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Berkshire Hathaway Inc. Message Board

jad1148 88 posts  |  Last Activity: Aug 30, 2015 7:03 PM Member since: Dec 8, 2002
  • jad1148 jad1148 Jul 21, 2015 10:34 AM Flag

    IMO, NAV and Book Value are very similar concepts. Stand alone, their both meaningless. The premium/discount (to NAV) or multiple (to BV) a rational investor should be willing to pay should depend on how much distributable cash the investment generates today and the investor's expectations regarding it's future rate of change.

  • jad1148 jad1148 Jul 21, 2015 10:07 AM Flag

    My buy-in target (IF I buy at all) is just a bit south of $6. I believe, to avoid a return of capital, they'll probably have to reset the monthly distribution per share from the current $0.085 to ~$0.065 (in September?, their FY ends in February). I am willing to wait and see.

  • jad1148 jad1148 Jul 19, 2015 8:46 PM Flag

    I'll have to keep an eye on this one. The 0.48% expense ratio isn't terrible, Vanguard charges 0.42% for their managed payout fund. Weeding out the squatters (the non-dividend payers) and capping any individual stock at a maximum portfolio weight of 5% might actually be worth the fee (Mr. Wonderful's royalty?).

  • Reply to

    If you are a betting man?

    by par7551 Jul 19, 2015 10:30 AM
    jad1148 jad1148 Jul 19, 2015 10:58 AM Flag

    No, I don't bet, at least not in the "day trader" sense of the word. IF I invest in this at all, it will be for the stream of payments it provides over a 3 to 7 year holding period. I have no interest whatsoever in paying ~$7 for something I believe is only worth ~$6.

  • Reply to

    Seeking Alpha Article

    by rwilcox41 Jul 10, 2015 3:41 PM
    jad1148 jad1148 Jul 19, 2015 8:24 AM Flag

    #3. Based on my interpretation of the data on the "About this Fund" and the "Portfolio" tabs on the AllianzGI web site for NCZ, my best guess is that a distribution per share per month greater than $0.064 would be a stretch.

    Rationalization: As of 30Jun2015, 43.08% of the portfolio was invested in convertibles with an average yield of 6.72% and 41.67% was invested in High Yield with an average yield of 9.11%. That implies that 84.75% of the investment portfolio has a weighted average yield of about 7.90%. I'll assume that the remaining 15.15% of the fund (Derivatives, Liquidity and Equity) is no better or worse than that and use 7.90% for the entire portfolio. That suggests that, net of fund fees (the expense ratio) on the common, the portfolio should earn about 57.3 M$ per year: 7.90% x $804.5 M$ -1.18% x 530.5 M$. If we divide that by 74.225230 million common shares outstanding and divide again by twelve (to convert annual income to monthly), that would suggest that the monthly per share distribution should really be about $0.064.

    My expectation is that sometime in the very near future (September?) the fund will reset the monthly distribution per share to something considerable lower than $0.085.

    As always, just my opinion.

  • Reply to

    mornin jad, high yield, CEFs, just an idea.

    by hjclasvegas6969 Jul 16, 2015 3:58 PM
    jad1148 jad1148 Jul 17, 2015 8:48 AM Flag

    « WHY would the price of oil hurt these holdings that much ? »

    Read the detailed paragraph in their 28Feb2015 AR (page 4) that begins with:

    "One of the most influential factors in the second half of 2014 was the drop in oil prices."

    From a different source, Ara Lovitt, in his GMO white paper, "What Do High-Yield Maturities Tell Us
    About Timing the Credit Cycle? Another Take on the Wall" noted that:

    "The handful of recent bankruptcies in the energy sector in 2015 illustrate this point. These energy
    companies filed for bankruptcy because the unexpected and dramatic decline in the price of oil
    pressured their cash flows, not because they were unable to redeem debts as they came due. In fact,
    one of these companies, American Eagle Energy Company, filed for bankruptcy after missing the
    first coupon on a bond it issued a mere seven months earlier, making it a recent winner of the credit
    market’s version of the NCAA (as in “No Coupon At All”). While extreme, this example shows that
    often companies default years before their debts technically mature.

