Author Topic: BRK Valuation  (Read 13583 times)

Mephistopheles

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BRK Valuation
« on: June 22, 2020, 09:21:43 PM »
BRK Market Cap: $440 B
- Stock Portfolio: $230
- BNSF: $100 (using UNP as a proxy)
- Cash: $130

Call it even at zero.

Utilities, Insurance, everything else = free

How large of a COVID hit to the cash pile are we looking at in terms of insurance and operating losses?

The cash and the utilities serve as a nice hedge in a recession or bear market.

I'm thinking of putting a ton of money into this with leverage... So tempting


LC

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Re: BRK Valuation
« Reply #1 on: June 22, 2020, 09:39:45 PM »
I agree it looks enticing but it has done so for months now. WB missed an opportunity back in Mar/Apr. I have added at points under 180 over the last 1-2 months, but for those reasons I am hesitant to commit a lot of capital. Although I do own some LEAPs, but BRK is about a 10-12% position.
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bizaro86

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Re: BRK Valuation
« Reply #2 on: June 22, 2020, 10:48:25 PM »
I'm not saying it isnt cheap (and I'm long) but if you count the equities you are implicitly including a bunch of the value of the insurance. There were over $160 B in liabilities related to the insurance operation last quarter. I get the concept of float, but I think treating that as equity (vs a long term cheap loan) is an aggressive way to think about it.

If you wanted to sell the insurance cos without their financial assets but with their policy liabilities, you'd be sending a bunch of money out the door to get someone to take them.


ValueMaven

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Re: BRK Valuation
« Reply #3 on: June 23, 2020, 05:53:22 AM »
thank you for starting this topic - this is the cheapest BRK has been in a VERY LONG TIME.  Trading below 1.2x BV.  Operating Biz will likely earn $23-$24B this year as well... also think about Apple... Berk is up $50B+ in Apple -- it is now basically 21% of Berk. 

A simple way to value Berk = Operating Income + Investments + Cash ... throw a below market multiple on the N.I, and you can see how cheap it is here.  You can do things like SOTP etc - but that is a bit more complex and in the weeds IMHO

What is the catalyst to drive value higher?? 

rb

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Re: BRK Valuation
« Reply #4 on: June 23, 2020, 05:56:41 AM »
Who gives a shit about the Catalyst? When you're getting something cheap, you're getting something cheap.

Kuhndan

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Re: BRK Valuation
« Reply #5 on: June 23, 2020, 06:28:48 AM »
I'm not saying it isnt cheap (and I'm long) but if you count the equities you are implicitly including a bunch of the value of the insurance. There were over $160 B in liabilities related to the insurance operation last quarter. I get the concept of float, but I think treating that as equity (vs a long term cheap loan) is an aggressive way to think about it.

If you wanted to sell the insurance cos without their financial assets but with their policy liabilities, you'd be sending a bunch of money out the door to get someone to take them.

Good point. Buffett himself says that if you include the equities in your intrinsic value calculation, you do not include any value for the insurance companies.

Xerxes

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Re: BRK Valuation
« Reply #6 on: June 23, 2020, 08:00:55 AM »
I don’t know who said it some weeks ago.
But a comparison was made with MSFT in Ballmer era and how after ValueAct got in with a more aligned BoD things start to look differently.

I kind of agree with that. To be clear, In no way is Buffet is comparable to Ballmer but I agree that ‘hidden value’ can only by unearthed by the next management. Wether is implementing Precision Scheduling on BNSF or deploy some of the cash.

My investment in BRK is really based on what next management will do and am just buying is close to book now .... while dealing with the pain of going sideways for some more years. And I am ok with whatever Buffet does in the meantime.

I think that a low risk proposition.

navmehta

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Re: BRK Valuation
« Reply #7 on: June 23, 2020, 08:08:19 AM »
Thanks bizaro86, I agree you have to subtract the insurance float in the valuation above. These are assets that belong to insurance premium payers.

This is similar to if you were valuing a bank, you wouldn’t count all of depositor’s cash in the valuation. Those are assets held for depositors.

True, Buffet gets to invest these assets similar to how a bank that gets to lend out the deposits. However, if there are big loan losses banks have to still make depositors whole. Also, if Buffett has big investment losses, he has to still make insurance premium payers whole.
« Last Edit: June 23, 2020, 09:16:38 AM by navmehta »

Castanza

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Re: BRK Valuation
« Reply #8 on: June 23, 2020, 08:42:56 AM »
I don’t know who said it some weeks ago.
But a comparison was made with MSFT in Ballmer era and how after ValueAct got in with a more aligned BoD things start to look differently.

I kind of agree with that. To be clear, In no way is Buffet is comparable to Ballmer but I agree that ‘hidden value’ can only by unearthed by the next management. Wether is implementing Precision Scheduling on BNSF or deploy some of the cash.

My investment in BRK is really based on what next management will do and am just buying is close to book now .... while dealing with the pain of going sideways for some more years. And I am ok with whatever Buffet does in the meantime.

I think that a low risk proposition.

+1 I think WB's involvement is irrelevant moving forward especially if you're relatively young and holding long.

Mephistopheles

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Re: BRK Valuation
« Reply #9 on: June 23, 2020, 08:46:38 AM »
Sorry for the dumb mistake. It was late and I was lazy on my phone just doing some basic math. Ok so say the value of the stock portfolio is the value of the insurance operation. You're still getting the utility and everything else ex-bnsf free.

BRK has options that go to 06/2022, 2 years out, and don't have much of a volatility premium. I own some $200s, but this may be a good way to play with leverage.