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Intelligent_Investor

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    Fairfax 2023

    in Fairfax Financial

    Posted

    11 hours ago, bluedevil said:

    I was reading Tom Gaynor's annual letter to Markel shareholders and noted his description of how to value Markel, which is similar to how I have also seen people value Berkshire:

     

    One part of the assessment is extremely straightforward. If you assume that we will continue to be profitable in our insurance operations, and we do not shrink, the total value of the investment portfolio accrues to the shareholders. The earnings from our investment portfolio are like fruit from a fruit tree. If you were valuing a fruit tree, the value is the present value of the fruit the tree will produce over time. Same thing with our investment portfolio.  As such, we simply take the total value of our investment portfolio and subtract out all debt, to get an indication of the value of the balance sheet part of Markel.

     

    Another important part of estimating an indication of the value of Markel stems from the earnings power of our Insurance and Markel Ventures operations. We take the normal, annualized earnings from those operations and multiply that by a consistent and reasonable multiple year-by-year. That process provides an indication of the total value of Markel’s income statement. Then we add those two parts together to determine our own sense of what each share of Markel is worth.  

     

    Do others here see the balance sheet description as a valid way to measure the value of an insurer that over the long term has demonstrated the ability to underwrite profitably?

     

    It seems reasonable to think that Fairfax will be able to underwrite insurance at 100CR over the very long term.  Doesn't that mean -- that if you make that one assumption -- that Fairfax should be valued at a market cap of something over $40 billion, versus its market cap today of about $16 billion?  i believe the investment portfolio is over $50 billion, and debt is about $6 billion.  Curious on people's thoughts on this.  

     

     

     

    Yeah this is the BV+Float method that Sandy Gottesman used to determine when to buy Berkshire 

    Is The Bottom Almost Here?

    in General Discussion

    Posted

    Housing is gonna be a real pain for CPI prints. House prices are inelastic and won't come down unless its significantly cheaper to rent, but due to low supply, rental occupancies are high and so are rental prices due to lack of supply. I don't see a setup where the fed can hike out of supply shortages on the housing front.

    Is The Bottom Almost Here?

    in General Discussion

    Posted

    14 minutes ago, thepupil said:

     

    they are very different. a 10 yr bond at 5% yield ($100 with 5% coupon) loses 8% in price if the required return goes up by 1% and will make 5 points of coupon, so in a 12 month period loses 3% on a total return basis. A 1 or 2 or 5 year bonds (or floating rate) has even less risk of nominal loss. CLO AAA right now has no duration and lost like 3% in MArch 2020 and in Summer 2022.

     

    A mediocre company at 20x EPS growing 6% / yr and using all its cash to do so loses 20% if required rate of return goes up by 1%. 

     

    stocks are far longer duration investments and subject to much greater changes in value upon multiple changes. 

     

    it's intellectually consistent to prefer bonds to stocks in a rising rate/high inflation,decreasing valuation environment. bonds have generally greater degrees of coupon to reinvest and are lower in duration. they also get paid first. so if you're worried about margins, preferring bonds also makes sense. 

     

    I don't think it's ironic at all. of course over LONGER term time horizons, stocks will kick bonds ass in most cases over most but not all long term (defined as 10+ years) time horizons.. We all have different time horizons. if you told me inflation was going to be 8% over the next five years and everything else will be the same, I'd increase my allocation to bonds/cash versus stocks/RE. 

     

     

    This is true if you are worried about market price, but not if you are a value investor worried about the intrinsic value. The stock with a 5% earnings yield growing at 6% will throw off more cash than the bond will, even if the market price is more sensitive, and thus will have a higher intrinsic value than a 5% fixed coupon bond, even if the bond is less volatile in market price. 

    Is The Bottom Almost Here?

    in General Discussion

    Posted

    On one hand, the markets are frequently irrational, but on the other hand markets have generally been much more accurate at predicting recessions/rebounds than most analysts and market strategists. Perhaps there is merit to the view the fed might actually pull off a soft landing

    Is The Bottom Almost Here?

    in General Discussion

    Posted · Edited by Intelligent_Investor

    1 hour ago, Gregmal said:

    https://www.cnbc.com/2023/01/24/greedflation-food-brands-may-be-profiteering-from-price-hikes.html

     

    Just more anecdotal evidence of whats really the root of remaining inflation. Some of my favorite inflation litmus tests while strolling through the stores are frozen French fries, and canned soup. Check the generic, and the name brands and how the prices move around. Its all pretty fascinating. Both follow very similar patterns now going on 6+ months. Regular everyday price is maybe 10-20% higher than pre covid. Maybe $3-3.50 for each on the name brand side and $2-2.50 for generic. Generic never moves. Randomly the name brand goes up for a bit to about $4-4.30. It holds there for a week or two, and then like clockwork you have these massive inventory blowout sales, $1.99 for the fries and like 4/$6 on the soup. Supply and demand. 

    Definitely higher than 10-20% of pre covid prices, where I live most stuff is at least 40-50% more expensive than pre covid, eggs for me are up 200+%

    Buffett/Berkshire - general news

    in Berkshire Hathaway

    Posted

    On 1/21/2023 at 1:36 PM, StevieV said:

    Anybody want to argue that BRK is a buy here?  I don't think it is.

     

    I like BRK.  It offers about the steadiest equities return I know of.  But, as with most stocks, you need to be careful about purchase price.

     

    Call it overly simplistic if you like, but I like to buy at 1.3x book or less.  At that price, I think you've got a very good chance of getting at least the growth in book value as your return + some potential multiple expansion.  Investors have been given the chance to buy at 1.3 book or less pretty regularly.

     

    As of right now, BRK has outperformed the S&P 500 by almost 30% over the last two years and is trading a 1.5x.  I'm holding onto the position I have, but don't think this is an attractive time to buy.

    I just use BV+Float to determine when to buy.

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