    « did u listen to the conference calls ? »
    No, I'm medically deaf without my cochlear implant (one side) and listening on a telephone via the telecoil is too stressful.

  • Reply to

    mornin jad, high yield, CEFs, just an idea.

    by hjclasvegas6969 Jul 16, 2015 3:58 PM
    jad1148 jad1148 Jul 16, 2015 8:29 PM Flag

    Admittedly, it is a mix of Junk & Converts, so it isn't as simple as I make it out to be. As far as I can see, the only thing that accrues from year to year is the capital losses (defaults). The income and realized capital gains are paid out and no new money has been added since inception. At inception, 7/31/2003, the Price & NAV were: $15.00 and $14.33. Today, almost 12 years later, it closed at $7.21 (NCZ) and $7.08 (XNCZX). More than half of the initial money has vaporized. But the good news is you're being paid very well, about 12% of NAV, to shoulder the losses. So if you make ~12% in current (but declining) income and loss ~6% a year in capital, you should net about 6% and when you do finally sell it, you'll probably be a able to report a whopping capital loss.

    The onset of the decline in NCZ's NAV began a year ago, and appears to be related to the drop in the price of oil. It looks like things will only get worse in the near future if a certain country (one of the top five producers) adds its oil to the market.

    This stuff is all new to me, so please feel free to correct my misconceptions.

  • Reply to

    mornin jad, high yield, CEFs, just an idea.

    by hjclasvegas6969 Jul 16, 2015 3:58 PM
    jad1148 jad1148 Jul 16, 2015 7:33 PM Flag

    Although I've never been a fan of junk, I have recently found the arithmetic behind NCZ fascinating (in particular, the negative growth rate). I've put some effort into trying to understand it and would even considering taking a small position at the right price. But I'm having no luck talking the cheerleaders into lowering their bids. In a weird sort of way, it would be a nice complement to BRK in a taxable account for someone (not me) who wants to own BRK but also needs some income, AND also wants to offset some of the capital gains tax on BRK when they sell it in the future. As best as I can tell, selling NCZ some day in the future will very likely yield a significant capital loss.

  • Reply to

    Seeking Alpha Article

    by rwilcox41 Jul 10, 2015 3:41 PM
    jad1148 jad1148 Jul 16, 2015 9:12 AM Flag

    rwilcox41,

    I'm having a hard time buying into the sustainability of the current distribution at $0.085 per share per month.

    #1, According to their most recent annual report, net investment income for the year ended 28Feb2015 was $0.80, that's ~$0.067 per share per month.

    #2, According to their latest section 19 notice: "The Fund’s previously declared (June 1, 2015) distribution of $0.085 per common share was paid or reinvested on July 1, 2015 to shareholders of record on June 11, 2015. Fund Management estimates $0.06892 per common share of this distribution is from net investment income and $0.01608 is from paid-in capital in excess of par."

  • Reply to

    what the hell......

    by gigliotime Jul 10, 2015 2:45 PM
    jad1148 jad1148 Jul 12, 2015 11:10 AM Flag

    « Foolish question regarding average returns over the next decade. »

    Maybe.

    I can't hope to predict what will happen in a day, a week, a month, or a year, but when you project out over a decade some things begin to gel.

    Is it unreasonable to assume that a junk bond's portfolio might earn 8%?

    That leveraging that by 50% might push the income yield out to 12%?

    That junk's historical default rate of 4.1% per year still holds?

    That leveraging that by 50% might push your capital losses out to 6% per year?

    That over a period of a decade your net annual total return might average 6% (12% income - 6% capital losses)?

    As always just my opinions.

