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- Manlobbi
Investment Strategies / Mechanical Investing❤
No. of Recommendations: 3
Given the number of Brookfield bulls the silence when the stock falls is something I would not expect given the optimistic views when the stock was significantly higher.
No. of Recommendations: 5
Where is the silence? You posted, didn't you :). It is often the case that people who outwardly project snarkiness, sarcasm & skepticism are secretly holding the exact opposite view. I won't be surprised if you are in fact the biggest Brookfield bull, believer & holder on this board!
In any case, since you asked, here is some fresh (about 6 days old) bullish commentary from our dear fearless leader Bruce Flatt. Let's all drink the Kool Aid and feel good about our Brookfield holdings.
"Generalities are dangerous"
"Only some real estate (tertiary properties, not well located, commodity traditional office) is defaulting and we have very little exposure to it"
"It's a tale of two cities"
"We have 7000 properties and 95% of it is good"
"Only 5% is troubled and unfortunately only those make the headlines"
"Our core business which is great industrials, hotels, high end retail and premium office is doing really well. Cash flows were up last year"
https://www.youtube.com/watch?v=4WhMQzLPjmoWith CNBC Sara Eisen. Of course he is talking is book, but not necessarily outright lying.
If above didn't quench your thirst, here is a Kool Aid refill. Bloomberg interview. Only the first 19 minutes are Brookfield related.
https://www.youtube.com/watch?v=pSbEg2DRxqoIn Bruce Flatt We Trust!
No. of Recommendations: 2
A much needed post. We need more discussion on the Brookfield entities.
No. of Recommendations: 1
No. of Recommendations: 2
Typo. Meant 11%
No. of Recommendations: 9
"Generalities are dangerous"
I can't tell you how long this has kept me laughing
As for BN and BAM, I still have no position since things look richly priced around Aug-Sept 2021 and I bailed.
Exit price $56.92
I guess current apples-and-apples equivalent is (BN + BAM/4) = $43.37 + dividends received, so (so far) it was a good move.
The value seems compelling these days, and I'm not particularly worried about the real estate or interest rate cycles, but I still find it hard to decide how much I trust these guys.
If intelligent people reading the statements carefully can't understand them or make meaningful comparisons to earlier ones, one has to suspect that it's on purpose.
No fire, for sure, but much smoke. A few mirrors perhaps.
Jim
No. of Recommendations: 1
having read many of your insightful posts, am curious how you weight trust other than retrospective [?]year return?
being a skeptic of flatt,marks,buffett,and munger ; i try to hold only what they own directly unless grossly overvalued.
(finally had to admit BH was finally forthwith on pcp, baba, etc... only after failures were publicly obvious. this trait they all share.)
No. of Recommendations: 17
having read many of your insightful posts, am curious how you weight trust other than retrospective [?]year return?
Reading the statements, basically.
Every 15 minutes you'll run into something that makes your brow furrow.
Not dishonest or illegal or immoral, but... What's that old song? Things that make you go "hmmmm".
Half the time it's simply things being incomprehensible when they didn't have to be.
You'll probably wonder at different things than I do, but you'll probably have a similar experience.
Nothing is bad, really. But there's always another one, and another.
As a random example, in almost the first post on this board, Manlobbi noted astutely
"But very briefly, the total economic value (intrinsic value) of the old BAM is exactly the same as the sum of the two new firms - the new BN (replacing the old BAM) plus the new BAM (the spinoff)."
I breezed past that, assuming it to be true. Certainly makes sense.
But the new manager company, current BAM ticker, is its own company now, with its own incentive schemes.
So there is another layer of dilution for the very-well-paid executives.
The shares outstanding are 392.5 million, but then you have to add another 8.6 million for dilution effects, and another 13.3 million in a footnote-like paragraph that are accounted for a different way and not included in the "per diluted share" numbers.
Total appears to be a bump of 3.4% in the share count beyond what's outstanding.
So, it appears to me that the value of BN plus the value of the [new] BAM is somewhat less than the value of the old BAM.
At a guess, management took the opportunity to reward themselves yet again.
As with many such things, it would take a LOT of digging to figure out whether and to what extent this is definitively the case, but it seems so.
This is certainly not a reason not to invest.
But when you find 5 or 10 or 20 such small things, you start to have doubts.
Many have commented on the regular corporate restructurings and spinoffs that, yes, sometimes makes some sense, but also making a long run tally of value trajectory near impossible.
And if you do piece it together, there is the issue that every couple of years there is a new metric introduced and discontinuation of figures you needed for your last value calculation method.
Put it this way:
I think I could say without fear of contradiction that there is a lot more corporate complexity and more inter-division transactions/agreements than is strictly warranted by the straightforward goal of maximizing value for shareholders with prudence and (sure) tax efficiency.
If the complexity doesn't arise from that goal, why is it there?
Management frequently seems disappointed, almost aggrieved, that valuation multiples aren't higher.
But they seem to do everything they can to make the structure and fees impossible to understand, assuring low valuations.
Ever heard of Partners Value Split Corp or Partners Value Investments Inc?
Ever found a list of the managers who benefit from the incentive pool?
None of these things is a big issue for me, actually.
The collection as a whole is the issue. Trust is an ineffable thing, and I stopped sleeping well with any meaningful position.
