berkshire - cheap?

[shalab]

Book value at end of Q1 - $124 (including KHC stake of 10B  not counted in book value - actual value is close to 15 B, -5B for tax allowance)

Book value at end of Q2 - $129  SP500 perf + ~1.5% => 4.5% gain from Q1. If book value is $128, P/B is 1.32, if book value is 129, P/B is 1.31.

 

For comparison - average P/B for SP500 company is 3.1.

The famous FAAMG stocks look like this:

 

AMZN => 27

FB => 7.2

GOOG => 5

AAPL => 5.9

MSFT => 7.7

 

 

[rb]

I don't think it makes sense to even look at P/B of any of the techs. I mean.. what's the book value of Google's search algorithm?

[crastogi]

Book value at end of Q1 - $124 (including KHC stake of 10B  not counted in book value - actual value is close to 15 B, -5B for tax allowance)

Book value at end of Q2 - $129  SP500 perf + ~1.5% => 4.5% gain from Q1. If book value is $128, P/B is 1.32, if book value is 129, P/B is 1.31.

 

For comparison - average P/B for SP500 company is 3.1.

The famous FAAMG stocks look like this:

 

AMZN => 27

FB => 7.2

GOOG => 5

AAPL => 5.9

MSFT => 7.7

 

Well, Berkshire's P/B will always be lower because they are in different kind of businesses as the list above.  The returns on capital employed are much higher for companies like Google, as they have fewer hard assets. 

 

Buffett is looking to soak up all the capital Berkshire is creating by deploying in businesses which will provide a predictable return, even if the returns are not spectacular. 

 

 

[scorpioncapital]

cheap? verdict is out. Expensive? Doesn't seem so. You could do this - take all of their 4 major categories, financial products, insurance, manufacturing & retail, energy and calculate the sectory P/BV. Then weight it according to the size of that business to Berkshire. Then you can see if it's below that.

[boilermaker75]

Buffett is a buyer at a P/B of 1.2. So does that mean he thinks at P/B = 1.2  buying BRK is like buying a dollar for fifty cents? That would mean at current prices you are getting a dollars worth of BRK for $0.55.

[Valuebo]

Buffett is a buyer at a P/B of 1.2. So does that mean he thinks at P/B = 1.2  buying BRK is like buying a dollar for fifty cents? That would mean at current prices you are getting a dollars worth of BRK for $0.55.

 

No, he doesn't think that.

 

What happened with this forum? Or is it mainly this thread? Where we you guys when berkshire was trading at $70 and it's BV had much more margin of safety?

[Jurgis]

Where we you guys when berkshire was trading at $70 and it's BV had much more margin of safety?

 

To be fair, people may have been buying BRK at $70 whenever that was. And people are looking for investments now when BRK is at $16X and may still be relatively attractive compared to other opportunities in the market. Sure it's not gonna return 20% or probably even 15% a year. But it could return annual 10% and outperform the market (and a lot of other ideas).

[Valuebo]

Where we you guys when berkshire was trading at $70 and it's BV had much more margin of safety?

 

To be fair, people may have been buying BRK at $70 whenever that was. And people are looking for investments now when BRK is at $16X and may still be relatively attractive compared to other opportunities in the market. Sure it's not gonna return 20% or probably even 15% a year. But it could return annual 10% and outperform the market (and a lot of other ideas).

 

Yes, of course. I just meant that people didn't even discuss the much bigger margin of safety back then except for a few members. Now they are starting to compare it versus BV of tech companies and making silly assumptions concerning what Buffett thinks BRK is worth.

[Jurgis]

Where we you guys when berkshire was trading at $70 and it's BV had much more margin of safety?

 

To be fair, people may have been buying BRK at $70 whenever that was. And people are looking for investments now when BRK is at $16X and may still be relatively attractive compared to other opportunities in the market. Sure it's not gonna return 20% or probably even 15% a year. But it could return annual 10% and outperform the market (and a lot of other ideas).

 

Yes, of course. I just meant that people didn't even discuss the much bigger margin of safety back then except for a few members. Now they are starting to compare it versus BV of tech companies and making silly assumptions concerning what Buffett thinks BRK is worth.

 

I see. Yeah, comparing BV to tech companies is not very productive.

[Liberty]

Valuing BRK on book makes less and less sense as time goes on. It used to be mostly insurance cos with a portfolio of publicly traded stocks and a few operating businesses on top, but now it's also bunch of very large operating businesses of various kinds. The two-column valuation method makes most sense, IMO.

