Berkshire return over the next 10 years

[Partner24]

It is anonymous, so don't be affraid to be wrong  ;)

[oldye]

If you pay half of intrinsic value and intrinsic value grows by 10% a year I think 20% a year is kinda easy.

[benhacker]

If you pay half of intrinsic value and intrinsic value grows by 10% a year I think 20% a year is kinda easy.

 

Oldye, do the math, you return sub 20% if you assume 'fair value' at the end of 10 years.

 

IV today, $1.

Price today, $0.50.

 

IV 10 years --> $10 * (1+.1)^10 = $2.59

 

$0.50 compounding for 10 years to $2.59 is a 18-19% annually.

 

Correct me if I'm wrong.  You will potentially make much more if the gap closes quickly of course.

[oldye]

 

I'm guilty of being lazy(wrong) with the math because I assume I'm not buying at at exactly half of intrinsic and it won't grow at exactly 10%. 

 

[StubbleJumper]

Yeah, but you're roughly right!

[Crip1]

I'd rather be approsimately right than precisely wrong.

[Guest ericopoly]

Guys, it totally depends on how long prices are silly.

 

11% of Wells Fargo traded yesterday between $11 and $9!  There is enough volume in there for Berkshire to double down... he can't get all the volume, but in a few days of that kind of thing he could.

 

So there alone you're adding maybe $10b of IV, booked on purchase.  If Berkshire does that twice a year over the next few years, IV growth is well above 10%.

 

 

[sfwusc]

Guys, it totally depends on how long prices are silly.

 

11% of Wells Fargo traded yesterday between $11 and $9!  There is enough volume in there for Berkshire to double down... he can't get all the volume, but in a few days of that kind of thing he could.

 

So there alone you're adding maybe $10b of IV, booked on purchase.  If Berkshire does that twice a year over the next few years, IV growth is well above 10%.

 

 

What if WFC become a zero due to nationalization?  What does that do for IV?

 

-SFWUSC

[Guest kawikaho]

Guys, it totally depends on how long prices are silly.

 

11% of Wells Fargo traded yesterday between $11 and $9!  There is enough volume in there for Berkshire to double down... he can't get all the volume, but in a few days of that kind of thing he could.

 

So there alone you're adding maybe $10b of IV, booked on purchase.  If Berkshire does that twice a year over the next few years, IV growth is well above 10%.

 

 

What if WFC become a zero due to nationalization?   What does that do for IV?

 

-SFWUSC

[Guest ericopoly]

What if WFC become a zero due to nationalization?   What does that do for IV?

 

Now you are getting at the problem with IV.  You don't know the future. 

 

What if IV is really below far below the current share price?  You don't know that evil scientists haven't created a superbug that will wipe out 80% of the people on the planet.

 

Reasonable scenarios are all you have to work with.

 

I found this article interesting, with regards to WFC:

 

http://news.morningstar.com/articlenet/article.aspx?id=280935

 

[scorpioncapital]

I believe if WFC becomes a zero, considering dividends received by Berkshire over the years of ownership, the impact per 'B' share is less than $100. Now that to me sounds like a solidly built company.

[sfwusc]

What if WFC become a zero due to nationalization?   What does that do for IV?

 

Now you are getting at the problem with IV.  You don't know the future. 

 

What if IV is really below far below the current share price?  You don't know that evil scientists haven't created a superbug that will wipe out 80% of the people on the planet.

 

Reasonable scenarios are all you have to work with.

 

I found this article interesting, with regards to WFC:

 

http://news.morningstar.com/articlenet/article.aspx?id=280935

 

 

 

I agree, but the chance of WFC being a zero is real.  Not saying it will be, but the chance is there.  So just assuming it is going to be a homerun is not smart. It might be, but the future isn't known on that either.

 

I think the hit to Berkshire for WFC has already been about $100 a share since 9/30/08...there isn't that much left damage left to do at $10 a share.  I think the total position isn't worth, but about $65 a share now.    All this assuming we still own 290,000,000 shares.

 

-SFWUSC

[el_chieh]

At this point, using Buffett's 2-column methodology, BRK is trading as it's whole equity portfolio is zero (assuming 12x p/e q3'08 depressed annualized operating earnings).

 

 

[benhacker]

FYI, that Morningstar "analysis" was ripped off.  They stole someone's rough spreadsheet analysis from another board.

 

I have no affiliation with M* or the poster who was ripped off, but I thought the fact that an M* analyst would blatanty steal from a source on the Internet without citation or a simple request was deplorable... so I'm spreading the word.

 

He also stole some data typos with it, so it's 100% clear it's a rip off (to me).

 

Just an FYI... in general, I don't disagree with the conclusion... just the method... the guy should be fired tomorrow.

 

Ben

[wabuffo]

I would echo Ben's assertion that the Morningstar "burn-down" analysis was plagarized from another public board.  Its shameful that the Morningstar "analyst" didn't acknowledge his source.  Very un-cool.

 

wabuffo

[ExpectedValue]

can anyone post a link to the original WFC analysis?

[Eric50]

Here is another point of view of WFC. Quite bullish this time.

 

<http://www.bankstocks.com/ArticleViewer.aspx?ArticleID=5683&ArticleTypeID=2>

 

 

[Partner24]

After over 60 votes, the mean vote goes to 14% CAGR return over the next 10 years.

 

Cheers!