berkshire - cheap?

[Dynamic]

I have found value in having an estimate of the quarterly numbers in the past. Frequently there is a 5 week window or even 7-8 weeks in February from the quarter end date until the results are published. Having an idea of the likely soft price floor that will arrive in a few weeks can really help if you want to take a high conviction bet and get a feel for the likely downside once the numbers are released, within the normal range of market price fluctuations (which could all go out of the window in the event of a crisis, of course, but is a useful gauge of short-term risk at other times).

 

It really came good in Jan-Feb 2016 in particular but I also find it useful today in gauging when the asymmetry is strongly in my favour. Buying Berkshire at reasonably cheap prices can both improve the preservation of your capital so that it is ready to be deployed elsewhere if you find high conviction value, and help your IRR exceed the growth in Intrinsic/Book Value by a small but worthwhile amount over time.

 

 

 

Buffett is right to point out that the days of 19-20% annualized returns are gone. We don't want shareholders to expect those sort of numbers and be disappointed. Likewise, with low interest rates and low inflation, fairly certain 9-11% annualized returns for a decade or so are still attractive.

 

I think that from now on (and perhaps in the last 10-15 years too) there's a lot less opportunity for Berkshire (after tax) to greatly outperform the markets (before tax) with its stock picks in normal markets, and just keeping pace in normal times is still good.

 

Nonetheless occasional bargains will come along. Apple was a good one, and the initial investment in the $90-$100 range in 2016 was a case of a very large company with hugely loyal customers, deeply undervalued, presumably on fear of a continual decline, offering an earnings yield of 9-11% (depending whether you back out the cash or not) and with a strong buyback program picking up and retiring cheap shares and paying a decent dividend too.

 

However, even now Berkshire holds 5% of Apple and it's double the price, those shares only represent about 10% of BRK.B's value, so the ~40% IRR on the revaluation of that stock in 2 years provides a much smaller look-through increase in BRK.B's value, of course, though still very worthwhile and with a decent runway of per-share compounding likely to lie ahead. Even the poorer picks like IBM have not been money-losing disasters, just trailing the S&P500 a bit with mundane price action.

 

In these relatively fully valued markets we see at the moment, the amount of cash awaiting investment in securities or acquisitions tends to reasonably well track the insurance float most of the time, so the cash isn't a huge drag as it's other people's money we're holding onto for now and the insurance combined ratio usually averages out in our favour.

 

In a bear market, I imagine the opportunities and the aversion to risking the float in chasing modest returns will allow outperformance and investment of much of the float (keeping at least $20-30bn in cash on hand to cover the largest correlated insurance losses) to really take advantage of the float's long-term low-risk non-callable leverage when the downside is most limited and the upside is most lucrative. I think that's where BRK.B will lay the foundations for another moderate surge ahead of the S&P500 Total Return Index (perhaps a 20-40% relative gain, which might annualize to around 1-3% advantage over the index in 10-15 years).

 

I also see Berkshire's discipline to only increase premiums written and thus float when pricing is right, but forego premium volume when pricing is soft, as a huge advantage. With so much liquidity seeking returns, we haven't had a hard market for a long time. Insurance isn't as important to Berkshire now, either, but it's still a very valuable business and the float is useful too.

 

All in all, I think Berkshire should be very likely to perform at least as well as the index in the long run and likely to outperform it by a percent or two per annum in the long run, partly thanks to the float leverage and partly thanks to rational opportunism.

 

At the right sort of price it seems to me to be a great stock to compound your money slowly over time and achieve long-term accumulation goals without incurring taxes (and I willingly hold Berkshire at near 100% portfolio weighting at times) and it's a good place to park your money while awaiting truly great high conviction opportunities to enhance your returns (such as a 25% weighting in Apple at $95 in May 2016, which I funded by selling some of my BRK.B at $142, which I had taken to over 90% weighting three months before at around $125).

[Valuehalla]

Nickenumbers, you can easily find the suctrure of the math in older posts, for example for end of 2017, here:

 

http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/2017-ye-intrinsic-value-versus-market-value/30/

[Dynamic]

I'm guessing that's why we came up with similar numbers, Valuehalla, as I used the same sort of method albeit with the portfolio adjustment before the markets closed on the 29th June.

