Are You Thinking Of Buying Berkshire Hathaway? Consider Baby Berkshire Instead

Source: Berkshire’s annual letter

A few days ago, Berkshire Hathaway (NYSE:BRK.A) (BRK.B) released its annual report. Markel Corporation (MKL) has not published it yet, but it released its full year results.

As the readers of Warren Buffet’s letters already know, in 2015, he decided to slightly change the comparison criteria he had been using to evaluate Berkshire’s performance. He had always just compared BH’s book value appreciation against S&P 500 appreciation.

Since 2015, he has been taking into account also Berkshire stock price appreciation. The official reason for the change was that book value could not completely reflect the intrinsic value of the company (arguably, when we also consider good will and intangibles), but the real reason was that, for the first time in history, S&P 500 total return in the previous 5 years had surpassed Berkshire’s book value total return, whereas its stock price delta still performed better.

What is remarkable now is that, in the course of the last 10 years, as reported in its last annual report, even Berkshire stock price total return was beaten by S&P 500, a milestone in the company’s history.


Annual percentage change Berkshire

Annual percentage change S&P 500































Compounded annual gain



Source: Berkshire’s annual letter

The reason is quite clear: Berkshire is too big!

Why Berkshire’s best years are not in sight

That’s right. Berkshire is too big; its huge capitalization of about half trillion dollars makes it what I usually call an index company. Its stocks are good for index ETFs and funds, but not so good for individual investments.

In fact, there is a sort of physical limit to stock growth. If a company is very big, it could be hard to find substantial space for business growth. It could be even harder to do it against the will of the anti-trust entities.

Personally, I rarely own shares of companies exceeding a double digit billion-dollar cap. I would prefer to buy an ETF to avoid risks as well as hours of due diligence, therefore, saving time and energy.

With Berkshire we have an additional problem, which is not solvable, because it is linked to the inner structure of the company.

Berkshire is basically an insurance company that uses its float to invest in the equity market

Since Warren Buffett credo is value investing, he never owns more than a dozen companies for 90% of his publicly quoted companies’ portfolio. Now, this is where it gets tough: let’s say you have a $100B budget and you are committed to using no less than 10% of that budget for each purchase, then your hunting territory will be limited to a tiny fraction of the companies that are listed in the public stock exchanges. If you don’t want to overpay your shares, on average, you will need to only bet on the very fat guys. It could be hard to find value out there.

The same goes with acquisitions. It is increasingly difficult for Berkshire to find private companies to buy. I think that, in the near future, we will witness Berkshire implementing the same suggestion W. Buffett gave individual investors several times: 10% bonds and 90% cheap index ETF.

Ten years from now, Berkshire Hathaway will be a huge holding company, with some insurance companies in its pocket, no more and no less. Its biggest competitive advantage will eventually vanish. Given the lack of investment opportunities, it will most likely even start to pay dividends in order to deploy its enormous cash.

This last option could sound good for some investors, but it is drastically against Buffettology itself.

Now let’s talk about Markel

Although Berkshire is likely to be on the path of giving up its terrific long-term performance in the years to come, there is another company that will continue to grow at the same pace, using the same business model structure as Berkshire’s, but enjoying a relatively low capitalization. I am talking about the so-called baby-Berkshire: Markel Corp.

Markel’s intent is not a secret to anyone and that is to copy the Berkshire Hathaway business model. In other words, using the float of a solid insurance business (which yields an underwriting profit 80% of the time) to acquire private companies or to invest in securities. They even hold their annual meeting at the Omaha Hilton Hotel, just a day or two after Berkshire Hathaway’s annual shareholders meeting in the same town.

The company is co-managed by Tom Gayner: a Buffett fan and smart disciple.

Actually, for being a copycat, Markel performed very well. Here is a direct comparison between the two companies during the course of the last 10 years:

Source: Yahoo Finance

Berkshire vs. Markel

In this table, I put some key figures for the two companies, data in billion dollars, collected as of Dec. 2017:






Equity Securities



Fixed Inc Maturity Securities



Cash and Short Term T-notes



Intangibles and Goodwill



Total Assets



Source: Berkshire Hathaway and Markel official filings, Author’s elaboration

We can note that Markel’s float is about 28% of total assets, compared to 16% for Berkshire. That reveals Markel’s bigger exposure to its insurance business.

I like that, because insurance is the key of the two companies’ business model. They are not simply holding companies, but rather insurance companies that invest their float on equities and acquisitions.

Cash and short-term T-notes, compared with equity securities, are more or less the same for both companies, but fixed maturity securities are much bigger for Markel (170% vs. 13% of equity securities for Berkshire).

This reflects Markel’s more conservative approach and it is also partly due to the recent acquisitions of Alterra and State National, which had numerous bonds and treasuries in their investment baskets.

This over-exposure to bonds could lead to a better performance in the future, as management will eventually shift a bigger part of its portfolio to equity stocks.

Goodwill and intangibles, as percentage of total assets, are much bigger for Berkshire (16% vs. 9.5%). Today, this difference can be explained with Buffett and Munger being in charge, but I cannot guarantee that this would be a realistic scenario when they retire.

The bottom line is that Markel is well-positioned for future growth in all respects. Its business is well balanced and strong. Even during a difficult year, like the last one for insurance companies, due to several dramatic catastrophes, Markel managed to deliver an excellent profit for its shareholders. The net unrealized investment gain of more than $760M together with the income of the fast-growing Markel Ventures operation, which exceeded $100M in 2017, easily offset the net loss brought by the insurance segment.

On the other hand, by comparison, Berkshire appears to be scrambling a little bit after Markel.

