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JBird

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    Buffett Questions for 2013 Annual Meeting

    in Berkshire Hathaway

    Posted

    I use the two-column approach to valuing Berkshire. I value Berkshire's portfolio at 100 cents on the dollar and its non-insurance operating earnings at about 13x after-tax earnings. My estimate is that the A shares are worth around $190,000. I rounded up to 200 for the sake of simplicity.

     

    If you're trying to reach a conclusion about the price of Berkshire in 10 years or so, would you look to something other than Berkshire's value? To your second question, Berkshire cannot compound at 17%+ for 10 years because the capital base is too big. Its investment portfolio will not grow at that rate, and neither will growth in non-insurance operating earnings (though it won't be far off).

     

    Please don't take what I said as a personal criticism.

     

    - J.D.

    Buffett Questions for 2013 Annual Meeting

    in Berkshire Hathaway

    Posted

    A $1,000,000 stock price for one A share is a real possibility over the next decade or so. Given your thoughts of being inclusive of the small shareholders (like you shared during the BNI purchase) which created the <$100 B share, what are your thoughts around the BRK shareholder base when the Million dollar A share becomes a reality? Even today there are people who cannot mentally deal with a $100,000 dollar stock price. Will the Berkshire of tomorrow deal with this issue the same way you have?

     

    Think about the quantitative implications of your question. If the intrinsic value of the A shares is currently around $200,000, what would it take for that value to get to $1,000,000 in a decade? Intrinsic value would have to grow at 17.4% per annum. Of course, Berkshire management knows that's an impossible feat.

     

    Mr. Buffett, you have said in the past, in your letter regarding the stock market in 1999, "you have to be wildly optimistic to believe that corporate profits as a percent of GDP can, for any sustained period, hold much above 6%".  Corporate Profits are now greater than 10% of GDP--how should we think about this?  Do you think there will be a compression in profit margins?

     

    A great question.

    When to Sell BRK?

    in Berkshire Hathaway

    Posted

    Palantir, why did you buy a security without knowing its value? Why are you asking other people to value it for you?

     

    You did not need to know BRK's value when it was trading at BV to know it was trading well below IV and a great buy.

     

    Why is that?

    A Rising Tide Lifts All Ships!

    in General Discussion

    Posted

    he has always used the 30yr ust as his "yardstick" to compare the value of various equities.  He chooses that because equities are long duration instruments and must first beat the bogey of the risk free long duration bond to even be considered for investment. However, in periods of unusually low interest rates, he has used a floor of 6% as his measuring stick. I've read so many different things about Buffy that I can't remember where I read that. But I did. :) My best guess is the John Train Biography, "The Midas Touch", which btw is an often overlooked, comprehensive examination of the OofO.  But here's the greater point. Don't be foolish and mark up the s n p because rates are 3%!

     

    What's your investment hurdle rate?

    10% is the figure we quit on -- we don't want to buy equities when the real return we expect is less than 10%, whether interest rates are 6% or 1%. It's arbitrary. 10% is not that great after tax.

    Charlie Munger: We're guessing at our future opportunity cost. Warren is guessing that he'll have the opportunity to put capital out at high rates of return, so he's not willing to put it out at less than 10% now. But if we knew interest rates would stay at 1%, we'd change. Our hurdles reflect our estimate of future opportunity costs.]

    We could take the $16 billion we have in cash earning 1.5% and invest it in 20-year bonds earning 5% and increase our current earnings a lot, but we're betting that we can find a good place to invest this cash and don't want to take the risk of principal loss of long-term bonds.

    Source: BRK Annual Meeting 2003 Tilson Notes

     

    Wellmont- Explain if you could your last comment. Do you mean to say the index is overvalued, or should not be priced significantly higher? Would you disagree that interests rates are to financial instruments as gravity is to physics?

     

     

     

     

     

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