berkshire - cheap?

[marazul]

Difficult to see float growing $8bn per year going forward...

[John Hjorth]

Difficult to see float growing $8bn per year going forward...

marazul,

That may be true going forward - time will tell. What is important here, is that the cash flow from operations from the wholly owned Berkshire subsidiaries now has a size, so that Berkshire now must be considered able to hold on to the listed investments portfolio, even in a downturn, and if the float starts to dwindle at the same time. Cash, cash equivalents & T-bills also serves as a buffer & cushion here.

[nickenumbers]

Quick and dirty valuation (just approximate figures):

Stocks and excess cash:
Value of stocks 200 BUSD
Excess cash 100 BUSD
=300 BUSD

After tax earning power:
Operating earnings 2018E : 19,5 BUSD
Normalized float increase: 8 BUSD
= 27,5 BUSD
Multiple of 14 - 15 = 400 BUSD

Total mathematical value 700 BUSD

Swedish_Compounder, as the self appointed reviewer of your numbers, I bestow you 3 green apples, and 5 thumbs up.  Apples and Thumbs are not convertible into anything.  Seriously,,  Thanks for sharing your math and taking a smart stab at the value!!!

I like it!

[John Hjorth]

... In addition several factors which have additional value, which is hard to quantify:
1) more conservative accounting than basically any other large company
2) More owner oriented than basically any other large Company
3) World leading capital allocation skills
4) Preferred buyer for many family founded / owned businesses
5) No dilution from stock options to management
6) World leading management
7) More risk averse than most other companies
8 ) Extremely low turnover of senior executives
9) A highly rational compensation structure, with no influence from comp Consultants
10) Accepting bumpy results instead of smoothness, if it is expected to give a better long term result
11) A contrarian mindset where they are greedy when others are fearful and vice versaetc...

Here I'm picking a part of your post, Swedish_Compounder,

It's not about returns, but about risk adjusted returns. Ex post - all risk - also here on CoBF, after a nice gain perhaps, has a propensity to evaporate.

[nickenumbers]

Great Barron's article on Berkshire.

They value the total company at around $700-730B.

https://www.barrons.com/articles/berkshire-hathaway-stock-record-high-1537481057

[gfp]

Thanks.  A good article.  Remember when even BRK fans were lamenting that he had lost it and vastly overpaid for BNSF at $34 Billion?  He's taken enormous (tax free) cash dividends out of the company since then and Rolfe is saying it could be worth something comparable to UNP.  I'll take 3 more fuck-ups like that one please

[Kapitalust]

Thanks.  A good article.  Remember when even BRK fans were lamenting that he had lost it and vastly overpaid for BNSF at $34 Billion?  He's taken enormous (tax free) cash dividends out of the company since then and Rolfe is saying it could be worth something comparable to UNP.  I'll take 3 more fuck-ups like that one please

Or that Apple was going to be a mistake, a la IBM... yet the stock price has doubled since the first batches they started accumulating over 2 years ago...

[Swedish_Compounder]

Not a bad quick and dirty back of the envelope.  Seems a little aggressive to put a multiple of 14.5x some normalized float growth figure (you used $8B) and declare thats worth $116 Billion when we have already included the value of the stock portfolio, much of which is funded by float.  I do understand that growth in Float is a component of cash flow available to owners though.

I agree with you that assigning a value of $116 Billion might be to stretch a little. Buffett has for a long time, at least 10-15 years, stated that further float increases will be hard to achieve, but as a matter of fact float increased by roughly $40 Billion from 2012 to 2017. I think it will continue to increase for a long time, but maybe it would have been more proper to assign a PV of 80 Billion or so for expected future float increases. Their float is extremely enduring / long tail, so Buffett has said that it can be compared to equity.

On the other hand, maybe the multiple on the operating earnings should be higher than 14.5 given the quality and endurance of those businesses, so I still feel comfortable valuing the company at 700BUSD+.

[longinvestor]

Not a bad quick and dirty back of the envelope.  Seems a little aggressive to put a multiple of 14.5x some normalized float growth figure (you used $8B) and declare thats worth $116 Billion when we have already included the value of the stock portfolio, much of which is funded by float.  I do understand that growth in Float is a component of cash flow available to owners though.

I agree with you that assigning a value of $116 Billion might be to stretch a little. Buffett has for a long time, at least 10-15 years, stated that further float increases will be hard to achieve, but as a matter of fact float increased by roughly $40 Billion from 2012 to 2017. I think it will continue to increase for a long time, but maybe it would have been more proper to assign a PV of 80 Billion or so for expected future float increases. Their float is extremely enduring / long tail, so Buffett has said that it can be compared to equity.

On the other hand, maybe the multiple on the operating earnings should be higher than 14.5 given the quality and endurance of those businesses, so I still feel comfortable valuing the company at 700BUSD+.

+1 to $700B and multiple higher than 14.5x. Berkshire will continue to earn its way to deserve this. Buffett has been saying this about the numerator for many years now “our focus is on growing per share earnings”. With the quip “we bought a little stock” he has signaled that decreasing the denominator is also warranted now. Vicious cycle has begun.

[John Hjorth]

With regard to how to value the Berkshire insurance float, - popping up again here now -, I still think the best place I have read about it is rb's post #89 in this topic of July 19^th 2017. rb's angle & way of looking at it just makes so much sense to me.