BRK.B

The Correction: Markets Ease Thursday

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The S&P 500 brushed off a sluggish open Thursday, recovering through most of the afternoon following the close of European markets. We’re not particularly fond of commenting on daily market activity, but we want to make sure readers know that we’re monitoring the correction very closely to see if things could get much worse. There are a variety of factors that could make the markets even uglier: sliding energy prices (impact on Big Oil’s profits), Ebola outbreak (impact on airlines, hotels), Hong Kong (disruptions in Asia), European weakness (risks of weaker economic activity), ISIS and Russia (geopolitical uncertainty), and the list goes on and on and on (our seven are here). One very important voice from the crowd, however, is speaking … Read more

Price Is Almost Always Different Than Value

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It was January 10, 2000. America Online had just announced that it would acquire Time Warner to create the largest media company. The purchase price amounted to more than $160 billion, and the combined entity was estimated to have a market capitalization of ~$350 billion. The deal was the biggest corporate merger to that date and was expected to launch the next Internet revolution, according to then-CEO of AOL Steve Case. The transaction valued Time Warner at about $108 per share, a huge premium over its price of $64.75 per share the trading session before. AOL’s shares closed at $72 the day of the announcement. Just a couple years later, things were quite different. When it reported full-year 2002 results, … Read more

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

IBM Continues to Lose Its Luster

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Share buybacks are not always a good thing. We typically like a firm’s buyback program if it is executed at a level below that of the company’s cash-flow-derived intrinsic value estimate. The buyback activity at these levels creates value in the sense that the cash reduced on the balance sheet (as a result of the repurchases) is less than the positive impact of a lower share count (equity value is divided by shares outstanding to arrive at intrinsic value per share). Under a scenario where a company buys back stock above its intrinsic value estimate, management is effectively destroying shareholder capital – the cash reduced on the balance sheet (as a result of the repurchases) is more than the positive … Read more

Buffett’s 2013 Annual Letter to Shareholders

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Warren Buffett does a fantastic job communicating the concept of staying humble in his annual letter to shareholders of his firm Berkshire Hathaway (BRK.A, BRK.B). Some may not believe that the Oracle of Omaha—arguably one of the best investors in history—has underperformed the market in 10 of the past 49 years, but it is true. In Nelson’s ‘The 13 Most Important Steps to Understand the Stock Market,’ he talks about the importance of setting expectations about the market and your portfolio appropriately. Having the right perspective could save you from a lot of portfolio churn as well as a lot of misplaced disappointment. Here’s the excerpt from Nelson’s ‘13 Steps’ (source): You Will Be Wrong. Individual investors sometimes think that every … Read more

Buffett Doubles Down on USG; Teva Expected to Appoint New CEO; Crude by Rail Transportation Comes under Scrutiny

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The day after the New Year holiday was light with news, as expected, but there were three developments that we thought you should be aware of. We recently highlighted the third-quarter performance of USG (USG), the maker of wallboard under the SHEETROCK name, as it scored one of the highest ratings of a 9 on the Valuentum Buying Index in late October. Warren Buffett on Thursday announced that he has increased his stake in the firm, to 30.5% (more than double previously-reported figures). According to a recently-filed Schedule 13D/A, he now owns 43.4 million shares of the firm. USG continues to be significantly undervalued on the basis of our discounted cash-flow process, and we peg its fair value estimate north … Read more

AIG Still Trades at a Meaningful Discount to Book Value

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On October 31, AIG (AIG) reported third-quarter net income of $2.17 billion and diluted earnings per share of $1.46, compared to $1.9 billion and $1.13 per share in the same period a year ago. Pre-tax income in the firm’s insurance operations were solid during the quarter, with ‘AIG Property Casualty’ and ‘AIG Life and Retirement’ advancing 33% and 38%, respectively, from the same period a year ago. Third-quarter after-tax operating income attributable to AIG came in at $1.42 billion, or $0.96 per share, compared to $1.62 billion, or $0.99, in last year’s quarter. Net income exceeded after-tax operating income as a result of valuation allowance releases associated with deferred tax assets (a non-core boost). Image Source: AIG Though we would … Read more

Air Quality Standards Take Aim at Coal

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After competing with an abundance of lower-priced, cleaner natural gas, coal miners (KOL) may now have to deal with more demand headwinds as governments aim to reduce coal burning. The US Expectations are already for as much as 27 gigawatts’ worth of coal generation (about 8.5% of the US coal fleet) to retire by 2016. This percentage could rise to nearly 17% (one-sixth) by 2020, according to the Energy Information Administration. In addition to the expected retirements, the Environmental Protection Agency (EPA) plans to block all new coal-fired plants unless the construction of these plants coincides with expensive technology that captures greenhouse gas emissions. Image Source: Energy Information Administration Though the EPA forecasts that no traditional coal-fired power plants (1) … Read more

Best Ideas Newsletter Holding DirecTV is on the Verge of Acquiring Hulu

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Key Takeaways: ·         Best Ideas Newsletter holding DirecTV could acquire Hulu in the ballpark of $1 billion. Though its earnings are undisclosed, we know Hulu posted $695 million in revenue in 2012, and people watched 24 billion minutes of entertainment on Hulu during the first quarter of 2012. ·         The acquisition keeps Hulu out of the hands of competitors. It also keeps Hulu out of the hands of companies that may want to enter the content distribution business. ·         The cord cutting trend is overblown, but we think Hulu is a nice hedge against cord cutting. We also think Hulu rounds out DirecTV’s TV Everywhere package. ·         Content costs could come down, and DirecTV is well positioned to benefit. We … Read more

The One Thing You Never Knew About Warren Buffett And Others Don’t Want You To Know

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Warren Buffett is one of the most talked about investors of our time, but he is also the most misunderstood. We hope that what you read in this article will open your eyes to new investment horizons and strategies. We hope it will help you cut through the marketing materials of others that you read so much. And at the very least, we hope it will help you learn more about the Oracle. As you’re reading, it will be very important to keep in mind that it is not Warren Buffett’s admission of his mistake in this article, but the idea that he would pursue an investment of this quality in the first place. We ask: If he can make … Read more