Author Topic: Buffett/Berkshire - general news  (Read 648411 times)

longinvestor

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Re: Buffett/Berkshire - general news
« Reply #1010 on: January 16, 2019, 02:15:45 PM »
A bunch of realtors wouldn't want to cut out investment bankers would they?  Heresy

Seriously though, the investment bankers probably still get paid on most of these bolt-on acquisitions

Don't believe so. Not if it is a for-sale-by-owner. I'm talking about the "finder's fee" which is the hefty part. Besides, Peltier, as Chairman of Home Services probably knows / will know more about the business than any analyst or deal guy will ever know. Being unencumbered with running the business is huge. Berkshire is doing this across-the-board.

 
« Last Edit: January 17, 2019, 04:54:44 AM by longinvestor »


alpha

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Re: Buffett/Berkshire - general news
« Reply #1011 on: January 17, 2019, 01:19:32 PM »


Quote
Berkshire Hathaway HomeServices signed Maggi Group Real Estate, its third global franchisee, the company said Thursday in a statement. The business, which operates in northern Italy, expects to expand to Rome within two years.

https://www.bloomberg.com//news/articles/2019-01-17/warren-buffett-s-real-estate-network-expands-into-northern-italy?srnd=markets-vp

alpha

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Re: Buffett/Berkshire - general news
« Reply #1012 on: January 20, 2019, 03:43:33 PM »

Quote
Berkshire Hathaway’s geothermal wells could produce up to 90,000 tonnes of lithium a year worth $1.5 billion at current prices, the report said, citing a fundraising document.

https://www.reuters.com/article/us-berkshire-lithium/berkshires-lithium-venture-may-supply-u-s-automakers-including-tesla-ft-idUSKCN1PE0SX

gfp

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Re: Buffett/Berkshire - general news
« Reply #1013 on: January 21, 2019, 07:15:27 AM »
Here's a blog post with a look back on the BNSF acquisition almost 10 years ago.  He's taken out over $30 Billion in tax free cash distributions (not including BNSF tax payments to parent).

https://berkshirebuffettandbeyond.com/2019/01/15/10-years-since-bnsf/

Cigarbutt

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Re: Buffett/Berkshire - general news
« Reply #1014 on: January 21, 2019, 06:18:45 PM »
Here's a blog post with a look back on the BNSF acquisition almost 10 years ago.  He's taken out over $30 Billion in tax free cash distributions (not including BNSF tax payments to parent).
https://berkshirebuffettandbeyond.com/2019/01/15/10-years-since-bnsf/
Just a comment about the issue that comes up at times about the growing irrelevance of book value as a valuation yardstick for the carrying value of consolidated subsidiaries and its effect on the P/B ratio for BRK.

According to the blog, purchase price in 2009 was 34-35B and market value now (relative to Union Pacific) is about 105B whereas carrying value now is reported at 43B, suggesting a large and growing gap.

While this gap is significant and growing, BRK has collected about 31B over the years (capitalized value of this cash flow stream at about 47B, using 10%) so 47B has found its way in retained earnings elsewhere on BRK balance sheet. 82B (35B + 47B) is still short of the 105B equity present valuation according to the blog and Mr. Buffett paid a control premium at acquisition but valuation now will tend to look favorable to 2010 which was pretty much a cyclical low for earnings and valuation. In 2010, CNR, a railway I know fairly well, had a PE of around 8-9 and, since then, earnings (fundamentals) have grown ++ but valuation now also reflects a higher PE (14-15) reflecting also stronger sentiment, typical of where we are in the cycle. I guess this multiple expansion also applies to BNSF.

The point being that there is a growing gap between book value and intrinsic value but taking into account retained earnings makes the size of this gap relatively small.

shalab

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Re: Buffett/Berkshire - general news
« Reply #1015 on: January 21, 2019, 07:57:11 PM »
cigarbutt - I don't understand the last statement. Can you please explain in more detail?

Let us say carried value is 45B, current market value is 100B and retained earnings are 30B.
Book value would be 75B actual value would be 130B.
If one uses the morningstar P/B methodology, the fair value would be 105B.
The actual value would be 130B and the gap is around 24% - it doesnt seem miniscule to me.

However the above methodology is fraught with errors as the retained earnings may have been used to buy other businesses. Meanwhile the valuation of other businesses have also changed as many of them are growing at double digit clip.

My problem with the P/B valuators is that they will never apply this to comparable businesses. They won't apply it to UNP (P/B 5.66), Hershey (P/B 18.37), AMZN (P/B 21.20), PGR (P/B 3.31) or even MKL (P/B 1.52)

Here's a blog post with a look back on the BNSF acquisition almost 10 years ago.  He's taken out over $30 Billion in tax free cash distributions (not including BNSF tax payments to parent).
https://berkshirebuffettandbeyond.com/2019/01/15/10-years-since-bnsf/
...
The point being that there is a growing gap between book value and intrinsic value but taking into account retained earnings makes the size of this gap relatively small.
« Last Edit: January 21, 2019, 08:03:57 PM by shalab »

longinvestor

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Re: Buffett/Berkshire - general news
« Reply #1016 on: January 22, 2019, 04:49:21 AM »
+1. The gap between BV and IV is vast. The market is discounting a business when it is subsumed by Berkshire while it should be placing a premium versus the comparable competitors instead. Why? The capital discipline, mostly the wait for the fat pitch and deploying it elsewhere within Berkshire are not even part of the conversation at these competitors. They are likely pi$$ing away capital as we speak. I have been posting for a while that the 1.2x BV buyback has messed with people’s thinking and it will take Berkshire buying 1%, 2%...10%, 20% of the company back to bring the market to it’s senses. In due course.