 

I certainly wouldn't compare the book value of BRK to GOOG or whatever...

[cubsfan]

Over long periods of time, it has worked extremely well.

 

That said - it is a "blunt tool" - and I agree the 2 column method is the best.

[shalab]

This is a good post, p/b is a metric like any other metric. If you look at the debt (debt/equity), another picture will emerge. Now, many techs have surged because of p/e expansion,  not necessarily because they increased earnings or book value etc. In some cases, the debt has also increased tremendously.

 

I asked in another thread when people think the tech stocks will rise another 50% from current valuations. In Berkshires case, everything else being equal and without a major recession, it will be five years or less. It is difficult to estimate this for the techs.

 

 

 

 

 

Valuing BRK on book makes less and less sense as time goes on. It used to be mostly insurance cos with a portfolio of publicly traded stocks and a few operating businesses on top, but now it's also bunch of very large operating businesses of various kinds. The two-column valuation method makes most sense, IMO.

 

I certainly wouldn't compare the book value of BRK to GOOG or whatever...

[boilermaker75]

Buffett is a buyer at a P/B of 1.2. So does that mean he thinks at P/B = 1.2  buying BRK is like buying a dollar for fifty cents? That would mean at current prices you are getting a dollars worth of BRK for $0.55.

 

No, he doesn't think that.

 

What happened with this forum? Or is it mainly this thread? Where we you guys when berkshire was trading at $70 and it's BV had much more margin of safety?

 

 

I was buying. Actually in 2009 I got some in the $40s. From some time in 2008 to 2009 I positioned 1/3 of my portfolio in BRK.

 

Edit: So maybe at P/B= 1.2, you are getting $1 of BRK for $0.70, or whatever you think. My main point is that if Buffett is still buying at P/B=1.2, then BRK will probably never get there and I am buying at P/B = 1.3. Actually I am writing puts whenever BRK is at P/B =1.3, which I have been continuously doing the last 9 years, so I get a little more margin of safety if put to.

[boilermaker75]

Valuing BRK on book makes less and less sense as time goes on. It used to be mostly insurance cos with a portfolio of publicly traded stocks and a few operating businesses on top, but now it's also bunch of very large operating businesses of various kinds. The two-column valuation method makes most sense, IMO.

 

I certainly wouldn't compare the book value of BRK to GOOG or whatever...

 

Liberty,

 

I agree. But if Buffett is still using P/B = 1.2 as a buyback point then it is useful to me.

 

Unless that has changed and I missed it?

 

Boiler

[John Hjorth]

Please read the topics in this forum about the 1.2 x BV share buy back treshold for BRK, Boilermaker75,

 

It has been discussed in all details and depth on here. It's obvious, based on your posts here about it - stated with all due respect - that you have not done that.

[boilermaker75]

Please read the topics in this forum about the 1.2 x BV share buy back treshold for BRK, Boilermaker75,

 

It has been discussed in all details and depth on here. It's obvious, based on your posts here about it - stated with all due respect - that you have not done that.

 

John,

 

Are you referring to this thread?

 

http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/1-2x-pbv-entry-point/360/

 

I have read it, but it has been a while. So I am sure I am forgetting something I read. (I read most of what is posted at CoBF, but I am sure I forget a lot!)

 

Just glancing at the last couple of pages of posts from that thread I am not sure what I am missing?

 

Maybe I am just not understanding what I have read?

 

Boiler

[John Hjorth]

I apologize for a non-constructive reply here, Boilermaker75.

 

If you read the December 12, 2012 Press Relase from Berkshire, it's all about the word "may".

 

"may" here is not the same as "will", it's not in any way an automatic mechanism, and Mr. Buffett stated at the last AGM, that Berkshire would not "prep" its own stock in that situation.

 

I think some fellow board members has called it a "soft floor" under the stock.

 

It all depends on the given capital allocation alternatives in that specific and particular situation.

[SlowAppreciation]

Valuing BRK on book makes less and less sense as time goes on. It used to be mostly insurance cos with a portfolio of publicly traded stocks and a few operating businesses on top, but now it's also bunch of very large operating businesses of various kinds. The two-column valuation method makes most sense, IMO.

 

I certainly wouldn't compare the book value of BRK to GOOG or whatever...

