When Warren Buffett shut his partnership in the early 1970s he recommended one fund to his investors. That fund is the Sequoia Fund which is still in operation today.
In May of this year they held their annual investor day where they take questions from their investors. Below is a transcript of the investor day which includes commentary on specific stock holdings and could be a useful place to find some investment ideas.
This is a question for you, Mr. Goldfarb. Last year, you expressed concerns in your prepared remarks about the potential for a US currency crisis. Considering the crisis that is developing in Europe, I'm wondering if you had any further comments on that at this time.
I think the risk still exists. The difficulty is predicting when. I'm not sure that six months ago many people were predicting the decline in the euro that we've seen in recent weeks. But if we continue to run large structural deficits, ultimately I think the easiest choice is to inflate and devalue the currency. If I had to bet, I would wager that the structural deficits in the United States will continue at a pretty good pace as a percentage of GDP.
The good news is that the public seems to be very concerned about these structural deficits, but whether that will result in a significant reduction of them . . . I'm dubious. It's very easy to be against running up large national debt and these deficits when you don't have to pay for it. But when your ox is gored, as they say, people are a lot less inclined to take the hard road that's necessary to address the structural deficits. We're seeing that playing out among the municipalities and some of the states that are struggling with large deficits. You see it in California; we'll probably see it in New York next year.
New Jersey is an interesting example. At the present time, Governor Christie is trying to address very large deficits, and you can see the kind of opposition that he's running into. Getting people to volunteer to pay their share or take the pain in order to get our fiscal house in order is an enormous challenge. I don't think we're there yet. Greg?
We could go on about this all day. But I don't think the solution to a debt crisis is to add a lot of debt.
You should have asked Greg the question. You would have gotten a more concise answer.
I have a much easier question. It's on your auto parts retailing companies and it's in three parts. One, on the auto parts retailers, why do you like the industry? Two, why do you own the ones that you do? And three, why do you not own AutoZone — at least it's not in the Fund — which is the largest in the industry?
The auto parts business is inherently a good business. You can see it especially on the retail side. I'm not sure if many of you have ever walked into an auto parts store — presumably a lot of you have — but you probably don't know how much it would cost to buy an auto part. So there is a little bit of pricing power. It's a good business when the customer doesn't know how much the part should cost. It's a little less so on the commercial side. They are selling to the garages, and obviously the garages are buying brake parts or carburetors every day; so they know what the price should be. But it's a good business.
The returns on capital are fairly high and it is actually growing in this environment. It's done particularly well the last two years — comparable store sales across the industry have probably been up about 4-5 percent. Previously they were comping at maybe only 1-2 percent if that. They were sort of flat. But it's a good business; it's growing. Not a lot of things are growing right now. And the returns on capital are high.
I guess the more interesting question is why we own both Advance and O'Reilly. The reason we own O'Reilly is obvious — it's the best commercial player in the business. The reason is that it has greater distribution than other companies in the sector. If you think about auto parts, it's like going to a physician's office; it's sort of like the healthcare industry. When you go into a parts store, you're there for a reason — you're not shopping around — you're going to buy a part or you want to buy a part. So the key is to have the part in the store when you get there.
The reason that O'Reilly is the best in the business is that it has on a per square foot basis the greatest amount of distribution power relative to Advance and AutoZone. By the end of this year it is going to have 23 distribution centers. Advance has eight and AutoZone is pretty close to that. So O'Reilly has greater distribution. That's why we own it — it has an advantage there. Because it has to invest in that distribution system, the returns on capital are a little bit lower than they would otherwise be.
Then the big question is why we own Advance. We knew it was an inherently good business. We knew the business well. They brought in a management team led by Darren Jackson from Best Buy, which is very good. Jackson saw what was wrong with Advance and that management could do certain things to bring its performance up to what you would call industry average. If management just does that, not assuming that it does anything beyond that, then we should do pretty well given the price that we paid. So that's why we own Advance. What was the third question?
Just a comment on AutoZone — it is the biggest in the industry and I noticed you didn't own it.
It was very close with regard to that question in terms of AutoZone and Advance. At the time we were looking at the companies, they both seemed cheap. Basically, when looking at Advance, we thought there was a little more ability for it to buy back stock for various reasons — part of it was that it didn't have as much debt as AutoZone, and part of it had to do with Advance's potential to push accounts payable out.
