12 ms·

Someone, somewhere thinks this is not a super fucked up thing that is a beyond inefficient use of capital.

phocion 3y ago
> profits made from the myriad of wholly owned businesses such as insurance, railroads and utilities Genuinely curious where you would rather that capital be allocated?
- monero-xmr 3y ago
  Why not have the government seize all of it to pay a few days of deficit spending
  - sickofparadox 3y ago
    I thought the goal was to efficiently allocate the money, not waste it as fast as possible?
- oofta-boofta 3y ago
  [dead]
- raesene9 3y ago
  I'm not GP but, in theory, if a corporation can't find any opportunities for use of capital greater than holding it in safe/cash-like instruments and sees no possibility of those opportunities emerging in the short-medium term, it should be distributed to shareholders, who may well have use for it (even if those shareholders are just intending to put it into cash-like instruments themselves). The counter arguments that I've seen (there may well be others) are either that it does see those opportunities, but not at this precise moment in time, so is keeping the cash for later. At the level of $156b, this seems a bit unlikely but hey maybe they have some great ideas in the pipeline. The alternative is that they don't but aren't distributing it to shareholders, because of the tax implications of that distribution (and in general many corporations seem to favour buybacks rather than dividends for tax reasons), and they have some hope that those tax implications will change in the future (or their share price will fall, allowing for better buybacks), allowing them to then distribute the money in a way that benefits the shareholders more.
  - explaininjs 3y ago
    As an employee I'd much prefer my company to hold onto a rainy day // R&D fund than play stock market games.
  - RationalDino 3y ago
    Don't forget, reinsurance is a GIANT part of Berkshire Hathaway's business. If the right major disaster hits, they need a lot of liquid assets to pay it out. As https://www.reuters.com/article/us-berkshire-buffett-insurance/buffett-says-berkshire-can-handle-400-billion-mega-catastrophe-idUSKCN1G80RA https://www.reuters.com/article/us-berkshire-buffett-insuran... says, Buffett gives a 2%/year probability to a $400 billion mega-catastrophe that is likely to wipe out a good chunk of the insurance industry. If that happens, Berkshire Hathaway will be able to pay its share of the claims. Add that to your thinking. Does maintaining a $150 billion reserve sound so crazy now?
    - raesene9 3y ago
      I'd be extremely surprised if the parent company (berkshire hathaway) had structured their companies in a way that left them liable to re-insurance risk :) They may own re-insurance companies, but that doesn't make them liable for losses in those companies. My understanding of berkshire's business model was that they're heavily diversified, so that they're not as vulnerable to catastrophic loss from a single company/industry.
      - RationalDino 3y ago
        Yes, but the float in those insurance companies is invested by Berkshire Hathaway. So when people report on BH, they often quote the float as a pile of cash that Buffett is sitting on. I tried to verify this by looking at the financial report that it is based on. Which may be found at https://www.berkshirehathaway.com/qtrly/3rdqtr23.pdf https://www.berkshirehathaway.com/qtrly/3rdqtr23.pdf. Unfortunately the $157 billion figure quoted in the title does not appear anywhere in the report. But page 37 quotes the float as being approximately $167 billion at September 30, 2023. So I suspect that they are quoting the float, and have a typo. Though they might be doing a calculation off of some other numbers. My claim about how they think about it can be verified on page 32. "Our management views our insurance business as possessing two distinct activities – underwriting and investing. Underwriting decisions are the responsibility of the unit managers, while investing decisions are the responsibility of Berkshire’s Chairman and CEO, Warren E. Buffett, and Berkshire’s corporate investment managers. Accordingly, we evaluate the economic performance of underwriting operations without any allocation of investment income or investment gains and losses. We consider investment income as an integral component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized, as non-operating. We believe that such gains and losses are not meaningful in understanding the quarterly or annual operating results of our insurance businesses."
- TheOtherHobbes 3y ago
  BH could always buy Twitter.
- burkaman 3y ago
  I'm guessing they would rather it be allocated to anything at all, rather than sitting in a "cash pile".
