1.2x P/BV entry point

[Charlie]

Insider buying at Berkshire:

 

https://www.sec.gov/Archives/edgar/data/1067983/000091957416008962/xslF345X03/p6984437.xml

 

 

Cheers!

[JBTC]

Insider buying at Berkshire:

 

https://www.sec.gov/Archives/edgar/data/1067983/000091957416008962/xslF345X03/p6984437.xml

 

 

Cheers!

 

 

Not a lot...

 

 

[valuefinder0525]

http://seekingalpha.com/article/2428045-how-buffett-is-changing-the-future-of-berkshires-float-from-insurance-to-uncle-sam

 

How Buffett Is Changing The Future Of Berkshire's Float - From Insurance To Uncle Sam

 

Great post on SA. Maybe someone already posted it before, but I thought it would be relevant given the current state of the market and price of BRK

[scorpioncapital]

The writer also wrote this nice article about the 1.2x P/BV ratio - https://insuranceinvestor.wordpress.com/2014/08/11/buffetts-buyback-math-why-120-of-book-value-is-the-magic-number-for-berkshire/

 

and this:

https://insuranceinvestor.files.wordpress.com/2014/07/insurance-and-float2.pdf

 

[thefatbaboon]

Thanks for the links scorpion. Interesting. Particularly his Australian co focuses analysis on quirks of insurance float valuation.

 

Although Isnt the author wrong to make people think deferred tax "float" is comparable to insurance float? The utility/rr tax deferral adds pv cash yield on capex projects - that is all. Good Insurance float adds cash yield on opm but with essentially what amounts to minus Capex.

 

Going to have to puzzle on this a bit.

[Guest longinvestor]

Thanks for the links scorpion. Interesting. Particularly his Australian co focuses analysis on quirks of insurance float valuation.

 

Although Isnt the author wrong to make people think deferred tax "float" is comparable to insurance float? The utility/rr tax deferral adds pv cash yield on capex projects - that is all. Good Insurance float adds cash yield on opm but with essentially what amounts to minus Capex.

 

Going to have to puzzle on this a bit.

 

This was one of the questions at the 2015 meeting. "Cash taxes versus reported taxes";

 

WEB said they'd much rather have the insurance float, here were his comments,

 

The $60B in depreciation at BHE helps our customer, not us; It is not free equity to BRK

It can be regulated away

We don't borrow

Not a hidden form of float

Corp tax rates can change, that'll be a big change

Not a big asset at all relative to float

 

In answering another question, he said that the "pedal to the floor" investments in BHE is a competitive advantage versus other utilities. Because BHE is part of BH's tax return, it allows them more capacity to invest. Other utilities don't pay that much tax to avail tax credits.

 

 

[John Hjorth]

Thanks for the links scorpion. Interesting. Particularly his Australian co focuses analysis on quirks of insurance float valuation.

 

Although Isnt the author wrong to make people think deferred tax "float" is comparable to insurance float? The utility/rr tax deferral adds pv cash yield on capex projects - that is all. Good Insurance float adds cash yield on opm but with essentially what amounts to minus Capex.

 

Going to have to puzzle on this a bit.

 

This was one of the questions at the 2015 meeting. "Cash taxes versus reported taxes";

 

WEB said they'd much rather have the insurance float, here were his comments,

 

The $60B in depreciation at BHE helps our customer, not us; It is not free equity to BRK

It can be regulated away

We don't borrow

Not a hidden form of float

Corp tax rates can change, that'll be a big change

Not a big asset at all relative to float

 

In answering another question, he said that the "pedal to the floor" investments in BHE is a competitive advantage versus other utilities. Because BHE is part of BH's tax return, it allows them more capacity to invest. Other utilities don't pay that much tax to avail tax credits.

 

Here I'm not trying to argue with or question what Mr. Buffett said at the 2015 AGM, but it's much more complicated than just that [said the CPA].

[Guest longinvestor]

Thanks for the links scorpion. Interesting. Particularly his Australian co focuses analysis on quirks of insurance float valuation.

 

Although Isnt the author wrong to make people think deferred tax "float" is comparable to insurance float? The utility/rr tax deferral adds pv cash yield on capex projects - that is all. Good Insurance float adds cash yield on opm but with essentially what amounts to minus Capex.

 

Going to have to puzzle on this a bit.

