Buffett Bonanza | The Acquirer's Multiple®

During their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed a Buffett Bonanza. Here’s an excerpt from the episode:

Tobias: Let’s start with Berkshire. It’s normally my topic, but I’m going to hand it off to Bill to give us– Both of you guys have read the filing, so let’s talk about Berkshire. What happened? What’s the big news?

Bill: I mean, I don’t know that I can do it off the top of my head. I can pull it up here. But I mean the 9 billion of buybacks in the last quarter, I think is impressive for a guy that lost it. He hasn’t totally lost it. I thought it was interesting that he ramped the buybacks into September. I don’t know what that tells you sort of about how he’s thinking of the world– [crosstalk]

Tobias: At higher prices. That was interesting. I noticed that the buybacks went up as the price went up.

Bill: Right around here.

Tobias: He’s just pinning it up. Market manipulation.

Bill: [chuckles] Yeah, I’m sure that’s what he cares about it. I was wondering though, I mean, it’s a huge market cap, but I wonder what kind of constraints you even run into if you’re him. When you call your broker and you say, “Let’s do 9 billion of buybacks–.”

[laughs]

Bill: I wonder if somebody’s like, “Okay, how are we going to do that?” Some trader’s got a tall order. But generally, I mean, to look at how that entity has performed through a pandemic, and for it to be an industrial company, and to just see the way that the pieces within the business move, whether it was the first quarter or the second quarter or now the third quarter– Earlier in the year, Geico gave you a little something, now you’re giving back on Geico and maybe you’re giving a little bit up in reinsurance, but they’re underwriting new reinsurance at higher premiums. You’ve got– BNSF is coming back. It’s a beautiful collection of businesses where you have an industrial that free cash flow has increased this year through a pandemic, that’s incredible to me.

Jake: What a life’s work, right?

Bill: Yeah.

Tobias: Anti-fragile.

Jake: So good. Did you see I talked a little bit about a– if you did a long Berkshire short/Apple stub?

Tobias: Yeah, how’d work out?

Jake: Well, I mean, just the math of it is roughly– that leaves call it like 400 billion left over once you back the Apple out and then take another, call it 300 out for cash and securities. That’s probably a little overly aggressive because there’s, call it 20 billion that you need sort of working capital for insurance, but whatever. This is just rough. But that leaves you with like $100 billion to buy basically like the railroad, the energy company, See’s Candy, Geico, like everything. Probably, the railroad’s worth that hundred billion and everything else is free. I mean, that’s a pretty good– That’s not a bad stub there.

Tobias: Good stub. How has that performed? I’m guessing Apple kind of topped out around 1 September or something like that with everything else?

Jake: Well, I think I posted that on Friday. I think it’s up almost 10% as a trade in like two days. But that doesn’t mean anything.

Tobias: What about selling the Apple? Sold $5 billion of Apple like– not material really to its holding, but still that’s $5 billion.

Jake: Yeah, we’ll see.

Bill: And I get it. [laughs] What about it? Maybe Coke taught him something, I don’t know.

Tobias: It hasn’t sold a lot of it though, just 5 billion. What’s the size of the holding there?

Jake: 111.

Tobias: 111. Yeah, 5%. Not much. But I guess it’s not all in or all out, right?

Jake: Never sell to sometimes trim? I don’t know. [crosstalk]

Tobias: I guess, if you get enough of a price, you can sell a little bit.

Bill: It’ll be interesting to see how Apple works from here. I can make an argument that it’s going to be just fine, just given the amount of take that they’re going to have on the App Store. But it’s interesting.

Tobias: We’re talking business or stock price there?

Bill: I mean, dude, the stock price might be okay. I mean, you really might. I don’t know that it’s objectively too high to me. I really don’t. If I was him, I’d probably sell some calls or issue some convertible exchangeables or something like that, for sure.

Jake: Hedge it a little.

Bill: Yeah. But I don’t think it’s got to be all or nothing. But, yeah, I don’t know, man.