If you look at AutoZone's accounts payable to inventory — I'm going into too much detail here — but it's relatively high and Advance's ratio is relatively low. So Advance can create an incremental say $350 million in cash flow if it pushes it out a little bit over the next 3-4 years. Management is going to be able to buy back more stock with that cash. So that is why we thought it was a little bit better than AutoZone. That being said, we also liked AutoZone at the time, just not nearly as much, and we decided to pick one.
We have enormous respect for AutoZone. We did own it several years ago and made the mistake of selling it. There were two reasons for our sale. One was that we were not big fans of the CEO. It turned out that Eddie Lampert, who controls AutoZone, was also not a big fan of that CEO, and he soon departed and went on to do some serious damage at Office Depot.
The second reason why we sold AutoZone is we were concerned that it was being milked — that it was cutting not just fat but cutting muscle. Generally we're not big fans of companies that maximize their earnings by milking. There is a fine line and I have to say at the end of the day we were wrong. The business has continued to prosper. AutoZone is, without question, the leader in the do-it-yourself space. It's interesting because when Darren Jackson came to Advance, Advance had been primarily in the DIY space. It was a definite number two to AutoZone.
Jackson thought that it would be more profitable for Advance to try to emulate O'Reilly with its hybrid model of 50 percent DIY and 50 percent do-it-for-me. But if you own AutoZone, you ought to keep it and you might find us as shareholders at some point in the future.
The questioner well knows this but just for the general audience, AutoZone has bought back two thirds of its shares in less than ten years. I don't know who's bought back more than that. Henry Singleton's Teledyne maybe bought back 80 percent or more back in the '70s, but is there anyone else? It's kind of amazing.
No, that's why it has the debt that Rory was referring to. The business itself is highly cash generating and the only reason that it has the debt is that it borrowed to buy back stock and it's worked wonders.
I wonder if you could talk a little bit about Martin Marietta. Back in 2008 before the financial crisis hit, Martin Marietta was buying back stock at well over $100 a share. After the financial crisis hit, it was issuing stock at $80 a share.
I'd preface our response by saying that we no longer own Martin Marietta. We definitely bought it too high and we may have sold it too low. Only time will tell. Chase?
When a lot of managements buy back stock, they tend to do it when they are flush. They tend to be flush with cash at the top of their cycles. So it's not always the best idea. We weren't happy about the capital management per se. That wasn't the fundamental reason we sold the stock. There were two things that worried me the most about Martin Marietta.
One is 55 percent of its sales are derived from infrastructure spending, and we don't have the money in this country right now at the federal, state or local level to maintain our infrastructure properly. The onset of the great recession has prompted an era of trillion dollar-plus federal deficits and we're seeing the strain in terms of financing. The Highway Trust Fund was actually shut down on March 1st until Congress approved stopgap funding legislation. I don't know when Congress will find a longer-term solution to the financial problems of the Trust Fund, but I do know it will be a struggle to find the money. So public infrastructure spending was a worry.
The other issue I have is that with a 40 percent peak-to-trough decline in aggregate volumes from 2005 to 2009, this is an industry that is in a state of overcapacity. We originally bought Martin Marietta in part because we saw that it had tremendous pricing power. It's interesting that even with a 40 percent decline, the average ton of rock sold by Martin Marietta was under $9 in 2005 and it was near $11 in 2009. So they actually increased price over that time period. However, in any industry when you have a surplus of productive capacity, pricing becomes more difficult. The aggregate industry could increase production of rock by 50 percent in very short order if the demand were there. In that situation, if you want to put a time on it, price lags volume, typically in this industry by about one year. Last year was a terrible year for the industry and this year won't be much better in terms of volumes. I anticipate an extended recovery for the aggregate industry as a whole. So it wasn't necessarily anything specific to Martin Marietta — although management didn't make the best decisions with its capital; it was actually better than some other public companies in the space.
As you may know, there were a number of acquisitions at very high multiples at the top of the market. Martin Marietta at least refrained from that; so it is not among the most guilty. It wasn't a management specific decision, at least in my mind, for why we sold the stock. It was more about the structure of the industry with volumes off as much as they are.
Chase, how much did Martin Marietta produce at the peak?
About 203,000 tons of rock, and now it's in the 120s.
What do you think that 120 will get to?