  • Reply to

    what the hell......

    by gigliotime Jul 10, 2015 2:45 PM
    jad1148 jad1148 Jul 12, 2015 6:04 AM Flag

    par7551,

    « I'll guess 7 percent »

    That's actually a good answer. According to AllianzGI, the annualized total return since inception (7/31/2003 to 5/31/2015) has been 7.16%. If that is based on your own thinking, I'm even more impressed, because it shows me that you are thinking beyond the immediate income yield and are willing to acknowledge that capital losses need to be taken into consideration as well.

    I'll try, one last time, to argue that it is oil, not Greece, that is behind the drop in both the NAV and the price.

    Using Yahoo's Interactive Charts, request a one year chart for XNCZX. Using Comparison, overlay charts for the S&P 500 and the following two oil companies: XOM & CVX. Can you see that XNCZX, NCZ's net asset value, is tracking the decline in the two oil companies?

    The big question is: are the energy related securities in the portfolio permanently, or just temporarily, impaired?

  • Reply to

    what the hell......

    by gigliotime Jul 10, 2015 2:45 PM
    jad1148 jad1148 Jul 11, 2015 6:20 AM Flag

    par7551,

    I seriously doubt that the drop in NCZ's price has anything to do with the current situation in Greece. It has, IMO, everything to do with the drop in the net asset value of the portfolio, XNCZX. Folks are simply reacting, correctly, to apparent portfolio losses due principally to energy (go read the section of the 28Feb2015 annual report that starts: "One of the most influential factors in the second half of 2014 was the drop in oil prices."). The net asset value decline actually began roughly, ONE year ago. July 2014 looks like it was the onset of the decline. Look at a two year chart for XNCZX (if you must, superimpose NCZ, the price, on the chart, but look at the NET ASSET VALUE). The big question is, will the losses be temporary or permanent?

    Since, cabets54, can't, or won't, answer my question, I'll now ask you.

    Your best guesstimate, please.

    Going forward, over the next decade, what AVERAGE annual total return (income yield + percent change in principal) do YOU believe you'll make on NCZ?

  • Reply to

    Why you should be buying....

    by cabets64 Jul 9, 2015 6:50 PM
    jad1148 jad1148 Jul 10, 2015 10:12 AM Flag

    I read the SA article and was not impressed.

    JMO, but it was a typical cheerleader piece. It tout the pluses and ignored the minuses.

    NCZ, one year (7/9/2014 to 7/9/2015) TOTAL Return.
    Total Return = Income Yield + % Change in Capital
    Total Return = ( 12 * $0.085 / $9.96 ) + ( $7.34 / $9.96 - 1 )
    Total Return = 10.24% - 26.31%
    Total Return = -16.06%

    Making an income return of 10% on your paid in capital is great, but not if you have to give up 26% of your principal to get it.

  • Reply to

    Why you should be buying....

    by cabets64 Jul 9, 2015 6:50 PM
    jad1148 jad1148 Jul 10, 2015 9:57 AM Flag

    With regard to the average annual total return (income yield + percent change in principal) going forward, what do YOU expect to make?

  • jad1148 jad1148 Jul 4, 2015 9:32 AM Flag

    Come on, hc isn't it obvious by now, that, IMO, your hero, Buffy, has a standing order to buy IBM ever time it dips below $165?

    Ginni says, long-term, going forward, that FCFE/E will likely be north of 90%, and that she's going to do her best to see to it that the shareholders get 80 ± 5 % of that FCFE via dividends and buy backs.

    If you believed that IBM would have no real growth going forward (that all they can do in the future, is raise prices & earn profits & FCFE in line with inflation) and discounted that real fixed stream of FCFE by 6.5% (the Long-term Historical Real U.S. Equity Return according to GMO), what would it be worth?

    Eleven times earnings?

    IV/E = D/FCFE x FCFE/E / ( r - g ) = 80% x 90% / ( 6.5% - 0.0% ) = ~11.

    And since the Value Line analyst is projecting $15.00 per share in earnings for 2016 that suggests that IV might be $165 per share.

    IV/s = IV/E x E/s = 11 x $15 = $165.

