Valuebo

He won't ever buy back a share. All he has to do is announce that he will buy back shares and the price will adjust, overnight. That's what happened last time he announced intentions. It quickly became more fairly valued. mission accomplished. I agree. Chances are history will repeat itself and if not IV will keep compounding while we wait. :)

*repetitive mode* In ran into this reading the annual letters : This would imply that in 2000 Buffett & Munger thought BRK at $45'000 was at least 25% under IV. Adding in 11 years the BV growth at this starting point of $45'000 gives a price of around $113'500. Then Add 33,33% to make up for the 25% discount to come to conservative IV which would be almost $151'000. Seems like a fair MOS. This is when we would say that at $45000 Buffett believed BRK to be undervalued by just 25% and not more. The stock was up more than 70% from its low at $41'300 in 9 months or almost 60% from $45000. The same result in 2-3 years would already make me thrilled (versus the risk involved), adding in time as the friend of a wonderful business!

twacowfca, have you (or someone else! ;)) ever heard of the metric "70% of float + BV = IV" (where 70% is supposed to be véry conservative) for BRK? Also, do you have any insight in the growth potential of premiums when we get into a hard market? I have been talking to acquaintances both on- and offline and almost everyone gives BRK & Buffett zero credit. "Stock performance is terrible the last decade." "Buffett is getting to old." "It is trading at a premium to book value and therefore it is expensive." "Buffett overpaid for Burlington and BRK is becoming to big to handle." "BRK's PE is 17, that is very expensive!" etc. My 3th order is about to be exercised, down to $100'000 we go! In a strange way here it feels very comfortable to average down. I like it!

It is truely amazing yes. You even left out a lot of well-known companies and there is probably a lot more left from many smaller companies like NVDA, WDC, ... HPQ 80b DELL 30b TXN 40b INTC 115b etc etc. Can't you just check nasdaq's total market cap or something? ;)

Haha, I must agree. I bought this one last week and I'm at chapter 14. It reads fluently and has some good stories and value principle reminders. It gives great insight in Cundill's mind, which I can appreciate as a young investor with lots of questions, doubts and fears. :) Oh, and there is also a short chapter (19) about Prem and Fairfax!

How much net buying is going on at Berkshire or Leucadia? BRK at over 17x earnings and close to 20% over BV isn't nearly as cheap as some people on here are making it out to be. It's cheaper than it was a couple month ago, but I wouldn't consider it a bargain. So I guess the $95000 in investments / share doesn't matter? And other well-run businesses nowadays are valued under their BV? Please explain... Oh btw, based on history it is cheaper (based on price/BV, investments + 10x EPS, ...) then almost any year in the last decade, possibly the last 15-20 years.

Greece can't be forced out the EU by other countries, the IMF or whoever. Greece could only step out of the EU by its own decision, which would basicly be its own destruction (drachme would return, making all debts that are still in Euro even harder to pay back). Biggest chance now is that Greece gets another (smaller) bailout so that banks and other countries that would get affected have more time to take the hit that will probably come one day when they permanently release Greece from a part of their debts in order to make it survive. I like the overseas stories a lot more now, bad things could happen here with irrational behavior from politicians or a worsening situation. I am not really restless with my current portfolio that has 55%+ in USD, CAD and GBP (the rest is in euro's as I am a European after all).

Hey, I already bought the book this week (I blindly buy books that are recommended by Buffett, Watsa & others and almost always find great value in them.) but thanks for the link anyway. What did you personally think of it?

Pff.. Just read both introductions and some passages and it feels ... cheap, very commercial and even a bit fake. All the repetitions, the promises, ... I feel I have read the word "secret" 50 times already. :-\ Maybe it is just the classic version of "The Secret", which in my opinion was commercial b******* sold by a slick salesman. Here too failure probably only comes from not trying hard enough or because "you are not ready"..? ::) Of course there is truth in the strength of desire, auto-suggestion, ... but I don't need to read a book with 400 pages including a lot of tales and maybe even nonsense. I am 21 biaggio and maybe I am judging this book too soon, time will tell as I read more. Maybe I should trust in Prem's wisdom and/or just seek the value of specific parts in the book that are likable.

1. How do you figure MSFT has the same downside protection BRK gives? What period are we talking of? I would agree with a 1-2 year frame, but anything beyond that I believe BRK has a serious edge against almost any company. 2. How do you calculate IV for BRK? How do you define "that" cheap?

Funny how Mr. Market is reacting, almost up 3% because someone told them the stock is cheap. :D Maybe even funnier that Buffett basically said the same but then almost no one seemed to care about it?

It wasn't bad but I have a few remarks. - He doesn't review Servers & Tools at all (hey its $0,50+ in earnings/share) but he really likes the low margin business in xbox. ??? - He "hates" the search business, which is showing great growth lately and can over time grow into the (smaller, possibly 1/3th of google?) second big player of the market. (imo) - He focuses on himself as a consumer but for MSFT businesses are the key (for ex., 90% of Office revenue comes from businesses, mainly volume licensing agreements) and their moat in that area is much stronger because of the stronger "network effect" and high switching costs to alternatives. But he had a dead on analysis on the "4% of MSFT's market cap acquisition of Skype" as a defence and opportunity because of integration options, the low marginal costs that make MSFT the extraordinary profitable business that it is, ... .

Does anyone have an idea how revenue percentages are split up for MSFT outside the USA? I know 58% of revenue comes from the USA (part II note 22 in latest 10-K) but I want to know how that 42% is split up. If possible I would also like to know what the growth rates of the PC market is in each major country (say countries with 5%+ of total revenue).

