Author Topic: berkshire - cheap?  (Read 60643 times)

racemize

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Re: berkshire - cheap?
« Reply #20 on: July 17, 2017, 02:19:59 PM »
Where we you guys when berkshire was trading at $70 and it's BV had much more margin of safety?

I was taking a 35% position :)

I sold virtually every nonfinancial stock I had and put it in Berkshire.  I wish I'd levered it.


boilermaker75

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Re: berkshire - cheap?
« Reply #21 on: July 17, 2017, 02:28:48 PM »
I apologize for a non-constructive reply here, Boilermaker75.

If you read the December 12, 2012 Press Relase from Berkshire, it's all about the word "may".

"may" here is not the same as "will", it's not in any way an automatic mechanism, and Mr. Buffett stated at the last AGM, that Berkshire would not "prep" its own stock in that situation.

I think some fellow board members has called it a "soft floor" under the stock.

It all depends on the given capital allocation alternatives in that specific and particular situation.

John,

Thanks for the clarification. I did not catch the "may."

Thanks,

Mike

rb

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Re: berkshire - cheap?
« Reply #22 on: July 17, 2017, 03:19:19 PM »
This. This piece by SlowAppreciation, combined with the two Semper Augustus Client Letters about intrinsic value of BRK was the documents that gave me conviction to continue to add to BRK going forward.

Very much appreciated, SlowAppreciation, thank you for sharing. Damn good work. Please give your GF a gentle hug from me, it appears from your blog, that she is giving you a hand on your work.
Just read slow appreciation's piece. It's pretty well written. One big flaw is that in the valuation it ignores the float. While the value of that liability is less then book, it is definitely far from zero.

cubsfan

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Re: berkshire - cheap?
« Reply #23 on: July 17, 2017, 05:06:19 PM »
Where we you guys when berkshire was trading at $70 and it's BV had much more margin of safety?

I was taking a 35% position :)

I sold virtually every nonfinancial stock I had and put it in Berkshire.  I wish I'd levered it.

I'm at 40%+ on BRK and very comfortable with it.


SlowAppreciation

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Re: berkshire - cheap?
« Reply #24 on: July 17, 2017, 05:07:04 PM »
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...

Quote
Q: Do you think the equity positions in Berkshire will do better for Berkshire going forward or the wholly-owned businesses?
 
MUNGER: Well I think that wholly owned businesses will because we won't be paying any taxes on selling and I think they’ll continue to grow and I think they'll do better. I think the wholly owned businesses of Berkshire—or the the 80% owned or what have you—are on average, better than the S&P. So I think we'll do better in that part than the S&P. And I don't think our stocks located in a corporation subject to taxation will do enough better than the S&P when paying the taxes. But if we're buying the stocks with the float in some insurance company, of course it changes.
 
But no, I would say that of course, if you buy Berkshire, you should not be buying it on the strength of its little insurance portfolio.
 
People who buy Berkshire—when you bought Berkshire back 30 or 40 years ago you were getting a bunch of marketable securities that did this, count em up and the businesses were free. Of course those people made a lot of money. We outperformed the market by miles in those days and the businesses did well. And now, we've got businesses that are averaging out doing well and our marketable securities are a small percentage of our cap.
 
There were years when we had more marketable securities per share than our book value per share. Now, it’s quite different. And of course the market at its present modal—it’s a different world. The one thing about Berkshire that's interesting is we do get some opportunities that other people don't get. If you're 3G and want a partner for your next deal, who the hell are they going to come to? They know we're a good partner, so we see stuff other people don't see. That helps.

You get $106/share in Investments/cash, and ~$9/share in earnings. So at $170/share, you're paying around 7x Op earnings per share for a very diverse group of businesses, earning stable, predictable earnings, which have been selected by the greatest capital allocator of all time. The group probably earns 15-20% on capital, and while growth may be limited, I don't expect it to lag the S&P.

So as others have said, I think ~11-12% annual return from today's price is a reasonable expectation. This is why I hold Berkshire in my 401k rather than an S&P index fund.

This. This piece by SlowAppreciation, combined with the two Semper Augustus Client Letters about intrinsic value of BRK was the documents that gave me conviction to continue to add to BRK going forward.

Very much appreciated, SlowAppreciation, thank you for sharing. Damn good work. Please give your GF a gentle hug from me, it appears from your blog, that she is giving you a hand on your work.