 

This was one of the questions at the 2015 meeting. "Cash taxes versus reported taxes";

 

WEB said they'd much rather have the insurance float, here were his comments,

 

The $60B in depreciation at BHE helps our customer, not us; It is not free equity to BRK

It can be regulated away

We don't borrow

Not a hidden form of float

Corp tax rates can change, that'll be a big change

Not a big asset at all relative to float

 

In answering another question, he said that the "pedal to the floor" investments in BHE is a competitive advantage versus other utilities. Because BHE is part of BH's tax return, it allows them more capacity to invest. Other utilities don't pay that much tax to avail tax credits.

 

Here I'm not trying to argue with or question what Mr. Buffett said at the 2015 AGM, but it's much more complicated than just that [said the CPA].

 

What's complicated? The math or accounting? What WEB said was that they much prefer low or no cost cash in their hands to invest like the insurance float versus some smokey book asset like DTL.

[John Hjorth]

Thanks for the links scorpion. Interesting. Particularly his Australian co focuses analysis on quirks of insurance float valuation.

 

Although Isnt the author wrong to make people think deferred tax "float" is comparable to insurance float? The utility/rr tax deferral adds pv cash yield on capex projects - that is all. Good Insurance float adds cash yield on opm but with essentially what amounts to minus Capex.

 

Going to have to puzzle on this a bit.

 

This was one of the questions at the 2015 meeting. "Cash taxes versus reported taxes";

 

WEB said they'd much rather have the insurance float, here were his comments,

 

The $60B in depreciation at BHE helps our customer, not us; It is not free equity to BRK

It can be regulated away

We don't borrow

Not a hidden form of float

Corp tax rates can change, that'll be a big change

Not a big asset at all relative to float

 

In answering another question, he said that the "pedal to the floor" investments in BHE is a competitive advantage versus other utilities. Because BHE is part of BH's tax return, it allows them more capacity to invest. Other utilities don't pay that much tax to avail tax credits.

 

Here I'm not trying to argue with or question what Mr. Buffett said at the 2015 AGM, but it's much more complicated than just that [said the CPA].

 

What's complicated? The math or accounting? What WEB said was that they much prefer low or no cost cash in their hands to invest like the insurance float versus some smokey book asset like DTL.

 

It seems the tax returns of BRK are complicated - mentioned is several shareholders letters within the last several years - thousands of pages mentioned several times - do you think this is all about the tax returns of BRK HQ?

 

Answer: No! It's all about joint taxation.

[Guest longinvestor]

https://www.youtube.com/watch?v=Jzd-tvJnaS0

 

Buffett on CNBC, it is from a few years ago. Around the 3:00 minute mark, he talks about the rationale behind the buy back(1.2x or other). 

[Palantir]

So BVPS is now $102.55?

[zarley]

So BVPS is now $102.55?

 

From the consolidated statements:

BRK shareholder Equity = $255,550

A Share Equivalents = 1,643,183

BV per A share = $255,550 / 1.643183 = $155,521

BV per B share = $155,521 / 1,500 = $103.68

 

Is there something you deduct from the shareholder equity line?

 

 

----

Edited to clarify share count and to show math on BV per A share

[Palantir]

^Yep, you are right.

[scorpioncapital]

Just a quick question - are some of the positions like IBM marked to market? I know that Berkshire's investment in insurance subs are allowed to value at cost if they believe there is no permanent impairment? I thought this was a push and pull with regulators whether and when they have to mark something below cost.

 

[racemize]

Just a quick question - are some of the positions like IBM marked to market? I know that Berkshire's investment in insurance subs are allowed to value at cost if they believe there is no permanent impairment? I thought this was a push and pull with regulators whether and when they have to mark something below cost.

 

I believe you are referring to whether or not there is an earnings impairment.  The book value should be updated mark-to-market.

[Palantir]

All this talk about float, deferred taxes etc is useless. You wont get any more than 1.5x-1.6xBook for Berkshire.

 

Which people are interested in buying shares of Berkshire? - Value investors like the people on this board will buy Berkshire.

How much will these people pay for the shares? - They will pay a little bit more than the share buyback price.

 

When Buffett set share buybacks to 1.2xBook. He put a floor under the stock but HE ALSO PUT A CELING.

 

How many of you will pay more than 1.5xBook for Berkshire when the buybacks are at 1.2x?  - NONE.

 

How will you get more than 1.5x-1.6xBook? - It will happen when Warren Buffett increases the buyback price to 1.3x Book.

 

Very fair point....

[valueinvesting101]

Buyback were introduced at 1.1 times book value and then increased to 1.2 times book value. For reasons discussed in the annual report and Berkshire's preference for acquiring whole businesses compared to market securities, it is only matter of time when 1.2 is increased to 1.25 or 1.3 or higher.

