Category Archives: Warren Buffett

The German Dax at 10.000 – looking back

Following Mr. Draghi’s speach on Thursday, the German Stock Index DAX hit the 10.000 mark for the first time in history soon thereafter. Many major publications directly came out with headlines along the line “DAX 10000 – what’s next” and speculated where the DAX might go.

In contrast to that and only for reasons of personal entertainment, I want to take a look back into the DAX history. The DAX was introduced 26 years ago in July 1988 by the German Stock Exchange in order to introduce a modern, performance based stock index. The linked Wikipedia site gives a great overview on the history of the DAX and the change in constituents. Mathematically, the DAX times series was based on 31.12.1987 with a starting value of 1.000 although there exist some “Virtual” time series going back much further.

Just a few interesting facts about the DAX:

– only 15 of the original constituents are still in the DAX
– 3 (or 10% of the original 30) actually went bankrupt
– the best years since 1987 have been 1993 with +46,71% and 1997 with +47,11%
– the worst year were 2002 with -43,94% and 2008 with -40,37%
– the biggest cummulative loss was the 2001-2003 period with a cumulative loss -58,9%
– the Dax rarely ends up pruducing single digit returns over a full calender year. Only 5 out of the last 26 years produced “single digit” returns. So yes, long term stock returns might be single digits but short term single digit returns are an exception

Neverthess, the 10.000 level represents an annual return of ~9,02% over 26,5 years (from December 1987 until May 2014). This compares with around 10,1% for the S&P 500 (in EUR).

For me personally, the implementation of the Dax coincidently equals almost exactly when I bought my first stock. The first Stock I bought was a company called Hoesch in September 1987. I remember this so well because just a few weeks later, the “Black october of 1987” hit me with full force. I had used half of my earnings from a vacation job. As I wanted to increase my position after the crash, the people at the bank refused to take my order because they said that stocks are only for gamblers. As I was not yet of legal age back then, I had to come again with written permission of my parents to buy stocks.

This leads to another question:

Was this huge 26 year rally predictable or not ?

3 years ago I had reviewed the original “Market Wizards” from Jack Schwager which contains interviews with many then famous traders and hedge fund managers. Overall, one year after th 1987 crash, the sentiment was very very negative.

As I did not find historical P/Es for the Dax in 1987/1988, let’s look at this table of historic P/Es for the S&P 500:

P/E
31.12.1973 12,3
31.12.1974 7,3
31.12.1975 11,7
31.12.1976 11,0
30.12.1977 8,8
29.12.1978 8,3
31.12.1979 7,4
31.12.1980 9,1
31.12.1981 8,1
31.12.1982 10,2
30.12.1983 12,4
31.12.1984 9,9
31.12.1985 13,5
31.12.1986 16,3
31.12.1987 15,6
avg 10,8

Someone like John Hussmann might have said that stocks have nowhere to go as the P/E even after the 1987 crash was ~50% higher than the preceeding 15 year average. At the and of 1987, 10 30 year US Treasuries were yielding around 9%, another argument why stocks didn’t look that “apetizing” at that point in time. Why bother with stocks if you can earn double digits with corporate bonds any time ?

What followed

Looking back, it is easy to point out some of the events which led to this remarkable run especially for the DAX over the last 26 years:

– Communism broke down (“Peace dividend”)
– the Eurozone was created, stimulating cross border trading, increasing competition
– technology change (PC, Internet, Mobile)
– Corporate taxes in Germany went down form >50% to ~30%
– interest rates declined for now 25 years in a row
– old crossholding structure (“Deutschland AG”) dissolved, more professional management, foreign investors
– the BRIC story unfolded, further possibilities to export “core competency” goods like machinery and cars

In 1987/1988, few market pundits did even predict a single one of those factors. That’s why I think that just looking into the rearview (valuation) mirror should not be the only tool in the investing toolbox. Past P/Es will not predict future seismic shifts. On the other hand, one should not rely on such evcents happening over and over again and boosting share prices further. Clearly, interest rates and taxes will not fall that much lower and the effect of the end of Communism will not repeat itself.

For me the major conclusion is the following: Do not rely on any one system which tries to predict the future and/or future returns. Keep an open eye on everything, from valuations to macro economic factors and political shifts. Be prepared for surprises. Inthe long term, many surprises turned out to be positive for the economy and stock return.

Some musings on the Dax constituents

Just for fun, I created a table with the long term performance of the 15 “surviving” Dax constituents. Unfortunately I only got performance numbers back to 1992, but the p.a. Performance of the DAX was quite similar. lets look at those 15:

1987 Still in DAX Comment LT Perf (08/1992) p.a.
DAX     545,14% 8,95%
Allianz * 1   177,55% 4,80%
BASF * 1   3650,23% 18,12%
Bayer * 1   1598,15% 13,90%
BMW * 1   1723,82% 14,28%
Commerzbank * 1   -70,14% -5,40%
Continental 1   1962,28% 14,92%
Daimler-Benz (*) 1   90,50% 4,22%
Deutsche Bank * 1   89,57% 2,98%
Deutsche Lufthansa * 1   615,84% 9,47%
Henkel * 1   1200,08% 12,51%
Linde * 1   699,66% 10,03%
RWE * 1   308,71% 6,68%
Siemens * 1   742,92% 10,29%
Thyssen (*) 1   89,98% 4,32%
Volkswagen * 1   1690,10% 14,18%

Not surprisingly, financial stocks do not look good here. Overall, companies which are considered “well managed” did quite well such as Henkel, Bayer, BMW, Linde. Surprising for me is the fact that Lufthansa actually outperformed the DAX as well as Siemens.