 

Q: Do you think the equity positions in Berkshire will do better for Berkshire going forward or the wholly-owned businesses?

 

MUNGER: Well I think that wholly owned businesses will because we won't be paying any taxes on selling and I think they’ll continue to grow and I think they'll do better. I think the wholly owned businesses of Berkshire—or the the 80% owned or what have you—are on average, better than the S&P. So I think we'll do better in that part than the S&P. And I don't think our stocks located in a corporation subject to taxation will do enough better than the S&P when paying the taxes. But if we're buying the stocks with the float in some insurance company, of course it changes.

 

But no, I would say that of course, if you buy Berkshire, you should not be buying it on the strength of its little insurance portfolio.

 

People who buy Berkshire—when you bought Berkshire back 30 or 40 years ago you were getting a bunch of marketable securities that did this, count em up and the businesses were free. Of course those people made a lot of money. We outperformed the market by miles in those days and the businesses did well. And now, we've got businesses that are averaging out doing well and our marketable securities are a small percentage of our cap.

 

There were years when we had more marketable securities per share than our book value per share. Now, it’s quite different. And of course the market at its present modal—it’s a different world. The one thing about Berkshire that's interesting is we do get some opportunities that other people don't get. If you're 3G and want a partner for your next deal, who the hell are they going to come to? They know we're a good partner, so we see stuff other people don't see. That helps.

 

You get $106/share in Investments/cash, and ~$9/share in earnings. So at $170/share, you're paying around 7x Op earnings per share for a very diverse group of businesses, earning stable, predictable earnings, which have been selected by the greatest capital allocator of all time. The group probably earns 15-20% on capital, and while growth may be limited, I don't expect it to lag the S&P.

 

So as others have said, I think ~11-12% annual return from today's price is a reasonable expectation. This is why I hold Berkshire in my 401k rather than an S&P index fund.

[John Hjorth]

Valuing BRK on book makes less and less sense as time goes on. It used to be mostly insurance cos with a portfolio of publicly traded stocks and a few operating businesses on top, but now it's also bunch of very large operating businesses of various kinds. The two-column valuation method makes most sense, IMO.

 

I certainly wouldn't compare the book value of BRK to GOOG or whatever...

 

Q: Do you think the equity positions in Berkshire will do better for Berkshire going forward or the wholly-owned businesses?

 

MUNGER: Well I think that wholly owned businesses will because we won't be paying any taxes on selling and I think they’ll continue to grow and I think they'll do better. I think the wholly owned businesses of Berkshire—or the the 80% owned or what have you—are on average, better than the S&P. So I think we'll do better in that part than the S&P. And I don't think our stocks located in a corporation subject to taxation will do enough better than the S&P when paying the taxes. But if we're buying the stocks with the float in some insurance company, of course it changes.

 

But no, I would say that of course, if you buy Berkshire, you should not be buying it on the strength of its little insurance portfolio.

 

People who buy Berkshire—when you bought Berkshire back 30 or 40 years ago you were getting a bunch of marketable securities that did this, count em up and the businesses were free. Of course those people made a lot of money. We outperformed the market by miles in those days and the businesses did well. And now, we've got businesses that are averaging out doing well and our marketable securities are a small percentage of our cap.

 

There were years when we had more marketable securities per share than our book value per share. Now, it’s quite different. And of course the market at its present modal—it’s a different world. The one thing about Berkshire that's interesting is we do get some opportunities that other people don't get. If you're 3G and want a partner for your next deal, who the hell are they going to come to? They know we're a good partner, so we see stuff other people don't see. That helps.

 

You get $106/share in Investments/cash, and ~$9/share in earnings. So at $170/share, you're paying around 7x Op earnings per share for a very diverse group of businesses, earning stable, predictable earnings, which have been selected by the greatest capital allocator of all time. The group probably earns 15-20% on capital, and while growth may be limited, I don't expect it to lag the S&P.

 

So as others have said, I think ~11-12% annual return from today's price is a reasonable expectation. This is why I hold Berkshire in my 401k rather than an S&P index fund.

 

This. This piece by SlowAppreciation, combined with the two Semper Augustus Client Letters about intrinsic value of BRK was the documents that gave me conviction to continue to add to BRK going forward.

 

Very much appreciated, SlowAppreciation, thank you for sharing. Damn good work. Please give your GF a gentle hug from me, it appears from your blog, that she is giving you a hand on your work.

