Category: Berkshire

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World’s Smartest Investor Outperforms With Boring Utilities 0

World’s Smartest Investor Outperforms With Boring Utilities

Warren Buffet doesn’t need the likes of us touting his investment acumen. His holding company, Berkshire Hathaway, has compiled a stunning record of achievement over many decades, beating broad stock mar-ket indices handily while acquiring some of the dullest companies in the world. Like other insurance com-panies, Berkshire has very large sums of policyholders money to invest for the long term against future claims.

And like other insurers, it’s tough to find acceptable lower risk or fixed income investments in this world of ultra-low or negative interest rates and high stock prices. But several years ago, Buffet began steering Berkshire into investments unusual for a financial concern. He purchased a number of regulated electric utilities and a railroad, the Burlington Northern.

These invest-ments have much in common. They provide essential services in slow growing markets. They generate steady albeit modest returns.

They require ongoing, large capital investments to maintain current levels of service and, as long as investment takes place, they generate substantial income tax deferrals that can also be invested profitably. Since these businesses are growing, at least in term of their assets–and some level of profitability is virtually assured–the owner or investor can still reinvest their capital at a reasonable re-turn. They don t have to worry about the vagaries of public markets equity or fixed income.

They can in-vest in themselves so to speak. If Buffet is one of the world s most successful investors, judging from the above examples, he achieved that title at least in part by only accepting a return that exceeded the risk he believed he was taking. That is, if investment X required a 10 percent return due to the risk inherent in it, and the shares offered a 10 percent return, Buffet kept his wallet in his pocket.

But if the investment had a cost of capital of say 9 per-cent but he thought he could earn 13 percent, he was all in. Simply stated he sought a return in excess of his cost of capital. Okay, so much for the classroom stuff.

In the U.S. electric utility industry, recent commission rate orders have been finding that utilities should be permitted to earn around 9-10 percent on shareholder invest-ment. Regulators have determined that figure represents the appropriate cost of equity capital.

Related: Why Big Oil Is Shying Away From Mexico s Latest Oil Auction 1 Financial theorists, looking at government bond markets in which yields have literally dwindled to nothing on risk free investments, think that the cost of utility equity capital may in fact be closer to 6 percent. (This assumes an equity risk premium of 4 percent over the risk free bond yield of roughly 2 percent.) Clearly there is a wide discrepancy between currently authorized 9-10 percent returns and our postulated 6 per-cent. If regulators come to adopt these lower return levels–down go utility earnings. Let’s get away from depressing financial theory.

Instead let s look at what Berkshire Hathaway actually paid for utility-like assets and what it accepts as a presumably adequate return on its equity. Berkshire Hathaway lumps railroad and utilities together but we believe both the railroad and utility segments have followed similar patterns of profitability. The financial reporting does not spell out everything we would like to know but provides enough data to make reasonable estimates.

We estimate the underlying utility and railroad assets earned decent returns on equity of 9.8 percent in 2015 and 10.0 percent in 2014. But, Berkshire paid a substantial premium over book value in order to buy these assets. On the basis of what Berkshire paid (and Berkshire paid above market prices) we estimate that these investments produced a 6.8 percent return on equity in 2015 and a 7.3 percent return in 2014. (A study earlier this year from Semper Augustus Investment Group indicated that the utilities earned lower returns than the railroad.) Bottom line?

If these returns were not satisfactory, would Berkshire reinvest considerable sums into oper-ations and expand the utility operation through additional purchases? The question answers itself. We see Warren Buffet s embrace of dull companies offering low returns as another indicator of what the cost of capital really is in the sector.

As evidence it is far more compelling to us than a shelf of academic studies on the topic. These seemingly low returns, with their accompanying low risk, appear to satisfy one of the world s savviest investors. We think that says a lot.

By Leonard Hyman and William Tilles More Top Reads From References ^ Related: Why Big Oil Is Shying Away From Mexico s Latest Oil Auction (

Caltrans freeway worker killed by truck: Criminal probe in Acton 0

Caltrans freeway worker killed by truck: Criminal probe in Acton

Photo by John Schreiber. A Caltrans 1 electrician was struck and killed by a big rig Thursday on the southbound Antelope Valley (14) Freeway in the Acton area, prompting the Caltrans district in which he worked to halt all maintenance activities for a safety review. Jorge Lopez, a 57-year-old Sylmar resident, died at the scene of the 11:35 a.m.

collision at Red Rover Mine Road. Lopez, who had been with the state transportation agency for 16 years, was standing behind his vehicle on the side of the road when the big rig veered into him. Two other Caltrans employees driving behind him were unhurt.