Now let’s take a quick look at the new stocks. If I didn’t have returns from 1992, I made a comment:

    Total p.a. Perf. Since
Adidas 1   896,84% 13,23% 1995
Beiersdorf 1   1658,99% 14,09%  
Deutsche Börse 1   335,79% 11,74% 2001
Deutsche Post 1   103,80% 5,41% 2000
Deutsche Telekom 1   62,22% 2,80% 1996
EON 1   485,63% 8,46%  
Fresenius 1   4651,42% 19,42%  
Fresenius Medical Care 1   174,05% 5,90% 1996
HeidelCement 1   242,80% 5,83%  
Infineon 1   -80,66% -10,95% 2000
K&S 1   3084,30% 17,24%  
Lanxess 1   302,98% 16,11%  
Merck 1   555,53% 10,64% 1995
Munich Re 1   300,42% 7,24% 1994
SAP 1   3502,32% 19,98%

Not surprisingly, the best “newcomers” also lead the total Dax performance. Smaller companies which grow big are always the best investments, although it is often hard to identify them before.

Finally one other table. Let’s look at some of the best performers and their historical P/Es:

FRE SAP HEN3 BEI BAS
31.12.1992 28,6 24,4 19,6 18,9 11,4
31.12.1993 35,2 25,8 25,7 22,8 28,0
30.12.1994 19,4 36,7 15,0 20,6 14,6
29.12.1995 33,0 55,2 18,4 18,9 7,8
31.12.1996 64,4 52,1 25,9 28,7 14,4
30.12.1997 49,2 61,1 29,5 46,8 12,0
30.12.1998 30,8 71,5 32,8 30,4 11,8
30.12.1999 27,1 83,7 26,2 32,5 25,3
29.12.2000 37,7 60,0 21,7 41,9 23,6
28.12.2001 183,3 78,5 18,3 38,1 20,7
30.12.2002 10,8 46,3 20,0 31,3 13,9
30.12.2003 23,0 38,1 17,1 27,3 27,5
30.12.2004 18,2 30,9 5,3 21,9 14,5
30.12.2005 20,1 31,5 16,2 23,7 11,3
29.12.2006 23,5 26,2 18,9 16,7 11,6
28.12.2007 21,5 22,3 18,1 27,2 12,1
30.12.2008 21,2 15,5 54,7 16,8 8,9
30.12.2009 14,2 22,3 26,4 27,8 28,2
30.12.2010 16,3 24,9 18,1 29,7 12,0
30.12.2011 16,9 14,0 16,7 39,8 8,0
28.12.2012 16,3 25,8 18,3 31,6 13,6
30.12.2013 19,7 22,3 23,1 31,3 14,7

We can easily see that quality and growth NEVER is cheap. I am not sure if that Henkel 2004 P/E of 5 is incorrect data, but the solid “quality stocks” always traded “richly” and nevertheless delivered outstanding long term performance. Only BASF, as a “quality cyclical” company has been available at single digit P/Es at some years.

So after all, this is wat Warren B. likes to tell us: In the long term, quality does seem to beat anything else, especially if you factor in taxes, trading costs etc.

Summary:

So what does this all tell us ? I am afraid that I cannot come up with some “Magic Formula” to identify future winners. Nevertheless, I think the look back emphasizes three of Warren Buffet’s main points:

1) over the long term, stocks have been a unbeatable compounding machine. A return 10 times the original inevstment in 26 years despite several devasting crashes speaks for itself

2) over such a long time horizon, it seems that “quality buy and hold” seems to be at an advantage at least for large caps. Yes, introducing a backtested system (market timing, EV/anything) could generate fantastic returns as well, but just buying and holding well managed companies did produce spectacular returns

3) Just buying the index and sitting on one’s ass would have beaten almost all active strategies. To be fair although, the first DAX index funds were available mid/end 90ties…..

P.S.: To finish the story: What happend to my first stock, Hoesch AG ? Hoesch was taken over by steel company Krupp which itself merged with Thyssen. If I would held it all the time, it would have been a pretty weak investment……

The Warren and Charlie Show

This year I fulfilled myself a long dream: I joined the pilgrimage to Omaha in order to listen to these 2 elderly Gentlemen

Ähhhh sorry,that was the wrong picture, I actually listened to those 2 Gentlemen

I guess you can easily find transcripts and quotes of the meeting in many places for instance here, or here.

So instead of doing this once again (and by the way a I did not take notes….), I will just make a few random observations:

1. I didn’t expect any “actionable investment ideas” and there were none

2. As a “first timer”, I found the event genuinely entertaining. They make a very good show. The movie was great and the 2 guys are really funny.