 

It seems to be a pretty sound approach to estimate one quarter ahead.t

[Guest longinvestor]

https://www.cnbc.com/2018/07/10/amazon-netflix-and-microsoft-hold-most-of-the-markets-gain-in-2018.html?__source=yahoo%7Cfinance%7Cheadline%7Cstory%7C&par=yahoo&yptr=yahoo

 

Virtually all of the gains of the S&P and NASDAQ this year come from a few familiar names.

 

Another way of saying that the rest are going through a correction? some 494 names? The winners have taken it all

[Dynamic]

Quite possibly but it's cherry picking. You can always find companies with large weightings and strong performance but perhaps it shows how difficult it can be to match the index in short periods when extreme price changes are so concentrated and contribute a lot to index performance.

 

edit: What I'm trying to say is that it's a distribution with long tails of both positive and negative price moves, some of which are may times the average move of the index as a whole.

 

If you weight each stock according to their index weighting you can plot each stock's contribution to the index move.

 

Even when the index goes up 3% in a quarter, there will be a few stocks that have risen 15% to 50%, and there will be a few stocks that have fallen 15% to 50% plus many more in the middle. Of those outliers, any with a reasonably large weighting that rose will contribute most of the index's 3% move up, possibly more than 3%. This gain will be offset by the larger weighted stocks in the big fallers group to a large extent, pushing the index performance back down, and the group in the middle might contribute to either a few percent rise or fall. It's just how distributions and weighted averages work.

 

It's a lot like molecules in a fluid such as a gas or liquid, perhaps moving along a pipe. Most molecules move relatively slowly, and perhaps flow slightly in one direction or another, and a small proportion move relatively quickly in one direction or another. You could say the high energy molecules moving in the direction of bulk flow provide an outsized contribution to the bulk flow of the fluid, but the distribution of energies is a natural consequence of temperature and how the statistics work.

 

Returning to stock index effects, often certain industries gain favour based on the latest trends or legislative changes, so it's not surprising that many of the major contributor's to one quarter's change in the index are linked in some way, giving grist to the mill for such stories to be produced (humans love spotting patterns). Now and again, such a group of linked in-favour stocks, will contribute over 100% of the index's gain (perhaps as much as 4%-5% of the index's market cap), offset by a group of out-of-favour stocks that have declined in price and moderated by a whole bunch of stocks that barely moved to bring the average to maybe a 3% rise in the index.

[Guest longinvestor]

Semper Augustus does a much better job than this CNBC article in laying bare how incredulous the status quo really is. No, it is not a one quarter headline grabbing event.

[Cigarbutt]

Interesting exchange between longinvestor and Dynamic.

 

A way to resolve the issue may simply be to apply what Spekulatius said today when commenting on "The Margin of Safety" by Seth Klarman:

"I found Howard Marks book unremarkable too. I know he is revered here, but I really didn‘t get much from his book, other than the idea to think about where we are in a cycle. Even with respect to the latter, it might just be better not to think about cycles at all and look at all Investments case by case and forget about the large picture."  (my bold)

 

Some suggest (like Mr. Klarman) that there may be value in trying to understand the general context. If found to be valuable, one can decide for himself how to integrate this concept into investment decisions (stay fully invested, delegate the responsibility to a third party (like you eloquently explain in reply #225 of this thread (see quote below) or hold the responsibility yourself).

 

"All in all, I think Berkshire should be very likely to perform at least as well as the index in the long run and likely to outperform it by a percent or two per annum in the long run, partly thanks to the float leverage and partly thanks to rational opportunism." (my bold)

 

Dynamic, I agree that there may be an element of statistical distribution but your fluid dynamics explanation does not take into account human nature.

 

To complement what longinvestor has provided, here's a link:

http://integratinginvestor.com/value-investing-is-life-imitating-art/

 

Value investing means different things to different people but I would not include momentum. I think this aspect is one of the fundamental reasons that Mr. Buffett tends to underperform a little in bull markets but overperforms in bear markets.

 

I really like it when momentum is on my side but try to dissect it out of my investment decisions.

