Tuesday, August 09, 2005
Beta vs. Buffett: Round 2
An old equity research piece from CSFB analyzes the usefulness of Beta vs. Margin of Safety. The conclusion they reach is not all that earth shattering: beta is a useful measure of riskiness over the short term, and probably is not over the longer term. I think Buffett would agree with that, and may even have said as much.
What is interesting is that they run the numbers on Buffett's go-to Washington Post example (ie. Washington Post stock got hammered, the beta went up (suggesting the stock was more risky) the actual value of the company remained the same, so the stock was actually less risky). They find that Washinton Post's beta actually decreased during that time period. Doesn't really change the usefulness or validity of Buffett's argument, but interesting read nonetheless.
What is interesting is that they run the numbers on Buffett's go-to Washington Post example (ie. Washington Post stock got hammered, the beta went up (suggesting the stock was more risky) the actual value of the company remained the same, so the stock was actually less risky). They find that Washinton Post's beta actually decreased during that time period. Doesn't really change the usefulness or validity of Buffett's argument, but interesting read nonetheless.
Sunday, August 07, 2005
The pot starts to simmer
Things getting a little steamier over in Omaha with Mr. Buffett's subsidiaries now getting the fine-tooth comb on the finite insurance problem. Q: How to spend a lot of time not creating shareholder value? A: Endless meetings with regulators. He must be getting tired of it. Story here.
2Q numbers out on Friday, here. Of note, his foreign currency contracts, on which he says the following:
Gains and losses from foreign currency contracts arise as the value of the U.S. dollar changes against certain foreign currencies. Small changes in certain foreign currency exchange rates can produce material changes in the fair value of these contracts given the large net notional value of Berkshire’s open contracts ($21.5 billion as of June 30, 2005) and consequently, may produce exceptional volatility in reported earnings in a given period. Berkshire’s open contracts at June 30, 2005 reflect a net pre-tax loss of $71 million. During the first six months of 2005, the value of most foreign currencies decreased relative to the U.S. dollar. Thus, forward contracts produced pre-tax losses of $619 million for the second quarter and $926 million for the first six months. Berkshire first began “shorting” the U.S. dollar in 2002 and since inception in 2002 through June 30, 2005, has recognized pre-tax gains of $2.03 billion from forward currency forward contracts and has received $2.10 billion from counterparties in cash.
Shareholders would have lost less money if the positions weren't on in the last 6 months, but the currency market rumors of closeouts were spurious. I suspect he's going to be getting a few more tbills under ISDA netting from his counterparties over the next 6 months.
2Q numbers out on Friday, here. Of note, his foreign currency contracts, on which he says the following:
Gains and losses from foreign currency contracts arise as the value of the U.S. dollar changes against certain foreign currencies. Small changes in certain foreign currency exchange rates can produce material changes in the fair value of these contracts given the large net notional value of Berkshire’s open contracts ($21.5 billion as of June 30, 2005) and consequently, may produce exceptional volatility in reported earnings in a given period. Berkshire’s open contracts at June 30, 2005 reflect a net pre-tax loss of $71 million. During the first six months of 2005, the value of most foreign currencies decreased relative to the U.S. dollar. Thus, forward contracts produced pre-tax losses of $619 million for the second quarter and $926 million for the first six months. Berkshire first began “shorting” the U.S. dollar in 2002 and since inception in 2002 through June 30, 2005, has recognized pre-tax gains of $2.03 billion from forward currency forward contracts and has received $2.10 billion from counterparties in cash.
Shareholders would have lost less money if the positions weren't on in the last 6 months, but the currency market rumors of closeouts were spurious. I suspect he's going to be getting a few more tbills under ISDA netting from his counterparties over the next 6 months.
Wednesday, August 03, 2005
Buffett & Charlie Rose, and Munger
If you are keen for the Buffett interview with Charlie Rose, here it is.
A great note on Munger and his new book by fan Whitney Tilson, here, including a link to his economics speech at UCSB which is fascinating, here, and should be required reading at every MBA econ class (hint hint Professor Rayo).
Another burial of a normal American, and millions are left to an educational institution as a result of holding Berkshire. Gotta love compounding. Buffett must love reading these, here.
A great note on Munger and his new book by fan Whitney Tilson, here, including a link to his economics speech at UCSB which is fascinating, here, and should be required reading at every MBA econ class (hint hint Professor Rayo).
Another burial of a normal American, and millions are left to an educational institution as a result of holding Berkshire. Gotta love compounding. Buffett must love reading these, here.