3. The questions from the audience were a lot better than in any other shareholder meeting I have been

4. Doug Kass as the evil short seller was relatively tame. He mostly asked about the obvious succession issue

5. In general, the meeting was a lot about succession, Buffet said many times “when I will be gone”

6. Buffet thinks there is no need to split the company. Berkshire’s “culture” will prevail.

7. However he indicated that Berkshire would be prepared to buy a lot of stock back at the right price

8. Sometimes the answers were a bit shallow. For instance when someone asked why Iscar is better than Sandvik (i.e. which moat), the answer was “better management” or when asked about the moat of IBM he talked about a pension problem. Buffet surely knows better but I guess he is not sharing everything with his shareholders.

9. The exhibition of the Berkshire companies looked liked a flea market to me. Maybe its my European taste but i found that they sold quite crappy products.

10. Buffet was slightly subdued about growth in America for the next few years (“New Normal” anyone ?)

11. Some Omaha restaurants behave like cafes at the St. Marcus place in Venice, Italy. One night we went to the “Chophouse“. “Unfortunately” the cheapest wine at 60 USD/bottle (!!!!) was not available any more, the second cheapest was already 100 USD …..additionally they tried to talk us into ordering magnum bottles at 295 USD … DON’T GO THERE.

The two Buffet quotes I wrote down were those:

Interest rates are to asset prices what gravity is to the apple. With such low interest rates there is not a lot of gravity for asset prices.

For many companies book value has almost no correlation to intrinsic value

Would I go there again ? I have to admit that for the shareholders meeting alone I am not sure. The whole trip is quite expensive and time consuming. However I had the privilege to attend a 2 day (invitation only) value investing conference just before Saturday in Omaha which was absolutely fantastic !!!

I met a lot of very nice people who to a large extent were very good or even outstanding value investors. Many ideas were shared and interesting discussions were made.

The whole package (conference + shareholder meeting) is definitely worth the trip.

What were my take aways ?

The “hard” take aways were:

and of course these:

And I might have some posts about some ideas which have been discussed soon……

Berkshire Hathaway 2012 listed stocks performance

I hope everyone has now read the 2012 annual Berkshire Letter which came out last week.

Among other stufff, Warren Buffet complained a little bit that he didn’t beat the S&P 500 based on the increase in Book Value at Berkshire.

Just for fun, I hacked in Berkshire portfolio.

In a first step I looked at all the disclosed positions above 1 bn USD.

2012 perfomance P/E P/B EV/EBIT EV/EBITDA Beta Volume
American Express 23.57% 14.7 3.8 16.1 8.9 1.05 8,715
Coca Cola 6.51% 19.6 5.3 16.6 14.0 0.72 14,500
Conoco Philips 9.20% 9.5 1.5 6.5 4.4 0.98 1,399
Direct TV 17.31% 10.8 #N/A N/A 9.0 6.2 0.89 1,154
IBM 4.17% 13.7 12.4 11.6 9.4 0.91 13,048
Moody’s 51.86% 16.6 29.1 10.3 9.5 1.31 1,430
Munich Re 54.71% 8.1 1.0 #N/A N/A #N/A N/A 0.94 3,599
Philips 66 50.41% #N/A N/A 2.0 10.8 8.5 1.16 1,097
POSCO 1.19% 8.3 0.7 9.0 6.4 1.01 1,295
Procter & Gamble 5.18% 19.4 3.2 14.4 11.9 0.64 3,563
Sanofi 34.20% 20.0 1.7 13.2 6.9 0.76 2,438
Tesco -8.20% 10.8 1.7 10.4 7.2 0.72 2,268
US Bancorp 20.96% 11.9 1.9 #N/A N/A #N/A N/A 1.09 2,493
Walmart 16.97% 14.6 3.2 10.3 7.9 0.59 3,741
Wells Fargo 27.37% 10.7 1.3 #N/A N/A #N/A N/A 1.15 15,592
 
Total / Avg 17.56% 14.27 5.0 13.4 10.1 0.92 76,332

To add some value, I have added some valuation metrics and aggregated the performance based on year end values. Although this is not the 100% correct way to do this, we can see that the listed stock portfolio outperformed the S&P Total return index (+14.1%) by a margin of almost 3.5%. A very respectable outperformance for a 75 bn USD portfolio. One can also see that the Beta of the portfolio is clearly below 1, so the outperformance really looks like alpha. (EDIT: I do not know which Index Buffet used for his 16%, I took S&P 500 total return performance from Bloomberg).

From simple valuation metrics, the portfolio of course looks quite expensive. P/E of 14.4 is in line with the S&P 500, but it looks like that Berkshire doesn’t consider P/B as a meaningful metric for listed stocks anymore. Also, the average EV/EBIT of 13 and EV/EBITDA of 10 is far above I would be prepared to pay.

In a second step, I added all the stock positions which were disclosed by Berkshire plus anything available on Bloomberg with a value of more than 200 mn USD.

