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Berkshire closed down to near book value


wescobrk

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Using the latest quarterly book value per share and the BRK-B share prices...

 

2011 First Greek Debt Crisis:

During Q3, 2011, BRK-B fell to 99.3% of book value per share (BRK-B lo price =$65.35).  Buffett introduced his 1.1x BV per share buyback price shortly after that.

 

2008-09 Great Financial Crisis:

The B's fell to 94.8% of BV per share during Q4, 2008 (BRK-B lo price = $49.02 per B-share). It's important to note that the absolute lo price for BRK-Bs was $44.82 per share during Q1, 2009.  But BV had fallen too such that the price-to-book was slightly higher than the previous Q at 95.3%.

 

Today:

At today's lo price at the close of $175 per share, it sits at 100.4% of book value.  Of course, book value (as during the GFC) has probably fallen - so who knows really.  But to beat the low of the GFC of 94.8%, the BRK-B shares would have to fall to $165.23.

 

As I look at the after-hours price, BRK-B sits at $173.50 - so the recent record is within sight, unfortunately. 

 

Bill

(p.s. - my quarterly records go back to 1998.  I'm sure during the 1973-74 or 1981-82 bear markets, it might have gone lower.  I believe it did during '73)

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This is very interesting.

 

When looking at this I would suggest also considering the work that our friend Dynamic has been doing on the real time portfolio. Based on that we see that real time P/BV just breached the 1.2 threshold. It's probably around 1.15-1.17 right now. Of course that also scales with what wabuffo has posted. During those maximum low periods P/BV in real time was higher than what the last Q would indicate.

 

The other bit is that BRK is a much more different company today than it was in the past. Even in 2008, it didn't have BNSF, and Geico and Mid-American were much smaller so valuation should be less sensitive than BV.

 

I fully believe that another 10% down from here, you can just buy BRK, pour yourself a glass, and enjoy life. You don't have to worry about this stuff anymore. But then of course we won't do that.

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  • 2 weeks later...

 

Today:

At today's lo price at the close of $175 per share, it sits at 100.4% of book value.  Of course, book value (as during the GFC) has probably fallen - so who knows really.  But to beat the low of the GFC of 94.8%, the BRK-B shares would have to fall to $165.23.

 

 

Probably by a lot.

 

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Xerxes,

 

Well, the basic assumptions appear to be present in the tweet. [btw, Kyler Hasson is our fellow board member khturbo.]

 

- - - o 0 o - - -

 

Another good piece on the matter at hand : Ravi Nagarajan : Berkshire Hathaway and the Coronavirus Crash.

Thank you. The last piece was very interesting. I have a personally favorable bias for analysts who present information in a 'scenarios' way and who let you decide (raw data and analysis versus already chewed up data). And there's a lot to chew on.

The rational piece seems to confirm that the pandemic will have a relatively small direct impact on insurance businesses.

"The fact that Berkshire’s current price-to-book ratio is historically very low does not necessarily mean that Warren Buffett is repurchasing stock because he could have current or anticipated future opportunities that he considers superior to repurchases."

So, I guess it's up to all of us to make up our mind about this but one has to consider that this is, in a way, a "to be or not to be" type of question and, somehow, i wish that the existential side of the question did not exist.

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There was an interview with Ackman on Bloomberg yesterday, in which he mentioned an interesting valuation method for epidemic impairment to value:  For a business that is survivable (ie, not risk of debt default or forced restructuring), assume loss of next 12-18 months of normal-conditions earnings.  Then value the business based upon your customary model.  That may suggest a way to think about BRK intrinsic value, and also value of the portfolio aside from market quotes.

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Thx John for the link.

Very informative and timely.

