berkshire - cheap?

[aws]

I'm not sure if it's been mentioned before in this thread or others, but I would think you need to be careful with the 1.2x book calculations when there is so much cash laying around.  Cash is clearly not worth more than 1x book, and with around $42/B share in cash that's not insignificant.  If they were to buyback any material number of shares starting at 1.2 book, they would soon be buying above that level.
Imagine for a simplified example that there are exactly 2.5 billion B share equivalents, that the market value is $200/sh, the book value is 166.67/sh (so trading at 1.2/book, which is 416.67 billion total), and they have well over $100B in starting cash.  If they did a $100B tender at the $200/sh and it was fully subscribed then 500 million shares would be retired all at 200/sh, leaving 2 billion shares and a new market cap 400B, and a new book value of 316.67B.  Assuming the market value is still $200/sh at that point they would now be trading at 1.26 times book.

With that said, I've been a buyer lately in the high 180s and am glad to see it.

[Dynamic]

Interesting. You could argue that most of that cash is not included in book value anyway as it's roughly equal to the insurance float which is a balancing liability.

You could also argue that it is worth more than carrying value if you believe it will be wisely invested soon.

[nickenumbers]

BRK price over the last couple of weeks and perhaps the last month or so has not rallied like the Dow or the S&P.


Does anyone know an event or a narrative that might explain why it has not tracked the S&P with the rally?

I am buying because I think banks are going to have a great day tomorrow, and BRK is going to have a great quarter when it releases on 8/2/18 for various reasons.


Related question- Do you think with all the robo-trading/advising BRK is adversely affected by the volatility of its Net Income due to the inclusion of all investments now running thru the P&L?  I wonder if computer algos have been adjusted to include this muddling up of the Net Income.

[John Hjorth]

I recall that interview with Mr. Buffett that Dynamic in referring to, too. To my best recollection without trying to look up the video I consider Dynamic's description here accurate.

- - - o 0 o - - -

In Jeff's book [book by fellow board member rainforesthiker] there is a chapter 8 called "Investment Case studies - The Variant perception and the Inefficient Rationale". Investment case #6 is Berkshire Hathaway, and is called "Mispriced due to Indexation". [start p. 149.]

In short, it's about when the US financials go out of favour from time to time in the market, Berkshire does too, because of indexing and because Berkshire is a material component of S&P Financial Select Sector, while the properties of Berkshire as an investment are materially different than the properties of the other financials in that category/index.

Personally, I feel and think, that this is exactly where we are now.

It is the largest weighted company in XLF:
http://etfdb.com/etf/XLF/

Nickenumbers,

Above is my offer what's going on with Berkshire in the market at end of June 2018, with comment from Joel [racemize]. Also ref. the latest discussion in this topic between rolling and Dynamic. I still think today this thesis has merit.

[Valuehalla]

Every dollar of book value, except those where the after tax return is regulated (Energy) or competed away (McLane or auto insurance maybe over time), should now be more productive. Equally the economic goodwill of companies like GEICO gets ever greater as they grow without a mark up in their book value.

I agree totally with Dynamic

The buyback shall be increased. Its to long already on a level of 1.2

1) cause of tax reform
2) cause time passed by (goodwill effect fe geico)

Dynamic and Valuehalla saw it coming !!!

CHEERS !

[Valuehalla]

According to my calculation BV went up by app. 4,8 % since end of Q1 till today.

We are now/today  at app. 147.50 US$ and (KHC adj. at 148.50$)

IMO Intrinsic Value shall be minimum 1.4 above Bookvalue, which means marketprice for a B share shall be at app 208 US$

[walkie518]

According to my calculation BV went up by app. 4,8 % since end of Q1 till today.

We are now/today  at app. 147.50 US$ and (KHC adj. at 148.50$)

IMO Intrinsic Value shall be minimum 1.4 above Bookvalue, which means marketprice for a B share shall be at app 208 US$

Book value might be less of a measure for Berkshire's value the farther away the company gets from a big deal.  When buying Burlington Northern, for example, book was closer to intrinsic value.  There have been some other buys like PCP, but much of Berkshire's intrinsic value today is generated within the company's vast portfolio. 

My back of the envelope puts Berkshire worth around $369k/a-share using a (sloppy) DCF and adding back the cash on the balance sheet (since this is dead-weight for cash generation) then averaging out cash flow growth, you might want to add another 10% to the value of the operating businesses...then there should be a premium in the market for the value of Berkshire's float as well as the intangible value of assembling such a fabulous investment team. 

[longinvestor]

According to my calculation BV went up by app. 4,8 % since end of Q1 till today.

We are now/today  at app. 147.50 US$ and (KHC adj. at 148.50$)

IMO Intrinsic Value shall be minimum 1.4 above Bookvalue, which means marketprice for a B share shall be at app 208 US$

Book value might be less of a measure for Berkshire's value the farther away the company gets from a big deal.  When buying Burlington Northern, for example, book was closer to intrinsic value.  There have been some other buys like PCP, but much of Berkshire's intrinsic value today is generated within the company's vast portfolio. 

My back of the envelope puts Berkshire worth around $369k/a-share using a (sloppy) DCF and adding back the cash on the balance sheet (since this is dead-weight for cash generation) then averaging out cash flow growth, you might want to add another 10% to the value of the operating businesses...then there should be a premium in the market for the value of Berkshire's float as well as the intangible value of assembling such a fabulous investment team.

They won’t go wrong at 1.8xBV

[Valuehalla]

According to the Semper Augustus Letter Feb 2018 they calculated in different methods IV with a range of

- 241 US$ to 255 US$ per B share for end of 2017
- alternative estimating IV is 1.75 x above BV, which means for today app 260 US$ per B share

So this underlines my estimation 1.4 x BV is for sure very low. Longinvestor with 1.8 x BV for IV is on high end, but reasonable.

We will see going BRK far more up during next weeks. 3th August will provide more details on the whole situation

[Valuehalla]

https://www.cnbc.com/2018/07/18/warren-buffett-finds-an-elephant-in-berkshires-own-backyard.html


"Berkshire's book value, based on its B shares, is estimated at $149 a share, while its intrinsic value is more like $236, according to calculations by J. P. Morgan Chase analysts."

BV with 149 $ is app close to my own calculations (148.50 $ KHC adjusted) for today after close.