Rational Reflections on Alleghany

What Does Buffett See in Alleghany?

https://rationalreflections.substack.com/p/what-does-buffett…

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One word. Rational

“One word. Rational”

Rational Reflections just Tweeted:

"22 years of owning Berkshire convinces me that there is no way to predict when the stock moves or when it is like watching paint dry.

Again and again, it’s like watching paint dry for years. Then it rises into a new range. Rinse and repeat.

Don’t try to trade the stock.""

https://twitter.com/rationalwalk/status/1505998955242561541

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What Does Buffett See in Alleghany?
https://rationalreflections.substack.com/p/what-does-buffett…

I like this sentence:

"It will be interesting to see if the $16.1 billion fixed income book is immediately liquidated and
added to Berkshire’s cash position when the transaction closes. If so, Berkshire will actually end up
with more cash after the acquisition given that the deal is for $11.9 billion."

Jim

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Berkshire is getting $12.9 billion of float for Mr. Buffett to deploy…

…in cash earning a real -10%?

I see why Mr. Buffett likes it. I don’t see why Mr. Market is so excited.

Not complaining…

Berkshire is getting $12.9 billion of float for Mr. Buffett to deploy…

…in cash earning a real -10%?
I see why Mr. Buffett likes it. I don’t see why Mr. Market is so excited.
Not complaining…

Not cash–the important part is stocks.
Berkshire can do that because of its excess capital situation, but Alleghany couldn’t.

Equities are generally assumed to be the most fruitful place to allocate the portfolio.
At Berkshire, equities are currently at the highest percentage of investments per share in my table back to 1999.
68% compared to the average since then of 47%.

The allocation to equities expressed as a percentage of “investments per share beyond float per share” is even more extreme compared to history.

And higher still if you were to count wholly owned businesses as yet more equities, which they are.

Jim

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The allocation to equities expressed as a percentage of “investments per share beyond float per share” is even more extreme compared to history.

And higher still if you were to count wholly owned businesses as yet more equities, which they are.

Sure. Berkshire is allocated about 80% ‘equities’ and 20% ‘cash’.

2/24/2020 WEB on Squawk Box: “So, we’re about 80% in-- roughly in equities and about 20% in cash”

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Will Alleghany really be able to shift its investments more toward equities after Berkshire buys Alleghany? Alleghany will remain a separate company, with its own regulatory requirements on its investment allocation. Or?

Will Alleghany really be able to shift its investments more toward equities after Berkshire buys Alleghany?
Alleghany will remain a separate company, with its own regulatory requirements on its investment allocation. Or?

I’m sure they will be able to. The deal would make little sense, otherwise.

I’m not sure how that works, but I’m sure it does.
Either the regulator takes into account the balance sheet of the parent,
or the parent offers guarantees,
or the parent moves some excess capital into Alleghany (simplest),
or the “maintained as a separate entity” is a managerial thing rather than a regulatory thing,
or whatever.

Jim

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