Kiltacular

(EDIT -- I see, reading more carefully, that you're probably not looking for this FCIC interview...I'll leave it up in case someone else finds it of use. Apologies) http://fcic.law.stanford.edu/interviews/view/19 Is this what you're looking for? There also is (or at least used to be) a transcript that I got from Santangelsreview.com I might have found the that transcript on this site, so you might try searching this board if you can't find with a search engine.

Good article -- thanks

is right, including the last part of the sentence in the article is not right [in the meaning "not said"/"misleading"/"lack of precision in written reporting by a journalist"], though Mr. Buffet states that he follows this relationship between market price of the stock and book value closely. There are a lot of shades in the statement from Mr. Buffett made on this question at the AGM that are worth noting. To me the built in qualifications in the statements af the AGM is about that what potential investment opportunities Mr. Buffett has on his desk at that particular moment when the market price is about 1.2 X BV, as an alternative investment opportunity to share buybacks, and that we will never know. Personally, after listening carefully to the above mentioned slip of the video, I - sucjectively - consider the BRK buy back scheme - at least a bit - more "firm" than "soft" without here trying to quantify it in one way or another. And I like that, going forward with this investment. longinvestor, thank you for bringing my personal attention to this BRK issue/topic. My take on the Berkshire buyback scheme: (1) He doesn't want to buy back any shares (He will...but he doesn't want to...no matter how cheap he thinks they are). (2) He implemented the buyback as a way to guarantee meeting his "beating the S&P metric" -- a dollar retained is worth more in "market value" than in book value...at least 1.2x. Why? Because, he doesn't want to pay a dividend and he doesn't want to buy back any shares...the threshold works for these purposes. But, he's committed to doing some combination of those things if Berkshire's market price doesn't keep up with its growth in BVPS. (3) He doesn't want this obvious set-up to be gamed so he is warning the smart money that, say, in a market crash, your put options might be put to you because he might let the price drop to .9x book (or whatever) for a relatively short period of time, i.e. long enough for most options to expire worthless and/or destroy the people trying to game him.

What a great story and legacy -- thank you for posting. It's still true: "Only in America!"

I like the idea of asking something with a long time horizon. It made me think. I'd probably not make the question too detailed. Like a politician, a public figure on stage like Buffett will often only answer the easiest part. Or, if it is too complex, answer something different. Based on the long horizon insight, here's a question I'd like to see Buffett asked: "You've said in recent years that America's best days are ahead -- do you think that's true even if GDP per capita shrinks over time?"

+1

Can you explain how Berkshire would be valued at $480-$680 billon? Thanks. Using two of the three pillars of IV Portfolio=$160k; +Earnings=$12k x 10 = $280K per A share (30% above today) +Earnings=$12k x 12 = $304k per A share (50% above today) Actually the multiple deserves to be much higher for a business that has grown earnings at a 23.4% clip for 50 years and this decade looks on pace for 15%+. In my mind, for the earnings multiple, comparables are premier conglomerates, DHR, ITW; They are selling at 18x. Berkshire is better in important ways than these two. (I am intimately familiar with DHR, worked there for a meaningful length of time) . Some more IV to chew on (few want to go there); a factor of >1.0 for the third/qualitative pillar of IV needs to be included based on the historically disproportionate retention of earnings over the past 7 years, but we will let time tell if that was deserved or not. 1 dollar is being turned into 1+ dollars as we speak. So as to not double count, I think a higher multiple of earnings will cover that. (higher than what I used above). I suspect that it will all show through the continuing earnings growth. Willing to wait for that. Thanks for your explanation. A few follow-ups. (1) I would be careful not to equate "Berkshire is trading at a 30-50% discount to intrinsic value" with "intrinsic value is 30-50% higher than today's price" -- they are not the same. The first statement implies, as I said, that Berkshire is worth $480-$680 billion. The second statement implies (and I think is what you meant) that Berkshire is worth $440 billion - $510 billion, a far more reasonable range. (In my opinion.) Your second statement implies a 22-33% discount to intrinsic value. (2) I have seen this "two column" analysis before but one part of it does not make sense to me: Why is that $260 billion investment portfolio considered all belonging to shareholders? It is encumbered in two important ways: Deferred taxes on gains in the equity portfolio ($25 billion) and, more importantly, $88 billion belongs to policyholders in the form of float. You would correctly argue that both of these will be paid at some indeterminate future time, and thus shouldn't be counted 100% against the investments - and I would agree. That means the $113 billion of liabilities are worth somewhere between $0 and $113 billion. I'm not sure what the final figure should be, but I know it should be something. If you disagree, I would ask you: Would you rather own $260 billion of cash and securities with no liabilities against them or with $113 billion of liabilities against them? Yet I never see this deducted in the two-column analysis. Deducting $40-60 billion would lower your intrinsic value by $25K-35K per share. (3) Berkshire's operating earnings figure is pre-tax, I think the multiples you're citing for DHR and ITW are after-tax. They both also have much lower tax rates than Berkshire, which hurts the apples-to-applies comparison. (Pre-tax earnings at ITW and DHR are more valuable in that sense.) Berkshire has some great businesses in there for sure, but remember that to generate that 15% per annum growth, he's had to invest a tremendous amount of capital -- it's not happening organically. To double that earnings stream again will require a massive investment. So I would find it hard to swallow an argument that values those businesses at much more than 12x pre-tax earnings, which is roughly 19x after-tax earnings. Most of them are earn good returns, but aren't growing a whole lot anymore. (4) Regarding use of retained earnings, that could add a plus factor for sure, but I would argue that's partially captured already if you value Berkshire's businesses at a 12x multiple, moreso if you go higher. Looking at the metrics of the PCP deal for example, where Buffett had to pay 25x earnings or something in that neighborhood, tells me that BRK's operating earnings growth must slow pretty dramatically from 15%. Thanks for the discussion, really helpful. This is a good discussion. On (1) -- Buffett has laid out the numbers as clearly as ever in this year's report. It's probably worthwhile to spend some time considering how he tells us to evaluate Berkshire if for no other reason than someday he will be gone. Straight from the annual: Pre-tax earnings per share $12,304. Put a 10x multiple on those for $123,040 of value per A share. Investments per share: $159,794. Fair value: $282,834. If you buy Berkshire at that price for an A Share, what would you expect to get as a CAGR in the following 10 years -- I'd guess Buffett would say about 7%. On (2) -- If it doesn't make sense, you're arguing with the best investor ever explaining his "masterpiece" to you. Buffett's method (prior to this year, where he finally tells the investor its okay to apply a multiple to the underwriting profits) gives only a relatively small value to the insurance operations and their "intrinsic" ability to add new float and to give ongoing underwriting profits. Using Buffett's method if actually very conservative unless you think float is going to run off quickly. In this year's letter he calls the insurance operations the best in the world -- why would he lie? If you think he's right, his method of the two columns probably vastly understates the value of the insurance operations. It isn't that complicated and probably undervalues Berkshire (based on what I would guess are Buffett's assumptions about the "3rd column". As Munger would say, "your smart and Buffett's right -- figure it out." Buffett has explained this for a long time...way back when Berkshire's deferred tax and float liabilities were much smaller...they've only grown...never been paid off -- was he right back then? When can we say "yes"? On (3) Berkshire's GAAP tax (and therefore the reported tax rate) don't come close to matching up with actual cash paid for taxes. Make some adjustments and you'll see. See the top of page 57 of the annual for cash paid for taxes versus "income tax" near bottom of page 38. Cash paid for taxes hasn't exceeded 60% of GAAP reported tax expense in last 3 years. How long does the deferral have to last before it has a high present value?...It isn't "on / off" and it isn't 100% of the deferral. But, is it 80% or 5% -- because we can't know, it doesn't make sense to me just throw up our hands...what if we had this discussion 20 years ago...what was the present value of the deferred tax then? This is like Buffett's example of float being a revolving fund. On (4) I feel that investors vastly overstate the value of a company's ability to create "organic" growth. Berkshire's method proves how irrelevant that approach actually is. The better question is why, if so many other companies have such terrific organic growth -- growth that comes without additional capital investment -- where is all the extra money going? What aren't the financial statements capturing? The excellent tech companies -- MSFT, GOOG, AAPL -- are counter examples...they throw off excess cash and it just builds on the balance sheet -- they are true organic growers. But, they're also held back by the fact that they don't know what to do with the excess cash. Berkshire has two solutions -- buy new businesses and invest in others via the stock market.