 

My view is that Berkshire has no interest in buybacks in the short term (close to BV or not ) till they know which direction the event will take the US economy. Once certainty is established on the vector then perhaps it become 1 bird in the hand vs. 5 bird in the bush (as oppose to 2 bird in the bush)

 

 

Woodstove

I saw the very same interview. I think he was making up for his last interview where he said “hell is coming”. I am glad to see he is long and Optimistic

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I've looked at the balance sheet of some other industrial companies or conglomerates. Some have shrunk their equity to near Zero with buybacks. This implies a belief the business is a gift from above. It's a little presumptuous by some managements. Meanwhile others have just retained cash and over the years were able to add better businesses by merger or enter new lines. Cash is freedom. So I don't think berkshire likes to buy back unless it's massively undervalued. Not a little.

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My view is that Berkshire has no interest in buybacks in the short term (close to BV or not ) till they know which direction the event will take the US economy. Once certainty is established on the vector then perhaps it become 1 bird in the hand vs. 5 bird in the bush (as oppose to 2 bird in the bush)

 

I disagree strongly with this.  Buffett isn't one to think a pandemic is going to destroy the US economy on a long-term basis, and so therefore a 25% haircut in the price is a huge incentive to be buying back shares, because I seriously doubt he thinks the IV of Berkshire has dropped by that much.  After all, what's he saving $120b cash for if not to use in a time like this? 

 

Berkshire is much cheaper now in both absolute terms and relative to the market than it has been in years.  Even after the pop this week, it's still about 2% lower than the lows in December 2018, despite huge gains in book value since that time.  For perspective, the S&P 500 total return index is 15% above the December 2018 low.  I'd think he would be spending $5b+ on buybacks this month, assuming he's not been hindered by a blackout period. 

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I don't think Buffett is buying back shares when there are reasonably priced targets out there. Repurchases have always been his last resort and he never does it in any real size. So if the market tanks 30-40%, now we are expecting him to suddenly change his tune? I don't think so. If I had to guess, I'd guess there have been minimal repurchases over this time period.

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Agree with lc. Everything is linked. When Berkshire is ripe for buybacks tend to coincide with the same time that the world is also ripe for new bargains. In the best case he nibbles a little bit of everything. Not entirely sure how he decides but if he's rational even if berkshire buyback is worth 40 percent return what If everything else is worth 80 percent return? It's all relative. But I think a measured balances approach is best.

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Hopefully he can close on a big acquisition like BNSF (although I'm not super impressed with the results from BNSF). Warren being disciplined on price (and buying in 2009 plus buying almost 20% of the stock at very low prices) helped enormously. Apparently, Precision wasn't a great acquisition either. It might not be possible to find another Geico due to all the capital in the world, but I'm confident he can find something by the end of the year.

Almost 90 and Charlie is 96 and still going strong!

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I agree Precision hasn't been a great acquisition so far - but how are you not impressed with BNSF results compared to purchase price?  He's been upstreaming huge amounts of cash out of it every year - tax free - vs a purchase price of a bit over $34 Billion if I am remembering correctly.  Plus I think he borrowed like $8 billion of the cash for purchase.  He's basically taken the entire purchase price out in tax free cash dividends and has a sub worth $80 billion or something like that.  And still takes the cash out every year.

 

The only part I could criticize is the equity issuance but that was the price to do the deal.  Better to issue the equity and make the deal vs miss out on such an important acquisition.

 

Hopefully he can close on a big acquisition like BNSF (although I'm not super impressed with the results from BNSF). Warren being disciplined on price (and buying in 2009 plus buying almost 20% of the stock at very low prices) helped enormously. Apparently, Precision wasn't a great acquisition either. It might not be possible to find another Geico due to all the capital in the world, but I'm confident he can find something by the end of the year.

Almost 90 and Charlie is 96 and still going strong!

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So, theoretical question, but what exactly would folks here think if, when the next filings occur once this has passed, that WEB did NOTHING here but buyback stock at a similar clip to the previous quarters? By nothing I mean few new equity purchases, no major acquisition, not meaningful buybacks, and continued cash build?

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