Author Topic: How to Increase Berkshire Share Price?  (Read 4269 times)

longinvestor

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Re: How to Increase Berkshire Share Price?
« Reply #10 on: May 12, 2019, 08:40:39 PM »
The challenge i have with Berkshire as a long term hold is if the stock trades below intrinsic value when Buffett is alive will this gap not get worse when he is no longer around?

Are people thinking Berkshire will trade at a higher (average) valuation when Buffett is no longer abound?

It is a conglomerate. Do these not typically trade at a fairly steep discount to the value of the underlying assets? Especially when breaking the company up is not an option.

Won't IV and market price merge eventually? The weighing machine thing.


bizaro86

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Re: How to Increase Berkshire Share Price?
« Reply #11 on: May 12, 2019, 11:50:58 PM »
The challenge i have with Berkshire as a long term hold is if the stock trades below intrinsic value when Buffett is alive will this gap not get worse when he is no longer around?

Are people thinking Berkshire will trade at a higher (average) valuation when Buffett is no longer abound?

It is a conglomerate. Do these not typically trade at a fairly steep discount to the value of the underlying assets? Especially when breaking the company up is not an option.

Why isn't breaking up BRK an option eventually?  It wouldn't be possible until WEB dies, as he would never do so and has control. But once his stock gets sold by the foundations however many years after his death it could happen. It would require a huge discount to IV, because of the huge amount of capital required.

The structure around the assets being held in insurance companies would also make it take a long time. Although if the insurance commissioner is letting them use $X for the value of a railroad in their statutory accounts, presumably they'd still be fine if they sold the railroad for $X in cash...

Spinoffs would be much less likely.

Spekulatius

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Re: How to Increase Berkshire Share Price?
« Reply #12 on: May 13, 2019, 04:18:18 AM »
The challenge i have with Berkshire as a long term hold is if the stock trades below intrinsic value when Buffett is alive will this gap not get worse when he is no longer around?

Are people thinking Berkshire will trade at a higher (average) valuation when Buffett is no longer abound?

It is a conglomerate. Do these not typically trade at a fairly steep discount to the value of the underlying assets? Especially when breaking the company up is not an option.

A conglomerate discount of 20% is not unusual and I have in fact seen much larger discounts in Holding co’s. Exor for example trades at a close to 40% discount to NAV.
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Rod

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Re: How to Increase Berkshire Share Price?
« Reply #13 on: May 13, 2019, 06:40:39 AM »
The challenge i have with Berkshire as a long term hold is if the stock trades below intrinsic value when Buffett is alive will this gap not get worse when he is no longer around?

Are people thinking Berkshire will trade at a higher (average) valuation when Buffett is no longer abound?

It is a conglomerate. Do these not typically trade at a fairly steep discount to the value of the underlying assets? Especially when breaking the company up is not an option.

A conglomerate discount of 20% is not unusual and I have in fact seen much larger discounts in Holding co’s. Exor for example trades at a close to 40% discount to NAV.

If Berkshire plans to continuously buy back very large amounts of stock, then any conglomerate discount would be very positive for shareholders. It could increase the company's ROE by a couple percentage points per year.

DooDiligence

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Re: How to Increase Berkshire Share Price?
« Reply #14 on: May 13, 2019, 07:06:49 AM »
The challenge i have with Berkshire as a long term hold is if the stock trades below intrinsic value when Buffett is alive will this gap not get worse when he is no longer around?

Are people thinking Berkshire will trade at a higher (average) valuation when Buffett is no longer abound?

It is a conglomerate. Do these not typically trade at a fairly steep discount to the value of the underlying assets? Especially when breaking the company up is not an option.

Why isn't breaking up BRK an option eventually?  It wouldn't be possible until WEB dies, as he would never do so and has control. But once his stock gets sold by the foundations however many years after his death it could happen. It would require a huge discount to IV, because of the huge amount of capital required.

The structure around the assets being held in insurance companies would also make it take a long time. Although if the insurance commissioner is letting them use $X for the value of a railroad in their statutory accounts, presumably they'd still be fine if they sold the railroad for $X in cash...

Spinoffs would be much less likely.

I agree re: eventual breakup.

WEB has stated that he could post ginormous returns on a smaller base.

I say, "well, prove it."

I'm not sophisticated enough to imagine how the shrinking would play out but wouldn't mind seeing it happen with spinoiff's.

If BRK was primarily a risk management / finance operation with a smaller capital base, could Ted, Todd, Ajit & Greg shoot the moon over the next few decades?
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longterminvestor

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Re: How to Increase Berkshire Share Price?
« Reply #15 on: May 13, 2019, 10:38:03 AM »
Actually the question is I would ask is the opposite, how to decrease the Berkshire Share Price?  Especially in the context of share repurchases.  And the answer is pretty simple.  Continue to run a boring, long lasting, enduring enterprise, do not offer quarterly guidance, run up an absurdly large cash horde that drags on Return on Assets, and smartly purchase assets that are undervalued compared to the risk free rate of return.