 

To paraphrase Oscar Wilde: what is found in life and nature {and markets} is not what is really there but is that which has been taught to people to find there.

 

Crowds are not always right.

[Dynamic]

Semper Augustus does a much better job than this CNBC article in laying bare how incredulous the status quo really is. No, it is not a one quarter headline grabbing event.

 

I think maybe i went a little too far the other way actually on reflection, but I did have some difficulty accepting Semper Augustus's view that index investing was exacerbating the thinning out of the distribution of returns so that tech names contributed almost all the gains. Their Berkshire analysis later in their letter was the best I've read.

 

Anyhow, while I like to remember how probability distribution trails work and avoid cherry picking, I was too strong implying that cherry picking accounted for all of it. There is some real skewing going on and the returns so seem unusually concentrated even if we should always expect concentration in gains.

[rolling]

Semper Augustus does a much better job than this CNBC article in laying bare how incredulous the status quo really is. No, it is not a one quarter headline grabbing event.

 

I think maybe i went a little too far the other way actually on reflection, but I did have some difficulty accepting Semper Augustus's view that index investing was exacerbating the thinning out of the distribution of returns so that tech names contributed almost all the gains. Their Berkshire analysis later in their letter was the best I've read.

 

Anyhow, while I like to remember how probability distribution trails work and avoid cherry picking, I was too strong implying that cherry picking accounted for all of it. There is some real skewing going on and the returns so seem unusually concentrated even if we should always expect concentration in gains.

indexing effects (in my thinely informed opinion) can be best understood if you imagine only two active investors exist and all others just index: every time those two agree in an above market purchase, all others will follow and bid the stock up  while dumping all other stocks to normalize the weighting. This two pronged move will feed on itself until the two investors act again.

 

Applied to the real market: companies in favour to active investors (be it because of momentum or real increase in value) will be bid up by indexing and the remaining will be sold down. Only active investors can stop this trends and will do so only after the first have risen further and the second have fallen further down.

[Dynamic]

Cigarbutt, I'd agree that momentum is a very real effect. Unlike momentum or intertia in physics however, it can reverse very quickly, so don't assume that a stock with high momentum will continue moving upwards albeit more slowly and then gradually reverse direction in the event of bad news or results. It might be better to call it speed or velocity than momentum, as momentum is velocity x mass. Stocks don't tend to have much mass or inertia, but some of them maintain a pretty steady speed of price movement for quite a long time unless a force acts upon them, but a fairly moderate force can overcome their most mass (inertia) to make them take on substantial velocity in the other direction.

 

Certain people in market will look at what has 'performed' well recently and jump aboard, either directly or by looking for smart managers who were on board that train where they want part of that action. That is certainly what happened with the huge interest in tech or TMT funds in the late 1990's and into 2000-2001. Now a lot of this focuses on FAANG and friends.

 

If applying this to value, some value investors may delay their buying decision until not only is a stock sufficiently undervalued but perhaps they'll wait until it shows some signs of beginning to be revalued upwards by the broader market, so they avoid tying up their capital in 'value traps' or having to wait a long to for the unrecognised value from being priced into the stock and for it to rise. They might even use some chartist approaches to time their entry, foregoing some of the gains, but potential reducing the time waiting in an undervalued stock.

 

I could see this is a particularly valid concern in the cigar-butt type positions where the stock is not expected to experience compound growth in the business fundamentals, so all the time waiting for the price to rise, you're not benefiting from the business gaining fundamental intrinsic value over time (unless they pay out a substantial dividend of course).

 

Conversely, if you buy a fundamentally good or great business that is able to compound over time with a good ROE and ROIC and no concern over heavy debt loads, you can be very happy watching it slowly compound for the long term even if your stock price remains resolutely stuck at a 30-50% discount to IV, especially if you are considering adding to your position. If you already have the full exposure you desire, you may prefer the kicker of seeing not only compounding IV but an upward re-rating of the stock, then you can get maybe 30-40% cagr and be able to sell later to take advantage of the next great undervalued idea you have in a year or two (or if not simply hold and enjoy the decent compounding in the fundamental IV.

