RiskAdjReturn

I never understood fixation on this business/stock. the ole sotp play, without proper weight given to fact its just guys betting with capital and without recognizing burden of SG&A. same goes for alot of "nav" logic around here on small reits. often a job for a team...

I think, even after sellofff from Friday before earnings, BRK is going to be a suboptimal stock for investors for awhile, or until it properly corrects more in line with economic reality (weighing machine) of what really here. Of course this relates to a quite irrational almost 1.7x P/B on 3/31 values. I believe many in the media and within certainly retail investing world get a little too caught up in the nostalgia/story and "so much cash" headlines but lose sight of whats really on the scales here in (1) an overcapitalized company and (2) in a case where book actually really does come close to market value of assets. Critics will jump in and say there is a lot of hidden value that book understates, but I will submit that the numbers don't bear that out, earnings power wise. If book is understated, then the numbers I will show will actually paint an even bleaker picture of ROE BRK does (since ROE should be noticeably higher if a big story of understated gaap assets). Here is a clean and quick way to think about BRK in its consolidated totality. Let's avoid getting wrapped around axle with insurance, etc and just looks at the consol picture here. Take the traded equites bucket (non-equity method names) off the balance sheet. The assign the entire DTL (deferred tax liability) for some quick and dirty slicing which makes sense ultimately. There is roughly $177B of "net nav" for the public traded equities book net of DTL. Then lets deduct the $177B of nav from the consolidated nav, in order to isolate the "remainco" book equity for remaining business (which of course includes cash and treasuries, businesses, and equity method names, net of all other liabs). That gives us $479N of nav/book for the business excluding traded portfolio. Note: $177+ 479 = 3/31 GAAP Berk book value net of minority interest, or $656 Paying 1.7x for each bucket of course, we are just breaking things a part a bit to not get bogged down with the noise and headlines and narrative. The operating businesses (and treasuries) did about $11M pre tax. maybe thats light, maybe not. No real way of knowing whether we can run rate for an annual proxy. But if you tax the $11, let's call it $9B after-tax. That's a $36B AT earning figure against $479B of capital employed. Let's not get fixated on "float" and under-valued asset assets, etc. Let's just focus on the basic math. That's a $7.5% ROE on the non-traded book. And its worth noting, I'm being very generous and housing all the dividends in the public traded book in the operating line (where Berk puts it, along with interest income). So this earnings stream is enjoying divs from Coke, BAC, etc which aren't even in the $479B capital bucket. so, simply using 1q as proxy, you are run rating 7.5% ROE. or, your book value (on this portion--the 479) is going to grow 7.5% / yr retained. The public book, net of DTL, will do whatever those stocks do...but you are paying 1.70x for those stocks...eyes wide open. One might say, "well he is going to deploy all the cash into more productive uses!"...really? how easy is it to say we can give up 5% coupons (embedded in the operating earnings number) and repurpose that into higher returning, risk-adjusted streams? not easy. Anyway, paying 1.7x for an equity book, and 1.7x for the "other stuff---which is most of berkshire"----which looks to be doing 7.5% AT ROE....thats just alot to overcome. In fact, I'm suprised Warren has always featured performance of Berk using share price instead of book. book is really his scorecard, the stock (such as now) goes all over the place over time but now is certainly at a point where its disconnected from prudent fundamental math. I realized much of the Berkshire shareholder base owns at such a low basis that there is never a good case to sell. So really this is directed to marginal buyers/sellers or those that own in tax-advantaged vehicles. I welcome any critique here, but really only those that can make a case for the fundamentals being better than my case claims. The "option value of cash" arguments and stuff arent fundamental. thats sorta silly honestly as investors can create cash optionality for themselves at 1x book. This is only going to be more challenged over time, unless stock trades back to level ( I think any premium to book is honestly, at this size, stretched). Good luck to all. Love the company, love the leader, love the history. this is just the inside baseball side of things and I wouldnt want to be Greg. Best thing they could have done is guide investors that paying over book is not advised. Now they can't really do dividends or buybacks as they are both dilutive.

imho brkb runup is crazy retail/media hype over "cash" by people who don't understand (1) you are buying that cash at 1.65x (im modeling accrued book at 3/31), (2) buffet still long 300B in equities, (3) alot of the "earnings" people are fawning over include all the spread/yield from S-T cash,etc...rolling that into equities comes at a cost Warrent won't easily take imho, (4) warren isn't gonna go nuts buying stocks in a downturn, and why pay 1.65x cash balance when i can buy equities on downturn on my own. love the equity/company, just feels like its run too far.

can someone tell me what the tax impact of owning via ADR (ntdoy) as US investor..is there foreign tax drag ?

nitpicking? intent, stock pick today with 5 yr scorecard.

the 5 yrs is really for me to flush out your best MOIC idea at end of yr 5. ie 1.5x, 2x, etc. I'm not interested in "market timing" a 2024 calendar pop. I want to award the medal 5 years from now, see who is swimming with clothes on then

fair enough. let me rephrase it, this isn't proving who is good investor. that said, would love to see everyone's best single idea for 5 yr "race"...to see where they have real conviction at the margin . alot of folks portfolios have alot to do with embedded unrealized gains they aren't willing to pay taxes on, rather than marginal "Rebuy" conviction.

