Sorry Warren! Another year of dragging ass...

[John Hjorth]

I own a little Berkshire and have obviously learned a bit from him, but to the extent Morningstar is correct...It seems like he has underperformed the market on 3, 5, and 10 year period.  Over a 15 year period he has outperformed by 36 bps.  Does this just seem subpar to anyone other than me?  I get he's a great investor, but the fact that he HAS made billions and billions doesn't necessitate that he'll beat the market moving forward. 

 

Am I missing something here folks?

What you might be missing is if you believe that Berkshire is undervalued relative to today's market.

 

I believe it is - and that is what is important. From this point, what matters is the forward return possibilities of Berkshire vs, say, the S&P 500.

 

I agree with cubsfan here, AZCactus,

 

Some numbers for the last ten years:

 

Year - Cash YE [incl. T-Bills] - Equity YE:

 

2007 -  44,329 - 120,733

2008 -  25,539 - 109,267

2009 -  30,558 - 135,785

2010 -  38,227 - 162,934

2011 -  37,299 - 164,850

2012 -  46,992 - 187,647

2013 -  48,186 - 221,890

2014 -  60,033 - 240,170

2015 -  67,161 - 255,550

2016 -  86,370 - 282,070

2017 - 115,954 - 348,296 [2017 tax cut effect [net] +28,200]

 

Average shares outstanding YE2007 : 1,545,751 [A eq.]

Average shares outstanding YE2017 : 1,644,615 [A eq.]

 

I will call the equity progress outstanding, based on cash levels [including T-Bills] held during that period, even taking the tax cut effect into consideration.

 

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Christopher Bloomstran from Semper Augustus Investments Group LLC has estimated of YE2017 intrisic value of Berskhire at about 250 for the B-share in February 2018. [There are three client letters from him during the last three years partly about valuation of Berkshire, that are worth your time and attention.]

 

Based on this valuation alone, getting Berkshire today around 200 for the B provides a discount to intrinsic value of 20 percent. We have seen other fellow board members buying recently around 190, making it even better. It's not a steal, but to me it may be considered a good deal in this market environment, ref. cubsfan's post above.

 

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Furthermore, personally, I think Mr. Bloomstran's Berkshire valuation is conservative - not extremely conservative, though - but to some extent.

 

First, it's about valuation of insurance float. Our fellow board member rb did a plendid post about it last year and did some numbers gymnastics, thereby sharing his thoughts about it.

 

You find rb's post here.

 

Please take a close look at the formula provided by rb, especially with regard to the Berkshire tax rate, that is supposed to be materially lower going forward. So the discount you have to apply to the Berkshire insurance float will go up. Just try mentally to put this at about 10 percent of book value.

 

[The tax rate reported by Berkshire for 2018Q1 is to me still a mystery, though, also ref. a comment by globalfinancepartners in the General News topic.]

 

Second, one could argue to put a discount to deferred taxes, too, that at YE2017 are stated at USD 56,182 M, of which USD 24,251 M are related to unrealized investment gains on the listed stock portfolio, and USD 26,651 M are related to property, plant & equipment. I have no numbers gymnastics to refer to here - but it's pretty evident at least to me, that a material part of these deferred taxes wont surface as actual taxes payable any time soon. The only risk related to valuation of this liabily is political, which turned out to be a huge upside in 2017.

 

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So, without taking valuation of deferred taxes into consideration, and applying Mr. Bloomstran's valutions, and rb's valuation of Berkshire insurance float, we have seen fellow board members recently pick up Berkshire stock at about 190, meaning buying at a discount to intrisic value of [100 - [190 / [[250 + [10% of 250]] * 100%]] ~ 31%. [My emphasis: <-!]

 

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Third, there are accounting conventions effects on Berkshire intangibles. The income statements and the balance sheets does not represent true economic earnings and values because of those. ... No, I won't go there, because I can't quantify it with any degree of precision ...

[voyager]

I own a little Berkshire and have obviously learned a bit from him, but to the extent Morningstar is correct...It seems like he has underperformed the market on 3, 5, and 10 year period.  Over a 15 year period he has outperformed by 36 bps.  Does this just seem subpar to anyone other than me?  I get he's a great investor, but the fact that he HAS made billions and billions doesn't necessitate that he'll beat the market moving forward. 

 

Am I missing something here folks?

 

I suspect that what we might be missing here is that Warren has other priorities than beating the market. 

 

In order to deploy large amounts of capital in private businesses, Berkshire has to continue to have its pristine reputation.  Warren has stated many times that the likes of Coke, Amex, and Wells Fargo are permanent holdings.  If he were to sell them, that may impact his reputation.  Kraft Heinz hasn't done too well, and Warren won't sell that because of the potential damage it could do to his relationship with 3G.  That's almost half of Berkshire's portfolio that is off the table to be sold.

[Liberty]

At this size and without a huge engine of organic growth (like FB/AMZN/GOOG), beating the market will be hard, but I think risk is also much lower than with the market, so keeping up with the market while providing better sleep at night looks pretty much like a win on a risk-adjusted basis.

[Valuebo]

At this size and without a huge engine of organic growth (like FB/AMZN/GOOG), beating the market will be hard, but I think risk is also much lower than with the market, so keeping up with the market while providing better sleep at night looks pretty much like a win on a risk-adjusted basis.

 

Correct. I wouldn't sleep well putting 100% of my assets in the S&P500 currently. Would have no issues with BRK.

[John Hjorth]

Well said, Liberty & tom,

 

I know for a fact [expressed directly in writing], that this company is just too boring for some fellow board members, while others, even very experienced investors here on CoBF like to have their a**es dragged by this behemoth. [ : - ) ]