  - phocion 3y ago
    I mean, it's not like there is a literal $150B pile of cash sitting in a vault anywhere. In practice "sitting in cash" means holding short-term Treasury bills / bonds, i.e. effectively loaning that money to the government to pay for public expenses.
- devnullbrain 3y ago
  Would you rather have $10 or 10% of the rights to $100 in a safe?
justrealist 3y ago
'Cash' is an easy term for 'safe liquid investments' aka BH is buying US treasury bonds because rates are high. So basically the Fed goaded BH into financing the federal deficit. Efficient? Well, that's for you to decide.
dragontamer 3y ago
As opposed to creating fake zombie companies like MoviePass or Jet.com or WeWork? Railroad investment seems like a far more long-term driver of everyday everyman quality of life than pop up companies that try to take our attention and suck down a $billion while failing to do so.
- toomuchtodo 3y ago
  They can both be symptoms of a suboptimal system configuration.
  - Obscurity4340 3y ago
    I guess I just feel like idle capital is the devil's plaything. While it could be available for R&D, isn't it more likely to go towards lobbying and bending or breaking the law while maintaining a war chest to discourage prosecution/accountabillity?
    - deleted 3y ago
      [deleted]
    - guidoism 3y ago
      That “idle capital” is pretty central to the Ben Graham way of doing things. You keep it around waiting for a great investment. Weird things happen like when silver crashed in price for a couple of days in 2020.
      - Obscurity4340 3y ago
        Nobody's arguing against the capitalist perspective in the sense that I don't question their methods to access and grow more/their existing capital. I'm saying I believe it is bad for pro-social ends and society and that we should be striking a better balance in ensuring we keep the money moving in a trickle up fashion if at all
        3y ago
felixarba 3y ago
ME! I think that, you found me
soared 3y ago
This is just the sun of multiple companies profits though - no different really than if a bunch of different companies added up there profits.
sdfghswe 3y ago
"Inefficient"? Depends on what you're optimizing for. If you're optimizing shareholder return, lets ask: do you think Berkshire Hathaway has delivered good shareholder returns for its investors? It has like 50 years of history now (?) so you can check whether or not it's efficient.
- Obscurity4340 3y ago
  I thinkk I might be unconsciously approaching this from the vantage point of society and allocating resources where they are most needed, not where they singularly gurantee the owner outsized returns that obviously are not available to everyone
  - sdfghswe 3y ago
    Ok that's very reasonable in abstract, but how do you define what "most needed" means?
    - Obscurity4340 3y ago
      That's part of the challenge of course, but I don't think there's any shortage of places to start. How about making sure every child has meals for school? How about making sure there are only nominal charges to get a post-secondary education like Germany, how about making sure we're drowning in units to rent as opposed to our current chronic starvation and wild-overvaluing of what having an apartment (a proxy for true freedom and individuality) means so everyone who shouldn't live together doesn't have to and indeed has an option short of murder to make that change. Tell me when to stop hehe
      - s1artibartfast 3y ago
        The government has no shortage of capital. It taxes 40 cents of every dollar in the US GDP, and then spends more in deficit. It does not have a revenue problem, it suffers from systemic inefficiency and misallocation problem. Most of the challenges are caused by self inflicted process, which cant be solved by throwing more money at( e.g. housing). The cost to feed every child is trivial, but not a priority. $5/day for the poorest 25% of schoolchildren nationally would be ~2 billion per year. California alone had a record budget surplus last year of 100 billion, and the US Federal gov is approaching that just for the war in Ukraine. The fed gifts 4 billion/year on Israel, and just passed a 15 billion dollar package.
zooq_ai 3y ago
Only if you ignore opportunity cost. Cash waiting to be deployed when you know there are better opportunities in the future has far more value than just distributing it as dividends, or worse, make bad investments and miss that better opportunities.
- Obscurity4340 3y ago
