In the category of I thought I’d seen it all, on a day when $548B market cap Berkshire Hathaway $BRKA $BRKB hits an all-time high, it is smaller by market cap than $TSLA? The car company is reported as a $500B market cap. No it’s not... 1/
On a diluted basis, accounting for outstanding in the money option shares and restricted shares, it’s actually now over $600 billion. Hmm. A $550B market value, $415B book value conglomerate producing $40B in PROFIT or a $600B market cap car company producing $30B in REVENUES? 2/
It’s not an either/or, but the car company requires a dollar in new capital to produce a dollar in incremental revenues. By contrast, Berkshire produces cash. Lots of it. To date, Tesla has raised $15B debt and $21.6B in common stock, $36.6B combined. 3/
Despite the capital raised and now selling ~500k vehicles this year, cumulative retained earnings are negative $5.7B. Tesla can not internally finance its growth. It MUST borrow or sell more stock if it is to grow. What will it do? 4/
In the past year, with the stock price way “up,” they have sold $8B in shares, not to institutions via road shows with nasty things like required prospectuses, but stuffed off to the public in “at-the-market” periodic sales. Ethical? Who knows? Smart? Yes. 5/
Will they continue selling stock that now trades for 20x sales? Count on it. To whom? Look no further than the S&P 500 committee adding $TSLA to its $30T, enormously passively invested index, in my opinion one of the worst decisions they’ve ever made (the list is not short). 6/
Since the announcement three weeks ago the stock is up 35% and doesn’t come in the index for nearly another month, on 12/21. If you had to find the dumbest money that had to invest at any price, regardless of fundamentals, look no further. 7/
As of today it would be the 6th largest component of the index, ahead of $BRK. It seems both $BRK and $TSLA are the smart money though. Berkshire is BUYING its shares, $18B of them so far this year. $TSLA is SELLING theirs because they need money, $8B so far this year. 8/
Ask yourself, if you are selling your shares TO Berkshire, are you the smart money? If you are buying shares FROM Tesla, are you also the smart money? 9/
It seems to me Telsa has hooked a whale in the $SPX committee, but it will be their passive followers, like Captain Ahab, who will be dragged to their death. @elonmusk may be a charlatan or a huckster, but he’s definitely no fool. 10/10
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Quite authoritative, @jack. Are you equally confident in the currency of $TWTR? It seems to have been diluted by 40% since your 2013 IPO, as shares outstanding rose from 569 million to 800 million, dilution of 5% a year. 1/
With a share price that’s $1.46 below the closing price on the day of the IPO, with no dividends ever paid, it appears insiders have fared slightly better than your shareholders? 2/
With the stock trading at a $35 billion market cap, ten times your revenues, I wonder how the long-suffering $TWTR shareholder will make money. 3/
Berkshire Hathaway will show a LARGE purchase, likely in a new name, and a lot of activity in their equity portfolio when they file the 3Q 13-F either after the close or on Monday. In total, $BRK purchased $17.6B and sold $12.8B in common stocks during 3Q. 1/
It looks they sold at least another 100 million shares of $WFC early in the quarter, following the 42% sale previously announced in 2Q. They likely either sold the the rest of the Wells and/or continued to sell down the $JPM and $PNC positions. 2/
Look for $BAC to be materially upped by ~$2B. If all 3 banks were sold then there will be a buy of an additional financial company as well, on top of the $BAC increase. There is a likely sale of ~$4B of $AAPL with a $1B cost basis, so from Todd/Ted, most likely Ted. 3/
If a company like $DIS trades at 18x earnings and 2.4x BV, why pay 25% of profit to a taxable investor who loses 23.8% to federal tax (possibly 43.4% depending on next week), To now reinvest my remaining after-tax $76.20 per $100 in dividends received (or $56.60...) 1/
I have to pay the 2.4 premium to BV, a 5.6% adjusted yield to a 13.3% ROE. If the company instead keeps the profit, and with ALL $100 dollars can buy back shares at the 5.6% earnings yield, retire debt if it’s excessive or expensive, make attractive 2/
acquisitions, or invest internally in at attractive returns, isn’t the investor better off? If $DIS, continuing with our example, earns 13.3% on equity & has projects available for investment that may earn perhaps ~20% returns, why pay a dividend that’s taxed, or at all? 3/
Too many managements will tell you the shareholder earned $2B because non-cash stock-based compensation is not a real cash expense and can be ignored. That may be correct but it’s $1B that the shareholder doesn’t get, insiders do. 1/
You see this in adjusted earnings or adjusted EBITDA presentations. Managements may also tell you they “returned” $3B to shareholders in the form of dividends and share repurchases. On a $20B market cap that’s a 15% shareholder return. All nonsense. 2/
Had the $1B in shares not been given to executives/employees, profit would have been ~$2B (ignore tax treatment). You need to know what percentage of shares outstanding are being granted each year and how many of each type (options/RSU’s/PRSU’s) are outstanding. 3/
This thread / debate has been interesting to read. Both sides are partly correct. The AQR paper referenced is a good read and did ferret out the proper conclusion that Berkshire has been rewarded for keeping quality high and price to value low, although beta and (1/22)
(2/22)low price-to-book wouldn’t be the measures I’d use. It drew some questionable conclusions and employed hypothetical, far from real world employable methods. The other side in the thread correctly I think, argued against a factor analysis of Berkshire having much utility
(3/22)but should have reasoned through counterpoints.
I’d suggest, in retort to the AQR paper and conclusion, that Berkshire enjoyed unique tailwinds from 1974 to 1998, and beyond to some extent, that none can replicate and stand to be harmed when trying, ala Greenlight Re and