[Paarslaars]

Where we you guys when berkshire was trading at $70 and it's BV had much more margin of safety?

 

I was taking a 35% position :)

[racemize]

Where we you guys when berkshire was trading at $70 and it's BV had much more margin of safety?

 

I was taking a 35% position :)

 

I sold virtually every nonfinancial stock I had and put it in Berkshire.  I wish I'd levered it.

[boilermaker75]

I apologize for a non-constructive reply here, Boilermaker75.

 

If you read the December 12, 2012 Press Relase from Berkshire, it's all about the word "may".

 

"may" here is not the same as "will", it's not in any way an automatic mechanism, and Mr. Buffett stated at the last AGM, that Berkshire would not "prep" its own stock in that situation.

 

I think some fellow board members has called it a "soft floor" under the stock.

 

It all depends on the given capital allocation alternatives in that specific and particular situation.

 

John,

 

Thanks for the clarification. I did not catch the "may."

 

Thanks,

 

Mike

[rb]

This. This piece by SlowAppreciation, combined with the two Semper Augustus Client Letters about intrinsic value of BRK was the documents that gave me conviction to continue to add to BRK going forward.

 

Very much appreciated, SlowAppreciation, thank you for sharing. Damn good work. Please give your GF a gentle hug from me, it appears from your blog, that she is giving you a hand on your work.

Just read slow appreciation's piece. It's pretty well written. One big flaw is that in the valuation it ignores the float. While the value of that liability is less then book, it is definitely far from zero.

[cubsfan]

Where we you guys when berkshire was trading at $70 and it's BV had much more margin of safety?

 

I was taking a 35% position :)

 

I sold virtually every nonfinancial stock I had and put it in Berkshire.  I wish I'd levered it.

 

I'm at 40%+ on BRK and very comfortable with it.

 

 

[SlowAppreciation]

Valuing BRK on book makes less and less sense as time goes on. It used to be mostly insurance cos with a portfolio of publicly traded stocks and a few operating businesses on top, but now it's also bunch of very large operating businesses of various kinds. The two-column valuation method makes most sense, IMO.

 

I certainly wouldn't compare the book value of BRK to GOOG or whatever...

 

Q: Do you think the equity positions in Berkshire will do better for Berkshire going forward or the wholly-owned businesses?

 

MUNGER: Well I think that wholly owned businesses will because we won't be paying any taxes on selling and I think they’ll continue to grow and I think they'll do better. I think the wholly owned businesses of Berkshire—or the the 80% owned or what have you—are on average, better than the S&P. So I think we'll do better in that part than the S&P. And I don't think our stocks located in a corporation subject to taxation will do enough better than the S&P when paying the taxes. But if we're buying the stocks with the float in some insurance company, of course it changes.

 

But no, I would say that of course, if you buy Berkshire, you should not be buying it on the strength of its little insurance portfolio.

 

People who buy Berkshire—when you bought Berkshire back 30 or 40 years ago you were getting a bunch of marketable securities that did this, count em up and the businesses were free. Of course those people made a lot of money. We outperformed the market by miles in those days and the businesses did well. And now, we've got businesses that are averaging out doing well and our marketable securities are a small percentage of our cap.

 

There were years when we had more marketable securities per share than our book value per share. Now, it’s quite different. And of course the market at its present modal—it’s a different world. The one thing about Berkshire that's interesting is we do get some opportunities that other people don't get. If you're 3G and want a partner for your next deal, who the hell are they going to come to? They know we're a good partner, so we see stuff other people don't see. That helps.

 

You get $106/share in Investments/cash, and ~$9/share in earnings. So at $170/share, you're paying around 7x Op earnings per share for a very diverse group of businesses, earning stable, predictable earnings, which have been selected by the greatest capital allocator of all time. The group probably earns 15-20% on capital, and while growth may be limited, I don't expect it to lag the S&P.

 

So as others have said, I think ~11-12% annual return from today's price is a reasonable expectation. This is why I hold Berkshire in my 401k rather than an S&P index fund.

 

This. This piece by SlowAppreciation, combined with the two Semper Augustus Client Letters about intrinsic value of BRK was the documents that gave me conviction to continue to add to BRK going forward.

 

Very much appreciated, SlowAppreciation, thank you for sharing. Damn good work. Please give your GF a gentle hug from me, it appears from your blog, that she is giving you a hand on your work.

 

Thank you, and hug given.