Wednesday, June 11, 2008

The problem with Berkshire, ... is

actually how sound it operates. The model relies on TANGIBLE CASH FLOWS.

The CASH FLOWS are managed, so they grow at least at the rate of profit increases.

That is the problem, my friend.

Cash-flow-CENTRIC businesses are THE MOST susceptible to INTEREST RATE INCREASES. They would ACCENTUATE the already declining cashflow (experienced by all other sectors) with MUCH MUCH HIGHER interest rate cost or discount rate to the cashflows.

Call me stupid but I would like master Warren to bitchslap me and call me stoopid. Of all people, these FACTS should have come from him directly and NOT FROM ME. See, I have learned to use my grasshopper tiny wings, master.

8 comments:

gtt said...

Don't you think Warren will write enough swaps to offset the damage from a rate hike?

MTGSPY said...

100% confidence says No, it's not enough. Besides you don't hedge your cashflow without giving up that much yield. Cashflow business is great when cost of cash is zero or near it.

gtt said...

OK so what about the $45 billion in cash he's already sitting on. Surely that could be put to some good work? Just playing devils advocate. have owned a piddling 2 shares of Berkshire for years now...

MTGSPY said...

what about it? He got 3x as much already invested. What would you do, if you are running a real business (and not in the business of hype) going forward? No sir, this is about to get very dicey. I bailed on the last local top around 4450, my gut feeling tells me people will look at this as a fixed rate bond going into a period of increasing rate. Beware.

D said...

More like a fixed rate corporate zero! Morphodite security

D said...

An added note on zeros:

You are either very right or very wrong on them!

MTGSPY said...

Let me give you a short story on BRK/B valuation (no pun intended)

Cashlow/Discount + WarrenPrestige
A B C

A will shrink (probably less than others)

but the role of

B will be greater than others because this is a cash cow, and B is going up.

C can only go down. Would you pay the same $C for his underlings or do you believe there may be some value difference?

D said...

Berkshire won't have another warren. There is only one old filthy rich cheap dirty bastard...

He is the salesmen and while the investment structure can be taught, charisma cannot. His brand is particularly unique and I don't envision someone else being able to pull it off genuinely!