Look at BNSF 9 years later - no one talks about this.  BNSF has returned $33B in earnings to Berkshire and the cost of BNSF was $34B (Total Value of transaction was $44B) – so the cash outlay 9 years later has been returned and the only cost was the 6% of shares issued.  Best part of that deal is I speculate value of BNSF today is worth somewhere in the $150B-$175B.  The stock component of BNSF deal makes the real rate of return a little messy because 6% of shares outstanding to pay for BNSF in addition to cash.  Warren created $150B-$175B in value that is not listed as “an asset” on the balance sheet while giving up 6% of shares outstanding.  (I wouldn't even know how to evaluate the opportunity cost of the 6%, :-X).  This is radically simple and really doesn’t show. 

Breaking down the BNSF deal with small numbers but keeping the % intact, this is what I believe Buffet & Munger try to do everyday.  Buy a business for $100 that earns $5.  9 years later the same business earns $11.67 annually and growing.  If Berkshire can do that, then the value of the company SHOULD INCREASE but maybe it wont.  As someone said earlier in the thread, stock market value is a weighing machine.  And if the weighing machine becomes out of balance, that is when re-purchases of countless shares will be bought in.  But to have the patience to wait, wow.  Really tough when you have a cash pile of $114B and growing.

When the right deal comes along, they can deploy capital and do the same thing – if you could re-create today what happened with BNSF, Berk could buy 2 BNSF’s with cash and 9 years later add $300B-$350B to the value of Berkshire.  That equates to a 60% increase in enterprise value.  History shows that Berkshires value will not match what is truly at the earnings level.

I personally prefer to see the price GO DOWN, not up so shares can be purchased at a lower amount.  I think the bigger Berk gets, the more difficult it becomes to value for “The Street”.  And that’s just fine with me.   

longinvestor

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Re: How to Increase Berkshire Share Price?
« Reply #16 on: May 13, 2019, 02:09:19 PM »
I am in longterminvestor’s camp. The market would be playing into Omaha ‘s hands as they struggle to value Berkshire properly. Looking back from, say, 2030, getting people off the BV multiple anchoring will be seen as a brilliant move, especially for remaining shareholders. Hope that’s enough time to pull off the $100 B of buybacks.

It’s quite a time of dichotomy we’re in the midst of. Berkshire is believed to remain in a state of permanent undervaluation (too big, value locked up, stubborn old men in charge) while the darlings (FANG’s) are believed to be in permanent heaven(winner take all, low incremental capital needs).

It’s really different this time.

 

SwedishValue

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Re: How to Increase Berkshire Share Price?
« Reply #17 on: May 14, 2019, 06:20:20 AM »
If we are at the year 2030 with Berkshire having bought back 100bn in stock, that would likely be less than 1/3 of the cash flow Berkshire has achieved up to that point - and that is assuming no acquisitions.

Having bought back 100bn worth of stock and letting the cash pile grow to 400bn during the same time is not my idea of great stewardship of capital. If repurchases make sense it makes sense doing them on a massive scale.

longinvestor

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Re: How to Increase Berkshire Share Price?
« Reply #18 on: May 14, 2019, 07:18:21 AM »
If we are at the year 2030 with Berkshire having bought back 100bn in stock, that would likely be less than 1/3 of the cash flow Berkshire has achieved up to that point - and that is assuming no acquisitions.

Having bought back 100bn worth of stock and letting the cash pile grow to 400bn during the same time is not my idea of great stewardship of capital. If repurchases make sense it makes sense doing them on a massive scale.
Agree. Especially if buybacks is their solo act with the 400 B. I think they are poised to spend some 200B in incremental organic ideas. That warms my heart from a transition POV. Arguably those are relatively less mistake prone. I am thinking the next renewable energy project and double tracking at BNSF.

nickenumbers

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Re: How to Increase Berkshire Share Price?
« Reply #19 on: May 14, 2019, 09:00:25 AM »
You guys have some great, wonderful, outstanding opinions and thoughts.  Exceeding my expectations.

You are my TRIBE!

I have another question.  Is it the 13-f or 13-d that we are waiting to come out from BRK?

When will it come out?  5/14, 5/15 or 5/16?

Will said form [13-f or 13-d] have any note of the outstanding A and B shares of BRK at the time of the form issue [For example 5/15/19], like the 10K has a note of the outstanding shares at the time of issue of the 10-k?

I am basically trying to see if we will be able to determine if BRK repurchased any of its own shares in the last 2 weeks.

Thanks.
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