Yes. Buffet has cash. Buffet has lots of Cash for the last 10 years or so, and has said that there has been a distinct lack of opportunity to deploy that cash in significant chunks to buy good companies at reasonable valuations.
What I'd really like to know is the breakdown of their exposure to life insurance (re?) vs other insurance products (auto) that might not be as badly affected by the pandemic. He's said that they've been on a good insurance run for a while, but that it will end at some point with a really bad event. I don't know if this is that bad event.
Health insurance is probably going to be fine, because there will be lots of government money flowing into healthcare to drop prices (free tests etc). And total hospital bed capacity hasn't majorly increased (as in: nowhere near 2x), so the total cost they can incur per month isn't significantly higher. May even be slightly lower per patient because most complex treatments have been put on-hold.
Life insurance may also be profiting depending on the structure of the portfolio. Differs a bit per market but some common products pay a monthly amount from let's say 65 until death. A virus might decrease life expectancy of that group from 81 to 77 or something, a 25% drop in required payouts. On the other hand they're often heavily invested in the financial markets which took a big hit. So could go both ways.
Health insurance in the US are expecting to have a bumper year this year because all of the elective operations have been cancelled.
They have raised their expectations for next year because the pandemic gives them an excuse to increase prices and as we know every medical procedure represents profit to them and the pandemic will lead to a glut of said procedures next year.
Health insurance will be fine. There was a study (no citation handy) that looked at severe flu seasons, and their impact on health insurers. Barely a blip.
Remember, ~80% of people have minimal symptoms after being infected with SARS-CoV-2.
You can therefore absorb a lot of care for 20%, assuming most people are insured...
Over the past decade a low season of 140,000 hospitalizations to a high of 810,000. For this to be 20x worse you'd need each stay from the flu to be 1 day and each for COVID-19 to be 20, and then we'd need to reach somewhere between 700,000 - 4,000,000 positive COVID-19 cases in the U.S. under the current testing methods which leads to approximately a 20% hospitalization rate.
On the death calculation COVID-19 would need to kill 240,000 to 1.2M for a 20x outcome. This is more possible if you go to the low end and we limited mitigation efforts (which we aren't).
Flu, like automobile accidents, are a massive impact on society though because they are now a normal occurrence do not get the media coverage.
> Flu, like automobile accidents, are a massive impact on society though because they are now a normal occurrence do not get the media coverage.
The flu gets a lot less coverage, because it mostly kills people who were going to die anyway. This is not true of automobile accidents, and they are correspondingly viewed as much worse.
> Thus, Americans 85+ experience almost over 40% of all combined flu/pneumonia mortality, while Americans under 45 years old endure less than 2%. The main reason we rarely hear about flu deaths is that when people die of flu, folks at the funeral probably call “old age” the cause of death. Logically, this isn’t even wrong, because there’s joint causation; if the deceased weren’t old, they almost certainly wouldn’t have died of flu. And philosophically, you can accurately say that most people who die of flu would soon have died of something else.
Posting this update half way through the 3-week period. We are now at 16,510 deaths total(1) on April 9th.
I'm not suggesting COVID-19 isn't bad, it just isn't 20x flu bad with the mitigation we have in place.
We won't really understand the statistics on this until a year or more out when analysis of all the death certificates come in and we can look at how 2020 is different, i.e. for each COVID-19 how many fewer flu deaths did we have? etc.
> My life insurance doesn't mention pandemic or acts of god. Suicide yes. Pandemic no.
I'd be pretty surprised if this wasn't true. Who's taking out life insurance exclusively for predictable causes of death? You don't insure those, you avoid them.
"Acts of god" are most of the reason you'd want life insurance in the first place.
I don't think life insurance will take a hit. The large majority of deaths we're seeing are among the very ill, ie folks who already had a high short term chance of dying. Within a couple years the insurers would have paid out all that money anyway. And correct me if I'm wrong but most of the time you'd only have life insurance if you have dependents to look after, ie when you're 40 and not when you're 80. The cost of life insurance for an 80yo with 3 illnesses must be prohibitive.
Correct. In fact based on demographic data locally (Canada), deaths from motor incidents have come down enough to offset Corona deaths. Ergo, it's cheaper to have a pandemic.
Parent comment is probably referring more to the next monster natural disaster(s) racking up many billions in damages: hurricane, flood, earthquake, etc. The insurance business feels good when it's bringing in payments and not paying out much.
> Buffett prizes financial security and has vowed to never exhaust Berkshire's cash pile.
Supreme risk management, risking only a fraction of the cash. Do the same and there will always be opportunities to buy on any valley/dive. The biggest the valley/dive, the biggest buying opportunity.
Can someone with more experience explain what does "cash" mean in this context? Is it saying that 100 billion isn't actively invested and is simply being depreciated by inflation? It's said it's tied up in 'short-term investments' but that's not clear to someone who doesn't have knowledge of this domain.
Berkshire has almost all of their cash in short term treasury bills. It's a cash equivalent, because you don't want to keep 100bn in a checking account, and it does get hurt by inflation. But that's OK, because making a purchase when the time is right will more than make up for it. Cash is still king, in Buffet's world.
I'd just add that in addition to that $128B in liquid Treasury securities (which is what "cash" means when we talk about such large amounts) they also have about $103B debt that cancels their net cash-debt position to about $25B. The debt has long maturity, though, so most of the cash can be deployed immediately.