Jake: In fairness, I would have hedged like–

Tobias: Too far ago.

Jake: [crosstalk] –ago or something. Yeah.

Bill: Yeah, and somebody in the comments is saying Apple 5 trillion. I mean, that’s where I think it would get a little rich, subjectively.

Jake: Well, way to go out on a limb there, guy!

Bill: I’ve said that in the past.

Jake: You’re really melting up.

Bill: Yes. I fully think that we could get stupid here in the next couple years. I don’t see why not.

Tobias: What about the last few days? Do the last few days give you any pause on that?

Bill: I don’t know. I don’t think so. I’m mean not really.

Tobias: Because we’ve had the 15 Sigma move against this in momentum and 12 and a half Sigma move for value. Which like last year, it was only six Sigma event. So, the Sigmas are– I don’t even know how bigger this.

Bill: [crosstalk] –just keep adding them.

Jake: If you get that many Sigmas, that tells me that something’s wrong with your scoring system.

Tobias: Well as anybody who’s read one, read any Taleb will say, it’s not normally distributed, the tails are fatter than that, that’s why it’s not that many Sigmas but it’s still a big move.

Jake: Big move.

Bill: I need to read some Taleb. A lot of people have told me that I should.

Tobias: Have you read Fooled by Randomness?

Bill: I don’t think so.

Tobias: That’s the only one you’ve got to read. That’s a really easy read. That’s his first one. That’s a great book.

Jake: I probably liked Antifragile the best of them.

Tobias: I couldn’t get through anything else, honestly.

Jake: Really?

Tobias: I own them all and I’ve read like the first part, but I was like, “You know what, I get it. Do I need to read another book about it?”

Jake: That’s fair.

Bill: Somewhere he’s just ranting because he’s listening to this and he’s on Twitter just going ham.

Tobias: He’s one of the [crosstalk] imbeciles! Imbeciles!

Bill: Blocking you, he’s already blocked you and he liked you and then he just blocked you.

Jake: [crosstalk] –idiot, right here.

Tobias: Preemptively blocked. Well, I make no claims to being an intellectual. I claim the second part, yeah, idiot. Still an idiot after all these years.

Bill: What are some other things that I sort of liked about Berkshire? The Auto Group, I thought did slightly better than I– I mean, I don’t underwrite these estimates on the Auto Group. I mean, at a certain point, I just outsource a lot of this shit to Buffett. But when I saw how it performed, I was pretty impressed with it. What I don’t understand is why he bought The McLean Group. He bought that from Pritzker. And that business doesn’t seem to make a ton of sense to me within his buy high quality, buy these businesses– I mean, even in the queue, he is like this is an extremely competitive business. It’s sort of an odd– I mean, I know its distribution. So, you probably see some physical moat there, but that one, I don’t fully understand. Berkshire Hathaway Energy’s a monster.

Jake: If I remember the– I might be wrong on this, but the returns on capital on it aren’t that bad. The margin is incredibly low, but the turnover is very high.

Bill: Yeah, Amazon.

Jake: So, it’s a little better than it looks.

Bill: Yeah, that makes sense. But I mean, you think about what precision’s gone through this year? I am a freakin’ Buffett fanboy at the end of the day. So, to see him be able to have his business do this in a pandemic is pretty awesome.

Jake: Dude, cash flow from operations first nine months of this year versus last year, 10% increase.

Bill: Now do per share!

Jake: Yeah, fair enough.

Bill: Now lever it, just a little!

Jake: Yeah, he did that too, little bit.

Bill: [laughs]

Tobias: The funny thing about Buffett, I’ve said this to you guys before, I don’t know if I’ve ever said it here. But the more experience I get, the more I appreciate what a good investor Buffett is. I kind of knew at the start what a great investor he is. But the more I understand, the more I realize what he’s doing is really something kind of unbelievable. It probably won’t be replicated for generations. He’s probably like at that– I mean, everybody already knows this, but he’s the industrialist of our age anyway.

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