  But I feel like you're low-key saying we should never be moving money a single inch cuz the unicorn opportunity fairy might precipitate. Why do we even make them pay taxes, what if they had that tax money for their M&A department? Where does the logic end? Does't the money ever get bedsores from all the luxuriating you're advocating for here? Edit: also who's saying this wouldn't be applied symmetrically across the market to the extent that it fundamentally moots the issue of any one specific player not being ready and liquid enough to pounce on the opportunity. If everyone rises or falls in turn, the abillity to engage in opportunities wouldn't appear to be fundamentally altered since the aggregate abillity to pay would be conserved in some sense, if only proportionally so)
  - zooq_ai 3y ago
    1) The market will self correct. Not everyone has the long term vision or efficient capital allocation like Buffett. If this encourages more Buffetts then it's a great outcome for the society. 2) Corporations absolutely should pay 0% taxes. Why do we tax entities that provide employment, innovate and provide goods and services? It's so backwards. The amount of time, money and resources spent by corporations avoiding taxes can be used for other productive purposes. All taxes should be captured at an individual level. Corporations should only be taxed for usage of non-renewable, public goods so that they are incentivized to optimize for that
    - Obscurity4340 3y ago
      That comment I made about the money getting bedsores, what would you classify that as? Like I get its exaggerating or something but I can't quite put my finger on what its doing? Seems like a humorus melding of literal/figurative or something
voisin 3y ago
Buffett and Munger are among the most efficient capital allocators in history. Part of their success is patience - not feeling the need to put all their capital to work all the time and then miss out on opportunities when they arise.
- Obscurity4340 3y ago
  I'm sure if they kept doing it another 200 years they'd be accordingly even more successfull at it. Do we have 200 years to dick around and let the rich play economic parlor games while the rest of us overheat or starve to death and argue about the utility of capitalism and efficiency? Why should society give a fuck if Buffett misses his precious little new Coca Cola? Seems like a ridiculous preoccupation given the circumstances
  - voisin 3y ago
    I’m not sure what you are suggesting. That it is inefficient to have the cash on the books to allocate as they see fit (patience which has turned out to be efficient given their track record), or that because it’s there the government should take it to deal with climate change and famine? Are you arguing it is inefficient or you don’t like the way capitalist democracies are structured? I can’t argue the latter as I agree with you, but the former is pretty objectively (over any period of time greater than a half decade) incorrect given their track record.
    - Obscurity4340 3y ago
      This is a more a latter-argument clash of ideals I guess. I was never arguing I know how to invest better than Buffett/Munger etc. I'm not even specifically picking on them, there's many companies with stacks in the back that slowly slip away from the society they originated from till its all in Ireland or Bahamas or wherever the current tax shelter/capital flight hotspot du jour resides.
  - mech7654 3y ago
    Regardless of whether the wealthy people in your country are taxed a small bit or taxed a lot, you should want them to be efficient allocators of capital. Would you rather it be the case that every investor in your economy sank all their money into umpteen duplicates of pets.com?
michael1999 3y ago
He's waiting for a crash to buy some bargains. At current prices, I don't blame him.
- Obscurity4340 3y ago
  I wish someone would do like a documentary/simulation of how deals are sought after a literal crash, like meteorite or some social system collapsing in a palpable way and all the out-of-work financiers who's mode of action has become irrlevant and they are no better off than travelling baseball card salesmen, just a little less deadly and less able to fruitfully weaponize their greed.
  - danielmarkbruce 3y ago
    Yeah, they are screwed just like everyone else. Don't imagine for a second they aren't aware of it.
danielmarkbruce 3y ago
It's probably 100b excess in a 750b company. It's earning 4 or 5% and gives a lot of option value to one of the worlds greatest investors should things go south. Given the current climate of wars, high interest rates, government spending... there is a decent chance he'll have a great chance to put that money to work at high rates of return here in the next few years. And if the concern is about society... It's 150b that berkshire has lent to the government, who is spending the money on things for society. If someone doesn't like the way the government are spending it, that's another issue.