2012 perfomance P/E P/B EV/EBIT EV/EBITDA Beta Volume
American Express 23.57% 14.7 3.78 16.05 8.88 1.05 8,715
Coca Cola 6.51% 19.6 5.33 16.55 13.98 0.72 14,500
Conoco Philips 9.20% 9.5 1.47 6.54 4.38 0.98 1,399
Direct TV 17.31% 10.8 #N/A N/A 9.03 6.16 0.89 1,154
IBM 4.17% 13.7 12.41 11.56 9.41 0.91 13,048
Moody’s 51.86% 16.6 29.11 10.29 9.48 1.31 1,430
Munich Re 54.71% 8.1 0.96 #N/A N/A #N/A N/A 0.94 3,599
Philips 66 50.41% #N/A N/A 1.98 10.82 8.52 1.16 1,097
POSCO 1.19% 8.3 0.70 8.96 6.36 1.01 1,295
Procter & Gamble 5.18% 19.4 3.21 14.44 11.88 0.64 3,563
Sanofi 34.20% 20.0 1.74 13.22 6.88 0.76 2,438
Tesco -8.20% 10.8 1.74 10.40 7.15 0.72 2,268
US Bancorp 20.96% 11.9 1.86 #N/A N/A #N/A N/A 1.09 2,493
Walmart 16.97% 14.6 3.21 10.27 7.86 0.59 3,741
Wells Fargo 27.37% 10.7 1.33 #N/A N/A #N/A N/A 1.15 15,592
               
Davita 45.80% 19.4 3.33 14.95 11.94 0.80 1,830
Swiss Re 49.31% 6.8 0.92 #N/A N/A #N/A N/A 1.15 909
Washington Post 1.20% 17.6 1.16 9.27 4.52 0.81 704
General Motors 37.40% 9.3 1.47 #N/A N/A 1.31 1.19 697
M&T Bank 31.99% 13.7 1.43 #N/A N/A #N/A N/A 1.07 558
BonY Mellon 30.69% 12.2 0.92 #N/A N/A #N/A N/A 1.28 544
Costco 26.15% 24.8 3.50 13.49 10.21 0.75 444
USG 166.24% #N/A N/A 502.76 48.17 18.47 2.14 472
Viacom 16.92% 14.5 4.21 9.25 8.70 1.16 459
Precision Castparts 12.83% 20.3 2.92 15.23 13.93 0.92 374
Mondelez 6.24% 12.7 1.58 9.46 7.81 0.62 366
National Oilwell -0.76% 11.5 1.43 8.19 6.96 1.51 357
Deere 11.80% 11.2 4.67 8.22 6.75 1.14 355
Wabco 43.46% 14.4 6.48 12.46 10.07 1.72 281
General Dynamics 6.04% 10.6 2.10 30.15 17.28 0.97 262
Visa 47.56% 24.6 4.68 18.01 17.09 0.98 250
Torchmark 18.82% 11.2 1.25 #N/A N/A #N/A N/A 0.97 245
Mastercard 29.89% 23.9 9.38 14.04 13.27 1.00 214
               
               
               
 
Total / Avg 19.57% 14.4 7.6 13.6 10.1 0.94 85,653

A few observations here:

I do not understand, why DaVita was not included in the shareholder’s letter with a market value of 1.8 bn. Maybe they have forgotten this position ?

Secondly, including those additional ~10 bn of stocks increases the total performance of the total portfolio by an incredible 2%.

In a third step, I calculated the performance of what I would call the “Non Buffet” Portfolio, taking Direct TV from the annual letter and eliminating Swiss Re and Washington Post from the < 1bn list.

2012 perfomance P/E P/B EV/EBIT EV/EBITDA Beta Volume
               
Direct TV 17.31% 10.8 #N/A N/A 9.03 6.16 0.89 1,154
Davita 45.80% 19.4 3.33 14.95 11.94 0.80 1,830
General Motors 37.40% 9.3 1.47 #N/A N/A 1.31 1.19 697
M&T Bank 31.99% 13.7 1.43 #N/A N/A #N/A N/A 1.07 558
BonY Mellon 30.69% 12.2 0.92 #N/A N/A #N/A N/A 1.28 544
Costco 26.15% 24.8 3.50 13.49 10.21 0.75 444
USG 166.24% #N/A N/A 502.76 48.17 18.47 2.14 472
Viacom 16.92% 14.5 4.21 9.25 8.70 1.16 459
Precision Castparts 12.83% 20.3 2.92 15.23 13.93 0.92 374
Mondelez 6.24% 12.7 1.58 9.46 7.81 0.62 366
National Oilwell -0.76% 11.5 1.43 8.19 6.96 1.51 357
Deere 11.80% 11.2 4.67 8.22 6.75 1.14 355
Wabco 43.46% 14.4 6.48 12.46 10.07 1.72 281
General Dynamics 6.04% 10.6 2.10 30.15 17.28 0.97 262
Visa 47.56% 24.6 4.68 18.01 17.09 0.98 250
Torchmark 18.82% 11.2 1.25 #N/A N/A #N/A N/A 0.97 245
Mastercard 29.89% 23.9 9.38 14.04 13.27 1.00 214
               
               
Total / Avg 34.97% 15.2 33.6 15.3 9.9 1.07 8,862

And here we can see that Weschler and Combs really “shot out the lights”. 35% performance for 2012 is a fxxxing fantastic result. Ok, Beta is slightly above 1 but at least for 2012 the did a outstanding job. No wonder Buffet said that in his annual letter:

Todd Combs and Ted Weschler, our new investment managers, have proved to be smart, models of integrity, helpful to Berkshire in many ways beyond portfolio management, and a perfect cultural fit. We hit the jackpot with these two. In 2012 each outperformed the S&P 500 by double-digit margins. They left me in the dust as well.