Even the P/B value ratio, which is cheaper for Berkshire, does not differ that much, if we consider only the tangible assets. Markel is only 12% more expensive than Berkshire according to this metric.


Berkshire Hathaway has been a legend for all investors. Due to its terrific performance, it earned the well-deserved fame of a modern institution in the financial environment.

Nevertheless, several signs are telling us that its future performance will not be as good as the past ones.

If you are as intrigued as I am by the Berkshire’s business model, you should buy Markel instead, a company that shares the same investment philosophy, but without the size-problems of its larger twin.

After all, a Markel’s buy-out would not be that extravagant for Berkshire in the future. Maybe it is already on Mr. Buffett’s to do list.

Disclosure: I am/we are long MKL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The Kinder Morgan Dividend Story Is About To Resume

By the Sure Dividend staff

Kinder Morgan (KMI) has been a favorite dividend growth investment for many retail investors, until the company cut its payout by three quarters two years ago. After two years of low payouts, during which the company focused on reducing debt levels and finishing projects, things are about to change soon. Kinder Morgan is one of 294 dividend stocks in the energy sector. You can see all 294 dividend-paying energy stocks here.

Kinder Morgan has aggressive dividend growth plans for the coming years, but unlike in the past, this time they look very achievable. The company is about to increase its dividend meaningfully soon, and investors will very likely benefit from ongoing strong dividend growth rates over the coming years.

Since Kinder Morgan is not trading at an expensive valuation at all, shares of the pipeline giant are worthy of a closer look right here.

Company Overview

Kinder Morgan is proud of its huge asset base, and rightfully so:

(company presentation)

The company operates a giant pipeline network spanning North America, with the focus being put on natural gas pipelines. Kinder Morgan also owns terminals, pipelines and oil production assets on top of its natural gas pipeline network.

(company presentation)

The vast majority of Kinder Morgan’s revenues are fee-based, which means that there is very low commodity price risk. The company’s revenues, earnings and cash flows do not depend highly on the price of oil and natural gas. The only segment with a bigger exposure to the price of oil is Kinder Morgan’s CO2 business. Kinder Morgan is hedging its revenues from that segment, though, thus the short-term price swings for WTI do not matter very much.

Due to the fact that Kinder Morgan is much less impacted by commodity price swings than other companies in the oil & gas industry, its cash flows are not cyclical at all.

(company presentation)

During 2018 Kinder Morgan plans to increase its EBITDA as well as its distributable cash flows slightly. Distributable cash flows are operating cash flows minus the portion of capex that is needed to keep the assets intact (maintenance capex). Distributable cash flows are thus the portion of the company’s cash flows that are not needed to maintain the business, those can be spend in several ways:

– Growth capex, which expand Kinder Morgan’s asset base and lead to higher earnings / cash flows in the future.

– Shareholder returns via dividends & share repurchases.

– Debt reduction, which leads to lower interest expenses and thereby positively impacts the company’s earnings and cash flows.

A couple of years ago Kinder Morgan has paid out almost all of its DCF in dividends and financed growth capex by issuing new shares and debt. That did not work very well once its share price collapsed, which was the reason for the dividend cut, as Kinder Morgan had to finance its growth projects organically from that point.

Right now Kinder Morgan is using its DCF for a combination of growth capex, dividends and share repurchases. The company has brought down its debt levels meaningfully already, but doesn’t plan to reduce its leverage further this year.

Kinder Morgan Has Announced Aggressive Dividend Growth Plans Through 2020

In the last two years Kinder Morgan has produced about $2.00 per share in distributable cash flows, but paid out only $0.50 each year. This has allowed the company to finance billions in growth projects with excess cash flows whilst also paying down debt.

The company has stated that it wants to increase the dividend meaningfully this year as well as in 2019 and 2020:

– The dividend will be $0.80 for 2018 (which means a 60% raise year over year)

– The dividend will be $1.00 for 2019 (which means a 25% raise yoy)

– The dividend will be $1.25 for 2020 (which means a 25% raise yoy, again)

This looks like a very compelling dividend growth rate, especially when we factor in that Kinder Morgan’s current dividend yield is not low at all: Based on a share price of $16.10, Kinder Morgan’s shares yield about 3.1% right now. The forward dividend yields are thus 5.0%, 6.2% and 7.8% for 2018, 2019 and 2020, respectively.

A closer look at the company’s dividend growth plans and cash flow generation shows that those plans are not unrealistic at all:


DCF per share


Payout ratio

Excess DCF after dividend payments





$2.8 billion





$2.4 billion





$2.0 billion

Assumption: DCF grows by two percent a year

Even in a rather conservative scenario where distributable cash flows grow by only two percent annually, Kinder Morgan’s payout ratio stays below 60% through 2020. At the same time the company would generate $7.2 billion in cash flows that are not needed to pay the dividends. Those cash flows could thus be utilized for growth capex, share repurchases or for paying down debt.

Kinder Morgan Has Significant Growth Potential

The scenario laid out above (2% annual DCF growth) is rather conservative due to the fact that Kinder Morgan plans to invest heavily into new assets over the coming years:

(company presentation)

Management has identified $12 billion of potential investments which fit the company’s strategy and which promise attractive returns. The company could complete a meaningful amount of these projects in the coming years, as high after-dividend cash flows allow the company to spend on growth investments heavily.

According to management these assets could add $1.6 billion to the company’s EBITDA, which means a 21% increase over 2017’s level. When we assume that distributable cash flows would grow by 21% as well, Kinder Morgan’s DCF per share could hit $2.40 in 2022. This calculation does not yet include the positive impact share repurchases would have on the DCF per share growth rate.

