TRACK MARGINS

“There were three or four really key things that the media misses and most commentators miss on it. And so where operating earnings were $44,500,000,000 for the year, that was down by almost $3,000,000,000 year over year. So a number of things transpired. So one thing you've gotta do is adjust for currency movements. So in the footnote to that operating earnings release, they tell you about any gains or losses on the currency translation of Berkshire's denominated in foreign currencies.”

“But I think to your point about a slow cognitive decline, we talk about tulipomania. This is my roundtable where I've got thirty, thirty two, really my best friends, colleagues, contemporaries, peers in the investment world that I've gotten over the years. ... I've got enough people in my universe that would I believe would be candid and say, Chris, you're starting to slow down. You need to do some you need to think about not being having your finger on the trigger of capital.”

“Anthropic is just my understanding is and there's even an article in this morning's journal. They're just killing OpenAI with the success in corporate in corporations with their clawed models. And so OpenAI share of of AI search has dropped from mid eighties to mid sixties, and it's falling fast. You've got regulatory risk. We're gonna find out on fair use. The Europeans are very aggressive in this room. And you've got a you've got a lawsuit from Elon when Sam A flipped from where this thing is a not for profit.”

“These companies have gone from net cash in some cases to a little bit of net debt. You don't have enough cash flow from operations to support share repurchases, to support all of the things that companies spend money on if they're going to dedicate this vast amount of money to CapEx. So when you put CapEx on the balance sheet, regardless of the number of years over which you amortize it for depreciation, you're putting depreciation expense, which largely is maintenance on the balance sheet, and now you're putting interest on the balance sheet, which is interest expense.”

“To argue that the high current margins coupled with very high multiples, you can bake in scenarios for each of the five variables and it's really hard to get to more than a 5% return. And depending on where margins and multiples head from here, you can get to a loss for a decade, which is what happened after the 1999 peak.”

“You could say in the case of the shareholder, those repurchases supported the stocks and that's why we're trading at 26 times earnings today and that's probably the case. But those were dollars that didn't go into reinvestment in property, plant and equipment or acquisitions. That was money that was spent simply levitating a stock to make executives rich, driving up the stock price to higher and higher levels.”

“So I come up with when you just do a simple average of my four methods, a progression of 9.3% year over year, which gets you to a little over 1,200,000,000,000, almost 1 and a quarter trillion. My market cap would be intrinsic value and on a per share basis that went from the b shares a year ago were $5.22. I've got them at $5.70 per share now and the a shares are up to 855,396.”

“At the current price this morning, the stock's trading at about $0.85 on the dollar of fair value. We had a chance to buy it a couple of times. So Berkshire stopped buying shares back in 2024. Greg announced a couple of weeks ago after the stock declined post the earnings release that he had initiated share repurchases again in consult with Warren and made sense in that the valuation relative to intrinsic value at least per my calculation was back down to where it was in 2024 when they stopped buying shares back.”

“To argue that the high current margins coupled with very high multiples, you can bake in scenarios for each of the five variables and it's really hard to get to more than a 5% return. And depending on where margins and multiples head from here, you can get to a loss for a decade, which is what happened after the 1999 peak. Two interesting things. One, when Warren talked at length many times about the tailwind that he enjoyed from growth in real GDP per capita. The United States was the economic engine of the world.”

“But it's it's a proxy for it's gonna be a tough hurdle for the aggregate of all of these guys in this arms race because the numbers are just frankly staggering. And I don't see how you've got enough revenue and then profit opportunity to make the whole thing generate a return on capital. Maybe they do, maybe they don't. I don't need to play in the game, but I think it's a tough hurdle.”

“I thought it was good. First time writing, he's not going to be as funny ever as Warren, But I think he hit on all of the things he needed to touch on. He paid a nice, brief early tribute to Warren as he should have done, really demonstrated that he's a Berkshire guy. I mean, he gets the culture, he gets the integrity, he gets the value system of the place.”

“In fact, for twenty five years, it's grown by 1.8%, but you're essentially if 30% to 40% of what every company makes goes to retire shares, you have not shrunk the share count, who got rich? The executives. You could say in the case of the shareholder, those repurchases supported the stocks and that's why we're trading at 26 times earnings today and that's probably the case. But those were dollars that didn't go into reinvestment in property, plant and equipment or acquisitions. That was money that was spent simply levitating a stock to make executives rich, driving up the stock price to higher and higher levels.”

“Greg announced a couple of weeks ago after the stock declined post the earnings release that he had initiated share repurchases again in consult with Warren and made sense in that the valuation relative to intrinsic value at least per my calculation was back down to where it was in 2024 when they stopped buying shares back. So I've been great made the announcement the stock rose. We can go down a rabbit hole for a minute if you want, but even beyond my GAAP adjusted earnings, simply taking operating earnings, which Berkshire doesn't make has a supplemental release to the 10 ks's and the 10 Qs's and they'll strip out from GAAP earnings, the earnings from the stock portfolio and they'll break out earnings by subsidiary.”

“There's a lot to integrity and morality, and either you've got it or you don't. And there's no pay package. There's no compensation structure that's gonna alter behavior in how you are. I think it's unfortunate the way most compensation systems are structured with a modest salary performance bonus that may or may not have hurdles, and then you've got longer term and shorter term hurdles on your performance shares, your restricted shares. There's just too much short termism that comes with the way most comm structures are structured.”

“If you take margins down from today's 12.8% to 10, and you're gonna crucify a 26 multiple to earnings. So multiples come in when margins come in. Wall Street Investors in general don't like compressing profit margins and they punish the stocks with lower multiples, lower and lower multiples when margins come in. I think there's a heck of a lot of risk in margins for reasons related to the CapEx, but also reasons related to how the economy is structured and competitive forces.”

“On 400,000,000,000 of CapEx, if you're writing off the asset over ten years, which is too long, there's a debate over whether it should be three or four years or five or six years. It's not about the debate, it's you're putting depreciation on the income statement, depreciation expense, and it's a real expense, it's a real charge. If your depreciation schedule linearly on a straight line basis is ten years, on 400,000,000,000 of CapEx, that's $40,000,000,000 of depreciation expense.”