The truck driver stopped at the scene and was being questioned by California Highway Patrol investigators. Gov. Jerry Brown said he and his wife, Anne, were saddened to learn of the death of Jorge Lopez, who worked each day to make our California roads safer.

We extend out deepest sympathies to his family, friends and many colleagues who are mourning this tragedy. Lopez is survived by his wife, Leticia and three adult children, according to Caltrans. The crash initially prompted a shutdown of all southbound freeway lanes.

By about 4:15 p.m., one lane remained closed and southbound traffic was backed up past Soledad Canyon Road and northbound traffic to Escondido Canyon Road. Flags at the state Capitol will be flow at half-staff in Lopez s honor, according to the governor s office. Lopez s death was the first since 2005 of an employee of Caltrans District 7, which includes Los Angeles and Ventura counties, and the 185th Caltrans employee to be killed while on the job.

In the wake of the fatality, District 7 called a safety stand-down to emphasize safety procedures. Routine and regularly scheduled highway maintenance will be temporarily halted to revisit and reinforce all aspects of field safety, according to Caltrans. The agency also announced its statewide network of electronic freeway signs will remind drivers to be alert for highway workers.

Today we mourn the loss of one of our own in this tragic incident, Caltrans Director Malcolm Dougherty said. This is an unfortunate reminder of how dangerous highway work can be. He said motorists should slow down and move over a lane when passing work crews.

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1 stunned by Taser, arrested during truck driver protest on… 0

1 stunned by Taser, arrested during truck driver protest on…

MIAMI-DADE COUNTY, Fla. – A truck driver was stunned twice by a Taser and arrested Tuesday after he tried to stop police from detaining a woman in a crowd of people who were protesting low pay, high fees and increased Department of Transportation regulations, authorities said. Florida Highway Patrol troopers said the protesters were blocking Okeechobee Road west of the Palmetto Expressway, causing authorities to shut down the road. On Wednesday afternoon, Miami-Dade police asked drivers to avoid the area again as protesters had gathered on the road for a second day, although the road was not shut down to traffic.

According to an arrest report, the crowd became unruly Tuesday and a large group swarmed and surrounded several troopers and officers who were attempting to detain a woman, identified Wednesday as Yamiraky Guerra Lopez. Police said Luis Calderon Martinez, 48, was holding on to Guerra Lopez and attempted to pull her away from officers. Police said Calderon Martinez refused multiple commands to let go of the woman and struck one officer s body with his right hand.

When Calderon Martinez continued to resist, one officer instructed all other authorities to let go of him and stunned him with a Taser, the report said. Police said Calderon Martinez was put on the ground, but when he continued to be combative, he was stunned a second time. According to the report, Calderon Martinez began to cooperate after the second time he was stunned and was taken to an FHP Miami station for processing.

Cynthia Calderon recorded her father being hauled away with a woman. “I feel like they are treating him like an animal. I think cops should see the hard work these truckers go through every day of their lives,” Calderon said. Calderon Martinez faces charges of resisting an officer with violence and battery on a police officer.

Most of the drivers are independent contractors who lease or own their trucks, according to the Owner-Operator Independent Drivers Association 1 . The organization is contesting 2 the Federal Motor Carrier Safety Administration’s electronic logging device mandate 3 . The companies that contract the truck drivers don’t have to pay their insurance, according to the American Trucking Association 4 .

The cost of the logging device 5 would also fall on the truck drivers, who need to have one running by Dec.

16, 2017, according to the rule 6 . The protesters organized a rally ride from Miami-Dade County to Tallahassee. There was a similar protest near the Florida State Capitol, where police arrested a trucker who refused to move his truck and another who they said attempted to impede the arrest.

Copyright 2016 by WPLG – All rights reserved.

References ^ the Owner-Operator Independent Drivers Association ( ^ is contesting ( ^ electronic logging device mandate ( ^ the American Trucking Association ( ^ the logging device ( ^ according to the rule (