 

 

[Guest longinvestor]

If you stop and think about this, Berkshire seems to have nearly perfect control over the market pricing mechanism. When they announced the 1.2x, the stock promptly moved up and stayed there. Waiting for the next move up. The real issue that folks are discussing is the dissatisfaction with the current market price, as a shareholder, I'm hoping to see the price move up to what it's worth, or actually sell for more than it's worth. Many here would like for the company to raise the floor now,  Come on Warren, what are you waiting for?.  I'm sure many here understand that this is not how Buffett/Munger think. Refer to the owner's manual. They'd rather have the price be fairly or under valued as a way to reward the long term holder. This is a frickin hard mindset to develop, besides the monumental patience needed and realize that they really mean what they have in the owner's manual.

[Palantir]

How on earth is a long term investor rewarded by keeping the stock undervalued?

[MarioP]

How on earth is a long term investor rewarded by keeping the stock undervalued?

 

Because you don't overpay when you buy at a discount to IV and you hope the discount will be the same at the sell. Your return is the gain in IV during your holding period. No room for profiting from non informed investor.

[thepupil]

How on earth is a long term investor rewarded by keeping the stock undervalued?

 

For the exact verbiage, see the owner's manual (like longinvestor pointed out). They'd prefer it trade close to IV, which may explain why they've been less and less subtle about pointing out why current price is below their estimate of IV.

 

To the extent possible, we would like each Berkshire shareholder to record a gain or loss in market value during his period of

ownership that is proportional to the gain or loss in per-share intrinsic value recorded by the company during that holding

period. For this to come about, the relationship between the intrinsic value and the market price of a Berkshire share would

need to remain constant, and by our preferences at 1-to-1. As that implies, we would rather see Berkshire’s stock price at a fair

level than a high level. Obviously, Charlie and I can’t control Berkshire’s price. But by our policies and communications, we

can encourage informed, rational behavior by owners that, in turn, will tend to produce a stock price that is also rational. Our

it’s-as-bad-to-be-overvalued-as-to-be-undervalued approach may disappoint some shareholders. We believe, however, that it

affords Berkshire the best prospect of attracting long-term investors who seek to profit from the progress of the company rather

than from the investment mistakes of their partners.

[Guest longinvestor]

How on earth is a long term investor rewarded by keeping the stock undervalued?

 

Because you don't overpay when you buy at a discount to IV and you hope the discount will be the same at the sell. Your return is the gain in IV during your holding period. No room for profiting from non informed investor.

 

Plus, prolonged discounts (like we are seeing now) weeds out, well, the weeds. The march of price towards value will allow weeds to leave, more grass to grow and future turf (2.0xBV) will keep new weeds out. 

[scorpioncapital]

Just because management says a stock is undervalued does not mean they are sure. Obviously it's a two edged sword. If they are wrong, listening to their words can be expensive. Not saying this is the case at Berkshire - or rather, the risk is less, but just to people who feel talking up or down stocks is mathematically precise.

[Palantir]

 

For the exact verbiage, see the owner's manual (like longinvestor pointed out). They'd prefer it trade close to IV, which may explain why they've been less and less subtle about pointing out why current price is below their estimate of IV.

 

To the extent possible, we would like each Berkshire shareholder to record a gain or loss in market value during his period of

ownership that is proportional to the gain or loss in per-share intrinsic value recorded by the company during that holding

period. For this to come about, the relationship between the intrinsic value and the market price of a Berkshire share would

need to remain constant, and by our preferences at 1-to-1. As that implies, we would rather see Berkshire’s stock price at a fair

level than a high level. Obviously, Charlie and I can’t control Berkshire’s price. But by our policies and communications, we

can encourage informed, rational behavior by owners that, in turn, will tend to produce a stock price that is also rational. Our

it’s-as-bad-to-be-overvalued-as-to-be-undervalued approach may disappoint some shareholders. We believe, however, that it

affords Berkshire the best prospect of attracting long-term investors who seek to profit from the progress of the company rather

than from the investment mistakes of their partners.

 

Those passages suggest that he wants it to be fairly valued (logical), not undervalued.

 

Because you don't overpay when you buy at a discount to IV and you hope the discount will be the same at the sell. Your return is the gain in IV during your holding period. No room for profiting from non informed investor.

 

Actually, I would hope that the discount will be a lot smaller if not at a premium at the sell.

 

[james22]

How on earth is a long term investor rewarded by keeping the stock undervalued?

 

I'd very much like it to remain undervalued until the day I retire, please.