> profits made from the myriad of wholly owned businesses such as insurance, railroads and utilities Genuinely curious where you would rather that capital be allocated?

monero-xmr 3y ago
Why not have the government seize all of it to pay a few days of deficit spending
- sickofparadox 3y ago
  I thought the goal was to efficiently allocate the money, not waste it as fast as possible?
oofta-boofta 3y ago
[dead]
raesene9 3y ago
I'm not GP but, in theory, if a corporation can't find any opportunities for use of capital greater than holding it in safe/cash-like instruments and sees no possibility of those opportunities emerging in the short-medium term, it should be distributed to shareholders, who may well have use for it (even if those shareholders are just intending to put it into cash-like instruments themselves). The counter arguments that I've seen (there may well be others) are either that it does see those opportunities, but not at this precise moment in time, so is keeping the cash for later. At the level of $156b, this seems a bit unlikely but hey maybe they have some great ideas in the pipeline. The alternative is that they don't but aren't distributing it to shareholders, because of the tax implications of that distribution (and in general many corporations seem to favour buybacks rather than dividends for tax reasons), and they have some hope that those tax implications will change in the future (or their share price will fall, allowing for better buybacks), allowing them to then distribute the money in a way that benefits the shareholders more.
- explaininjs 3y ago
  As an employee I'd much prefer my company to hold onto a rainy day // R&D fund than play stock market games.
- RationalDino 3y ago
  Don't forget, reinsurance is a GIANT part of Berkshire Hathaway's business. If the right major disaster hits, they need a lot of liquid assets to pay it out. As https://www.reuters.com/article/us-berkshire-buffett-insurance/buffett-says-berkshire-can-handle-400-billion-mega-catastrophe-idUSKCN1G80RA https://www.reuters.com/article/us-berkshire-buffett-insuran... says, Buffett gives a 2%/year probability to a $400 billion mega-catastrophe that is likely to wipe out a good chunk of the insurance industry. If that happens, Berkshire Hathaway will be able to pay its share of the claims. Add that to your thinking. Does maintaining a $150 billion reserve sound so crazy now?
  - raesene9 3y ago
    I'd be extremely surprised if the parent company (berkshire hathaway) had structured their companies in a way that left them liable to re-insurance risk :) They may own re-insurance companies, but that doesn't make them liable for losses in those companies. My understanding of berkshire's business model was that they're heavily diversified, so that they're not as vulnerable to catastrophic loss from a single company/industry.
    - RationalDino 3y ago
      Yes, but the float in those insurance companies is invested by Berkshire Hathaway. So when people report on BH, they often quote the float as a pile of cash that Buffett is sitting on. I tried to verify this by looking at the financial report that it is based on. Which may be found at https://www.berkshirehathaway.com/qtrly/3rdqtr23.pdf https://www.berkshirehathaway.com/qtrly/3rdqtr23.pdf. Unfortunately the $157 billion figure quoted in the title does not appear anywhere in the report. But page 37 quotes the float as being approximately $167 billion at September 30, 2023. So I suspect that they are quoting the float, and have a typo. Though they might be doing a calculation off of some other numbers. My claim about how they think about it can be verified on page 32. "Our management views our insurance business as possessing two distinct activities – underwriting and investing. Underwriting decisions are the responsibility of the unit managers, while investing decisions are the responsibility of Berkshire’s Chairman and CEO, Warren E. Buffett, and Berkshire’s corporate investment managers. Accordingly, we evaluate the economic performance of underwriting operations without any allocation of investment income or investment gains and losses. We consider investment income as an integral component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized, as non-operating. We believe that such gains and losses are not meaningful in understanding the quarterly or annual operating results of our insurance businesses."
TheOtherHobbes 3y ago
BH could always buy Twitter.
burkaman 3y ago
I'm guessing they would rather it be allocated to anything at all, rather than sitting in a "cash pile".
- phocion 3y ago
  I mean, it's not like there is a literal $150B pile of cash sitting in a vault anywhere. In practice "sitting in cash" means holding short-term Treasury bills / bonds, i.e. effectively loaning that money to the government to pay for public expenses.
devnullbrain 3y ago
Would you rather have $10 or 10% of the rights to $100 in a safe?