So even if some of the smaller stocks are “Warren & Charlie” stocks as well, Weschler and Combs showed them how its done at least with a smaller portfolio. Maybe the smaller size of the portfolio is the reason ?

Summary:

Once again, the portfolio of listed stocks of Berkshire outperformed the S&P 500 by a nice margin. However it seems to be that Buffet’s “elephants” don’t have a chance against the smaller holdings of Weschler and Combs. Nevertheless, for the “lazy” value investor, copying the Berkshire portfolio looks still like a winning strategy.

Copying the “small” Berkshire stocks however looks like the absolute killer strategy.

Utility companies – The Warren Buffet perspective

In 2012, I sold my two utility stocks EVN and Fortum because I realised that I didn’t really understand the business model. I looked a little bit more general into utilities here, but with no real results. However,at least in Europe, the utility sector looks like one of the few remaining “cheap” sector.

If you don’t know a lot about a sector but need to start somewhere,it is always a good idea to look ifWarren Buffet has something to say about it

Although mostly his well-known consumer good investments like Coca Cola and Gilette are mentioned, Buffet runs a quite sizable utility operation called MidAmerican Energy.

Starting with the Berkshire 2011 annual report, let us look how the “sage” describes the business:

We have two very large businesses, BNSF and MidAmerican Energy, that have important common characteristics distinguishing them from our many other businesses. Consequently, we assign them their own sector in this letter and also split out their combined financial statistics in our GAAP balance sheet and income statement.
A key characteristic of both companies is the huge investment they have in very long-lived, regulated assets, with these partially funded by large amounts of long-term debt that is not guaranteed by Berkshire. Our credit is not needed: Both businesses have earning power that even under terrible business conditions amply covers their interest requirements.

So let’s note here first: Buffet uses “large amounts” of debt for his utility company.

Just below we find the following statement:

At MidAmerican, meanwhile, two key factors ensure its ability to service debt under all circumstances: The stability of earnings that is inherent in our exclusively offering an essential service and a diversity of earnings streams, which shield it from the actions of any single regulatory body.

I would argue he second point is interesting: Diversification in utilities works across regulators, not necessarily geographic location.

What I found extremely interesting is that Buffet is allocating a lot of capital to the utility sector. Out of the 19 bn USD Capex in Berkies operating businesses from 2009-2011, MidAmerican Capex summed up to ~9 bn USD, so almost half of Berkies total Capex.

One can assume that Buffet is not making all share investment decisions nowadays, but I think capital allocation to operating companies will be still made by him personally.

Buffet seems also quite interested in renewable energy, as the following comment from the annual report shows:

MidAmerican will have 3,316 megawatts of wind generation in operation by the end of 2012, far more than any other regulated electric utility in the country. The total amount that we have invested or committed to wind is a staggering $6 billion. We can make this sort of investment because MidAmerican retains all of its earnings, unlike other utilities that generally pay out most of what they earn. In addition, late last year we took on two solar projects – one 100%-owned in California and the other 49%-owned in Arizona – that will cost about $3 billion to construct. Many more wind and solar projects will almost certainly follow.

Here, he also mentions that he doesn’t extract any dividends out of his utility group. He considers it a growth opportunity rather than a cash cow. I think this is also worth keeping in mind, as many investors would judge utility stocks mainly by dividend yield.

From the 2009 report we learn the following:

Our regulated electric utilities, offering monopoly service in most cases, operate in a symbiotic manner with the customers in their service areas, with those users depending on us to provide first-class service and invest for their future needs. Permitting and construction periods for generation and major transmission facilities stretch way out, so it is incumbent on us to be far-sighted. We, in turn, look to our utilities’ regulators (acting on behalf of our customers) to allow us an appropriate return on the huge amounts of capital we must deploy to meet future needs. We shouldn’t expect our regulators to live up to their end of the bargain unless we live up to ours.

This is as clear as it gets. Utilities are a “natural” monopoly. If you play by the rules (at least in the US), you are guaranteed a decent return.

In the same report Buffet once more explains why he is suddenly more interested in utilities:

In earlier days, Charlie and I shunned capital-intensive businesses such as public utilities. Indeed, the best businesses by far for owners continue to be those that have high returns on capital and that require little incremental investment to grow. We are fortunate to own a number of such businesses, and we would love to buy more. Anticipating, however, that Berkshire will generate ever-increasing amounts of cash, we are today quite
willing to enter businesses that regularly require large capital expenditures.

From the 2008 report, this sentence is reinforcing Buffets strategy:

Indeed, MidAmerican has not paid a dividend since Berkshire bought into the company in early 2000. Its earnings have instead been reinvested to develop the utility systems our customers require and deserve. In exchange, we have been allowed to earn a fair return on the huge sums we have invested. It’s a great partnership for all concerned.