I think a normalized level of production would be something around 160,000 tons of rock but I couldn't really tell you how long it will take to get back to a normalized level of production.
That's the basic reason we sold it. Clearly there will be some price increases but if you put in some volume assumptions together with some price increase assumptions, you certainly don't get an earnings number that would justify the price we paid. Whether it justifies the price we sold it at — we will see.
Can you talk about Porsche, where it is and what you see and what are you thinking of doing with it if anything over the next year or so?
As everybody knows, and as we talked about last year, Porsche has been a disaster. It's a much smaller part of Sequoia today than it was even at the end of the year. We have reduced the size of the position.
I'll try to keep it short, but we bought Porsche because it's one of the great luxury brand names in the world. It is the highest operating margin car company in the world. We felt, and I think accurately, that management had a great opportunity to grow the business. In the emerging world it's a very powerful status symbol, but it's also a very good product that you can use, unlike a Ferrari or a Lamborghini. We bought it for economic reasons. I think we got a lot of things right.
The entire Volkswagen merger was a disaster for us. It really comes down to this: Porsche ultimately — to make a long story really short — got over-leveraged, found itself in a pinch, and was not able to refinance the options that it had bought on Volkswagen, and ended up having to sell the business to Volkswagen. Porsche had already sold half of the car business to Volkswagen for a very low price compared to the value of the company. The family that owns 100 percent of the voting stock decided to do that for reasons that we will always find mysterious. They are not clearly economic reasons. The family will end up with a large ownership position in Volkswagen, but it will have traded 100 percent interest in a tremendous asset for a much smaller interest in a good mass production car company.
As a Porsche owner today, you really don't have a direct interest in the economics of the Porsche car business. You have a look-through interest into shares of Volkswagen that Porsche owns and some debt that Porsche accumulated to buy those shares. So the Porsche stock should really trade as a look-through to the Volkswagen stock. But because the final terms of the merger are still so murky, at least to us, it's not even clear to us that you deserve to get the look-through interest from the Volkswagen shares because you don't know what the final terms will be.
Therefore, you can't really make a strong economic argument to own Porsche, because there is no earnings factor or return on capital factor that will drive the Porsche share price. There is simply what happens with Volkswagen and what happens with this merger. The merger is not supposed to be finalized until 2011; so it's more than a year away and it's still very unclear what it will look like. Our shares in Porsche and your shares in Porsche have no voting interest; so we have really no power, no say into what happens. It's strictly a decision of the Porsche and Piëch families, what they want to do. Therefore, I don't think you can really justify owning it in Sequoia Fund. We've been getting out of it but we're not completely out of it. Porsche trades at an incredible discount even to its look-through interests in Volkswagen. So you're really capitulating and that's painful. We've tried to avoid that but every day gets a little worse than the day before.
It's a real testimony to the dangers of hubris. Management seized defeat from the jaws of victory. It did a brilliant job of turning around Porsche, making the product great. The doors close so firmly, you can't hear the outside noise. There is no clank. People are buying them. And it bought a large amount of Volkswagen right at the bottom of the cycle — brilliant idea.
Then management got carried away. It's just an example of a good idea taken to its disastrous extreme. Why didn't Porsche just stop when it had a quarter of Volkswagen? Porsche had no debt; it would have been a triple in the stock. What's wrong with that?
The original idea — probably many of you know and it was our impression — was that Porsche had a problem with a lack of factory capacity and Volkswagen had excess capacity. Porsche really wanted to force industrial cooperation on Volkswagen. So the idea was, "We'll buy 25 or 35 percent of the Volkswagen shares," which were trading at incredibly low levels at that time. "And we'll have some influence and we'll be able to do deals where we can utilize that excess factory capacity that Volkswagen has."
That made sense, and Porsche could do that without accumulating a lot of debt. But to go to 75 percent — first of all, as the company accumulated more of it, the Volkswagen share price went up and up and up. So to accumulate 75 percent broke Porsche's back. Why management felt it needed to do that and why when it became clear that the company wasn't going to be able to finance it, management didn't unwind it and chose instead to capitulate and sell its own business to Volkswagen is one of the great mysteries that I don't think we'll ever understand.
Bob, you've made a number of commitments lately in foreign stocks. Do you feel qualified to make those commitments? Do people travel overseas? Do you have a feel for the macro situation, say in England? It's different from anything that I've known you to do in the past.
