The Digest #190
Berkshire Hathaway's Annual Report, Liberty SiriusXM, Catastrophic risk, Tesla's lead designer, Ben Graham's summer on a farm, Income taxes, Interviews of Bruce Berkowitz and Howard Marks, and more...
Berkshire Hathaway’s 2023 Annual Report
Berkshire Hathaway’s 2023 annual report will be released on Saturday morning along with Warren Buffett’s annual letter. Many shareholders will read the report cover-to-cover but it is more common for people to just read the letter.
In my opinion, it is worthwhile to read the entire report and I will spend the weekend doing exactly that. In the days following the report’s release, I plan to write one article about the letter and one or more articles about 2023 results. The full articles will be paywalled but I will send a free introduction to all subscribers. My goal is to provide more details and insight than typically found in mainstream financial media coverage.
Berkshire Hathaway is a very diversified conglomerate but shareholders should still pay particular attention to the insurance operations. Investing in an insurance company is a proposition that requires a certain level of trust in management because there is great latitude when it comes to establishing loss reserves. Insurers accept premiums up front and pay losses over a period of time that varies with the type of insurance that is written. In cases where losses develop slowly, management’s ability to estimate losses that have occurred but have yet to be reported is critical. This is an arcane topic but one that simply cannot be ignored.
In August, I wrote an article about insurance loss reserving that was paywalled. My policy is to remove paywalls after six months but I am doing so a few days early in this case because I think that the article could be helpful for those who are about to read Berkshire’s annual report. The article is about Progressive but the point was to discuss loss reserving generally. While Berkshire does provide loss reserve estimate disclosures, Progressive’s are far more extensive. In particular, the company publishes a detailed loss reserve methodology report every two years that I refer to in the article.
I’ve written about Berkshire Hathaway several times in the months since the company reported third quarter results.
Berkshire Hathaway at $600,000, 2/19/24
The Berkshire Hathaway Playbook, 2/12/24
Mr. Buffett on the Stock Market, 1/19/24
Berkshire Hathaway Energy, 12/8/23
Articles
Catastrophic Risk in Investing and Business by
, February 17, 2024. This article contains frameworks for thinking about catastrophic risk in business, including both insurable and uninsurable risks. (Musings on Markets)Why Not 100% Equities (Or “I Can’t Believe We Are Doing This One Again”) by Cliff Asness, February 12, 2024. “[A recent] paper comes to the rather startling game-changing conclusion that long-term investors should be 100% in equities, not in a more diversified portfolio. We have been down this road before with this idea refuted with alacrity and panache at least as far back as the mid-1990s.” (AQR)
, February 20, 2024. A lesson about buy-and-hold investing from Reminiscences of a Stock Operator by Edwin Lefèvre. (Kingswell)Is Chipotle Squeezing too Hard? by
, February 19, 2024. Chipotle’s margins are back at levels prior to the E. Coli scandal but has the company pushed pricing beyond the purchasing power of its target customer base? (Investment Talk)The Liberty SiriusXM Group: Collapsing The Discount by
, February 17, 2024. A special situation that Berkshire is involved in. (Eagle Point Capital)To Avoid Hefty Tariffs, China’s BYD Eyes U.S. Car Market Via Mexico by River Davis, Ryan Felton, and Selina Cheng, February 16, 2024. BYD’s entry into the U.S. would be bad news for Tesla according to Elon Musk. “‘If there are not trade barriers established, they [Chinese automakers] will pretty much demolish most other car companies in the world,’ Musk said, during Tesla’s earnings call in January.” (WSJ)
The Tesla Designer Who Translates Elon Musk’s Musings Into Reality by Rebecca Elliott and Philip Cheung, February 16, 2024. Franz von Holzhausen, Tesla’s top designer, might have a role similar to Jony Ive’s role when Steve Jobs ran Apple. (WSJ)
Ben Graham, Teenaged Farmhand, February 20, 2024. Ben Graham was only sixteen years old when he graduated from high school in June, 1910. This is a story about his summer working on a farm after his graduation.(Beyond Ben Graham)
The State of the Culture, 2024 by
, February 18, 2024. “The fastest growing sector of the culture economy is distraction. Or call it scrolling or swiping or wasting time or whatever you want. But it’s not art or entertainment, just ceaseless activity. The key is that each stimulus only lasts a few seconds, and must be repeated.” (The Honest Broker)A Big Little Idea Called Ergodicity (Or, The Ultimate Guide to Russian Roulette) by Taylor Pearson, March 23, 2023. “In an ergodic scenario, the average outcome of the group is the same as the average outcome of the individual over time. … In a non-ergodic system, the individual, over time, does not get the average outcome of the group.” (Taylor Pearson)
So far, the early return rate on Apple Vision Pro is pretty low by Mike Wuerthele, February 16, 2024. Hopefully, this will not become a widespread problem: “Most of our returns, by far, are within a day or two. They're the folks that get sick using it … The pukers, the folks that get denied by prescription-filling, that kind of thing.” (Apple Insider)
On Writing by
, February 15, 2024. I agree with establishing the habit of writing every day: “The method for how you write is not that important. What’s important is having a point of view and doing the work. I sit down every day, whether I’m feeling it or not, and write something down.” (Rob Henderson’s Newsletter)Podcasts
Ignore the Crowd w/Super-investor Bruce Berkowitz, February 18, 2024. 1 hour, 59 minutes. Video. Transcript. “William Green chats with famed investor Bruce Berkowitz, whose Fairholme Fund has beaten the S&P 500 by 529 percentage points over 23 years. Bruce talks about the ups & downs of his volatile career, how he changed his investment strategy after three costly losses, why he likes cash as a kind of ‘financial valium,’ & why 80% of his fund is riding on one stock.” (Richer, Wiser, Happier)
How Writing Helped Howard Marks Raise Billions, February 21, 2024. 54 minutes. Video. David Perell’s interview with Howard Marks is a must-listen episode for all writers, but especially those of us who write about financial topics. (How I Write)
Joseph Duveen: Robber Baron Art Dealer, February 20, 2024. 1 hour, 4 minutes. “The art dealer Joseph Duveen insisted on making the paintings he sold as scarce and rare as possible. To keep their prices elevated and their status high, he bought up whole collections and stored them in his basement. The paintings that he sold became more than just paintings—they were fetish objects, their value increased by their rarity.” (Founders Podcast)
Sears, Roebuck, and Company — 1907 Annual Report, February 19, 2024. Sears went public in 1906 and issued its first annual report the following year. Jacob McDonough discusses the limited information included in the report. (The 10-K Podcast)
Kaye Thomas on income taxes and how to lower them, February 19, 2024. 57 minutes. Just in time for tax season… This episode includes interesting information about taxes on investment income. I found the comments on charitable donations in lieu of IRA required minimum distributions particularly interesting. (Bogleheads on Investing)
Rob Henderson — Troubled, February 20, 2024. 1 hour, 50 minutes. Video. I often post links to Rob’s articles and I look forward to reading his book. “Rob Henderson returns to discuss his powerful, moving and important debut book, Troubled: A Memoir of Foster Care, Family, and Social Class (published TODAY). We discuss Rob’s experience of the American foster care and adoption system, the life-changing impact of the military, the rise of Luxury Beliefs, the benefits of standardized testing, and MUCH more.” (Infinite Loops)
Monticello
This painting by Jane Pitfield Peticolas depicts Thomas Jefferson’s grandchildren in the garden in front of the west side of Monticello. The scene is in 1825, presumably sometime in the spring or summer, in the year before Jefferson’s death on July 4, 1826.
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