On acquisition of utilities, we can also find his thoughts in that report:

In the regulated utility field there are no large family owned businesses. Here, Berkshire hopes to be the “buyer of choice” of regulators. It is they, rather than selling shareholders, who judge the fitness of purchasers when transactions are proposed.

There is no hiding your history when you stand before these regulators. They can – and do – call their counterparts in other states where you operate and ask how you have behaved in respect to all aspects of the business, including a willingness to commit adequate equity capital.

When MidAmerican proposed its purchase of PacifiCorp in 2005, regulators in the six new states we would be serving immediately checked our record in Iowa. They also carefully evaluated our financing plans and capabilities. We passed this examination, just as we expect to pass future ones.

So being nice and trustworthy to the regulator is what counts in this business.

Finally let’s look at some “hard numbers” from MidAmerican, in order to be able to compare this to other utilities. I will use the MidAmerican 2011 annual report for this.

  2011 2010 2009 2008
Total Assets   47.7 45.7 44.7 41.4
Shareholders Equity   14.1 13.2 12.6 10.2
total financial debt   17.8 18.2 19.3 18.2
Sales   11.2 11.1 11.2 12.7
EBIT   2.684 2.502 2.465 2.828
Net Income   1.331 1.238 1.157 1.85
Int. Exp   1.196 1.225 1.257 1.333
Op. CF   3.220 2.759 3.572 2.587
Capex   2.684 2.593 3.413 3.937
 
ROE   9.8% 9.6% 10.2%  
NI margin   11.9% 11.2% 10.3% 14.6%
EBIT Margin   24.0% 22.5% 22.0% 22.3%
Debt/equity   126.2% 137.9% 153.5% 178.4%
EBIT/Int exp   2.24 2.04 1.96 2.12
ROA   2.9% 2.7% 2.7%

We can clearly see that this is low ROA business. Only the significant leverage allows Buffet to have ~10% ROE on average. Additionally, he seems to provide some “contingent” capital to MidAmercian, i.e. to promise a capital contribution of 2 bn USD if required. I think this keeps down the cost of debt without explicitly guaranteeing it. MidAmerican has a credit rating of “only” A- against Berkshire’s AA+. Also one can see that he reduced leverage over the last few years since taking over MidAmerican.

Nevertheless he seems to prefer this vs. returning cash to shareholders. Interesting.

So let’s quickly summarize Warren Buffet’s perspective on utilities as far as I understood it:

– he only started to invest into utilities relatively lately because he needs something where to invest his growing cashflows from the other operations
– he prefers regulated utility business, diversified over different regulators
– he invests a lot of money into renewable energy
– he uses significant leverage to achieve 10% ROE
– he is not looking at the busienss as a cash cow but a long term growth business and therefore does not extract any dividends

Leveraging Investment returns if you are not Warren Buffet and you do not own an Insurance company

This post was inspired by an interesting paper which explores how much of WBs success is attributable to leverage.

The authors calculate that Buffet applied (mostly through his insurance float and debt a leverage ratio of between 1.4:1 to 1.6:1 over the life of Berkshire.I would speculate that this might be even higher if one factors in his sales of S&P puts and CDS protection.

However, for the ordinary investor it is quite difficult to gain access to cheap insurance float and the AAA funding cost Warren Buffet enjoys.

So what are the alternatives for “normal” investors ?

Read more

Wie findet man interessante Value Investments: Teil 1 – Ideenfindung

Es gibt ja verschiedene Weisen interessante Value Investments zu finden. Einen guten Weg hatte ja zum Beispiel Valuematze aufgezeigt in seinem Must Read Posting zum Scoring Modell.

Ein solches komplexes Scoring Modell benötigt natürlich einiges an Datenpflegeaufwand, insbesondere wenn man ein sehr großes Universum abdecken will. Selbst “professionelle” Dienste wie Bloomberg liefern einem ziemlich viel Müll, denn man insbesondere bei 10 Jahres Zahlen oft mühsam manuell korrigieren muss.

Zudem kommt man auf diesem Weg nicht zu solchen interessanten Investments wie z.B. eine AIRE KGAA, ein WestLB Genußschein oder eine HT1 Anleihe.

In den Büchern der großen “Gurus” gibt es ja einige Hinweise, wo man für eine interessante Erstauswahl schauen kann.

Relativ bekannt für zum Finden von “Contrarian Investments” sind z.B. diese hier (kein Anspruch auf Vollständigkeit):

1. Liste mit 52 Wochen Tiefs anschauen
2. Aktien mit den niedrigsten KGVs, KBVs, KUVs oder gewichteten Modellen (Magic Formula, Magic Sixes)
3. Aktien die aus Indizes raus gefallen sind, oder Anleihen die in Non-Investmentgrade downgegraded wurden
4. Special Situations z.B. nach Greenblatt (Spin off, post bancruptcy, Mergers, Liquidationen, komplexe Strukturen, Kapitalerhöhungen etc.)
5. Externe Katastrophen oder Sonderereignisse, die zu einem starken Kursverlust führen (BP, Tepco…)
6. Portfolios bekannter Value Gurus (Warren B. etc.)
7. Schlechte Headline News (z.B. Griechenland Pleite, Regulatorische Eingriffe)
8. Blogs, Internetforen

Man sieht schon, dass es sehr viele Möglichkeiten gibt, an interessante Werte zu kommen, das Problem ist aber natürlich wie man dass dann priorisieren kann bzw. soll.