We've owned foreign securities in the past. We own them in a greater percentage today, but they are still a distinct minority of the portfolio. We do have a pretty good knowledge of those companies' business, their competitive dynamics, their managements — except for Porsche, of course.
The biggest problem for us has been currency. We've done a lot better in local currency than we have in dollars. So, with the exception of Porsche, to the extent that we have losses in foreign securities, they are a function of currency. We have no greater ability to predict where currency is going to be than anyone else does. But it's a very good point you raise and we've clearly been thinking about it ourselves. It leads us to conclude that we should seek a discount for a foreign security relative to what we'd pay for a comparable business that was domiciled in the United States.
What is the next stage in the Omnicom situation?
Probably most of you saw the letter that we wrote. I'm not sure there is a next stage for us. I don't think we're really well-equipped to become activists and try to force some kind of change there. Frankly, it's a done deal. We couldn't force a change anyway. We have to make a decision about what our tolerance for that kind of behavior is.
If you didn't see the letter — we filed a mild protest and we were going to vote against the reelection to the board of the compensation committee of Omnicom. The company granted 26 million shares of options in late 2008 and early 2009 to the employees, and that is about 8 percent potential ownership of the business. We felt it was egregious.
I don't think there is any realistic chance to force change. I will say management did engage us in a pretty open dialogue, but it believes strongly what it did was right — that these options would have a strong retention power so long as the economy was very, very weak. But obviously at a very, very high price to shareholders. The options are already, one year later, in the money by more than $400 million. Omnicom is a very good business and it could eventually be a billion dollars of wealth that's transferred to the employees.
The short answer is we're unhappy about it. We have to make our own determination about what our tolerance for this behavior is. But I don't believe you're going to see us taking this to another level of protest. We said our piece and the management there knows how we feel about it. It knows very well how we feel about it.
I'd be interested in hearing about your feelings about Mohawk, which is pretty much related to home construction, which obviously has been down but seems to be coming back.
Mohawk, to quickly review, makes floor covering. It's the largest floor covering manufacturer in the world. Its businesses are dependent to a degree on new home construction but most of its business — roughly two thirds of it — comes from remodeling. That's more dependent on existing home sales and the general economic climate.
As far as new construction of homes is concerned, we're starting to see a little bit of a recovery in that this year, thanks in large part to help from the homebuyer's tax credit. Sales are up a little bit, construction is up a little bit. Existing home sales have been ticking upward as well. So there is a pretty good — not a vigorous — but a substantial enough tail wind on the residential side of the business. So we'll see some recovery there.
The other piece of Mohawk's business depends on commercial construction and that unfortunately is going to be pretty weak this year. So the company is going to suffer a little bit from that, but the strength in the recovery on the residential side is sufficient enough that I think we'll be okay.
There are a couple other aspects to the business that will come into play during the recovery that are worth mentioning. One is that during the housing boom, Mohawk and most other suppliers of building materials ran every factory they had for as long as they could to make money while the sun was shining. The good part about that is that you make the money. The unfortunate part about it is that you tend not to be as efficient in your manufacturing as you could be. You'll run plants that have dated equipment and that aren't really all that efficient. During the downturn, the company has done a very good job of taking the least productive assets that it had out of commission very quickly. So the manufacturing base it has right now is much more efficient on the whole than it was during the boom.
The second aspect to keep in mind about the business is that management has also been very judicious in how it has invested the cash that the company has continued to generate during the downturn. The silver lining to the bad market for floor covering is that Mohawk has been able to pay down debt while its sales were cratering because its working capital needs were shrinking too. So the company is actually less leveraged now than it was during the downturn because management has done sensible things with the cash. So there is that aspect of it.
One other piece to keep in mind is that Mohawk, almost alone among the floor covering manufacturers, has been willing and able to invest in new products. We know the housing business isn't going to grow at a tremendous rate, but if you can create a product that captures some of the revenue from the installation part of the business, you can generate a little bit faster growth in your sales than you would otherwise. For instance — this is just one example — the company is now experimenting with a form of ceramic tile that you snap together and that doesn't require grout. That's more DIY information than most people will want, but the fact is if you pay a dollar for a piece of ceramic tile, it's going to cost you $5 to get it installed. So the installation market is roughly five times the size of the material market. If you can create a product that captures some of the installation revenue, suddenly your market can grow faster than the underlying material market can. Management is doing other clever things like that to generate a little incremental growth when the recovery gets a little bit stronger.