Kinder Morgan has recently started a $2 billion share repurchase program and has already bought back more than 27 million shares since December. At that pace Kinder Morgan’s share count would drop by almost five percent a year, this alone would drive DCF per share up by mid-single digits each year, without any underlying organic growth.

Due to its focus on natural gas pipelines Kinder Morgan is well positioned for the future. Natural gas consumption will, according to most analysts, continue to grow for decades, as natural gas combines several positives: The commodity is significantly more environmentally friendly than oil and coal, it is inexpensive and it is available in North America in large quantities. Through LNG terminals natural gas can even be exported to other markets (primarily in Asia).

All the natural gas that gets used in the US or exported to foreign countries needs to be transported through the US by pipelines. Kinder Morgan as the provider of the vastest pipeline network should benefit from that trend, which will lead to ample cash flows for decades.


The US Energy Information Administration expects that global consumption of natural gas will grow from 130 quadrillion Btu to 190 quadrillion Btu through 2040. Since proved reserves of natural gas in the US are growing, it seems opportune to assume that the US will remain a major producer of natural gas going forward. This, in turn, means that Kinder Morgan’s asset base will not only exist for a very long time, but will remain very profitable through the coming decades.

Kinder Morgan Is Trading At A Discount Price

KMI EV to EBITDA (Forward) data by YCharts

Kinder Morgan is trading at the lowest valuation the company’s shares have traded for over the last couple of years right now. With a forward EV to EBITDA multiple of about ten Kinder Morgan is also not looking expensive at all on an absolute basis.

When we focus on the cash flows the company generates, we see that Kinder Morgan trades at eight times trailing DCF and at slightly less than eight times forward distributable cash flows. This means that shares can be bought with a distributable cash flow yield of 12.7% right now. Kinder Morgan is a non-cyclical company which has a solid growth outlook, and at the same time its size and diversified asset base mean that there isn’t a lot of risk. Based on those facts the current valuation looks pretty low.

Investors can currently acquire shares of the company with a forward dividend yield of 5.0% (the dividend increase announcement should come next month) at a DCF multiple of slightly below 8. For long term focused investors who seek an investment that provides a growing income stream that looks like an attractive investment case.

Final Thoughts

Kinder Morgan’s failed dividend growth plans hurt many retail investors in the past, but management has learned from its mistakes. This time the dividend growth plans are well thought out and look very achievable.

Thanks to high cash flows and a big growth project backlog Kinder Morgan should be able to provide a steadily growing income stream over the coming years. This, combined with a low valuation, makes shares of the pipeline giant worthy of a closer look right here.

Disclosure: I am/we are long KMI.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Real Estate + Real Assets = Real Opportunity To Earn Up To 40% Per Year

Recently, I read an interesting infrastructure article by fellow Forbes contributor, Joel Moser, in which he wrote:

An infrastructure investor is primarily focused upon preserving value and providing moderate returns. As markets continue to converge to the point that most everything else is becoming correlated, the emergence of a range of infrastructure investment vehicles for investors both large and small is a welcome trend from a financial services industry still seeking redemption from its role in the global financial crisis.

Moser did an excellent job explaining the differences between real estate and infrastructure:

Like its investment asset class close relative real estate, infrastructure is a “real asset.” Indeed, infrastructure usually exists in the physical world as real estate – a physical asset permanently attached to the ground. But the similarity mostly ends there.

He adds:

While real estate ownership can be forever, its current value at any given time is often linked to larger economic forces: correlated to the economy, so that a buyer’s interest is related to economic outlook, will things get better or worse, widely or at least for this particular piece of earth.

By contrast, infrastructure’s value is less correlated, that is to say its value may neither strongly increase nor decrease based upon larger economic trends.

As a REIT analyst these two worlds – real estate and infrastructure – have merged paths as allocations to listed infrastructure have been on the rise in recent years amid growing demand for real assets offering relatively predictable cash flows and the potential for attractive real returns.

As cash-strapped governments increasingly turn to private markets to fill a capital void, new security structures have been introduced globally, including those focused on income delivery.

Although rarely applied until recently, a REIT is a perfect vehicle that can be used to raise capital for infrastructure investments in “public-private partnership” transactions. In the abstract, REITs have certain advantages over the fund model as several favorable IRS private letter rulings sanctioning the use of REITs to own electric and gas distribution systems have increased interest in their role in infrastructure investments.

The Trump administration has shown a strong preference for funding investments from the private sector to pay for infrastructure priorities. The idea is to offer financial incentives to private companies that want to back transportation projects.

Under that model, known as a public-private partnership, firms bid on a project, build and maintain it for a set amount of time and recover costs through tolls or set state payments. Trump has argued that it’s cheaper and quicker when private investors are in charge, as opposed to the federal government.

Infrastructure REITs are Equity REITs that own and manage infrastructure properties and collect rent from tenants and they include American Tower (AMT), Crown Castle (CCI), CorEnergy (CORR), Hannon Armstrong (HASI), Power REIT (PW), InfraREIT (HIFR), SBA Communications (SBAC), and Uniti Group (UNIT). In addition, Landmark Infrastructure (LMRK) is a RECO (real estate operating company) that recently changed its legal structure moving the Partnership’s assets under a subsidiary that is now taxed as a REIT.

The company decided to make this change based on feedback from investors to broaden the investor base by substantially eliminating unrelated business taxable income, otherwise known as UBTI. It also significantly simplifies state income tax filings for LMRK unit holders. With this change, LMRK did not eliminate the Partnership structure since that will continue to give the company operating flexibility.


