Posts tagged 'Berkshire Hathway'

Buffett derivatives, just ignore the volatility

There’s an old Russian proverb, popularised by Ronald Reagan, which comes up among due diligence types: trust, but verify.

It seems appropriate to keep it in mind when thinking about Berkshire Hathaway, which is a sprawling insurance company and conglomerate indulged by the market largely on the understanding that its charismatic, cunning and greedy-in-a-good-way leader will do the right thing.

Hence our interest in a series of very large derivative contracts written by Warren Buffett between 2004 and 2008, which reveal a willingness to at least work creatively within the confines of fair accounting disclosure. Read more

Buffett gets the better of everyone, version 4,762

We have always admired Warren Buffett’s ability to combine hard headed capitalism with incredible popularity. America’s favourite billionaire and all that.

But in his latest deal to swap shares in Graham Holdings for a Miami TV station, cash and stock, Mr Buffett appears to have come out on top once again, pushing a terrific deal for Berkshire past a board stuffed with serious people. Read more

Buffett Derivatives: back in black

The Berkshire Hathaway annual report released on Saturday is full of information for Buffett watchers, but for those fascinated by the very large put options sold by the great Sage of Omaha, turn straight to page 47.

As of the end of 2013, and as predicted by our good friend Pablo Triana at the Esade Business School, fair value for the put liabilities of $4.7bn is now less than the $4.9bn of premium Berkshire received for writing the options.

Broadly, what that means is Warren could offer to buy back the puts at a small profit. We think it’s unlikely, but it illustrates the underlying reason for writing them in the first place – the use of billions of dollars of capital for several years. Read more

Dig into the mysterious Buffett derivatives

The Sage of Omaha is folksy, down to earth and on the whole entirely open about his philosophy and his approach. But he has also managed a trick almost unheard of in the modern corporate era: he discusses the business he has run for half a century entirely on his own terms.

If you are a investor in Berkshire Hathaway you can read the annual letter to shareholders, you can trek to Omaha to try to ask a question at the annual meeting, and that is it. When Berkshire publishes quarterly results it does so on Friday evenings without commentary beyond the dry notes to the financial statements. Just the numbers and in the name of fairness, the Sage either speaks to all shareholders, or none.

But that does leave some mysteries and Pablo Triana, a Professor at ESADE business School, has followed up his look at how Berkshire’s very large legacy derivatives positions contribute cheap financing, with an examination of what can be inferred about the derivatives contracts themselves. Read more

Warren Buffett, management consultant

The consequence of his incredible success finally caught up with Warren Buffett last year. At its 44th attempt, the S&P 500 finally grew faster than the book value of Berkshire Hathaway over a five year period. Mea culpa is expected in the annual letter to shareholders next month.

What that has prompted is some retreading of the reasons why Berkshire doesn’t pay a dividend. In essence, this empire of insurance, stocks and real businesses has been built on compounding retained earnings. The Sage of Omaha keeps the money because he can invest it better than you. Read more

The Buffett difference, derivatives edition

Actual new information about the great man and his methods is rare indeed. Warren Buffett is the investment equivalent of Churchill, endlessly dissected but forever in the context of a history he wrote himself — the annual letters to the shareholders of Berkshire Hathaway.

However Pablo Triana, Professor at ESADE business School, has shed some new light on the way the Sage has made money when it comes to his large but non mass-destructive portfolio of derivatives. Read more

Buffett buys his local newspaper

Berkshire Hathaway is to buy the local newspaper read by Warren Buffett, in spite of his longstanding view that the press faces a future of dwindling profits. The FT reports Mr Buffett on Wednesday announced the purchase of the Omaha World-Herald Company, which operates several daily and weekly titles across Omaha and south-west Iowa. Berkshire will pay $200m, including the assumption of debt, according to the newspaper. Mr Buffett began warning on the economics of the newspaper industry as early as 1991, but on Wednesday he said the World-Herald “delivers solid profits and is one of the best-run newspapers in America”. The investment follows another recent departure from a longstanding industry view by Mr Buffett, who last month disclosed a 5.5 per cent stake in IBM worth $12bn, his first big investment in a technology sector that he had shunned in the past as too complex and opaque.

Muni bonds unsettled by Lehman move

The Lehman Brothers bankruptcy may be making it cheaper to buy default protection on US municipal bonds, the FT reports. The cost of CDS on “munis” has fallen sharply this year, a sign of a lower perceived risk that US states and cities will struggle to pay their debts. The MCDX, the municipal CDS index, this year has dropped by more than 30 per cent. CDSs on individual states such as California and Texas have fallen more than 40 per cent. But a 2007 deal between Lehman and Warren Buffett was confusing the situation by potentially dumping a large supply on the CDS market. The WSJ notes that while the exact timing of Lehman’s sale is unclear, some traders and investors say the mere prospect of such volume hitting the market has been a factor in driving down swap prices over the past month.

Treasury still set for AIG sale next month

The Treasury still plans to sell $20bn of AIG shares in May, despite the company’s stock falling 25 per cent in the last three months, the FT reports. AIG’s falling stock has reduced the government’s paper profit on its 2008 bailout to $6bn from $24bn in January. Sources familiar with the planned sale said that the Treasury may even sell below its break-even price of $28.73 a share, although the offering’s size would be reduced. AIG is meanwhile busy cleaning itself up for the sale, with asbestos exposure on its books sold to Berkshire Hathaway on Wednesday for a $1.65bn fee, Reuters reports.