So overall, Mohawk came through the downturn. It has a raft of new products coming to market. The housing business is what it is. The population in the United States grows. Households will have to be formed, and over the long run I think we will be okay.
The other thing I'd emphasize that Terence said is that Mohawk has taken — like a lot of other American companies — a lot of cost out of its business. We don't believe that revenues in the next cycle have to be equal to or greater than revenues in the last cycle for Mohawk to earn as much as it did in the last cycle. So that's why we're holding the stock and we think we'll do pretty well with it.
We're sitting here with the portfolio holdings from the end of last year. And you've now told us about three major sales — of Berkshire Hathaway, Martin Marietta and Porsche — I don't know how many people here consider this to be inside baseball. Can you tell me what percentage you now hold of those three investments, and what you have done with the proceeds?
On December 31, 2009, we were 16 percent, roughly, in cash, and we're about 20 percent in cash now. So there is about 4 percent net that's in cash. We have made a number of investments in 2010. Probably 10 percent of the portfolio is in new investments, subsequent to January 1, 2010. We're not going to chat about those today. In some cases we're still active buying stocks; so I just think it's a better policy to talk about what you own at year end. But it's not all gone to cash, we're about 20 percent in cash today.
What percentage of Sequoia is in Berkshire?
Berkshire is about 14 percent of Sequoia. We should have mentioned that. That's a good question. Berkshire was 20 percent of Sequoia at the end of the year. Martin Marietta, we're out of. Porsche is a little under two. But Porsche is partly sales and partly just Porsche going down every day.
I had a question about the new holding, Becton, Dickinson. I remember 16 years ago you owned J&J and I was wondering why you chose Becton instead of J&J, Abbott Labs, or Medtronic, for instance. Do you see a better competitive advantage or perhaps a better management team?
Becton, Dickinson, for those of you who don't know, is the world's largest manufacturer of medical needles and syringes. That's the bulk of its profits. Becton also makes medical diagnostic instruments and tools and instruments for researchers.
The company's cost structure is such that it is very difficult for competitors to sell a comparable product for less. In fact, they can't, really. So there is a very strong competitive advantage from a cost manufacturing standpoint. There are good growth prospects as well and growth is really coming in two ways. You have growth through volumes in emerging markets, where increasing healthcare standards are leading to more patients being treated. When you have more patients you have more injections, more IV's; so you have growth from a volume standpoint.
You also have growth from trading up. What Becton, Dickinson has done is innovate in the safety aspect of their products. About a decade ago, there were a number of issues relating to accidental needle-stick injuries. Healthcare workers delivered injections and they accidentally pricked themselves. There were some high profile cases where healthcare workers might have ended up contracting a disease, AIDS or something of that nature. So Becton, Dickinson made a number of innovations. It created preventative devices to help avoid injuries. For the added value, Becton can charge more. The company has continued to release innovative products to encourage trading up.
In terms of comparing it with J&J or Medtronic, both of which are terrific companies, Becton, Dickinson has a couple of advantages. One is it's a much simpler business to get your hands around than either of the others. The second is that because its core business is small ticket items, Becton, Dickinson is less subject to reimbursement risk than Johnson & Johnson may be in some of its divisions and certainly Medtronic would be as well.
One of the reasons I came to the meeting here today was find out about QinetiQ
QinetiQ is a UK defense contractor that has business in the US as well, but it's based in the UK. It's been struggling of late. It's essentially a spin-out of the UK Ministry of Defense's R&D division. For example, QinetiQ invented robots that soldiers can carry on their backs and that can defuse mines or do surveillance. It is also developing a product that uses solar energy and can stay up in the sky and do reconnaissance for months and months and months. It also runs certain munitions fields in the UK for the Ministry of Defense.
The previous management did not run it well and the board brought a new CEO in. We happened to know that CEO — he used to run De La Rue, which is a money printing business that we own. We think very highly of him. He is now turning QinetiQ around. We are confident that he will succeed in doing that, and we think there is money to be made as a result.
Two questions. One is why did you take such a small position in Verisk and Mettler. My last question is — it wouldn't be a Sequoia meeting if Jonathan didn't tell us about the Berkshire meeting and how he played poker with Warren.