 

Likewise, if you have a good to great business that compounds or distributes most of its free cash flow, selling at a substantial discount to IV, you should probably buy regardless of the danger signals visible in the broader market and its thinning number of outperformers or fears of trade wars or recessions. Very often such danger signs are around for many years before the actual top of the market (I think I remember some quite convincing danger signs being persuasively express by value legends in 2015-2018 at least, if not longer), and if you aren't fully invested in good compounders, you could well have a lot of your capital on the sidelines missing out on 3-6 years of good to great compounding (10%+ and possibly a lot more like 20% in a bull market) that would still see you well ahead of cash even after a 30-50% market crash eventually arrives. When that crash arrives, you may have to be willing to sell some moderately undervalued positions in good to great companies to raise the funds to buy some deeply undervalued huge bargains in previously overvalued great companies, rather than just using cash you had waiting on the sidelines, but it really doesn't take many years of good compounding while you are a little concerned about frothy markets to compensate for the eventual and inevitable downswing and leave you well ahead of cash earning next to nothing. If you accept that smart people will be calling the bear market for year before it arrives, and you have no ability to accurately estimate its time of arrival, you may be able to ignore it, so long as you can stomach severe 'losses' in market value.

 

Then again, if you're deep value and insist on a particularly high margin of safety, you might get better returns when you do invest but actually make investments far less often. Then, you should expect to have a lot of money on the sidelines while you patiently await the next big opportunity and should compensate by the outsized gains when you finally put it to work and your outperformance of folks like me in crashes when you're holding a lot of cash.

 

Inside Berkshire it's a little different. It seems to be mostly the float that's sitting in cash, waiting for a good buy with strong downside protection and reasonable to great upside. The shareholders' equity portion of investable funds is pretty much all being put to work already while the float portion of non-callable funding using other people's money is pretty much all in cash and short term T-bills/deposits. In the event of a downturn, the downside protection and the range of opportunities is likely to produce a sensible situation to invest much of the float portion into undervalued equities or whole company acquisitions, then over a few years, the operating profits of Berkshire's subsidiaries will gradually refill the pot and again float will be represented by mainly cash and equivalents as the next cycle matures.

 

Returning to momentum not being part of value.

Chartists tend to try to imagine psychological factor like 'resistance' and 'support' levels or slopes or perhaps statistical lines at 1 or 2 standard deviations, such as Bollinger bands or moving averages and to some extent some of these methods try to capture momentum effects too. In their pure form they ignore the fundamentals, but their are many flavours of chart-reading too and they can pick and choose.

 

In looking at Berkshire I have an element of appreciating some of these factors actually. There is a fundamental providing a moving support level or soft floor, and that's the stated buyback threshold of 120% of Book Value per share, which gets updated every quarter. Perhaps the upper part of Berkshire's trading range is in the 160% to 170% of BV area nowadays, rather than maybe 200% as it was maybe 20 years ago.

I imagine that soft floor support level will be breached in the event of a serious market crash because there will be great value opportunities in many places that will look more attractive than Berkshire to a lot of smart value investors, at least for a few months, but in normal market conditions, ever since Berkshire introduced first the 110% of BV threshold then the 120% of BV threshold for their buyback authorisation, I cannot recall either level being breached (if BV is defined as the last published BV), or being only slightly breach on rare occasions (if BV is defined as the live Book Value or the yet-to-be-published book value of a quarter just ended).

 

To me that gives enough downside protection and long-term compounding that I can meet my goals yet still take advantage of great opportunities that might come up once every few years by selling some BRK.B. If the market really crashes, I'm sure my Berkshire will be well down from its peak and quite undervalued in the market, but I may still preserve enough market value to find worthwhile trades among stocks that are more deeply beaten down that it would be beneficial for me to sell BRK.B at the bottom of the market.

 

But there are many ways to adapt value investing to your style and your goals, opportunity set and circle of competence, so your mileage may vary, and I certainly don't profess to be anything like a great investor.

[CorpRaider]

"indexing effects (in my thinely informed opinion) can be best understood if you imagine only two active investors exist and all others just index: every time those two agree in an above market purchase, all others will follow and bid the stock up  while dumping all other stocks to normalize the weighting. This two pronged move will feed on itself until the two investors act again.

