Author Topic: berkshire - cheap?  (Read 60835 times)

shalab

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1002
berkshire - cheap?
« on: July 16, 2017, 11:34:29 AM »
Book value at end of Q1 - $124 (including KHC stake of 10B  not counted in book value - actual value is close to 15 B, -5B for tax allowance)
Book value at end of Q2 - $129  SP500 perf + ~1.5% => 4.5% gain from Q1. If book value is $128, P/B is 1.32, if book value is 129, P/B is 1.31.

For comparison - average P/B for SP500 company is 3.1.
The famous FAAMG stocks look like this:

AMZN => 27
FB => 7.2
GOOG => 5
AAPL => 5.9
MSFT => 7.7



rb

  • Hero Member
  • *****
  • Posts: 2766
Re: berkshire - cheap?
« Reply #1 on: July 16, 2017, 01:06:12 PM »
I don't think it makes sense to even look at P/B of any of the techs. I mean.. what's the book value of Google's search algorithm?

crastogi

  • Full Member
  • ***
  • Posts: 142
Re: berkshire - cheap?
« Reply #2 on: July 16, 2017, 06:14:37 PM »
Book value at end of Q1 - $124 (including KHC stake of 10B  not counted in book value - actual value is close to 15 B, -5B for tax allowance)
Book value at end of Q2 - $129  SP500 perf + ~1.5% => 4.5% gain from Q1. If book value is $128, P/B is 1.32, if book value is 129, P/B is 1.31.

For comparison - average P/B for SP500 company is 3.1.
The famous FAAMG stocks look like this:

AMZN => 27
FB => 7.2
GOOG => 5
AAPL => 5.9
MSFT => 7.7

Well, Berkshire's P/B will always be lower because they are in different kind of businesses as the list above.  The returns on capital employed are much higher for companies like Google, as they have fewer hard assets. 

Buffett is looking to soak up all the capital Berkshire is creating by deploying in businesses which will provide a predictable return, even if the returns are not spectacular. 


scorpioncapital

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1553
    • scorpion capital
Re: berkshire - cheap?
« Reply #3 on: July 17, 2017, 01:58:06 AM »
cheap? verdict is out. Expensive? Doesn't seem so. You could do this - take all of their 4 major categories, financial products, insurance, manufacturing & retail, energy and calculate the sectory P/BV. Then weight it according to the size of that business to Berkshire. Then you can see if it's below that.

boilermaker75

  • Hero Member
  • *****
  • Posts: 1046
Re: berkshire - cheap?
« Reply #4 on: July 17, 2017, 06:57:05 AM »
Buffett is a buyer at a P/B of 1.2. So does that mean he thinks at P/B = 1.2  buying BRK is like buying a dollar for fifty cents? That would mean at current prices you are getting a dollars worth of BRK for $0.55.

tombgrt

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1905
Re: berkshire - cheap?
« Reply #5 on: July 17, 2017, 07:10:29 AM »
Buffett is a buyer at a P/B of 1.2. So does that mean he thinks at P/B = 1.2  buying BRK is like buying a dollar for fifty cents? That would mean at current prices you are getting a dollars worth of BRK for $0.55.

No, he doesn't think that.

What happened with this forum? Or is it mainly this thread? Where we you guys when berkshire was trading at $70 and it's BV had much more margin of safety?
« Last Edit: July 17, 2017, 07:18:43 AM by tombgrt »

Jurgis

  • Hero Member
  • *****
  • Posts: 4129
    • Porfolio
Re: berkshire - cheap?
« Reply #6 on: July 17, 2017, 07:25:41 AM »
Where we you guys when berkshire was trading at $70 and it's BV had much more margin of safety?

To be fair, people may have been buying BRK at $70 whenever that was. And people are looking for investments now when BRK is at $16X and may still be relatively attractive compared to other opportunities in the market. Sure it's not gonna return 20% or probably even 15% a year. But it could return annual 10% and outperform the market (and a lot of other ideas).
"Before you can be rich, you must be poor." - Nef Anyo
--------------------------------------------------------------------
"American History X", "Milk", "The Insider", "Dirty Money", "LBJ"

tombgrt

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1905
Re: berkshire - cheap?
« Reply #7 on: July 17, 2017, 07:29:32 AM »
Where we you guys when berkshire was trading at $70 and it's BV had much more margin of safety?

To be fair, people may have been buying BRK at $70 whenever that was. And people are looking for investments now when BRK is at $16X and may still be relatively attractive compared to other opportunities in the market. Sure it's not gonna return 20% or probably even 15% a year. But it could return annual 10% and outperform the market (and a lot of other ideas).

Yes, of course. I just meant that people didn't even discuss the much bigger margin of safety back then except for a few members. Now they are starting to compare it versus BV of tech companies and making silly assumptions concerning what Buffett thinks BRK is worth.

Jurgis

  • Hero Member
  • *****
  • Posts: 4129
    • Porfolio
Re: berkshire - cheap?
« Reply #8 on: July 17, 2017, 07:34:09 AM »
Where we you guys when berkshire was trading at $70 and it's BV had much more margin of safety?

To be fair, people may have been buying BRK at $70 whenever that was. And people are looking for investments now when BRK is at $16X and may still be relatively attractive compared to other opportunities in the market. Sure it's not gonna return 20% or probably even 15% a year. But it could return annual 10% and outperform the market (and a lot of other ideas).

Yes, of course. I just meant that people didn't even discuss the much bigger margin of safety back then except for a few members. Now they are starting to compare it versus BV of tech companies and making silly assumptions concerning what Buffett thinks BRK is worth.

I see. Yeah, comparing BV to tech companies is not very productive.
"Before you can be rich, you must be poor." - Nef Anyo
--------------------------------------------------------------------
"American History X", "Milk", "The Insider", "Dirty Money", "LBJ"

Liberty

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 10435
  • twitter.com/libertyRPF
    • twitter.com/libertyRPF
Re: berkshire - cheap?
« Reply #9 on: July 17, 2017, 07:54:42 AM »
Valuing BRK on book makes less and less sense as time goes on. It used to be mostly insurance cos with a portfolio of publicly traded stocks and a few operating businesses on top, but now it's also bunch of very large operating businesses of various kinds. The two-column valuation method makes most sense, IMO.

I certainly wouldn't compare the book value of BRK to GOOG or whatever...
"Most haystacks don't even have a needle." |  I'm on Twitter  | Interesting podcast on aging research