+1 Find cheap stocks -- cheap blue chips right now: aapl, bac, wfc, axp, ibm, xom, brkb If interest stay low, these will be homeruns (on a blue-chip return scale) 10 years from now. If interest rates tend back to 4 or 5%, they will only do very well -- 10% to 12% annually averaged for the decade. The macro won't matter in either case.

Thanks for highlighting this link...I read the story about the Cascadia fault when it appeared in the magazine. It is excellent. http://www.newyorker.com/magazine/2015/07/20/the-really-big-one

muscleman, With regard to Buffett, what you're looking for might be at the end (appendix) to this letter (?): Purchase-Price Accounting Adjustments and the "Cash Flow" Fallacy http://www.berkshirehathaway.com/letters/1986.html Not sure, though, because it is from so long ago...rules might differ today.

Dazel and LongHaul...you might like "The Big Rich". Focuses on the big 4 Texas wildcatters that became crazy wealthy (for a while)...includes the branch that led to the Bass Brothers and Rainwater. Good read. http://www.amazon.com/The-Big-Rich-Greatest-Fortunes/dp/0143116827

The security token is a small device that is separate from your computer. You push a button on the security token, it shows a passcode that you then type as part of the log in process. You cannot access it through your computer. Thanks Boiler. I've got one of those separate tokens for Schwab. This thing I'm talking about for Fidelity is like have the token but on your phone -- it generates a new 6 digit code every 30 seconds. It's great (assuming I'm not missing something about the security) because as long as you have your phone with you, you have the code rather than having to be sure you're carrying around your separate tokens (Schwab) or cards (IB). I don't recall, but I'm pretty sure I didn't just download an app from the app store but I made it sound that way. It was activated somehow from Fidelity but it appears just like any other app on the phone itself. But, it might not be as secure as the entirely separate Schwab token you're talking about and am open to being told otherwise. Perhaps you were telling me that in your reply!

How does Fido software work if you have multiple computers? Do you have to install it on every computer you access Fido from? I'd guess you would have to install a separate one on each device you use. For the correct answer, you'd have to call someone in the know at Fidelity. I do not think they have a physical token like E-trade. My wife and I are paranoid enough that we have a dedicated laptop on which we do only financial stuff (banking, credit card, brokerage, etc.) on it, no web-surfing or anything else on it, and no financial stuff on all our other devices. FIDO has an app -- for the iphone, at least -- which acts as a token. It's from Symantec and is on the phone. You might need to press them to offer it to you. This solves the issue raised above and also seems generally more secure, as a hacker could break into your computer remotely and load the token that is on your machine, right? Not sure if I'm missing something. In any case, thought I'd throw it out there. I've only had this for a few months so perhaps it is new. If you need to make a trade and don't have your phone, I've found Fidelity was wiling to work with me. The two times this has happened to me and I called to make a trade, Fidelity has given me the online commission price.

From what I've read, arranged marriages do have lower rates of divorce.