The Overview of Assets

LMRK’s real property interests underlie its tenants’ operationally essential infrastructure assets in the wireless communication, outdoor advertising, and renewable power generation industries. Effectively all of the company’s leases are triple, and its organic growth is through contractual rent escalators, lease modifications, and renewals (99%+ property operating margins, no maintenance capex).

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LMRK sees many opportunities internationally as well as with operating partners that have a unique expertise and experience in industry relationships that complement the company’s efforts at the Partnership and the sponsor.

Within the wireless sector, LMRK’s Partnership sponsor and Ericsson recently announced the selection of Ericsson to deploy the Zero Site microgrid solution across North America.

The self-contained, neutral-host smart pole is designed for carrier and other wireless operator colocation, and the Zero Site is designed for macro, mini macro, and small cell deployments and will support IoT, carrier densification needs, private LTE networks, and other wireless solutions.

Ericsson microgrid includes battery storage applications and grid-control software. The Partnership will selectively deploy the Zero Site solution on its existing real estate interests, along with new acquisition opportunities.

A picture containing text, map Description generated with very high confidence

LMRK’s asset portfolio represents less than 1% of the total U.S. market. The market is highly fragmented, as most individual property owners in this industry have only 1 or 2 locations (the No. 1 cellular tower company and the No. 1 billboard company own 10% or less of the land under their assets).

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This is a growth-oriented MLP formed by Landmark Dividend LLC (the “Sponsor”) to acquire, own, and manage a diversified, growing portfolio of real property interests. As you can see below, American Tower, Crown Castle International, and Outfront Media (NYSE:OUT) – all REITs – are tenants of LMRK:

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The company’s diversified platform provides stable and predictable distributions. Many of the locations/sites are difficult to replicate since they are located in major population centers (87% of revenues from Tier 1 tenants for their essential operations). The portfolio consists of 2,368 Assets diversified across 50 states, Washington, D.C., and various international locations.

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No Cap Ex + High Dividend = Happy Investor?

The true value proposition for LMRK is that the company has no property tax or insurance obligations and no maintenance capital expenditures. The portfolio is 96% occupied (99% historical lease renewal rate) and has no commodity exposure. The company’s average lease term is 25 years:

A picture containing screenshot, businesscard, text Description generated with high confidence

LMRK’s underlying properties are operationally critical assets:

  • Wireless – Highly interconnected networks; growing capacity/coverage
  • Billboards – Key traffic locations, favorable zoning restrictions with “grandfather clauses”
  • Renewables – Solar/wind corridors, proximity to transmission interconnects

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The properties are difficult to replicate, with significant zoning, permitting, and regulatory hurdles in finding suitable new locations, including the time and cost of construction at a new site. Vacating tenants must often return the property to its original condition.

As viewed below, LMRK’s platform is highly desired by many Tier 1 tenants (many are large, publicly traded companies). No single tenant accounts for more than 15% of revenue:

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Consider These Risks…

LMRK’s general partner and affiliates have conflicts of interest – LMRK and affiliates own a 24.4% limited partner interest in the company and control the general partner.

Also, unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting the business, and therefore, limited ability to influence management’s decisions regarding the business. For example, unlike holders of stock in a public corporation, unitholders do not have “say-on-pay” advisory voting rights.

Unitholders did not elect the general partner or the board of directors of LMRK’s general partner and will have no right to elect the general partner or the board of directors of the company’s general partner on an annual or other continuing basis.

According to company CFO George Doyle, there “is some added flexibility by being an MLP. The REITs can generally only own 20% of their assets in a taxable REIT subsidiary. That’s one of the things that we have flexibility over, because we can create essentially a TRS directly under the MLP. We’re not subject to that 20% limitation, and then there are a few other advantages as well. So we think that for now, it’s a great structure. And we may never need that added flexibility, but we have it, and it was easier to basically create the REIT underneath the MLP at this point in time than it was to contemplate full REIT conversion.”

LMRK believes that its “aligned sponsorship model” will drive growth. Given its substantial cash investment and significant ownership position in LMRK, the company expects that its strategic sponsor will promote and support the success of the business (the sponsor contributed ~$60 million at the IPO, invested ~$39 million in cash and ~$21 million in rollover equity, and the sponsor owns LMRK’s General Partner all of the IDRs and a 15% LP interest).

A close up of a map Description generated with high confidence

As noted above, LMRK plans to form the REIT subsidiary for the primary purpose of eliminating unrelated business taxable income, otherwise known as UBTI. It also significantly simplifies state income tax filings for the unitholders. Keep in mind, this structure also creates complexity, especially as it relates to the management structure.

I would much prefer to see LMRK convert to a REIT or spin-off individual REITs specialized in their respective businesses. I certainly see the value of the Net Lease model in which the company can structure sale/leasebacks to create investment spreads, but the most successful Net Lease REITs will always rise to the top when they achieve the lowest cost of capital.

This Is What Gets My Shelf Space

LMRK has one of the highest dividend yields in the peer group:

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LMRK recently announced the distribution of $0.3675 per common unit for Q4-17 (or $1.47 per common unit on an annualized basis), marking the 12th consecutive quarter that the partnership has increased its cash distribution since the IPO. This quarter’s distribution represents 5% increase year-over-year.

LMRK’s coverage ratio, which is defined as distributable cash flow divided by distributions declared on the weighted average common and subordinated units outstanding during the quarter, was 0.86 times in the fourth quarter. The coverage ratio was impacted by several factors, including the timing of capital raises and deployment of capital.

LMRK expects acquisition volume and development spending in the range of $250 million to 300 million in 2018; the company anticipates new development spending at approximately $50 million for 2018 as it continues to make progress on the growing initiatives in the pipeline.

