Buffett’s Next Op-Ed Berkshire Hathaway Inc. (BRK.B)

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Buffett’s Next Op-Ed Berkshire Hathaway Inc. (BRK.B)
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During their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed Buffett‘s Next Op-Ed Berkshire Hathaway Inc. (NYSE:BRK.B). Here’s an excerpt from the episode:

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Buffett's Next Op-Ed Berkshire Hathaway Inc. (BRK.B)

Tobias: Buffett wrote the article sort of semi-protesting about the Greenback emissions.

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Jake: Turned into real emissions.

Tobias: It just disappeared that article, like he wrote that and then it just never got– there’s just no kind of follow-up on it. It was funny.

Jake: Yeah, that was a good one, that was worth rereading.

Tobias: Do you remember the name of it?

Jake: Wasn’t it Greenback Emissions, something like that?

Tobias: Could have been.

Jake: That was in the title at least.

Tobias: It must be old now. It must be 10 years old. Something like that. More than that, maybe.

Jake: I feel like we’re long overdue for a Buffett op-ed of some kind.

Tobias: Yeah, he seems to like– one every 10 years. He had one in 2000, calling The Top of the Dotcom Boom. And he had one in, whenever that came out, 2010, something like that. Greenbackd Emissions just seemed to like– I don’t see that quoted a lot. I don’t see that quoted ever.

Jake: Yeah, I want to say that one was ’11 or ’12, maybe. Could be misremembering.

Tobias: That feels a bit right.

Jake: Yeah, we need an update.

Tobias: So, what’s the 2020 version or the 2021 version? What’s on his mind?

Bill: If I were him, I’d just be like, I was sitting there in cash for like five years and then, my opportunity came and then the government just ripped it out from my hands. And now, I’ve got nothing to do.

Tobias: That’s every value guy.

Bill: That will be my op-ed.

Tobias: Is that the Fed front running? Literally not the bailouts?

Bill: Yeah, I mean, everything that he had– maybe his op-ed would be the end of prudence. Why prudence is no longer prudent.

Jake: Junk bonds at 2% yield. That’s hard for him to make money in that world.

Tobias: Did work with Apple.

Bill: Yeah, but you can’t wait for that. I mean, that’s the problem– [crosstalk]

Tobias: What do you mean? That’s literally what he does. Just think about what he’s done.

Bill: He’s underperformed for a while though.

Jake: You can’t not wait for that.

Bill: I don’t think that you can make a go-forward investment strategy waiting for something like Apple and then swinging up big. I don’t think that that’s the smartest decision. I think there’s too much opportunity cost as things run away from you.

Tobias: He sat there for– I don’t know how long since the last acquisition. Is it BNSF, is that the last big one before Apple? Is it as long as that?

Bill: No, he had Precision Castparts, right? Was after BNSF. That was big–

Tobias: Pretty close and it’s still there– [crosstalk]

Bill: It wasn’t that–

Jake: [crosstalk] –recently, that was– But not as big as BNSF, though.

Tobias: It’s literally– he said he regards it as Berkshire’s third big business.

Bill: Yeah.

Tobias: So, every 10 years or so, you get an opportunity to buy a third big business. I don’t know [unintelligible [00:33:25].

Bill: That’s fine. But how much cash is still on the balance sheet?

Tobias: Cycle’s not over yet, brother.

Bill: But my point is he had the shot in March, and it was taken from him. A lot of cash could have come out off the balance sheet, and everybody got bailed out. Maybe I still think that was the right thing to do for society, but I don’t think it was the best thing for him. I mean, if you can no longer be the lender of last resort, why carry all this cash?

Jake: That’s a short-term win for society, but probably long-term loss. We’ve learned nothing, and we’re going to get bigger problems down the line because of it.

Bill: Oh, I think we learned something. I think we learned lever up.

Jake: Well, that’s what I mean.

Tobias: The wrong lesson.

Jake: It’s the wrong lesson.

Bill: But because everybody’s pushed to do it, I think it increases the probability that they try to bail it out again. And then maybe you get a situation where the whole system cracks, that’s possible. But then what good’s your cash?

Tobias: I think what it illustrates– when you look through history, and you see there are all of these dotcom boom, it was pretty all-encompassing. All these other sort of periods of speculation in the market, it’s easy to read about them when you’re reading a paragraph in a book or you’re reading a chapter in a book and that takes half an hour to read and then the thing lasted a year and a half or however long it lasted. Being in it is a completely different thing. I think it’s pretty clear in some kind of speculative boomlet bubble driven by very low interest rates and lots of things going on.

Bill: Inning two.

Tobias: Yeah, there are lots of people out there who’ve got an opposing view, and that’s what makes it so hard. In the dotcom boom, there are lots of people who were just like, “Yeah, this is the way the world is going to be from now on. And if you don’t swing and you miss–

Jake: They were pretty much right.

Tobias: Yeah.

Jake: It took much longer.

Tobias: Yeah.

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

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The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates. It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization. The Acquirer’s Multiple® is calculated as follows: Enterprise Value / Operating Earnings* It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of acquirersmultiple.com. The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT. Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations. Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up. Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC. He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law. Articles written for Seeking Alpha are provided by the team of analysts at acquirersmultiple.com, home of The Acquirer's Multiple Deep Value Stock Screener. All metrics use trailing twelve month or most recent quarter data. * The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”
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