Eines sollte man meines Erachtens sich auch vorher überlegen, bevor man zu suchen anfängt:

Welche Art von “Value Investment” will man eigentlich finden ? Ich würde das in 3 Kategorien unterscheiden:

1. “Deep value” bzw. Contrarian
Das sind z.B. die klassischen Net-nets, oder Magic Sixes, also Aktien die optisch sehr sehr billig sind und bei denen man hofft, dass durch eine “Reversion to the mean” ein entsprechendes Kurspotential besteht

2. “Compounder”
Das sind die bei den Buffet bzw. Munger Jüngern allseits beliebten “tollen” Unternehmen die man aus irgendwelchen Gründen (z.B. ein nicht erkannter Moat, temporäre Problem) zu einem relativ günstigen Preis kaufen kann.

3. “Special Situatons”
Für mich die Kategorien wie bei Greenblatt, dazu kommen aber m.E. noch “relative Value” Situationen we z.B. long/short auf verschiedene Papiere eines Emittenten oder aufsichtsrechtliche Sondersituationen.

Bei Kategorie 1&2 kann man relativ gut über Screener eine erste Auswahl bekommen, für Kategorie 3 sieht es da schon schwieriger aus. Hier bieten sich meiner Erfahrung nach insbesondere die Foren und Aktienblogs an.

Aus meiner Sicht und für meinen Investmentstil wäre Kategorie 3 ganz klar am attraktivsten, allerdings sind das auch die Investments de am schwierigsten zu finden sind und die am meisten Arbeit machen. Zudem sind de Positionen auch oft recht illiquide.

In der Praxis verwende ich auch die Variante, mir reglemässig die Portfolios von Value Gurus anzuschauen. Hier sollte man aber darauf achten, dass der Anlagestil des “Gurus” zum eigenen Stil passt.

Wenn man z.B. selber ein eher konzentriertes Portfolio färt macht es wenig Sinn sich ein Portfolio anzuschauen, dass aus hunderten von Titeln besteht. Meine “Top Gurus” in der Hinsicht sind v.a.

– Tweedy Browne
– FPA Crescent
– Third Avenue

Diese drei Firmen haben den Vorteil, dass sie als “Mutual Fund” quartalsmässig ihre kompletten Portfolios veröffentlichen und nicht nur die meldepflichtigen Positionen.

Mit Abstrichen kommen dann
– Sparinvest
– Bestinver
– Seth Klarmann (wenn er überhaupt in Aktien investiert)
– David Einhorn
– Whitney Tilson (ausser den Shorts 😉
– Prem Watsa
– PIMCO Pathfinder
– und ein wenig Prof. Otte

Das Problem ist oft, dass ich bei anderen “Gurus” und dazu gehört auch Buffet, einfach nicht die gleiche Überzeugung entwicklen kann wenn ich mir die Unternehmen genauer anschaue.

Was man m.E. auf keinen Fall machen sollte ist, eine Aktie zu kaufen nur weil sie z.B. Buffet gerade gekauft hat. Auch der große Buffet hat keine Erfolgsquote von 100%, vielleicht 55% und da man nicht das komplette Portfolio kopieren kann, ist es meiner Ansicht nach geradezu fahrlässig ohne Recherche den Lemming spielen zu wollen.

Fazit: Es gibt viele Möglichkeiten, eine Erstauswahl an interessanten Werten zu bekommen. Am wichtigsten ist es aber wohl, sich vorher zu überlegen welche Art von Value Investment (Contarian, Compounder, Special Situation) man eigentlich haben möchte.

Portfoliotransaktion – Verkauf TESCO

Im Rahmen unserer Portfoliobereinigung muss heute TESCO dran glauben. Trotz 3% Warren Buffet Anteil haben wir uns den Wert nicht wirklich genau angeschaut.

Gekauft hatten wir zu 4,57 EUR pro Stück, verkauft heute zum VWAP von 402,9 Cent bzw. umgerechnet 4,60 EUR, macht einen kleinen Gewinn von ca. 0.99% inkl. Dividende.

Cash bleibt erstmal liegen. Damit erhöht sich der Cashanteil auf 5,33%.

Compounding Interest – Value & Growth die 2.te

Einen guten Kommentar nehmen wir gerne zum Anlass einen Kommentar als Blogbeitrag weiterzuspinnen. David hatte einige gute Gedanken zum Artikel Compounding Interest – Value & Growth geäußert, die wir gerne weiterspinnen möchten:

David:
Ich sehe dies ähnlich wie caedmon.

Ich würde die Begriffe nicht trennen, wenn selbst die besten Investoren sagen, dass das Wachstum auch immer ein Teil des Wertes sein kann. Und ich sehe es auch so, dass der Aufwand bei nicht mechanischen Strategien enorm hoch ist. Aber ich denke es ist eine Grundsatzfrage, ob man für sein Geld nur die beste Performance will, oder ob man Spaß an dem gesamten Prozess der Unternehmensbewertung und dem Investieren hat. Für mich ist es auch die intellektuelle Herausforderung und die aktive Gestaltung meines gesellschaftlichen Umfeldes (wenn auch nur ganz, ganz gering).