As part of guidance, the Partnership sponsor intends to offer LMRK the right to purchase between $200 million and $250 million of assets in 2018. These acquisitions and developments, combined with organic portfolio growth, are expected to drive distribution growth of 10% over the fourth quarter of 2017 distribution of $0.3675 per common unit by the fourth quarter of 2018.

The recent tax reform changes are favorable to LMRK as the new law provides 20% deduction for dividend income and MLP Partnership income.

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The Bottom Line

As I said above, a REIT is a perfect vehicle that can be used to raise capital for infrastructure investments in public-private partnership transactions and although Landmark is not a REIT (at the parent level), the modified reorganization of the legal structure now allows unit holders to freely purchase units without having to worry about generating taxable income sourced to states outside their own state of residency.

Before my recommendation, consider a few key risks: (1) LMRK is a small cap ($410 million) that means the shares are subject to outsized volatility, (2) LMRK has higher leverage than most REITs (65% debt to market cap), and (3) LMRK is externally-managed. Collectively, I consider Landmark speculative and my BUY recommendation is rooted in the higher-risk framework.

However, I find Landmark a very compelling infrastructure idea that could return outsized returns, over 40% annually. With just a handful of analysts covering Landmark, this pick could be one of the best kept secrets around – that is, before you read this article.

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Note: Brad Thomas is a Wall Street writer, and that means he is not always right with his predictions or recommendations. That also applies to his grammar. Please excuse any typos, and be assured that he will do his best to correct any errors if they are overlooked.

Finally, this article is free, and the sole purpose for writing it is to assist with research, while also providing a forum for second-level thinking. If you have not followed him, please take five seconds and click his name above (top of the page).

Sources for images: F.A.S.T. Graphs and LMRK Investor Presentation, unless otherwise noted.


I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

U.S. appeals court in San Francisco will hear net neutrality appeal

WASHINGTON (Reuters) – A federal judicial panel said on Thursday that challenges to the Federal Communications Commission’s repeal of the Obama era open internet rules will be heard by an appeals court based in San Francisco.

FILE PHOTO – Supporter of Net Neutrality Lance Brown Eyes protests the FCC’s recent decision to repeal the program in Los Angeles, California, November 28, 2017. REUTERS/ Kyle Grillot

The U.S. Judicial Panel on Multidistrict litigation said it randomly selected the U.S. Ninth Circuit Court Nth circuit to hear the consolidated challenges. The FCC declined to comment on the decision.

A dozen challenges have been filed by 22 state attorneys general, public interest groups, internet companies, a California county and the state’s Public Utilities Commission seeking to block the Trump administration’s repeal of landmark rules designed to ensure a free and open internet from taking effect.

The suits were filed in both the Ninth Circuit and District of Columbia appeals court. Of the Ninth Circuit court’s 24 active judges, 18 were appointed by Democratic presidents and six by Republican President George W. Bush. There are six current vacancies and President Donald Trump has nominated two candidates.

The FCC published its order overturning the net neutrality rules in the Federal Register on Feb. 22, a procedural step that allowed for the filing of legal challenges.

The Republican-led FCC in December voted 3-2 to overturn 2015 rules barring service providers from blocking, slowing access to or charging more for certain content on the internet.

FILE PHOTO – Chairman Ajit Pai speaks ahead of the vote on the repeal of so called net neutrality rules at the Federal Communications Commission in Washington, U.S., December 14, 2017. REUTERS/Aaron P. Bernstein

Trump in January criticized opponents for filing cases in the Ninth Circuit and asserted in a tweet they “almost always” win before being reversed.

New York, California, Illinois, Massachusetts, New Jersey and Pennsylvania are among the states challenging the decision, arguing the FCC cannot make “arbitrary and capricious” changes to existing policies and that it misinterpreted and disregarded “critical record evidence on industry practices and harm to consumers and businesses.”

FCC Chairman Ajit Pai has said he is confident the order will be upheld.

The White House Office of Management and Budget still must sign off on some aspects of the FCC reversal before it takes legal effect. That could take months.

The repeal of the net neutrality rules was a victory for internet service providers like AT&T Inc, Comcast Corp and Verizon Communications Inc, conferring power over what content consumers can access.

On the other side, technology companies including Alphabet Inc and Facebook Inc have thrown their weight behind a congressional bid to reverse the net neutrality repeal.

Reporting by David Shepardson; Editing by Cynthia Osterman

Amazon’s Echo Speakers Are Spontaneously Laughing—And Users Are Spooked

Amazon is trying to stop its Amazon Echos, powered by the Alexa voice-activated assistant, from suddenly laughing.

The online retail giant told to tech news publication The Verge on Wednesday that it is aware that some Echo Internet-connected speakers have a laughing problem and is “working to fix it.”

Amazon’s (amzn) acknowledgement of the issue comes after several people have reported on Twitter and Reddit that their Amazon Echo speakers have started laughing, for no apparent reason. People typically activate their Echo speakers by saying the word “Alexa,” which triggers the device to listen and respond to commands like changing the volume.

The latest laughing is causing some customers to feel unsettled and confused. Other say it’s spooky, like something out of a horror film.

Although third-party devices like some HP Inc. personal computers and certain modems work with Alexa, the problem appears to be limited to the Amazon Echo and the smaller Echo Dot.

A Reddit user also described problems with the Amazon Echo Dot two weeks ago:

We just added the echo dots two months ago. The dot we have in the master bath has twice now randomly played a track of a woman laughing at about 10 p.m. the first time I thought the fire tv was sending audio through it since I had been trying to sync them up to the tv, but tonight was completely random. No indication on the app that the device heard any command. We had the dot laugh several times and it wasn’t the laugh Alexa produces, but definitely sounded like a canned laugh, not like someone laughing live.