Also, Buffett applies something like the Taleb's "barbell method" to his holdings: he never buys high grade corporate bonds. It either has to be something "distressed", a convertible, a preferred stock, warrants, common stock well below intrinsic value, best if they call him and beg him to buy, i.e. something with high potential returns, or "pristine" and boring assets, like govt securities.
As he says himself - when things get bad everything freezes. In 2008 even Berkshire couldn't get credit.
The US government gives out debt of varying duration. Generally speaking, the shorter the duration the lower the interest rate and the higher the liquidity ("ease of conversion to cash").
Treasury bills are is debt with a duration of less than a year and BRK has a lot of those:
Sure, it’s likely a mixture of cash, short term treasuries, i.e. TBills and a few other things. None are volatile, and short term investments generally exist to protect against inflation, with an easy eject button if you need to convert to cash quickly.
Target (TGT) is, overall, a well-run company with a straightforward business model. It would be a smart move to buy them at a discount because either they continue to expand into other markets and/or they could sold to the likes of Walmart or Amazon sometime in the future.
Improvements: They do need to move more towards an online/in-store-equivalency platform model like Walmart, maybe with a handheld scanner self-checkout and loss-prevention AI. Heck, skip the stores entirely with delivery only-sales might be a better idea to eliminate shrinkage.
I can't see WB buying any other companies on the list besides GE or 3M because it's not clear the others are diversified, defensible, undisruptable and simple enough.
At the level Berkshire operates at the calculation is different from generically investing in the market. Buffet buys companies, or big chunks of them, so what matters is the risk profile and liquidity of the individual company. Also when he buys by definition he will create the bottom price of the stock. Him buying will make it go up, so he can’t wait until the price hits bottom, he waits until he has the best buying opportunity and that includes beating other potential buyout investors to the deal so what they are doing matters too.
I do agree though, prices have recovered a bit due to the big stimulus package, but there is a lot more bad news to come and markets will react to that.
Okay since you opened the door to playing "call the bottom" where do you think it will be? I'll swag first. The end will be in sight when the US new case rate hits its inflection point and begins decreasing. From that you can sorta tell when things will settle down biology-wise.
Sure, but that doesn’t necessarily coincide with peak economic impact. We may be looking at some traumatic bankruptcies and economic disruptions, and those will likely lag the medical impact, in some cases by quite a lot. Some of the habits and behaviour changes people are developing may stick, causing severe problems for some companies or even whole industries, and this will play out over a long time. So I can’t say when we will hit bottom, there are too many uncertainties. Also the bottom for some industries and companies will differ from others.
I'm still reading things in other US-centric forums (automotive, oil & gas industry) where people are remarking about "hysteria" or acknowledging current numbers but implicitly assuming that the increase in cases is zero.
So I think it's very dangerous to assume that prices are accurate if probably millions of people haven't caught up to reality yet. One thing that I read is that the current rebound might have been largely driven by automatic rebalancing of institutional investors who split between stocks and bonds.
Whatever Warren Buffet does at this stage is going to be a success. Everything he does becomes self-fulfilling.
People like him don't predict market movements, they cause them.
He actually did better when he was a complete unknown. Berkshire is huge now because Buffett averaged 20% annual gains for decades. Now his returns are down because it's hard to find good deals on companies big enough to matter to him.
maybe he's got the cash - but i'm doubtful he would blow it on them. As he's indicated, he's gotten better returns from buying parts of companies than buying them out whole. I would be surprised if he does any M&A during this downturn, likely instead opting to invest more into the positions he's already got.
I believe he thinks that old media is mostly dead, or at least a rather poor investment (cigar butt at best, but they're not doing cigar butt for decades). And he's focused only on his fiduciary duty towards shareholders, whom he calls partners, not the world at large.
Someone like Seth Klarman may buy those if they get into deep distress. If it happened it would probably be via senior bonds and chapter 11.
The problem is, in order to tax him, you would need to tax every other american mega-billionare in his tax-bracket, and that probably doesn't sit well with recurrent SUPERPAC donors which legally influence your politicians with loads of cash for their political campaigns.
75% of Gates Foundation's money end's up in big four consulting firms, which by gates himself do a better work at deploying money than other more rational actors like local governments or communities.
So yeah, prob that's not charity too... it's just a way to get the maximum available tax cut, you donate to your own or your friends charity and he or she funnels backs the money where you need it to be.
If he gives away $100 billion, and pays zero taxes, the money is still gone.
When I see this sort of comment, I always think of Seinfeld:
"Kramer: They just write it off. Jerry: Write it off of what? Kramer: They just write it off! Jerry: You don't even know what a write off is, do you? Kramer: No. Do you?"
I'm not sure why this is getting downvoted. As you say, Buffet himself is asking to be taxed more. It's not really relevant to say that he's giving it to charity here. (Although I think it's great that he is.)
Billionares say things like that all the time but that's just for publicity. Truth is, if he really wanted to be taxed more, he could. There's no need to change any laws for that. His Berkshire Hathaway is already claiming a lot of tax breaks to lower their tax liabilities - if he wants to contribute more to federal budget he just needs to stop doing that :) After all, claiming a tax break is a privilege, it's not mandatory.
What I'd really like to know is the breakdown of their exposure to life insurance (re?) vs other insurance products (auto) that might not be as badly affected by the pandemic. He's said that they've been on a good insurance run for a while, but that it will end at some point with a really bad event. I don't know if this is that bad event.