Author Topic: 2017 YE intrinsic value versus Market Value  (Read 4908 times)

DooDiligence

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Re: 2017 YE intrinsic value versus Market Value
« Reply #10 on: December 07, 2017, 06:46:59 AM »
Warren Buffet said in the last AGM that he thinks he can compound IV for the next 10 years in the 10% range, if interest rates rise a bit.

https://youtu.be/Pwdph0qVb4Q?t=1h11m52s

Under this assumption you can get a 10% compounder for 10-20% discount. Not too bad in today's environment.


He talked about still managing berkie in 10 years?  There's a high likelihood that he'll need to communicate his management and investment decisions with the aid of a Ouija Board...

It'd be cool if he left a set of 10 envelopes labeled by year to be opened by T & T & whoever on New Years day with instructions / predictions written with fortune cookie / horoscopic accuracy.

These metaphorical Ouiji boards would then be presented at annual meetings!

Here's to hoping this is all a long ways off (mainly because I just like the guy...)
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Dynamic

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Re: 2017 YE intrinsic value versus Market Value
« Reply #11 on: December 07, 2017, 08:31:43 AM »
It'd be fun, though if it's only as accurate as a fortune cookie or a horoscope, it would be nothing more than fun Barnum statements and certainly not useful like the wisdom in his shareholder letters. I'm sure he could do better! The best fortune cookie I ever had read "Help! I'm trapped in a fortune cookie factory"

longinvestor

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Re: 2017 YE intrinsic value versus Market Value
« Reply #12 on: December 07, 2017, 04:36:57 PM »
Wow, tough crowd. From the comments, it appears to me that folks don't take 5 minutes to watch the video clip referred. Buffett said none of these things. Buffett was very hesitant to put out a projection. In fact, this question about what the IV growth was, over the past10 years, stumped him a bit. probably 10% was the best he could come up with. He clearly doesn't want to get into putting IV numbers out. The only specific number that he did put out was from the 2014 AR,  1,826163% growth in market value over50 years as roughly being the IV growth also.


Dynamic

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Re: 2017 YE intrinsic value versus Market Value
« Reply #13 on: December 08, 2017, 07:16:40 AM »
That YouTube clip is worth revisiting.

Warren was pretty clear that it would be tough to hit 10% if interest rates remained as they were in May 2017 (i.e. practically zero short term, and I guess less than 3% long term from vague memory). Maybe 10% over the next 10 years if interest rates were a little higher (but not dramatically higher). Since then we've heard that rates are likely to be eased upwards over time, though they could easily plummet again if there's another economic bust.

The question after at 1:18 is relevant now with the latest US tax bill going through government. Tax savings at the utilities would pass direct to the customers, which is only right, as we're allowed an after tax return on equity and if taxes were raised we'd be compensated for that. Unrealised gains in securities would accrue to us directly. Other businesses - to some extent the savings get competed away, and to some extent it does not. It's certain that some would be competed away and some would flow to shareholders and it's very industry-specific whether it's competed out and to what extent.

SlowAppreciation

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Re: 2017 YE intrinsic value versus Market Value
« Reply #14 on: December 08, 2017, 07:43:26 AM »
Warren Buffet said in the last AGM that he thinks he can compound IV for the next 10 years in the 10% range, if interest rates rise a bit.

https://youtu.be/Pwdph0qVb4Q?t=1h11m52s

Under this assumption you can get a 10% compounder for 10-20% discount. Not too bad in today's environment.

Yep, I think this is fair. ~11-13% CAGR moving forward for a very stable company that in some respects I'm more comfortable owning today than a S&P500 index fund.

Valuehalla

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Re: 2017 YE intrinsic value versus Market Value
« Reply #15 on: December 09, 2017, 11:03:58 AM »
I voted for undervalued, because:

Bookvalue at end of Q3 was 308,257 B, which is 124,957 $ per B share (not KHC adjusted)

Q4 till yearend, anticipated taxreform will come true:
Operative gains less tax (conservative estimation)                              = app.  4,00 B
Portfolio gains (till today!) of more than 10 B less 20 % def. tax          = app.  8,00 B
KHC adj. MV 25,55B-15,3B=10,25B less 20% def. tax                        =         8,20 B
Taxreform: reduction of app. 86B def. taxliabilities end of Q3              = app. 37,00 B

leads to a bookvalue estimanted in total: 365,457 B (KHC adjusted) =   148,144 $ per B share

So this means Friday closing price of 196,44$ is just 32,6 % above BV (KHC adjusted)

197 $ is a bargain price, if taxreform will come true !

(even if not anticipated a big investment of 100B cash in near future it is a bargain)
« Last Edit: December 10, 2017, 06:21:33 AM by Valuehalla »
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sleepydragon

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Re: 2017 YE intrinsic value versus Market Value
« Reply #16 on: December 10, 2017, 05:10:21 PM »
$197/share (current price)
  • $66/share stocks
  • $36/share cash (after taking out $20b for dry powder)
  • $12/share KHC (marked to market)
  • $11/share fixed income
  • $1/share Pfds/Warrants
= $127/share book - $10/share deferred tax (new rate)
= $117/share book

$197 - $117 = value of operating businesses
$81 = value of operating businesses

2016 Earnings operating businesses earned $8.50, so implied multiple on the operating businesses is 9.5x. This seems low, and I think it deserves a higher multiple, which in and of itself would give us a ~15% discount to current prices.

Then factor in if you think BRK will benefit further from lower taxes not just at their operating businesses, but also with their stock holdings. AAPL, WFC, BAC, AXP in particular will benefit. And then do you think the portfolio has more room to run? Berkshire's stock portfolio trades at 19x earnings, whereas the S&P is at 25. Maybe this says more about the market's valuation than Berkshire's, but I certainly wouldn't say Berkshire's stock portfolio is overvalued.

So let's call it $220/share - $240/share.

UNP is trading at 22 pe. So I give 20 PE to the 8.5 earning, this is a $300 stock price.

LC

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Re: 2017 YE intrinsic value versus Market Value
« Reply #17 on: December 10, 2017, 05:17:05 PM »
Why would you apply UNP's multiple to the entirety of Berkshire's operating earnings?

My guess it that UNP's multiple would only be applicable to BNSF's operating earnings.
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sleepydragon

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Re: 2017 YE intrinsic value versus Market Value
« Reply #18 on: December 10, 2017, 06:07:50 PM »
Why would you apply UNP's multiple to the entirety of Berkshire's operating earnings?

My guess it that UNP's multiple would only be applicable to BNSF's operating earnings.

I am just saying 20 seems a reasonable PE (compared to S&P500's current pe)

LC

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Re: 2017 YE intrinsic value versus Market Value
« Reply #19 on: December 10, 2017, 06:29:13 PM »
Why would you apply UNP's multiple to the entirety of Berkshire's operating earnings?

My guess it that UNP's multiple would only be applicable to BNSF's operating earnings.

I am just saying 20 seems a reasonable PE (compared to S&P500's current pe)
Ah ok I misunderstood you.

I generally agree- I don't know if 20 is the right multiple but I think in today's environment that 9.5x is probably too low
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