Author Topic: BRK Valuation  (Read 13847 times)

bizaro86

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Re: BRK Valuation
« Reply #100 on: June 29, 2020, 12:12:07 PM »

What is the upside of going all in in the march low? A few extra points of performance for the next few years?
What was the downside if the pandemic was worse or if the Fed wouldn't have acted the way it did?
Even now though the range of outcomes is narrowing, still there are lots of unknowns. And spend your cash doesn't seem to me like the best idea.
 sense

There is a difference between going all in and adding a few extra percentage points of long exposure after a 30% drop. Especially when  you have a big cash position.

The reason the market has been negative on BRK is that the "story" in the stock was that the big cash position would provide huge upside after buying low during the next drop. And then I believe WEB was a net seller during the worst of the draw down.

If there is a second wave drop and he ends up deploying a big chunk of the cash that will be a double win - the profits on the investment plus the reputation gains (which flow to the multiple).


Mephistopheles

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Re: BRK Valuation
« Reply #101 on: June 29, 2020, 05:22:21 PM »
In March, during the depths of the crash when the Dow was falling thousands of points per day, what % of investors would have predicted that we would be at or near all times highs in a matter of months?

And if you guessed wrong that doesn't mean you are dumb. Assume the Fed failed to act as aggressively as they did. We would easily be in a very different scenario right now, both with the market and the economy. Imagine if the GOP and Dems couldn't agree on terms for the CARES Act? Imagine if the virus became deadlier and more transmissible. Note that the 2nd wave of the 1918 Flu Pandemic was significantly worse than the 1st wave.

Buffett said at the AGM that the range of probabilities included some very nasty outcomes. It is safe to say that the 40% market rebound within less than a quarter is likely the best possible outcome in that range. People don't give the man credit for preparing for a shitstorm that didn't happen but was at a high risk of happening. The game isn't over yet, he may be proven right once again.
« Last Edit: June 29, 2020, 05:23:56 PM by Mephistopheles »

bizaro86

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Re: BRK Valuation
« Reply #102 on: June 29, 2020, 06:04:07 PM »
In March, during the depths of the crash when the Dow was falling thousands of points per day, what % of investors would have predicted that we would be at or near all times highs in a matter of months?

I never would have thought the market would rebound as fast as it did, but I still meaningfully bought equities in late March. A big decline has generally been a good time to buy stocks and reduce cash weighting, and the perfect is the enemy of the good there. Even a simple re-balance would have seen a bunch of equities purchased.

CorpRaider

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Re: BRK Valuation
« Reply #103 on: June 29, 2020, 06:35:08 PM »
People are tripping.  BRK didn't announce the BNSF acquisition until like 6 months after the bottom in 2009. 

Pretty much every reputable voice acknowledges a high probability of another round of covid in the fall not even counting the continued blossoming in the South of the U.S.
« Last Edit: June 29, 2020, 06:37:37 PM by CorpRaider »

CorpRaider

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Re: BRK Valuation
« Reply #104 on: June 29, 2020, 06:42:01 PM »
The Rational Walk on twitter posted this and I totally agree with this approach...its neat way to value BRK:

3/31/20: Cash & Investments = $349.5B + $33B gain in Q2 = $382B vs. Market Cap of $427B

Implied Value of $45B for non-insurance wholly owned subs (BNSF, GEICO, Clayton, PCP, Utility etc etc) .... man this thing is CHEAP

He also pegs P/BV at 1.08x

Thoughts?  It's an interesting way to triangulate valuation

Munger has commented on a similar way of approaching the question a number of times.  I noted one time he mentioned this maybe a week ago when I was watching an annual meeting on the cnbc archive.  I think I tweeted about what year it was.  I will see if I can find it.  He also has said before (essentially), "It used to be like shooting fish in a barrel, you could buy Berkshire below the book price of the marketable securities and get the insurance and the other wholly owned subs for free."

ValueMaven

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Re: BRK Valuation
« Reply #105 on: June 30, 2020, 05:06:31 AM »
The Rational Walk on twitter posted this and I totally agree with this approach...its neat way to value BRK:

3/31/20: Cash & Investments = $349.5B + $33B gain in Q2 = $382B vs. Market Cap of $427B

Implied Value of $45B for non-insurance wholly owned subs (BNSF, GEICO, Clayton, PCP, Utility etc etc) .... man this thing is CHEAP

He also pegs P/BV at 1.08x

Thoughts?  It's an interesting way to triangulate valuation

Munger has commented on a similar way of approaching the question a number of times.  I noted one time he mentioned this maybe a week ago when I was watching an annual meeting on the cnbc archive.  I think I tweeted about what year it was.  I will see if I can find it.  He also has said before (essentially), "It used to be like shooting fish in a barrel, you could buy Berkshire below the book price of the marketable securities and get the insurance and the other wholly owned subs for free."

Yes - would be interested in seeing this ... Thx

AzCactus

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Re: BRK Valuation
« Reply #106 on: June 30, 2020, 08:53:00 AM »
Buffett has said time and again that "it's better to be approximately right than precisely wrong."  I think it's less important to know whether Berkshire's intrinsic value is $235/$240 and more important to know that it's significantly higher than it's current market price today.


LC

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Re: BRK Valuation
« Reply #107 on: June 30, 2020, 09:03:28 AM »
Buffett has said time and again that "it's better to be approximately right than precisely wrong."  I think it's less important to know whether Berkshire's intrinsic value is $235/$240 and more important to know that it's significantly higher than it's current market price today.

Right. And I think you can get there looking at the cash + earnings/valuations of the wholly owned subs + the equity portfolio.
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aws

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Re: BRK Valuation
« Reply #108 on: June 30, 2020, 08:54:56 PM »
My back of the envelope calculation has Q2 book value at 164.67, so based on today's closing price we would be trading at 1.08 times book.

This is based on a presumed 28.7b net increase in book value from the equity portfolio, estimated by the change in portfolio value since 3/31 after adjusting for the sales we know about and the additional deferred tax liability on the unrealized gains.  Not surprisingly the vast majority of the gains are from Apple, which alone increased in value 28b pretax.

Then I just assumed operating earnings would breakeven for the quarter.  That may be way too conservative, so you could maybe add another $1 or $2 per share but in any case it's not going to have anywhere near as big of an impact on book value as the much more obvious change in the stock portfolio.  The 28.7b stock represents a 11.81 EPS and that adds to the prior quarter ending book value of 152.86 gets me to the 164.67.

wescobrk

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Re: BRK Valuation
« Reply #109 on: June 30, 2020, 09:14:13 PM »
Buffett has said time and again that "it's better to be approximately right than precisely wrong."  I think it's less important to know whether Berkshire's intrinsic value is $235/$240 and more important to know that it's significantly higher than it's current market price today.
According to Buffett, it isn't trading at a discount to intrinsic value. He didn't buy any in March when it was cheaper than what it is now. If Buffett showed signs of dementia at the 2020 annual meeting, then it would be easy to dismiss him, but he was as sharp as he has been the last 10 years. I think Buffett knows more about intrinsic value for Berkshire than anyone else. I don't mean for that to come across as a criticism of your post, just that the man that created Berkshire and knows more about the company than anyone on the planet disagrees with you.