Thank you, and hug given.

SlowAppreciation

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Re: berkshire - cheap?
« Reply #25 on: July 17, 2017, 05:09:03 PM »
This. This piece by SlowAppreciation, combined with the two Semper Augustus Client Letters about intrinsic value of BRK was the documents that gave me conviction to continue to add to BRK going forward.

Very much appreciated, SlowAppreciation, thank you for sharing. Damn good work. Please give your GF a gentle hug from me, it appears from your blog, that she is giving you a hand on your work.
Just read slow appreciation's piece. It's pretty well written. One big flaw is that in the valuation it ignores the float. While the value of that liability is less then book, it is definitely far from zero.

There's more than one way to skin a cat. I know one can do a float-based valuation of BRK, but felt it was the least-approachable from a casual reader perspective and also the one I'm least confident in doing accurately. So I left it out. I don't think it changes things all that much, and there's nothing wrong with baking in further conservatism to one's model.

rb

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Re: berkshire - cheap?
« Reply #26 on: July 17, 2017, 05:18:41 PM »
This. This piece by SlowAppreciation, combined with the two Semper Augustus Client Letters about intrinsic value of BRK was the documents that gave me conviction to continue to add to BRK going forward.

Very much appreciated, SlowAppreciation, thank you for sharing. Damn good work. Please give your GF a gentle hug from me, it appears from your blog, that she is giving you a hand on your work.
Just read slow appreciation's piece. It's pretty well written. One big flaw is that in the valuation it ignores the float. While the value of that liability is less then book, it is definitely far from zero.

There's more than one way to skin a cat. I know one can do a float-based valuation of BRK, but felt it was the least-approachable from a casual reader perspective and also the one I'm least confident in doing accurately. So I left it out. I don't think it changes things all that much, and there's nothing wrong with baking in further conservatism to one's model.
Well you count the securities per share but ignore the associated liability that finances those assets. Under this method every insurance company, indeed every financial institution on the planet is grossly undervalued.

SlowAppreciation

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Re: berkshire - cheap?
« Reply #27 on: July 17, 2017, 05:38:25 PM »
This. This piece by SlowAppreciation, combined with the two Semper Augustus Client Letters about intrinsic value of BRK was the documents that gave me conviction to continue to add to BRK going forward.

Very much appreciated, SlowAppreciation, thank you for sharing. Damn good work. Please give your GF a gentle hug from me, it appears from your blog, that she is giving you a hand on your work.
Just read slow appreciation's piece. It's pretty well written. One big flaw is that in the valuation it ignores the float. While the value of that liability is less then book, it is definitely far from zero.

There's more than one way to skin a cat. I know one can do a float-based valuation of BRK, but felt it was the least-approachable from a casual reader perspective and also the one I'm least confident in doing accurately. So I left it out. I don't think it changes things all that much, and there's nothing wrong with baking in further conservatism to one's model.
Well you count the securities per share but ignore the associated liability that finances those assets. Under this method every insurance company, indeed every financial institution on the planet is grossly undervalued.

Sorry, I misunderstood your original post.

This is a fair point, though I don't recall Buffett subtracting the liabilities when using the "two-column" valuation method. Curious why that might be.

rb

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Re: berkshire - cheap?
« Reply #28 on: July 17, 2017, 05:48:50 PM »
I think that maybe when Buffett does it, it's more of a rough sketch. He has no intention of spoon feeding a valuation of BRK. But I'm also pretty sure that when he looks to acquire an insurance company he doesn't count the float liability as zero.

Basically the float has to be discounted in some way. It's less then book but still a significant number.

Also in reference to your write-up. At a meeting in years past he did mention in passing that the basket of businesses BRK owns are probably worth about 14x pre tax.

longinvestor

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Re: berkshire - cheap?
« Reply #29 on: July 17, 2017, 06:01:26 PM »
I think that maybe when Buffett does it, it's more of a rough sketch. He has no intention of spoon feeding a valuation of BRK. But I'm also pretty sure that when he looks to acquire an insurance company he doesn't count the float liability as zero.

Basically the float has to be discounted in some way. It's less then book but still a significant number.

Also in reference to your write-up. At a meeting in years past he did mention in passing that the basket of businesses BRK owns are probably worth about 14x pre tax.

Do you remember how long ago that was? Reason I ask is the basket has changed significantly since 2009. Was that statement made pre-2009?