“An insurance business has value if its cost of float over time is less than the cost the company would otherwise incur to obtain funds.”
Buffett didn’t like derivatives –
By focusing on experience, insurance companies received no premium on terrorism risks.
“Predicting rain doesn’t count; building arks does.”
If a company is focused on “winning” market share too much and loses sight on profits, there will be problems.
Buffett recognized several previous mistakes – those happened in General Re, and some in investments like Dexter (shoes).
Buffett made a joke on “clicks-and-bricks”. This phrase was popular back then? And this is just like O2O in the 2010s in China I guess.
Berkshire would “never issue a policy that lacked a cap”.
No fear of near-term result decline – declines “spur sellers and temper the enthusiasm of purchasers who might otherwise compete”.
Market condition changed – junk bonds market dried up, making fewer LBOs.
When an owner cares about whom he sells to, the business usually associates with better qualities.
“Market commentators and investment managers who glibly refer to “growth” and “value” styles as contrasting approaches to investment are displaying their ignorance, not their sophistication.”
What’s good for next q earnings may not be economic operating maneuvers.
The “best source of new customers is the happy ones we already have” & the “best source of new business is word-of-mouth recommendations”.
At Berkshire, repurchases are not for stemming a decline in Berkshire’s price. Instead, it represents an attractive use of the company’s money.
Buffett didn’t like those repurchases that simply pump up stock prices.
Mangers should “think about what counts, not how it will be counted”.
Berkshire’s dividend income does have some tax benefits vs operating income on the corporate level. But capital gains are taxed similar to operating income.
Most people think Buffett’s investment skills are GOAT.
They try to replicate but it’s extremely hard.
Actually, even if people can invest like Buffett, they can’t replicate his success. There are other contributors that are less obvious.
Be happy about lower stock prices, as you are a net saver & investor!
Oh USAir stock can be up like crazy? From $4 to $73!
S&P Index is Buffett’s biggest competitor, and it doesn’t have double tax – Berkshire needs to pay tax on the corporate level for gains or dividends.
More than book value – “float is a major component of Berkshire’s intrinsic value that is not reflected in book value”.
“overpayment risk” – 买贵了. Excellent companies will need to catch up with the price & managers may be distracted.
Berkshire’s competitive advantages explained: 1) massive capital to absorb big losses, 2) embracing uncertainty/volatility for higher return (no mistake calculation).
Buffett talked about difficulties faced by Buffalo News, World Book, etc., which is likely due to this paradigm shift towards online.
Berkshire shall create Class B shares in 1996, with 1/30 of economic interests and 1/200 of votes of Class A.
When doing capital allocations, managers should focus on increasing intrinsic value per share – however, “in contemplating business mergers and acquisitions, many managers tend to focus on whether the transaction is immediately dilutive or anti-dilutive to earnings per share.”
Besides, major acquisitions can be “a bonanza for the shareholders of the acquiree; they increase the income and status of the acquirer’s management; and they are a honey pot for the investment bankers and other professionals on both sides.”
Option rewards for managers and return cash to shareholders can conflict.