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Guest longinvestor

Whitney Tilson: Berkshire Hathaway Now Worth $275K A Share

 

A Safe, High-Quality, Growing Company With 42% Upside Over the Next Year

 

http://www.valuewalk.com/2015/08/tilson-berkshire-hathaway/

 

Any thoughts?

 

Nothing new here, Tilson has been valuing BRK with upside for many years now. Looks reasonable to me, BRK remains undervalued. The CEO is fine with this arrangement. Now, that's rather uncommon. 

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What strikes me as new is the overvalued market which makes BRK look relatively unique:

 

Conclusion: Berkshire Has Everything I Look for in a Stock: It's Safe, Cheap and Growing at a Healthy Rate

 

Extremely safe: Berkshire's huge hoard of liquid assets, the quality and diversity of its businesses, the fact that much of its earnings (primarily insurance and utilities) aren't tied to the economic cycle, and the conservative way in which it's managed all protect Berkshire's intrinsic value, while the share repurchase program provides downside protection to the stock

 

Cheap stock: trading 22% below intrinsic value, without giving any credit to immense optionality, with 42% upside over the next year

 

Intrinsic value is growing at roughly 8-10% annually

 

Seems few safer, cheaper, faster growing alternatives.

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Seems few safer, cheaper, faster growing alternatives.

That's all true. It is a testament to BRK's value creating abilities that they can still be cheap after the great run the stock had for the past couple of years.

 

The real question is what to do from a portfolio management standpoint. I think this may apply to a lot of people here. What do you do if you already have a large BRK position and you have cash and you are looking at this market. Do you say that position sizes don't matter and go and buy more? Or are you satisfied that you have a large position in something that is undervalued and will appreciate further and wait for something else to come along?

 

I'm guessing opinions are all over the spectrum but I'd be interested if someone has a well thought out and rational position rather than just gut feeling.

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What do you do if you already have a large BRK position and you have cash and you are looking at this market. Do you say that position sizes don't matter and go and buy more? Or are you satisfied that you have a large position in something that is undervalued and will appreciate further and wait for something else to come along?

 

BRK's safety makes the position size less an issue for me.

 

And while cheap, I've been waiting not for something else, but for a market correction (bear/crash) that would make even cheaper.

 

Seems overdue, but maybe it silly not to add at P/B 1.4 whenever can?

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You see that's the same question I ask myself all the time as I like to buy more. Also 1.4 P/B pre PCP deal is not the same post PCP deal. But also one must ask oneself where is the line, what is a right BRK. I'm pretty sure I can't just be 100% though that has worked out very well for some people in the past.

 

I have an extensive finance education and I know that those Portfolio classes didn't teach me anything. We as value investors have to figure out these thing for ourselves.

 

Who knows, maybe CoB&F will get a Nobel Prize

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1.4x book is PRE KHC as well. If KHC is included, you are Closer to 1.3x book.

 

What do you do if you already have a large BRK position and you have cash and you are looking at this market. Do you say that position sizes don't matter and go and buy more? Or are you satisfied that you have a large position in something that is undervalued and will appreciate further and wait for something else to come along?

 

BRK's safety makes the position size less an issue for me.

 

And while cheap, I've been waiting not for something else, but for a market correction (bear/crash) that would make even cheaper.

 

Seems overdue, but maybe it silly not to add at P/B 1.4 whenever can?

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How can book value not reflect the change in cash and debt as well?

 

I do believe P/B is positively impacted, but only because I believe $1 of PCP/KHE > $1 cash.

 

Again, I did just add to my position, believing BRK's listed P/B of 1.38 really now below the one-year P/B low of 1.37 (though that only the median P/B since the last buy-back announcement).

 

(Probably too early, but I'd too much cash/not enough patience.)

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How can book value not reflect the change in cash and debt as well?

 

I do believe P/B is positively impacted, but only because I believe $1 of PCP/KHE > $1 cash.

 

Again, I did just add to my position, believing BRK's listed P/B of 1.38 really now below the one-year P/B low of 1.37 (though that only the median P/B since the last buy-back announcement).

 

(Probably too early, but I'd too much cash/not enough patience.)

 

Because initially the investment in Heinz was only listed for $12 billion on the balance sheet. Now that it's a publicly traded company again, the change in value will be reflected and marked as such every quarter.

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Perhaps he sees refining as a good business in a sustained low oil price environment. For example, what I heard from the business in Canada, oil prices are 1/2 but gas prices at the pump not that much because the refineries can keep their profit margins - also it's a more value added product than just oil. Seems Berkshire's philosophy with lots of industrial acquisitions is the thought that value-added products/services in the supply chain can command better margins and are overall a superior business than pure commodity plays.

 

 

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OK, but refining is periodically very crappy business. And I don't believe even Buffett can know that we are in sustained low oil price environment.

 

I'd not be surprised if T&T bought this for a short term play.

I'd be surprised if Buffett bought it without some kind of an angle, and I mean more than "refining is gonna be great business now for ... forever".

I'm not completely joking that he might be looking for another stock swap for some part of the business. But this is of course just pure guess.

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Refining business is 53% of Phillips 66 refining earning. They also have chemical and mid-stream operations.

 

Chemical, marketing and specialities are large part remaining earning sources. Midstreams assets are being moved to MLP. They own 50% interest in DCP midstream LLC and 66% ownership in Phillip 66 partners.

 

Refining business is usually commoditized play but given spread between Brent-WTI seems to be driving high margins at US refiners. This advantage can be best exploited by refiner with large sweet crude processing capacity located strategically close to oil production states and consuming markets. I believe this is biggest source of competitive advantage for PSX.

 

Export ban on US crude is driving Brent-WTI spread. If this ban is lifted margins of US refiners are likely to come down but I doubt this would lifted soon. If this is indeed lifted, then midstream assets should include in value which can essentially transform low price oil/gas at well to high value export items.

 

Company seems to be increasing its dividend and buyback for last few years as well as focusing on building new mid stream operations and moving them to MLP.

 

Most of the refiners are following above described strategies with varying degree. PSX must be good at executing them or BRK prefers them due to their size advantage.

 

I need to explore their differentiating factor vs. other refiner. Any thoughts on PSX advantages over other refiners?

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Cant think of anyone with more insight into PSX then someone just doing due diligence on a potential asset swap with them. WEB must have liked what he saw.

 

Jurgis - very low chance T&T bought it due to the size of the position.

 

 

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Jurgis - very low chance T&T bought it due to the size of the position.

 

Right, what I was trying to say is that T&T could have bought it for short term gains, but since Buffett did it (apparently), we can exclude short term gains as a reason.

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  • 2 weeks later...

I hope Buffett is doing some equity purchases in Germany. The DAX is a volatile beast  :D:

 

https://www.comdirect.de/inf/indizes/detail/chart.html?TIME_SPAN=1D&ID_NOTATION=20735#timeSpan=SE&e&

 

Lately I thought real estate agency Engel & Völkers could be a good purchase for Berkshire.

It´s a good and popular brand name in the real estate agency businesses.

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