Certainly. In the case of Verisk, we put in an order for a lot of shares on the initial public offering. But we were allocated very few. The stock ran up immediately on the following day. So that accounts for the size of the position. Mettler Toledo — we wanted to buy a lot more stock. We were buying it as the market was bottoming but we didn't have any knowledge that it was bottoming. So we had a price limit that prevented us from buying more shares. But it's a company we admire and hopefully we'll have an opportunity to add to the position.
If I could follow up on that, what you're saying with Verisk then is you're not buying anymore. Why? Because you don't think it's going to go up very much more? I just don't understand the philosophy. If you think it's going to hit $100, then why not buy it where it is now? And the same thing with Mettler.
Your point is a really good one. In general, though, I can remember with Martin Marietta working out all sorts of models how it was easily going to be $200 — and your price discipline saves you from yourself when you get things wrong — you just really have to have price discipline. That means sometimes you miss things. If you look at your Sequoia sheet, you'll find stocks that are 0.1, 0.2, 0.3. In almost every case if not every single case including Costco, which has been on there for ten years, we had a price that we wanted to pay and we got that price for a nanosecond. We bought a little bit of stock. We're a big firm, it's hard to fill positions in a day or two. The stocks ran away from us, and we stuck with our price discipline. The Martin Marietta lesson, where we did chase it a little bit and we got a lot of things wrong — we got the economy wrong — hurts a lot. At the end of the day, if you don't have price discipline more things will go wrong for you than will go right.
But again, take Costco. If you don't think it's going anywhere then why are you holding it?
It's funny, we like Costco, we think the business is fine. As I said before, I think you have to allow for the possibility of being wrong. In the case of Costco we were right. Costco is a terrific business. Sometimes you own them because you think — if I own it, I follow it. If I follow it, I'm thinking about it and one day it will get to my price and I will own more of it.
In the case of Costco, it's a teeny position but it's still probably close to a million shares across all the different accounts. You can go to management and have a dialogue with management because you own a lot of shares. Even though it's absolutely teeny in the context of the overall firm that we run. So there are different reasons to hold them. The main reason to hold them is that we like them, and the main reason not to own more of them is in a weird way we're humble. We think it was worth this price. We'd think we'd make a good return at this price, we think we might make an okay return at a higher price. Typically we're trying to earn better than okay returns.
Jonny, you're up.
One of my frustrations with the Berkshire meeting is that even with the new format where journalists sift through half the questions and choose the ones that they think are most interesting, I still would say that less than 15 percent of the questions apply directly to the business as a shareholder or a security analyst following it would want them to — the types of questions that I'd be interested in having answered as a shareholder of Berkshire. So I would say it's 90 percent circus and 10 percent useful information. A lot of budding money managers ask questions about inflation or currency or macroeconomics. It's all interesting stuff and Warren Buffett is a genius, and I'm curious about his thoughts on a wide range of topics. But inasmuch as it relates to the company itself, there are only little snippets here and there.
The two headline topics this year at the meeting were the Goldman SEC suit because Berkshire owns a preferred and warrants to convert into common stock, and also the legislation about potentially putting up collateral for derivatives contracts. It was pretty widely reported in the press that Warren defended Goldman. I personally thought Warren made an excellent argument. And he said that the legislation as presently drafted would not require him to put up any collateral on the derivatives contracts. Even if the legislation did, I don't think that would be something we should be worried about. He may have to create some liquidity somewhere else, but I don't see why he couldn't put Coca-Cola up as collateral if the final bill were to require some collateral on the equity put contracts.
As far as what I got out of the meeting, I got a real sense — and he's on TV also so much more often than he used to be — so every couple weeks you seem to get an update of what he's thinking and how business is. But the main thing I got out of the meeting was that a lot of the businesses — and some of this came from his interviews before and after the meeting that were on TV or in the press — that the economically sensitive businesses are getting stronger right now.
Iscar, TTI, NetJets — he didn't talk that much about them at the meeting. But NetJets went from a $15 million loss last year to a $57 million profit in the first quarter. It's not a huge unit for Berkshire but it's symbolically important if for no other reason than that David Sokol is running it and he seems to have done a good job so far. He had projected to break even this year hopefully, and it looks like at the rate of the first quarter it might make $200 million. The economically sensitive businesses are stronger but that doesn't necessarily raise my intrinsic value of the company.
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