Author Topic: BRK-A book value and intrinsic value  (Read 31842 times)

cubsfan

  • Hero Member
  • *****
  • Posts: 581
Re: BRK-A book value and intrinsic value
« Reply #10 on: February 26, 2017, 10:32:57 AM »
One more year of BRK selling for less than IV. May this go on until the day I retire! Please, Sir Market!! Until then, please direct everybody towards the FANG stocks.

I'm with you!


ValueMaven

  • Full Member
  • ***
  • Posts: 203
Re: BRK-A book value and intrinsic value
« Reply #11 on: February 26, 2017, 11:20:31 AM »
So the B shares are trading at 1.4x BV? 

What do you think they are trading at to IV? 

Sincerely,
ValueMaven

John Hjorth

  • Hero Member
  • *****
  • Posts: 1701
Re: BRK-A book value and intrinsic value
« Reply #12 on: February 26, 2017, 12:25:14 PM »
ValueMaven,

Book value per share ["raw" - without adjustments] for B is : 172,108/1,500 = 114.74 [for reference, please see p. 34 in the 2016 AR]

Market price at Friday closing: 170.22, so it's trading at 1.48 x BV.

Soft buy back treshold : 137.69 [114.74 x 1.2].

So it's trading 23.6 per cent above soft buy back treshold. [[[[170.22 - 139.69]/137.69] *100] percent].
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai

ValueMaven

  • Full Member
  • ***
  • Posts: 203
Re: BRK-A book value and intrinsic value
« Reply #13 on: February 26, 2017, 01:07:11 PM »
Still seems fairly cheap to me...although, not the bargain price the stock offered us in early Jan/Feb of 2016!!

Sincerely,
ValueMaven

Valuehalla

  • Sr. Member
  • ****
  • Posts: 285
  • Who wants to earn forever
Re: BRK-A book value and intrinsic value
« Reply #14 on: February 26, 2017, 01:30:48 PM »
Total BV 31.12.2016 = 283,001 B

Add to adjust KHC till 31.12.2016    13,1 B  for fairvalue

Add further till today (Jan+Feb):

Add for Investment gains app              8 B    (1,876 B for KHC incl.)
Add for Operative Jan+Feb app            3 B

TOTAL BV today                           307,101 B

This means BV per B share = 124,51 $ (KHC adjusted)

Folks pls comment, correct ?

If its correct 170,22 $ (B closing price Friday) is 36,7 % over (KHC adjusted) BV and seems very cheap to me.

ATTENTION: A friend of mine made the remark, that in this calculation deffered taxes are not embedded. True! But its a simplification and time is always on the side of the profitable companies. So I think BV was even higher on this day, because of the accumulation of Apple shares before 31th Jan, which was not know at this time.
« Last Edit: March 01, 2017, 08:40:21 AM by Valuehalla »
BRK FFH MKL LVLT CTL BAC WFC BMY MRK MCD MO PM

longinvestor

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1550
  • Never interrupt compounding unnecessarily -Munger
Re: BRK-A book value and intrinsic value
« Reply #15 on: February 26, 2017, 03:00:38 PM »
From the table of annual % changes in BV versus Market Value vs S&P, wanted to break out the average % change since 1990

These are simple averages
Last        BV            MV
3 years     8.47         12.63
5 year    10.43   13.78
10 year   9.68           10.37
15 year   10.87   9.66
20 year    12.32   12.26
25 year   15.74   16.85

Why 1990? WEB talks about the pivoting away from investments to wholly owned businesses since then.

BV growth rate is moderating down. MV rate is on the mend. Some recent divergence of MV from BV noticed. One would expect this trend to continue as they,

1) get bigger primarily through wholly owned businesses (earnings grow)
because of
2) the BV accounting treatment winners-never-marked-up, losers-instantly-marked-down

At some point in the future BV becomes meaningless. Why, imo, WEB included the MV in the performance table. And added that earnings + cap gains table this year.

I realize there's a lot more to this given the complexity of BRK (float etc.).

« Last Edit: February 26, 2017, 03:26:51 PM by longinvestor »

Valuehalla

  • Sr. Member
  • ****
  • Posts: 285
  • Who wants to earn forever
Re: BRK-A book value and intrinsic value
« Reply #16 on: February 26, 2017, 03:36:28 PM »
THX for that aspect longinvestor. Seems logical to me. So we can expect a better performance of MV than BV. The gap between MV and BV shall increase over time.

Now the MV is app 1,4 above BV; end of 2007 is was 1,74 ... so much room to surge.

« Last Edit: February 26, 2017, 03:42:48 PM by Valuehalla »
BRK FFH MKL LVLT CTL BAC WFC BMY MRK MCD MO PM

Munger_Disciple

  • Lifetime Member
  • Sr. Member
  • *****
  • Posts: 395
Re: BRK-A book value and intrinsic value
« Reply #17 on: February 26, 2017, 04:03:44 PM »
Quote
The gap between MV and BV shall increase over time.

The gap between BV and intrinsic value (IV) will increase over time as Buffett pointed out in the AR. However % change in BV most likely will track % change in IV over the long term while the absolute difference between BV and IV will continue to grow. Thus % change in BV is still a good proxy for % change in IV. Assuming MV tracks IV over long periods of time, you can actually see this phenomenon at work in longinvestor's table. 

Valuehalla

  • Sr. Member
  • ****
  • Posts: 285
  • Who wants to earn forever
Re: BRK-A book value and intrinsic value
« Reply #18 on: February 26, 2017, 04:42:20 PM »
Munger-Disciple I agree and see letter page 6:

"Charlie and I prefer to see Berkshire shares sell in a fairly narrow range around intrinsic value, ... "

so same same  :)

consequence: The gap between MV and BV shall increase over time.
« Last Edit: February 26, 2017, 04:53:50 PM by Valuehalla »
BRK FFH MKL LVLT CTL BAC WFC BMY MRK MCD MO PM

longinvestor

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1550
  • Never interrupt compounding unnecessarily -Munger
Re: BRK-A book value and intrinsic value
« Reply #19 on: February 26, 2017, 04:44:11 PM »
Quote
The gap between MV and BV shall increase over time.

The gap between BV and intrinsic value (IV) will increase over time as Buffett pointed out in the AR. However % change in BV most likely will track % change in IV over the long term while the absolute difference between BV and IV will continue to grow. Thus % change in BV is still a good proxy for % change in IV. Assuming MV tracks IV over long periods of time, you can actually see this phenomenon at work in longinvestor's table.

Estimating IV of BRK is fraught with uncertainty; assumptions needed makes it so.

MV and IV absolutely converge; over the very long term. In their 50th year letter, they clearly state this. The only catch with using MV is it is backward looking! I believe that the earnings growth as presented newly in this year's AR is a much better proxy for IV. But again, it takes us to using proper multiples etc. 

BV worked as a proxy and may still work now; But the accounting distortion (winners/losers) makes it less useful over the next 25 years (I think). Especially if they have a lot of big winners and few losers. Why I say so: the absolute $ of retained earnings over the past 10 years is significantly different from their prior 40 years of existence. You can see this from the Shareholder's equity table (page 39); Current balance is $211,777; 2005:$47,717; So roughly 80% of all historical retained earnings have been retained in the last 10 (last 7 heavily); This marked non-linearity being played out surely adds to the BV distortion in the future, but I don't know exactly how; someone with a stronger accounting knowledge can weigh in. 
« Last Edit: February 26, 2017, 04:47:34 PM by longinvestor »