It’s unclear what’s causing the errors and Amazon’s brief statement did not say when the problem would be fixed or if other Alexa-enabled devices are also affected.

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Fortune contacted Amazon for more details and will update this story if it responds.

Google Just Indexed Millions of ‘Life Magazine’ Photos Using Artificial Intelligence

Google has used its artificial intelligence to automatically index millions of photographs from the defunct Life Magazine.

The search giant, which debuted a website for the photo project on Wednesday, said it was able to categorize over 4 million iconic Life Magazine photographs without human help. After clicking on a particular label like “skateboarding,” for example, users are shown photos of people performing skateboard tricks along with Wikipedia’s definition of the sport.

Google uses deep learning technology to help its computers better understand objects like dogs or cats in pictures and make its image search tool more efficient to people wanting to see a particular image.

Compared to the core Google search, the photo project’s website is slow to load, especially when there are thousands of images assigned to a particular label like “road.”

Although Google has hosted a Life Magazine archive since 2008, the new website makes using it easier. Searching Life Magazine’s photojournalism for ballet brings up relevant photos alongside the name of the photographer who took the picture, the title of the photo like “Nutcracker Ballet,” and what in the photo Google’s computers were able to recognize, like a dancer.

Although usually accurate, Google’s technology does have some hiccups that highlight some of AI’s current limitations. For instance, under the “skateboarding” label is a photo that is shown sideways of a man wearing a top hat and holding a cane who is performing what looks like a campy musical number. For unknown reasons, the computers mistakenly thought it saw a skateboard in the image.

Additionally, the computer that created the index has come up with some odd categories that human editors likely wouldn’t have. One such label is “identity document,” which brings up photos of people’s passports and railroad tickets as well as a photo of musician Paul McCartney holding a Grammy plaque. It’s likely the computers saw similarities between a typical document and McCartney’s Grammy plaque, which in this case resembled more of a small, commemorative plate than the conventional 3-dimensional Grammy statue.

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Another label, “concrete,” highlights thousands of photos, some of which appear random. There’s a picture of an old tombstone, a photo of a marine boot camp, a picture of a person hunting a snake in a small enclosure, and a photo of the “Roosevelt Raceway” that shows a man—incorrectly identified by the computer as a fisherman— sweeping. While there indeed seems to be some sort of concrete object involved with each photo, it’s still an unconventional way to group all the pictures together considering they are displaying very different subjects.

In addition to the misidentified photos, the technology also failed to create labels for some obvious topics. They include some of Life Magazine’s most iconic photos.

For instance, the computers did not create a label for the “Vietnam War,” a subject that should include some of Life Magazine’s best known and most powerful photos. The computer did create is a “war” label, but it appears to have grouped over 23,000 photos, making searching for a particular picture difficult.

Cryptocurrencies are risky for consumers, says BoE's Haldane

LONDON (Reuters) – Cryptocurrencies pose a risk to British consumers, though not to the financial system as a whole, the Bank of England’s chief economist, Andy Haldane, said on Tuesday.

FILE PHOTO: A collection of Bitcoin (virtual currency) tokens are displayed in this picture illustration taken December 8, 2017. REUTERS/Benoit Tessier/Illustration/File Photo

“There’s lots of potential risks there, one of which is the danger to the consumer from buying into this stuff,” Haldane said in a BBC television interview.

Bitcoin BTC=, the best known cryptocurrency, soared in value from around $1,000 at the start of 2017 to almost $20,000 in mid-December, before tumbling below $6,000 last month and then staging a partial recovery.

Haldane’s concerns are similar to those expressed by BoE Governor Mark Carney in a speech on Friday, and previously by Britain’s Financial Conduct Authority.

Many global regulators have warned about cryptocurrencies this year and China has banned financial institutions from processing them. Carney said this would be a step too far, given the potential of the underlying technology to improve payments and asset clearing and settlement.

Haldane said the BoE continued to monitor cryptocurrencies, and that at less than 1 percent of total global wealth, they did not pose a big danger to the world’s financial system.

But asked if he would invest in cryptocurrencies himself, Haldane said he was very risk averse, and would not.

Reporting by David Milliken; Editing by James Dalgleish

Pennsylvania Sues Uber Over Data Breach Disclosure

Uber faces more potential legal consequences for waiting to make public a major hack until a over a year after it happened. The Pennsylvania Attorney General filed a lawsuit against Uber Monday for violating the state’s data breach notification law, which says hacks should be disclosed within a “reasonable” time frame. Uber didn’t merely keep quiet about the massive breach; it reportedly paid a $100,000 ransom to the perpetrators in exchange for their silence. And while experts say Uber will likely settle the case, it may be just the latest in a cascade of similar lawsuits.

The stolen Uber data included the names and driver’s license information of around 600,000 drivers—including at least 13,500 from Pennsylvania—as well as data belonging to 25 million users in the US. It impacted over 57 million people in total. “Uber violated Pennsylvania law by failing to put our residents on timely notice of this massive data breach,” Josh Shapiro, the states’s attorney general, said in a statement. “Instead of notifying impacted consumers of the breach within a reasonable amount of time, Uber hid the incident for over a year and actually paid the hackers to delete the data and stay quiet.” Under Pennsylvania’s data breach notice law, the attorney general may seek fines up to $1,000 for each violation, leading to a maximum penalty of $13.5 million for Uber.