Taking into consideration entry price (ie great company and future might not mean great stock): If you are running endowment or childrens trust: you have 1 stock to buy today to prove, 5 yrs out, how good an investor you are, what would it be? I'd like to see folks best idea, risk adjusted (I toggle between credit and equity....I'm allergic to losing capital permanently): we can then dredge up this thread each yr until yr 5 and see the winner. we aren't looking for shiny objects here...but endowment growth! I benefit greatly from many of you you (some I think miss the boat on concentration though :>) ), and would love to add people and ideas to list. one qualification: goal is to outperform SP500. consider this endowment would already be indexing money, this is active, 1 stock best idea risk-adjusted (sort redundant to say risk adjusted when its a 5 yr call as no one wants to lag bonds/cash, etc with a bad bet

curious how much you invested / saved into the taxable account, vs the starting point balance you reference. curious the compounding effect vs contributions. this is great lesson for my kids

can some tell me book value per share (in B term). so can see P/B mult against todays' trading level i hate how this metric is shown anywhere

would love it if those who follow the name closely could try to calibrate where they thing NAV would be, here, today on May 21....unless a CEF, I can't easily tracke the premium to book for Berk. but feel like I need a refresh during the big selloff and of course AAPL fall.

thanks...did you mean to say 2025 ? or 2022

for my benefit, whats the elevator pitch on Safran?

I hear ya. Kinda like the margin idea here to get liquidity in lieu of selling berk (given the diversity/ballast nature)....what's your % advance max against your position that you used as a guardrail? ie whats % of berk holding would you "access" for personal liquidity without feeling aggressive

Thanks for clarification on it being after tax thats good on the mulitple... I am not familiar enough with the earnings stability/cyclicality of rail, though I see your UNP comp mid 20s. So yeah that gets you your 2.4x ish. I take it the earnings power is very stable, repeatable, and has growth trajectory, to trade over 4 percent FCF yield ( unp)

pupil, good stuff. BHE is a blackbox to me. unclear if that is, fundamentally, a good or great business. regulated, with cost recovery, constant churning of capex, etc. who knows. the cash flows / earnings don't really jump out and wow me, net of all the capex that is plowed in. let's focus on rail for a second: first, I think we need to tax-affect the $6 of "Earnings" don't we?. but before doing that...$6 on 46B of book. that's 13% ROE. let say capex and depreciation wash, such that earnings = FCF. unclear if that is really good assumption though. capex required to "run in place" may be higher than depreciation. Just saying, cash flow don't lie. thats a 13% ROE on book. if tax affected, you are closer to 10%. sure some premium to book may be warranted, but this isn't a high ROIC business.

thanks...yeah that's an interesting thought process on the accrued taxes. I prefer backing it out fully but that's the credit investor in me. I see it as no different than long term debt, etc. because at end of day, I want to know that the asset value I'm buying, has a {xx] embedded tax bill. its just a question of NAV purity for me, and from there I can do my puts and takes. its of course pretty inefficient to own stocks in a c-corp for public investors, so I want to be intellectually honest about the fundamental reality of it

thanks pupil, you are tracking my argument at least. first: to some in this thread: for a big chunk of asset value here, at fmv, you are paying 1.4x that "nav" or "book" , whatever term you prefer. in the US, one buys a mutual fund, or etf, or stock, at "1x nav"......for Berk's same apples, one is paying 1.4x then the focus shifts to how much "juice" or suppressed value there is on the operating assets side of house, which are you paying 1.4x accounting book for, to help compensate paying 1.4x for berk's securities and cash. the math is the math, dispassionate, objectve, etc. pupil.....come agin on the aapl 84%? in my mind, the gross fmv for apple and of course offset by the accrued taxable gain liability on books. but that is still 1x aaple in the nav nav captures the tax liability) on the operating assets side....I still maintain, prima facie, that if the operating earnings, relative to Berk's operating asset book capital (bnsf, bhe, etc) isn't attractively high ROE then the "juice" isn't most most think, unless earnings power is suppressed in gaap earnings relative to intrinsic value, in some unique way vs other companies. value of float: how much can I make on $140B a year, with regulatory on restrictions of usage (stocks/cash etc). let's say 4% after tax which is me being nice in today's interest rate environment. that's $5.6 Billion of earnings from the "free float business".....put that in div discount model, at say 6% discount rate. that's $93B of value that is hidden and should be added to Berk. I concede this. (one can play with assumptions) I appreciate the conversation, thanks all.

lol. no. go think about it some more :>)

no, not low nav stocks....just talking about buying stocks at spot (ie spy at market price)....vs paying for berks net asset at 1.4x

not sure why you are getting chippy. I just don't beleive ~ 1.4x a fairly marked to market nav is a good price, compared to paying 1.0x for other diverse stocks and 1.0x for cash, to replicate berk at moment. the apple concentration is also not something that is attractive at 1.4x

here's one: spy

well, pretty much anything at spot market prices (1.0, not 1.4x). yes it has operating earnings you are trying to cash a check that's already been cashed. the book value of the businesses that generate those earnings is in the nav. sure the cost may be understated some from his purchase price + goodwill + capex....but it isn't so suppressed. otherwise we would see massive ROIC/ROE. rather we see solid ROE + then market price appreciation in holdings. on those $25B in earnings, let me know what you think the book value associated with those businesses is....it's probably $150B or so. ie, its in there..and you are paying 1.4x for it.. look, I like the name at the right price, but now isnt the right price...and with aapl being so much of the basis?? well, I can create aapl at 1.0x with fresh tax basis

this is way overdone. look at Fed in march 2020. that was the fat pitch for Berkshire but it never happened when Powell became the backstop. furthermore, Berskshire has alot more public equities than cash!!!.... really, this ticker is overhyped. I would like it at maybe a little over nav. but seriously, why pay for a passive chunk of AAPL at 1.4x the price you can buy apple yourself. and why pay 1.4x cash you can create yourself? etc

paying 1.4x a concentrated mutual fund nav basically, with maybe only "suppressed" value in nav coming from energy and rail carrying cost accounting. sure the zero cost float has some intrinsic value, but in low rate environment, not so much... good luck!