If it isn't to be a meaningful position, then it's not really worth the bother, in particular the considerable time it takes to keep up.
The notion of having a position is always a risk/reward issue. There's a price for everything.
I'm looking again now because it looks like it might be compelling on the reward side again.
But do I or don't I trust them?
Probably best for me to read another stack of their statements and see how my tummy reacts.
Jim
No. of Recommendations: 2
Looked at this again (BN and BAM) as some of the "Superinvestors" had been buying. They're in the too hard pile for me. Purchased Disney instead.
No. of Recommendations: 4
Jim,
Thank you. Well written.
I for one would appreciate if you kept this board up to date on your 'stomach turns' as you wade further out into the tide Flatt's.
I own a pretty good slug of both (BAM/BN now) and have for a while. Left alone and on its own its grown to a decent sized position in my portfolio. But, like you...there is this unsettling notion in the back of my mind. It's always been there but I've swallowed hard and kept my head down trusting the forensic abilities of bullish Superinvestors (and avoiding taxes). So far its worked out reasonably well...so far.
I have no forensic accounting skills. I just read a lot.
Today I'm inclined to continue sitting on my hands while watching how the 'spin out' matures over the next couple years.
Thanks
m
No. of Recommendations: 13
I have no forensic accounting skills. I just read a lot.
The thing is, for a good company, that should be enough.
You don't have to be a scientist to follow a Scientific American article pretty well.
Financial reports should be much the same way: a reasonably well-read and bright person should be able to make sense of it.
For complicated businesses, sure, some accounting understanding really helps a lot.
For example, securitization and loss estimates (insurance etc) and non-recourse debt certainly take a while to get used to. I still can't quite figure out the intricacies of the "equity method".
If you're going to converse in financial numbers, you have to pick up some of the language.
But still: it's *supposed* to be understandable within the limitations of the complexity of the business.
For most firms, it really shouldn't be that hard.
And the Brookfield empire is not, at heart, all that complicated a business.
They own some stuff that creates cash flows. They have some debt against those things, sometimes specific to an asset ans sometimes at the top level.
Some things are only partly owned by them, so they get only fractional benefit.
All these assets are hard to value until they are sold, so there are different methods to estimate it--the best usually being IFRS, which is mainly a multiple of cash flow. Multiples suited to the class of asset.
They are also asset managers who earn fees on long-lived portfolios that can be a little difficult to value till the fat lady sings at the end.
That's really about it, right? Doesn't sound so very complicated when you sum it up.
Since they own some assets, simple things like "how many dollars worth of working assets does a share of BN own?" shouldn't be hard to find, and should be almost impossible to get wrong.
I'm not talking about the accuracy of the valuations, merely finding the number that gets the pro-rata economic ownership fractions all correct.
And heaven help you if you try to figure out the sum of all the compensation of management, or even who they are. (the list of partners in "Partners Limited" that controls the top level is not disclosed)
Or even clear definitions of some of the key things that Brookfield uses to measure the progress of their business and its value.
Sometimes a business-specific metric really does make things clearer--no argument there. But it has to be REALLY well explained.
For example, my understanding of "unrealized carry" is very much like unrealized capital gains on stocks: "profits that would exist today if that asset were liquidated today at the prices we have estimated for it".
So they are NOT simply earnings already earned but not yet received...that view would presuppose that prices can't fall, and that price estimates are really solid.
Is my understanding correct? I'm not sure.
Anyway, I digress into a list of annoyances!
I do not actually think they are crooks.
But either they are very very poor communicators, or they are trying to hide things.
Jim
No. of Recommendations: 2
No. of Recommendations: 4
Some snippets from the article (
https://therealdeal.com/magazine/national-august-2...
):
Brookfield also inherited its predecessor's love for complexity. Its various satellite companies funnel fees to its parent, and the organization chart resembles a particularly incestuous family tree, with a wealth of related-party transactions.
Reading Brookfield's financial statements is a journey into the multiverse. There are multiple versions of Brookfield staring back at you, and Brookfield gets to decide which one it wants to be at a given moment. L.A. matters, and then it doesn't. Most of New York matters. San Francisco is irrelevant ' but it could be important in the future.
Reshuffle, rebrand, add another layer. The cycle never ends. You'll never understand it. And that's by design.
Craig who when he listens to Flatt, wants to buy more!
No. of Recommendations: 10
With so much going on in Brookfieldland it is easy to take examples and show what a great firm it is, and take other examples to show that it's rotten or doomed.
The overall complexity and relative opacity makes it difficult to make things at the top level that would give a less precise, but more accurate and insightful view of the firm and its prospects.
But it does strike me as--emblematic?--that the occasional sales of property at above booked value are to be taken as a clear ongoing demonstration that property values across the portfolio are not unrealistically high, while property level defaults, now not so wildly different in number, are taken as anomalous outliers to be ignored.
Admittedly many of the defaults may be cannily strategic rather than from distress--it's a brutal business--but still, the juxtaposition is jarring.
I'm not overly impressed with that article's provincial dissing of IFRS, which is so much better than GAAP in this industry in so many ways.
I don't book my Lehman shares at purchase cost, with or without a few adjustments around the edge, so I don't do that for my real estate holdings either.
These days the issue isn't the accounting method used, but the simple time lag between when a bit of rot becomes pretty obvious and when it shows up in released statements.
Jim