Pennsylvania’s joins a growing line of lawsuits against the ride-share company. Both Washington state, and cities including Los Angeles and Chicago filed suits when the breach was first made public by the company’s new CEO Dara Khosrowshahi in November. Two class-action lawsuits were also filed in California days after the breach was first disclosed. Attorneys general from New York, Missouri, and Connecticut have also said they would look into the breach. Forty-eight states, (excluding South Dakota and Alabama) currently have laws on the books regulating how and when a data breach must be disclosed.

“Since starting on this job three months ago, I’ve spoken with various state and federal regulators in connection with the data breach pledging Uber’s cooperation, and I personally reached out to Attorney General Shapiro and his team in the same spirit a few weeks ago. While I was surprised by Pennsylvania’s complaint this morning, I look forward to continuing the dialogue we’ve started as Uber seeks to resolve this matter,” Tony West, Uber’s chief legal office said in a statement. “We make no excuses for the previous failure to disclose the data breach. While we do not in any way minimize what occurred, it’s crucial to note that the information compromised did not include any sensitive consumer information such as credit card numbers or social security numbers, which present a higher risk of harm than driver’s license numbers. I’ve been up front about the fact that Uber expects to be held accountable; our only ask is that Uber be treated fairly and that any penalty reasonably fit the facts.”

The Pennsylvania lawsuit is also the first to cite a Senate hearing in February where John Flynn, Uber’s chief information security officer, testified in front of the Committee on Commerce, Science, and Transportation about the hack. Uber initially said the payment it made to the hackers responsible for the breach was not a ransom, but simply a payout under its existing bug bounty program, a system many tech companies deploy to reward security researchers for bringing vulnerabilities to their attention. But during the hearing, Flynn acknowledged that the agreement made with the perpetrators—as well as the $100,000 payment—were not typical for its bug bounty program, which usually compensates researchers only a couple thousand dollars.

“The fact that this was a multistep malicious intrusion, a downloading of data, and extortionate demands means this wasn’t consistent with the way that [the bug bounty] program normally operates,” Flynn testified. He also said that Uber “made a misstep not reporting to law enforcement.”

William McGeveran, a professor at University of Minnesota Law School who specializes in data privacy law, said it’s possible Uber will settle with Pennsylvania for a fraction of the total $13.5 million fine, and take on commitments to ensure a similar breach doesn’t happen in the future. “In these settlements many times regulators care more about fixing the problem than about being punitive,” says Mcgeveran. But more suits could follow from other states, especially because Flynn’s statements before the Senate committee provide state prosecutors with more evidence to work with.

“Given the alleged facts in this case, it wouldn’t surprise me at all to see more lawsuits,” says Woodrow Hartzog, a law and computer science professor at Northeastern University who studies privacy and data protection issues. “Oftentimes you will have state attorneys general that might even work together if that appears to be the best course of action. They’ll probably be using the facts in this case as an example of how not to respond to a data breach.”

Uber has also already faced disciplinary action from federal regulators twice, once for a separate hack in 2014 that exposed the information of 100,000 drivers, and once for misleading drivers about how much money they could make. The FTC said in November that it was also evaluating the “serious issues” raised by the 2016 breach.

Uber has yet to pay any fines to the federal government, and won’t have to if it makes good on its promises to protect its drivers’ and customers’ privacy. The agreement between the FTC and Uber lasts 20 years. If the FTC decides that the 2016 breach is considered a violation of that agreement, the ride-hailing company could face expensive consequences. In 2012 for example, the FTC fined Google $22.5 million for violating its 2011 settlement.

For now, no federal law exists requiring companies disclose a data breach within a certain time frame. But since nearly every state has a data breach law, Uber could still face a patchwork of further lawsuits. Some lawmakers are also pushing for federal legislation. In December, Democratic senator Bill Nelson introduced the Data Security and Breach Notification Act, which would require companies to report breaches within a month, or face up to five years in prison.

Federal laws punishing companies for failing to notify about a breach wouldn’t necessarily improve protections for consumers, however. “I would be skeptical of the claims that a unified data security protection law are going to provide clarity and better data protection at the same time,” says Hartzog, who has testified before Congress about data breach legislation. “A movement to have a single unified standard among the United States would be seen as an opportunity to water down those requirements.”

State laws also give attorneys general the chance to act if they perceive the Federal Trade Commission to be not aggressive enough. “I think we’re going to see more activity by state attorneys general in privacy and security cases because it’s not clear how much the FTC is going to do under its current management compared to previous,” says McGeveran. “These states have a better argument because they have specific requirements that you notify about a breach.”

Besides, it’s not hard for a major corporation like Uber to juggle multiple state regulations at once, especially because the ones governing breach disclosure mandate the same things. “Many of them are quite similar in their requirements, many of them have the same deference to industry standards,” says Hartzog. It’s far harder to navigate, say, every state’s regulations on taxis.

Uber Issues

Reddit CEO Steve Huffman Acknowledges Users Shared Russia Propaganda

Russian trolls used Reddit to spread propaganda in prelude to the 2016 U.S. presidential election, Reddit said on Monday.

Reddit CEO Steve Huffman said in a post on Reddit that the company removed a “few hundred accounts” from its social media service that it believed were linked to Russian-based entities that had spread misleading information.

Huffman did not identify the groups, but the Daily Beast reported last week that members of the Russia-based Internet Research Agency had spread misinformation on Reddit’s various message boards as well as on Tumblr blogging service. The IRA was one of three Russian groups identified in a recent Justice Department indictment alleging that Russian individuals had spread fake news and propaganda through popular social networking and messaging services like Facebook (fb) and Twitter (twtr) in an effort to exacerbate existing divisions in the U.S..