justrealist 3y ago

'Cash' is an easy term for 'safe liquid investments' aka BH is buying US treasury bonds because rates are high. So basically the Fed goaded BH into financing the federal deficit. Efficient? Well, that's for you to decide.

dragontamer 3y ago

As opposed to creating fake zombie companies like MoviePass or Jet.com or WeWork? Railroad investment seems like a far more long-term driver of everyday everyman quality of life than pop up companies that try to take our attention and suck down a $billion while failing to do so.

toomuchtodo 3y ago
They can both be symptoms of a suboptimal system configuration.
- Obscurity4340 3y ago
  I guess I just feel like idle capital is the devil's plaything. While it could be available for R&D, isn't it more likely to go towards lobbying and bending or breaking the law while maintaining a war chest to discourage prosecution/accountabillity?
  - deleted 3y ago
    [deleted]
  - guidoism 3y ago
    That “idle capital” is pretty central to the Ben Graham way of doing things. You keep it around waiting for a great investment. Weird things happen like when silver crashed in price for a couple of days in 2020.
    - Obscurity4340 3y ago
      Nobody's arguing against the capitalist perspective in the sense that I don't question their methods to access and grow more/their existing capital. I'm saying I believe it is bad for pro-social ends and society and that we should be striking a better balance in ensuring we keep the money moving in a trickle up fashion if at all
      - 3y ago

felixarba 3y ago

ME! I think that, you found me

soared 3y ago

This is just the sun of multiple companies profits though - no different really than if a bunch of different companies added up there profits.

sdfghswe 3y ago

"Inefficient"? Depends on what you're optimizing for. If you're optimizing shareholder return, lets ask: do you think Berkshire Hathaway has delivered good shareholder returns for its investors? It has like 50 years of history now (?) so you can check whether or not it's efficient.

Obscurity4340 3y ago
I thinkk I might be unconsciously approaching this from the vantage point of society and allocating resources where they are most needed, not where they singularly gurantee the owner outsized returns that obviously are not available to everyone
- sdfghswe 3y ago
  Ok that's very reasonable in abstract, but how do you define what "most needed" means?
  - Obscurity4340 3y ago
    That's part of the challenge of course, but I don't think there's any shortage of places to start. How about making sure every child has meals for school? How about making sure there are only nominal charges to get a post-secondary education like Germany, how about making sure we're drowning in units to rent as opposed to our current chronic starvation and wild-overvaluing of what having an apartment (a proxy for true freedom and individuality) means so everyone who shouldn't live together doesn't have to and indeed has an option short of murder to make that change. Tell me when to stop hehe
    - s1artibartfast 3y ago
      The government has no shortage of capital. It taxes 40 cents of every dollar in the US GDP, and then spends more in deficit. It does not have a revenue problem, it suffers from systemic inefficiency and misallocation problem. Most of the challenges are caused by self inflicted process, which cant be solved by throwing more money at( e.g. housing). The cost to feed every child is trivial, but not a priority. $5/day for the poorest 25% of schoolchildren nationally would be ~2 billion per year. California alone had a record budget surplus last year of 100 billion, and the US Federal gov is approaching that just for the war in Ukraine. The fed gifts 4 billion/year on Israel, and just passed a 15 billion dollar package.

zooq_ai 3y ago

Only if you ignore opportunity cost. Cash waiting to be deployed when you know there are better opportunities in the future has far more value than just distributing it as dividends, or worse, make bad investments and miss that better opportunities.

