ValueMaven

Timely equity purchases? Improved underwriting at GEICO/market-share growth? improved margins at BSNF/PCP/Lub? continued energy/utility integration? aggressive buybacks? Need I continue? I have fair value pegged at around 68-70 cents right now.

21 years ago the famous article in the WSJ asked such a question. In a similar parallel faithful Berkshire shareholders are again asking this same question after a fairly material period of underperformance through 2018 - 2020 time-period. Berkshire is a vastly different company then in 1999 - with a much more durable business model/operating income profile in my view. Unlike the 1999 article, Berkshire has been buying back stock in decent size - but not all that all that aggressively, and is sitting on nearly 5x the amount of cash then was the case back then. With the world afloat of cash, central banks extremely accommodative, what should Berkshire do? Here is an idea: Management should publicly state to shareholders that we will allow cash to grow to say: $175B MAX - anything more will go directly to share buybacks - unless we view shares as overvalued - in which case we will stop. Stating a cash ceiling might be well received by investors, many of whom feel that the largest elephant Berkshire can bag is in an Omaha zoo. Buffett has stated before that Omaha is bringing in between $400M - $500M NET a week. Should should be fun!

Charlie also made some very interesting - but brief - comments on BNSF improvements etc. Very interesting.

Awesome book...finished it this summer. Made the mistake of reading it on my iPad however! Get a hardcopy

Yes. What a honor to watch this. Amazing how he was able to bounce topics so quickly.

From my understanding - and it is a fair point - if OXY wants to pay BERK in OXY stock - it is somewhat punitive. I believe they have only done this once and it was at an ~8.5% yield (via equity) See below: “Any shares of Common Stock so issued shall be valued for purposes of this Section 4(a) at 90% of the average of the VWAP per Common Share over each of the ten (10) consecutive Trading Days commencing on the Trading Day immediately following the date on which the applicable dividend is declared.”

If Warren thought BERK was cheap enough at $215 back in Sept - I wonder what he thinks now (re: buybacks) at $225 given all of the improvements around the vaccine etc. September was the single biggest month in terms of backbacks ever. Food for thought.

This is not an insignificant investment for Omaha. Wouldn't touch the stock (OXY) - but I'd imagine Omaha is breathing easier with the common shares more then doubling over the last month or so. Has anyone tried to triangulate a fair-market value for these? I guess you'd have to look at a blend of debt and equity to come-up a reasonable valuation. I'd be interested to see how OXY continues to pay BERK - either in cash, or stock going forward.

No. Other railroads have used Precision Scheduled Railroading, which basically limits the # of trains to very specific times and is not flexable for customers. It improves operating margins by 300-400bps for several reasons - but makes customers unhappy. Buffett has said that BNSF is gaining customers b/c BNSF does not use PSR currently.

Andrew Barry of Barrons. I enjoy reading Andrew. Has always interesting insights https://www.barrons.com/articles/shares-of-warren-buffetts-berkshire-hathaway-still-underperform-why-its-time-to-buy-51607428811

, and basically all others ending by : ? I think that is a very interesting point John. Might have to do with the International/Japanese time difference...or could mean something more. I dont know.

How are you getting $80B 10 years out?? Assuming another large deal? Growth in operating businesses would have to be in the mid-teens (using 2019 as a base assumption) to even have a shot...what am I missing?

Assuming 8% operating growth, w/a fairly recession proof business model, and a decrease in the share-count - you get some really interesting terminal value prices in 2030...BERK could retire $20B of shares per year and still be in a net-cash position each year - assuming operating income of ~$25B - ~$30B...and you still have the base $100B of cash on the b/s as well. Basically, I think this has become a huge cash generator/capital return story with a slightly below market-ish growth over the next decade.

This is awesome!! Thank you for posting. I realize Munger is in love w/BYD - but wouldnt it be neat if this 95 yr old, sold all of DJCO's BYD (at the top) and was plowing it back into DJCO via buybacks. $80M for DJCO's operating business seems on the cheap side. More interesting for me is how BHE is handling this given that the paper-gain is about ~6M of operating profit at BHE given that BYD did nothing for BERK over a 10Y window.

Interesting comments from Charlie in 2009 on BYD:

At one point BERK was down about -60% in its shares of BYD. WTI was $115 or so at the time. Amazing what a decade does - and how Charlie (first) and Warren (second) were able to keep their respective cools w/BYD. I bet if you told them at the time - 10 years in to the future BERK would be sitting on a $5.5B gain in BYD they likely would not have believed that. Great example of not being shaken out of a position.

Thank you. Very helpful. I didnt know that. Which makes me wonder -- if BHE is really sitting on a $5B gain in BYD, and has this weird real estate brokerage business which is about 10% of the value of BHE - wouldnt it be easier to simplify the businesses for investors?? Sell down BYD position - which is nearly 6 months of operating profit in BHE, and move the real estate brokerage business into MSR unit???

And of course Berkshire Hathaway Energy only owns 8.25% of BYD. Approximately $5.75 Billion worth at current prices. 225 million shares. Where did you see that? That's really interesting actually ...

Stock has gone parabolic recently with the whole EV crazy. Given that Berk owns 25% of the o/s - I thought I'd post a comment

When I think about Berkshire selling Apple, a few things comes to mind: #1 - Compare to KO position in in late 90's #2 - Apple was trimmed in 2019 #3 - Mr. Buffett does not look at Apple as a stock, its his 3rd largest business #4 (and what I think about mostly) - if Mr. Buffett sells Apple....what is he gonna buy? Where does he redeploy $120B in Capital? 1,000% agreed. If you look at how BERK has been built throughout the decades - most of the major businesses are fairly uncorrelated. If point #3 is REALLY how WEB views AAPL - then it fits in extremely nicely given the unique biz of insurance, rails, msr, and BHE. Frankly - we are lacking a large tech investment - and AAPL in my view is it. Plus it offers unique plays on consumer, 5G, tech capital allocation etc - which is lacking at BERK.

For those interested - Chris Bloomstrain had a fantastic recap of Berk's 3Q on the 'This Week In Investing' podcast hosted by MOI. You can find it on iTunes. He gave some really interesting insights into the various operating biz's and his thoughts on the buybacks. Worth listening too. -VM

Correct me if I am wrong but next quarter the D assets will follow into BHE's results correct?

Teledyne also paid a dividend in the year 90s for several years before it broke itself up. I dont think its a fair comp to BERK currently imho.

I’ve been thinking about this a lot recently…and I realize this is extremely simplistic way to think…however there is some validity here imho– but I’d prefer Ohama not reduce its exposure to AAPL. If you think about it: Utilities, Rails are all old-world oriented businesses…again, extremely simplistic thinking. Insurance is its own unique animal – but generally doesn’t get associated with new-world economy stocks. PCP, Lubrizol, etc…old world. That means – as Buffett has repeatedly said – that he views AAPL is their 3rd largest business and NOT as a stock – it really does fit in nicely in Berkshires various groves. Also very interesting points above about BERK and AAPL regarding buybacks and capital allocation. If you figure $1.1 - $1.2B is following into Ohama each month on a NET basis, where does that get us with shares outstanding in 5-10 years?? This might be a compounding machine if the buybacks remain. Also – I was extremely impressed w/insurance results.

Ohama now has less shares outstanding then when it bought BNSF back in 2010. WOW