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Semper Augustus


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There are lots of valuation and details indeed, but does he anywhere evaluate the company the way Buffett stresses more than once in this years letter that he evaluates companies attractiveness - by analyzing the returns on the net tangible assets required for its operations?

 

Buffett writes that it is over 20% for the stock holdings, on a weighted basis. So one simplification could be to assign 20% to the stock holdings and also analyze the operating entities and in the process not forget to deduct excess cash not required to run the operations.

 

Swedish_Compounder,

 

The point of the SAI 2019 Client Letter in that regard is, that Mr. Bloomstran can't - because of Berkshire's reporting in 10-Ks & 10-Qs. You have to read the "If a Tree Falls in the Forest" section starting on p. 80 & ending on p. 84.

 

It's pretty vocal and direct, peaking on p. 81 82 with :

 

... B.S. (and not balance sheet). ...

 

Furthermore :

 

... We discussed last year the quaint notion of whether reporting on what’s now a more than $800 billion in assets conglomerate should be geared to a pair of financially unsophisticated sisters of the Chairman or to professional investors with substantial amounts of their capital and their client’s capital invested in the business and the fiduciary duty that goes with it.

 

- I don't think it is forthcoming for a constructive discussion with the company about its reporting to involve the sisters of the controlling shareholder, Chairman & CEO - but Christ! - it's just entertainment value for free! [ : - ) ]

 

- - - o 0 o - - -

 

Mr. Bloomstran is a Berkshire reporting activist. - And I certainly think he has a point.

 

- - - o 0 o - - -

 

The methodical valuation framework is in the SAI 2015 Client Letter, which one always need for reference, while studying what is now gradually evolving to the Sagas of Icelanders.

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I am just glad these guys weren’t put in charge of writing the Bible. An investors letter with 128 pages! Gheez.

 

lol. -It's great to have a Berkaholic around with a seasonal writing itch/OCD - willing to share his stuff. [ ; - ) ]

 

I absolutely welcome this letter. For one thing, Omaha doesn’t put out future projections. We’re left reading the tea leaves of Buffett’s spoken words, lukewarm buybacks etc. What Semper clearly doesn’t do is “conservatively calculated”. I get that. He’s also talking his book. To their credit, they let you pick the multiple you are comfortable with, when it comes to the 10 year projections. But Semper has us guessing as to just how “conservatively calculated” Buffett is.

 

The single best line in that 112 page report is that the media is postured as if we’re talking about a company on the throes of bankruptcy 😉 Enjoy that highest ever $85 billion of reported earnings, whatever it means!

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Page 123:

 

"Berkshire saw its share price grow in line with intrinsic value in 2019. Given the 47% (or 40% with Kraft Heinz) gain in the stock portfolio and 24% advance in book value per share, you’d think based on the media’s take that the sky finally fell. Chicken Little will miss out on the shares being nearly as undervalued as at any time, not only during our 20-year tenure as shareholders but over the entire 55-year history with current management behind the wheel."

 

Shares most undervalued in history under Buffet? Being undervalued at $5Bil market cap and growing 100X to $500Bil is WAY DIFFERENT than being undervalued at $500Bil. 100X from here would be $50Trillion.

 

This is where size really does hinder return. We may have to get used to Brk being undervalued. Might be par for course at size. Unless it Re-Rates on something other than BV.

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Page 123:

 

"Berkshire saw its share price grow in line with intrinsic value in 2019. Given the 47% (or 40% with Kraft Heinz) gain in the stock portfolio and 24% advance in book value per share, you’d think based on the media’s take that the sky finally fell. Chicken Little will miss out on the shares being nearly as undervalued as at any time, not only during our 20-year tenure as shareholders but over the entire 55-year history with current management behind the wheel."

 

Shares most undervalued in history under Buffet? Being undervalued at $5Bil market cap and growing 100X to $500Bil is WAY DIFFERENT than being undervalued at $500Bil. 100X from here would be $50Trillion.

 

This is where size really does hinder return. We may have to get used to Brk being undervalued. Might be par for course at size. Unless it Re-Rates on something other than BV.

 

 

I enjoy the letter, but Semper's statement that the share are nearly as undervalued as at anytime in history is stupid.  2x BV growing at 20%+ can be much, much cheaper than 1x BV growing at 10% or 0.5 BV growing at 0%.

 

I don't get caught up a lot in what BRK should trade at.  I tend to think that BRK should return 8-12% CAGR over the next 10 years or so (picking a reasonable exit).  If that is attractive to you, then it is a buy.  If not, it is not a buy.  I'm not sure there is much more to it than that.

 

I'd be mildly surprised if BRK trades much above 1.5BV.  I'm not sure who'd be excited about it at 1.7 or 1.8.

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When you say Berkshire should return 8 to 12 percent a year , from what starting price are talking about ? 230 a share? I guess you can buy on corrections and if you do it well can boost this return perhaps as high as 12 to 15. But we would need a big one.

 

I meant from the weekend pricing of about $230 over moderate to longer timeframes.  Of course, just an estimate and endpoints certainly matter.

 

From today's pricing, I am not counting on a big multiple expansion.  I do think that I should be able to exit at least at about the same multiple as today and that multiple expansion may provide a bit of a tailwind.  The multiple may certainly be lower at various times, but my guess is that they'll be relatively brief periods.

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The letter contains many helpful insights and very thorough analysis of BRK. But anyone else has issue with the way he proves that high growth of Fab 5 is "mathematically impossible" as shown by the tables on P63 and P64? We can discuss/debate all day about many fundamental reasons why Fab 5 will or will not grow at high rates for the next decade or two, but high growth of any company will not mathematically impossible. I believe the set up of the tables were mathematically wrong, as you need to account for the growth of Fab 5 in the first grow of the table, i.e. you can not assume S&P as a whole will only grow 4% when Fab 5 (part of S&P) grow, say 20%, for two decades. The right way is to calculate the first row in the table by assuming all companies other than Fab 5 grow 4% and Fab 5 grow at whatever rates you assume.

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  • 2 months later...
  • 3 weeks later...

Tobias Carlisle interview (good podcast on its own).  He just interviewed Mr. Bloomstran.  Good insight. 

 

Listen to Tulip Mania: Chris Bloomstran on Warren Buffett and Berkshire Hathaway with Tobias Carlisle on The Acquirers Podcast from The Acquirers Podcast on Apple Podcasts.

 

https://podcasts.apple.com/us/podcast/the-acquirers-podcast/id1454112457?i=1000474944217

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  • 8 months later...

When will his 2020 letter come out??  This guy has the best view on Berkshire out of anyone IMHO.  Very detailed analysis.  Something like 30% of his fund is in Berkshire currently.  I really like how he triangles valuation: SOTP, DCF, NI etc.  Starting a thread here (now) so we can talk about his section on Berkshire. 

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That is an interesting way to look at:

 

"Pre-tax operating earnings for nine months (excluding the $10.6 billion pre-tax write-down at Precision, which lowers book

value by $10.4 billion – writing-down goodwill is not tax deductible) amounted to $19.4 billion. So,

Berkshire spent over 80% of operating profit repurchasing shares at an average price 15% below where

they opened the year and at 105% of average book value per share. Right, the guy is washed out."

 

Given that most folks (in the media, here and myself included) tend to compare the size of the buyback to the size of cash pile.

The way he is saying is that 4/5 of excess cash was being used for buybacks. This view however implies that Buffet does not use the same mental bucket for buyback vs. other large M&A.

 

Buybacks are "funded" through operating earning.

Any M&As (large or small) are "funded" through the balance sheet.

 

 

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