Dynamic

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Re: Buffett/Berkshire - general news
« Reply #1017 on: January 22, 2019, 05:32:51 AM »
+1. The gap between BV and IV is vast. The market is discounting a business when it is subsumed by Berkshire while it should be placing a premium versus the comparable competitors instead. Why? The capital discipline, mostly the wait for the fat pitch and deploying it elsewhere within Berkshire are not even part of the conversation at these competitors. They are likely pi$$ing away capital as we speak. I have been posting for a while that the 1.2x BV buyback has messed with people’s thinking and it will take Berkshire buying 1%, 2%...10%, 20% of the company back to bring the market to it’s senses. In due course.

As a net buyer of Berkshire over the years, generally ploughing new cash and excess gains I make from those rare high conviction ideas elsewhere in Berkshire's direction in the end, I'm happy for this to persist for a long period of time, at least until my retirement and probably much longer. Berkshire being persistently undervalued and misunderstood makes it easy for me to have great comfort in buying the stock at modest prices and holding on even as prices rise and narrow the margin of safety, both as a long-term compounding vehicle for my portfolio growth and as a substitute for index and cash investments while I'm waiting for my next big idea.

One of the things that suddenly hit me when I was fairly new to investing and to Berkshire Hathaway was the idea that even companies with little or no growth opportunities could become valuable parts of Berkshire's compounding machine, simply by returning excess capital to Omaha for it to be invested in the best opportunities available at good rates of return. All parts of the machine did not need to experience compound growth for the whole machine to generate compound growth over the years.

When no-growth boring companies are available at low P/E or low P/FCF ratios, the after tax cash they churn out year after year after maintaining their moats can be collected tax-free at Omaha and reinvested in ways that tend to aid in compounding the whole of Berkshire over time, even if that means great companies like See's Candies gradually fade into comparative  insignificance over a few decades within Berkshire. Even decades after purchase, See's is churning out far more cash than needs to be reinvested in the business to maintain its position. If it had pursued significant geographical expansion thanks to a growth imperative handed down by its owners, it would almost certainly have resulted in lower returns on invested capital from Berkshire's perspective.

The mirror to this approach is companies with sensible buy-back policies, potentially compounding per-share value for year after year with negligible growth in total revenues and earnings and with negligible expenditure required to generate growth or establish the firm in new markets. It's potentially these sort of places that value can be hidden in plan sight when everyone is hunting the next growth story.

Cigarbutt

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Re: Buffett/Berkshire - general news
« Reply #1018 on: January 22, 2019, 05:39:53 AM »
cigarbutt - I don't understand the last statement. Can you please explain in more detail?

Let us say carried value is 45B, current market value is 100B and retained earnings are 30B.
Book value would be 75B actual value would be 130B.
If one uses the morningstar P/B methodology, the fair value would be 105B.
The actual value would be 130B and the gap is around 24% - it doesnt seem miniscule to me.

However the above methodology is fraught with errors as the retained earnings may have been used to buy other businesses. Meanwhile the valuation of other businesses have also changed as many of them are growing at double digit clip.

My problem with the P/B valuators is that they will never apply this to comparable businesses. They won't apply it to UNP (P/B 5.66), Hershey (P/B 18.37), AMZN (P/B 21.20), PGR (P/B 3.31) or even MKL (P/B 1.52)
shalab,
Thanks for your post that made me realize there was a conceptual flaw in my argument.
A comforting thought may be that I realize, at times, a certain level of unrecognized stupidity. :)
Just disregard what I wrote.

Dynamic

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Re: Buffett/Berkshire - general news
« Reply #1019 on: January 22, 2019, 07:20:19 AM »
Hope it's not too far off-topic to post here, but I noticed when reviewing Wikipedia's list of requested photos of people, that at least two names relevant to Berkshire Hathaway were there (and I've only been skim reading until part way through the B's):
Rose Blumkin, late founder of Nebraska Furniture Mart and
Susan Alice "Susie" Buffett, philanthropist and daughter of Warren Buffett and the late Susan Thompson-Buffett. I think she's the one who remarked that as a child she told a teacher she thought her father worked in burglar alarms. He'd told her he was a Securities Analyst.  :D

If anyone has any that they took themselves and are willing to release on a suitable copyright-free licence to Wikimedia Commons, they might make a good addition to their Wikipedia biographies. It's easiest if the copyright-owner submits the photos but I think I know enough to help guide you through the process.

And now back to your regular scheduled programming...