    Think of IBM as being the corporate equivalent of a TIPS. A junk TIPS, with a 6.5% real yield, which is more than 500 basis point better than the current 1.16% RYTM on the 30-Yr U.S. TIPS.

    P.S. I understand that your girl Ginni has a birthday coming up, July 29th, and that she loves Starbuck's Tea. Here's an idea. Show your admiration and appreciation for all that she's done for you & Buffy by sending her a gift card to cover lunch, tea and one of those cute, pink, birthday cake pops (vanilla cake and icing, dipped in a pink chocolaty coating with white sprinkles).

  • Reply to

    Look for big blocks on the bid.

    by holdenb75 Jun 26, 2015 10:39 PM
    jad1148 jad1148 Jun 27, 2015 5:36 PM Flag

    Why am I here?

    Because YOU invited me to come here last November.

    Go read the IBM message board.

  • jad1148 jad1148 Jun 27, 2015 5:33 PM Flag

    Well, holdenb75, that turned out to be a really bad recommendation.

    I'm glad I passed on it.

    Over last the 228 calendar days, the cumulative total return has been -13.0%, a loss.

    On 11/10/2014, the first day someone could have executed on your weekend recommendation (which was also the day it began trading Ex-Div), the closing price per share was $9.11, and the net asset value per share was $7.73, which put the premium (Price to NAV) at a ridiculously high 17.8%.

    On 6/26/2015, the closing price per share was $7.33 (down 19.5%), and the net asset value per share was $7.23 (down 6.4%) which lowered the premium to 1.4% (down ~92%).

    The distributions between those two dates totaled $0.595 per share, (7 x $ 0.085).

  • Reply to

    Look for big blocks on the bid.

    by holdenb75 Jun 26, 2015 10:39 PM
    jad1148 jad1148 Jun 27, 2015 7:07 AM Flag

    It is obvious, at least to me, who has been lying, and it's not the shorts. Short interest as of 6/15/2015 was an insignificant 0.65% of shares outstanding, about 1 day's worth of trading volume to cover.

    The chances of seeing a return to a market price of $9.00 is probably in the same ballpark as seeing the market price at inception, $15.00, again.

    The leverage was funded by issuing auction rate preferred stock.

    Based on their annual report, over the five year period ended 2/28/2015, it looks to me like they didn't earn enough, $4.75 {Net increase (decrease) in net assets applicable to common shareholders resulting from investment operations}, to cover their distributions, $5.24. Time to decrease the monthly distribution?

    Do you understand WHY this thing pays ~14% on NAV? You're being paid in advance to take a large capital loss. Now take your losses like a man and stop your bellyaching. By the way, your losses would have been a lot less if you hadn't been pumping the premium since last November.

    JMO, but this thing doesn't even begin to get interesting until it trades at a significant discount to NAV.

    As always, just my opinions.

  • Reply to

    Bought more GMCR @ $78.96/share

    by axpkocop Jun 25, 2015 10:48 AM
    jad1148 jad1148 Jun 26, 2015 1:06 PM Flag

    I'm with you, beachlawyer2003. I'm currently ~40% cash. To paraphrase Nouriel Roubini, better to sit in cash, while waiting for a crash, and earn nothing safely, than to chase 2% (collect the dividend if equities don't correct but merely stagnant) while taking on the risk of losing 20% or more (if equities do correct).

  • jad1148 jad1148 Jun 23, 2015 3:15 PM Flag

    Thanks, axpkocop.

    The date isn't the only error I made. The sequence of cash flows was wrong as well. I don't do options, so correct me again if this is still wrong. You're paid at the BEGINNING of the period to forfeit the rights (lock up) your collateral. If the option expires without being exercised you then get your collateral back at the END of the period.

    =RATE((DATEVALUE("1/20/2017")-DATEVALUE("6/23/2015"))/365.25,0,-112000+3000,112000,0)

    = 1.73% annualized

BRK-B
134.04-1.70(-1.25%)Aug 31 4:01 PMEDT