Aber zurück zum Eingangsartikel: Ich habe selbige Berechnung mit Excel ebenfalls schon durchgeführt um herauszufinden, welches KGV/KBV bei welchem ROC einer fairen Bewertung entsprechen würde. Ich bin allerdings zu dem Entschluss gekommen, dass ich auch die Ausschüttungsquote mit berücksichtigen muss. Ihr Model setzt voraus, dass die Renditen auch auf jeden weiteren reinvestierten Euro verdient werden können. Die meisten Unternehmen können dies jedoch oft nicht, deshalb schütten sie auch aus. Fielmann hatte z.b. in den letzten 10 Jahren eine EK-Rendite von rund 20%. Und Fielmann hat definitiv einen sehr tiefen Burggraben, sodass auf die vorhandene Struktur auch diese Margen erzielt werden können. Aber die Expansion ist bei Fielmann weniger eine Frage des Geldes, sonder der qualifizierten Mitarbeiter. Dadurch könnten Fielmann nicht jeden Euro zu 20% p.a. investieren und schüttet aus.

Angenommen Fielmann hätte nun auch zukünftig eine EK-Rendite von 20%, aber eine Ausschüttungsquote von 100%. Fielmann hätte dann kein Gewinnwachstum (ohne Berücksichtigung von Inflation). Bei einer Renditeerwartung von 10% p.a. sollte ein intelligenter Investor trotzdem nicht mehr als den doppelten Buchwert und das zehnfache der Gewinne zahlen. Bei einer Ausschüttungsquote von 0% und immer noch der zukünftigen EK-Rendite von 20% wäre ich auch durchaus bereit wesentlich mehr zu zahlen.

Oder nicht?

FG David

Der Punkt der Reinvestition, bzw. der Dividenden ist tatsächlich einer der großen “Knackpunkte” des Ganzen. Es gibt auf Seeking-Alpha hierzu einen interessanten Artikel, der sich mit der Problematik der Dividenden befasst. Eine Ausschüttung ist ja eigentlich schädlich, denn sie verursacht Steuern und lässt den Aktionär mit dem Problem der Reinvestition alleine. Eigentlich wäre es für den Aktionär günstiger, wenn alle Cashflows zu einem möglichst hohen ROC reinvestiert werden könnten und so das “Wunder des Compoundings” laufen lassen könnten. Hier ist aber wieder oft das Problem, dass das Management das Geld lieber behält und in schlechte Projekte mit niedrigem ROC “verbrennt”. Aber einen Tod muss man ja sterben.

Das ist übrigens auch einer der Gründe warum Berkshire ein so wunderbares Unternehmen ist: Die Cashflows der Beteiligungen werden vom Meister mit einem hervorragenden ROC investiert. Und das ist auch der Grund warum es so wenige “wunderbare” Unternehmen gibt. Ab einer bestimmten Größe jedes Unternehmens nehmen entweder die Kapitalrenditen ab, weil die Nische verlassen wird, oder einfach keine gleichwertige Kapitalrendite eriwrtschaftet werden können.

Von daher gehen wir völlig mit David überein, dass ein Unternehmen ohne Ausschüttung mit einem zukünftig hohen ROC (ROE) viel wertvoller sein kann (und damit natürlich wesentlich teurer bewertet wird) als ein nicht mehr wachsendes Unternehmen mit Vollausschüttung. Auf der anderen Seite kann gerade ein Nischenunternehmen mit hohen Erträgen und Kapitalrenditen aber stabiler Nische (insb. See’s Candy), im Rahmen eines Konzerns der die Cashflows (steuerlich günstig) aufsaugt und sinnvoll verwendet einen unglaublichen Mehrwert schaffen.

Hier ist aber anzumerken, dass gerade bei den Wachstumsunternehmen die Stabilität des Moats von größter Bedeutung ist. Stellt sich ein Burggraben als “doch nicht so weit” heraus, fallen in der Regel nicht nur die Gewinne, sondern die ehemals hohen Multiples gleich mit. Bestes Beispiel ist hier Bijou Brigitte, die bei 250€ “priced to perfection” waren und dann aber mit stagnierenden Gewinnen duch die Multiple-Neubewertung “neu bewertet” wurden.

Was wir lesen – Rückspiegel Kalenderwoche 20

Zitate von und über Bernard Baruch

Quarterly Letter von Kerrisdale, ein Hedgefonds der auf Shorten von China Frauds spezalisiert ist

Skype Bewertung vom Bewertungs “Guru” persönlich

Interview mit Pat Dorsey

Blick über den Tellerrand: Seth Godin

Kommentare u.a. zu Asian Bamboo bei der FAZ

Interessanter Artikel zu Buffet und dem Konzept des “Compounding”

Edit: Download Link rausgenommen, wir sind nicht sicher ob das “legal” ist,

« Older Entries Recent Entries »