Obscurity4340 3y ago
But I feel like you're low-key saying we should never be moving money a single inch cuz the unicorn opportunity fairy might precipitate. Why do we even make them pay taxes, what if they had that tax money for their M&A department? Where does the logic end? Does't the money ever get bedsores from all the luxuriating you're advocating for here? Edit: also who's saying this wouldn't be applied symmetrically across the market to the extent that it fundamentally moots the issue of any one specific player not being ready and liquid enough to pounce on the opportunity. If everyone rises or falls in turn, the abillity to engage in opportunities wouldn't appear to be fundamentally altered since the aggregate abillity to pay would be conserved in some sense, if only proportionally so)
- zooq_ai 3y ago
  1) The market will self correct. Not everyone has the long term vision or efficient capital allocation like Buffett. If this encourages more Buffetts then it's a great outcome for the society. 2) Corporations absolutely should pay 0% taxes. Why do we tax entities that provide employment, innovate and provide goods and services? It's so backwards. The amount of time, money and resources spent by corporations avoiding taxes can be used for other productive purposes. All taxes should be captured at an individual level. Corporations should only be taxed for usage of non-renewable, public goods so that they are incentivized to optimize for that
  - Obscurity4340 3y ago
    That comment I made about the money getting bedsores, what would you classify that as? Like I get its exaggerating or something but I can't quite put my finger on what its doing? Seems like a humorus melding of literal/figurative or something

voisin 3y ago

Buffett and Munger are among the most efficient capital allocators in history. Part of their success is patience - not feeling the need to put all their capital to work all the time and then miss out on opportunities when they arise.

Obscurity4340 3y ago
I'm sure if they kept doing it another 200 years they'd be accordingly even more successfull at it. Do we have 200 years to dick around and let the rich play economic parlor games while the rest of us overheat or starve to death and argue about the utility of capitalism and efficiency? Why should society give a fuck if Buffett misses his precious little new Coca Cola? Seems like a ridiculous preoccupation given the circumstances
- voisin 3y ago
  I’m not sure what you are suggesting. That it is inefficient to have the cash on the books to allocate as they see fit (patience which has turned out to be efficient given their track record), or that because it’s there the government should take it to deal with climate change and famine? Are you arguing it is inefficient or you don’t like the way capitalist democracies are structured? I can’t argue the latter as I agree with you, but the former is pretty objectively (over any period of time greater than a half decade) incorrect given their track record.
  - Obscurity4340 3y ago
    This is a more a latter-argument clash of ideals I guess. I was never arguing I know how to invest better than Buffett/Munger etc. I'm not even specifically picking on them, there's many companies with stacks in the back that slowly slip away from the society they originated from till its all in Ireland or Bahamas or wherever the current tax shelter/capital flight hotspot du jour resides.
- mech7654 3y ago
  Regardless of whether the wealthy people in your country are taxed a small bit or taxed a lot, you should want them to be efficient allocators of capital. Would you rather it be the case that every investor in your economy sank all their money into umpteen duplicates of pets.com?

michael1999 3y ago

He's waiting for a crash to buy some bargains. At current prices, I don't blame him.

Obscurity4340 3y ago
I wish someone would do like a documentary/simulation of how deals are sought after a literal crash, like meteorite or some social system collapsing in a palpable way and all the out-of-work financiers who's mode of action has become irrlevant and they are no better off than travelling baseball card salesmen, just a little less deadly and less able to fruitfully weaponize their greed.
- danielmarkbruce 3y ago
  Yeah, they are screwed just like everyone else. Don't imagine for a second they aren't aware of it.

danielmarkbruce 3y ago

It's probably 100b excess in a 750b company. It's earning 4 or 5% and gives a lot of option value to one of the worlds greatest investors should things go south. Given the current climate of wars, high interest rates, government spending... there is a decent chance he'll have a great chance to put that money to work at high rates of return here in the next few years. And if the concern is about society... It's 150b that berkshire has lent to the government, who is spending the money on things for society. If someone doesn't like the way the government are spending it, that's another issue.