“As for direct propaganda, that is, content from accounts we suspect are of Russian origin or content linking directly to known propaganda domains, we are doing our best to identify and remove it,” Huffman wrote. “The vast majority of suspicious accounts we have found in the past months were banned back in 2015–2016 through our enhanced efforts to prevent abuse of the site generally.”

Huffman said that there’s not much evidence that Russian trolls bought online ads on Reddit to disseminate propaganda, as they are alleged to have done on Facebook and Google.

“We don’t see a lot of ads from Russia, either before or after the 2016 election, and what we do see are mostly ads promoting spam and ICOs,” Huffman said.

Huffman also said that thousands of U.S.-based Reddit users may have unwittingly promoted Russian propaganda on the service. He cited the fact that these Reddit users endorsed the postings of @TEN_GOP Twitter account, which they thought were linked to a real Republican group but was actually a “Russian agent.”

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“I wish there was a solution as simple as banning all propaganda, but it’s not that easy. Between truth and fiction are a thousand shades of grey,” Huffman wrote. “It’s up to all of us—Redditors, citizens, journalists—to work through these issues.”

The Senate Intelligence Committee now wants more information from Reddit about the possibility that Russia may have exploited the service, the Washington Post reported Monday. The committee also plans to hold a briefing with Tumblr, the newspaper said citing an unnamed source.

And The Oscar Goes To… 

On days like this predictions abound. And most often those predictions come from the pundits, the ones “in the know.” But what if the real power of prediction is not in the opinions and the bias of pundits but in the data?

One the most amazing things about the internet is its ability to quickly determine the sentiment of large populations just by listening to what people are talking about. Of course, listening is nothing new. Anyone building a successful business will tell you that the single most important skill to develop and info into a culture is that of listening to the customer. 

What if I told you that was wrong? Anathema, right? Customers always come first! That’s only partially true. The problem with always putting the customer first is that you build an echo chamber which reports that same old biased view of what you should be doing to grow your business based on what you have been doing, while growth comes not only from customer but from those who are not yet customers. 

Companies often try desperately to hang onto customers when their overall business is shrinking and suffering, They put in place loyalty programs and incentives for customers to stay, but they are oblivious to the sentiment of the larger market which is fleeing to other alternatives. It’s like trying to give cabin upgrades to passengers of the Titanic–while it’s sinking!  

Instead, what if you could listen to the entire market, current and potential, in order to direct your resources and align your decisions with where the growth was? What if you could predict the many ways in which the marketplace is changing but which no individual customer, focus group, marketing genius, or existing community of customers could adequately express?

That’s precisely the objective of social listening; to understand the collective sentiment of a marketplace based on what the data is telling your. It sounds simple but it’s amazing how few companies are doing it. Why not? Because we all want to believe that we are smarter than the market; that the data has nothing on us. Because, if it did, what would our value be?

Which brings me to the Oscars. (You knew I’d get there eventually!)

Using a listening analytics platform, Sprout Social captured data around the three major Oscar categories of best picture, best actor in a leading role, and best actress in a leading role in order to project tonight’s Oscar winners. Although this is just for fun, it’s a great illustration of how powerful social sentiment can be in understanding a market’s perspective.

In each category they scoured the web for the number of mentions and the positive versus negative mentions. The results are in some cases straight forward and in others fascinatingly close. 

For example, the data shows that Call Me By Your Name is the projected winner among fans, garnering 152,880 total mentions, 64,758 positive mentions, 18,095 negative mentions and 46,663 net positive mentions (that’s the number of positive mentions less the negative mentions.)  The Shape of Water and Lady Bird follow close behind with 48,039 and 34,268 positive mentions respectively. However, Dunkirk had more total mentions than Lady Bird, but just about 7,000 fewer net positive mentions. Although Get Out had more net positive mentions than Dunkirk! 

None of that is likely to usurp Call Me by Your name, but from a marketing standpoint it provides insight into how close sentiment is about movies that may not be getting an Oscar but are none-the-less neck and neck in terms of popularity. 

Even more fascinating is the ridiculously close net positive ratings for the category of Best Actress in a Leading Role as compared to the category of Best Actor in a Leading Role. Make your own inferences here but the bifurcation of opinions is at the very least a fascinating look at how polarized sentiment can become. 

Call Me By Your Name  152,880 64,758 18,095 46,663
The Shape of Water 115,578 48,039 12,304 35,735
Lady Bird  64,063 34,268 7,249 27,019
Dunkirk  73,586 33,085 12,988 20,097
Get Out  56,196 32,136 9,802 22,334
Best Actor in a Leading Role
Daniel Kaluuya (Get Out) 89,552 37,152 4,698 32,454
Timothée Chalamet (Call Me by Your Name) 28,527 16,405 1,785 14,620
Gary Oldman (Darkest Hour) 15,057 8,337 2,573 5,764
Best Actress in a Leading Role
Margot Robbie (I, Tonya) 2,007 593 589 4
Meryl Streep (The Post) 549 196 183 13
Saoirse Ronan (Lady Bird) 404 188 34 154
Frances McDormand (Three Billboards) 202 81 22 59
Sally Hawkins (The Shape of Water) 131 70 15 55

*Data provide by Sprout Social

So, will the data foretell tonight’s winners? The practical side of this specific scenario is that the 6,000 members of the Academy of Motion Pictures and Sciences who vote on the Oscars can do whatever they want, regardless of what the data says. Are they likely to reflect the broader demographic captured in the table above? Probably, but not necessarily. 

Whatever the case, we are at a point when we need to spend more time listening to the data and less time in our echo chambers.