the money keeps stacking up. So I think the model might have a few more years left in it. There are always some companies earnings outsized returns.
The biggest problem isn't the model, but the limit of how far it can be scaled. There aren't many $100bn cash cows. Oddly enough, Wells Fargo is only one of only 10 companies in my database with market cap over $100bn and trading at under 10 times earnings. Cit is another, and AT&T. The rest are either resources or Chinese, both of which are problematic when trying to forecast the length of time that earnings will be accessible.
Jim
No. of Recommendations: 1
"A decade from now it's likely that most of Berkshire's assets will be allocated to things we don't already own"
Well - we have about $1 Trillion in assets now. Would love for you to be right that in a decade most of the assets will be allocation to things we don't already own!!!
No. of Recommendations: 3
Oddly enough, Wells Fargo is only one of only 10 companies in my database with market cap over $100bn and trading at under 10 times earnings. Cit is another, and AT&T.
Sounds like a hint at what the secret big financial acquisition might be: Wells or Citi.
Ok, let's say it's one of these 2 - which is more likely?
As for Wells, ignoring the last tiny sliver sold in Q1 2022, the prior top-5 position was sold slowly from Q2 2017 to Q1 2019, then a bit fast in Q3/4 2019, and finally more quickly from Q2 2020 to Q1 2021. Here are all the sales (data from Dataroma)
2017
Q2 11.7m
Q3 3.8m
Q4 6.0m
2018
Q1 1.7m
Q2 4.5m
Q3 9.7m
Q4 15.6
2019
Q1 17.0m
Q2 0
Q3 31.4m
Q4 55.2m
2020
Q1 0
Q2 85.6m
Q3 110.2m
Q4 75.0m
2021
Q1 51.7
...
2022
Q1 0.7m and it was gone.
Buffett fans like myself will not be happy to see that the concentrated selling in Q2-3-4 of 2020 almost perfectly nailed the worst prices for Wells in a decade, and that the price has more than doubled since then, substantialy better than ... ahem... BAC or Citi. No matter, water under the bridge, and it would not be like Buffett to prevent himself from buying back a stake in Wells even if it would just emphasize what a mistake it was to sell it in the first place.
So does the comparison go now, between WFC, BAC and C? (And I threw in BAC)
WFC C BAC
P/B: 1.1 0.56 1.0
P/E: 10.8 13.6 11.1
ROE: 10.3% 4.6% 9.4%
ROA: 1.00% 0.39% 0.85%
I would vote for none of the above; I think all of them are stuck with long treasuries way under acquisition cost, and will be unprofitable for a long time. But I guess if I had to guess between WFC and C, as a new acquisition, my guess would be Wells. But I would be curious to hear the opinions of anyone who knows these banks better than I do (and that's a low bar.)
dtb
No. of Recommendations: 6
"Buffett fans like myself will not be happy to see that the concentrated selling in Q2-3-4 of 2020 almost perfectly nailed the worst prices for Wells in a decade, and that the price has more than doubled since then, substantialy better than ... ahem... BAC or Citi. "
The main reason Buffett sold WFC is he didn't like the new leadership, working remotely in NYC rather than in San Francisco, not paying a visit or even a phone call to the largest shareholder, moving away from some traditional businesses (such as mortgage, wealth management) and into investment banking, and blaming all on going problems on previous leaderships and collecting huge paychecks in the meantime.
No. of Recommendations: 10
“I would be curious to hear the opinions of anyone who knows these banks better than I do.”
For what it’s worth, I did inquire about could the “secret” position be WFC to a former bond specialist at a bank (not WFC) in Charlotte who is both a long-term WFC & BRK owner. His comments:
“Maybe, but he has already missed a big run-up in WFC. They still have 8 consent orders out against them and will be Years until all 8 are gone, including the Big one- asset cap.
A good friend of mine works at Wells and deals with all of their issues and says there is no way to know when the asset cap will be lifted. He doesn’t think it will be anytime soon. He said there is so much work left to do- it is close to being overwhelming.
They had 1 consent order terminated last week. They started with 14 and after last week, they are now down to 8. The Big one is the asset cap which will likely be the last one to be terminated, given it is the most penal.”
No. of Recommendations: 6
Sounds like a hint at what the secret big financial acquisition might be: Wells or Citi.
I've seen a lot of speculation online that Berkshire's "secret" 13F omission is Citi. The problem with that guess is that Citi is in the 13F and has not been omitted.