I was going to order that one for a while now, thanks for the reminder! ;D

Parsad, I totally agree with you. Btw, on BRK : Last 10 years BV growth was around +9% annually for BRK. So take your 55K stock price from 2000 and start compounding : 55 000*1,09^11 = 142 000 This would imply that a $142 000 price for BRK.A would already be cheap, let alone the current $118 000. Take a stock price of 46K for 2000 and you will get a compounded result of almost 120K. Am I correct to assume all this? Would you agree that BRK is at least as much undervalued today as it was at 50-55K in 2000? I have added to my BRK position this week and intend to do the same with MSFT. Highest risk/reward plays out there hiding in plain sight IMO. BRK's Price/IV is much more attractive now than in 2000 because BRK's stock portfolio was very pricey compared to now. Also, the economy was rolling over into recession then, but today the recovery is well underway. Good points! Just like FFH's portfolio I think there is enough upside in the long run. Also, comparing BV/price we are at a very low multiple compared to the past and this at a time where the operating businesses become more and more important for normalized earnings power. Weird! Well, BRK is already 15% of my portfolio but I wouldn't mind to add more under $75.

Interesting facts I just noticed today : - MSFT is one of the 30 companies at market cap of 50m+ that shows up in the magic formula stock screener, that is very rare for 200b company (with considerable moat). Also, the second biggest company in that list has a market cap of only 11b and the third 5.5b. After that it's all under 2b. Food for thought? - dataroma.com shows MSFT is the stock that is owned most by professional value investors, was bought most last quarter and the last 6 months.

If HPQ gets to 7$ earnings per share by 2014 (and as you commented they need almost no growth to get there if current buybacks continue) we would be at a PE of 5! If one reviews earnings by division at HP and listens to Leo's plans, we are not talking about restructuring things or whatever. We are talking about putting focus on higher value added products at the service division and ramping up cloud efforts. Technologies and infrastructure to get there already exist at HP. Many analysts that had a 50+ price target on the stock simply say: hey it still is a very good business but I still downgrade it to 40 or so (so that I fit with the rest of the street). Taking the March 2009 bottom of $25 and adding in earnings for 2009,2010, and 2011 (projected), one arrives at roughly the present stock price. This is a funny market. It first hit the $36 price level 13 years ago. There are probably some board members in first grade back then? I was 8. ;D Funny market indeed!

Yes, I was going to add that in my post too. But then I thaught : - Will BRK stop outperforming the first 5, maybe 10 years (seen in 5-year periods) after Buffett's death? Small chance giving the corporate culture and structure, the amount of talent under management & the shift to wholly-owned subsidiaries. - Will BRK sell off after Buffett's death? Maybe, but I won't wait for it to happen when Buffett is 87 and the stock price drops from 280K too 220K. - Also, there is that slight possiblity that he keeps doing this amazing job for another 5(+) years but it looks like the market likes to discount the fact that Buffett could die now or in 10 years, a lot seems to be priced in at the current price.

Parsad, I totally agree with you. Btw, on BRK : Last 10 years BV growth was around +9% annually for BRK. So take your 55K stock price from 2000 and start compounding : 55 000*1,09^11 = 142 000 This would imply that a $142 000 price for BRK.A would already be cheap, let alone the current $118 000. Take a stock price of 46K for 2000 and you will get a compounded result of almost 120K. Am I correct to assume all this? Would you agree that BRK is at least as much undervalued today as it was at 50-55K in 2000? I have added to my BRK position this week and intend to do the same with MSFT. Highest risk/reward plays out there hiding in plain sight IMO.

Thanks for the reply alwaysinvert, I didn't notice anyone answered. :-X I will look into Öresund, thanks for the tip. ;)

1980 investments/share : $754 earnings/share : $19,01 x 10 IV using Tilson's method = $944 Stock price = $425 1990 investments/share : $7798 earnings/share : $102,58 x 10 IV using Tilson's method = $8823,8 Stock price = $6675 2010 investments/share : $94730 earnings/share : $5926 x 10 IV using Tilson's method = $153990 Stock price = $120000 1. I'm shocked by how low BRK was valued in 1980 using this valuation. I'm confused? Can we really value investments/share for the full amount for 2010? It's not like we get a 10-15% yield from it. This isn't really the investing vehicle it once was... And what were BRK's stock prices in '81,'82,... ? 2. Undervaluation in 1990 was significant but the following years proved to be very rewarding. Repeat from here on? Of course growth possiblities are far from the same now but I believe IV under this valuation should also be a lot higher because of strongly increasing earnings.

(beware : major topicbump) Exactly what I plan to do with a couple of friends (we are all students) this summer. :) Has anyone looked at this company as an investment in depth? Ive seen it shown up on many lists of value investors and I have heard that most people are very satisfied with their service. Could they have a strong competitive advantage in their (innovative approach to) cost reduction?

If anyone has any suggestions for this, feel free to shoot them my way. Hoping to put up the second post, the balance sheet, next week. Hi Tariq. Sorry for the bump but I just wondered if the balance sheet part is on your blog? I couldn't find it yet. ;( I learned a lot from the post on the income statement, many thanks for that. :)

paying $30*36 ($1080) for a 12" notebook which doesn't let you install your own applications (big businesses anyone?), asks for a new investment in educating your personnel, ... What am I missing?

All this chat about their additional segments and whether they might or might not get decent market share and the subsequent earnings that they could add in a far future... IMO : Take "earnings of segments with enough moat (OS, office, servers, .. in businesses)" and even discount all other earnings, subtract losses from all those additional segments and determine if there is enough potential left without this noise and all the "maybe's". If the core can easily outweigh all the diworsification that seems to be going on and if we can consider this core to be strong enough, we could consider this a good investment? That's just my opinion. I don't really want to guess what chance Bing, Skype, Xbox & Kinect and all other possibilities have to ultimately make it. I can only guess... :)