 

Applied to the real market: companies in favour to active investors (be it because of momentum or real increase in value) will be bid up by indexing and the remaining will be sold down. Only active investors can stop this trends and will do so only after the first have risen further and the second have fallen further down." 

 

 

I may be misunderstanding you, but I think the index investors in your example would do nothing and the stock that was increased in price/market cap by the transaction between the active investors would have a higher relative weight simply because of the price as established by the active participants.

[Guest longinvestor]

Here’s a summary of recent posts;

1. Cheery consensus in full force. Around 6 or so now famous names.

2. No, value has not died permanently. Whew, my waiting induced boredom is not coma! Thank goodness for message boards where comatose hang together in the afterlife

 

In the excellent link in Cigarbutt’s post above to the Integrating Investor, the Li Lu quote provided “You either get value investing at the outset or you never will”. Hmmm...whither me?

[Dynamic]

indexing effects (in my thinely informed opinion) can be best understood if you imagine only two active investors exist and all others just index: every time those two agree in an above market purchase, all others will follow and bid the stock up  while dumping all other stocks to normalize the weighting. This two pronged move will feed on itself until the two investors act again.

 

Applied to the real market: companies in favour to active investors (be it because of momentum or real increase in value) will be bid up by indexing and the remaining will be sold down. Only active investors can stop this trends and will do so only after the first have risen further and the second have fallen further down.

 

I know where you're coming from and there's certainly some merit in this model.

 

A lot of this was discussed in the thread about the Semper Augustus Letter, so you might find that interesting, even if I'm not sure we agreed or came up with a convincing conclusion.

 

There the point was made that the proportion of declared index funds is about 13% of all activity or maybe 25% of all funds in the market (from a skim read - perhaps need to check the sources). So even if many managed funds are closet-indexing a substantial part of their money, it still represents probably no more than 50% of the market cap, and if indexers trade much less frequently, it also represents much less than 50% of the traded volume in a given period.

 

If there are no deposits or withdrawals from index funds, they do not impact the market for the buying and selling of underlying stocks at all, except on the re-weighting of the index or at any other times when the algorithms start to adjust the weightings of their stock holdings (e.g. they may choose to select only a sample of the smaller-weighted index components to reduce costs while maintaining reasonably small tracking error, or to allow larger deviations between the index fund's weighting and the official index weighting among those smaller positions where it matters less overall).

 

If there are net withdrawals from index funds (and others too) for a certain period, that will produce selling pressure on all the stocks they contain over that period on average proportional to the rate of withdrawal and how that compares to traded market volumes.

 

Conversely, if there are net deposits, which is probably more normal, especially with reinvesting dividends, that will produce buying pressure on all the stocks contained.

 

Nonetheless, for market-cap weighted indexes, as far as I can see, essentially, 1 million units of the index, say, represents x% of each company's outstanding share count, regardless of their weighting in the index. As long as they remain in the index and the index has the same number of constituent companies, their weighting is adjusted according a fixed percentage of the number of shares outstanding (except for rare occasions when it's adjusted for free float, which would include Berkshire Hathaway and a few other stocks where insiders are not expected to buy or sell stock and contribute to the trading market or where there are substantial numbers of restricted shares and so on).

 

So if Apple buys back and retires 2% of its outstanding stock, its weighting will decrease to (0.98 x its previous weighting) so that 1 million units of the index still represents x% of the stock outstanding. The buyback program actually eventually causes the index funds to sell stock (or to buy less stock than the inflow would otherwise make them buy) once the index weighting is readjusted.

 

If there is net inflow into index funds it certainly does provide some buying volume to all component stocks regardless of the underlying price whether the stock is ludicrously expensive or ludicrously cheap or somewhere in the middle. So it may cause a net upward push to the market prices of all index components over time until everyone decides to head for the exits in a panic! But it seems logical that it's a small proportion of traded volume that doesn't care about the price at all. It seems the stock turnover and thus trading volume generated by managed funds and institutions and for many individual investors is far, far higher than for index funds, so they should still have an outsized influence on price-setting.

 

Nonetheless many fund managers do experience pressure to include the popular names to attract assets under management, so may be pressured to buy even when they're already rather fully priced, possibly at the expense of fund performance, even if their past performance came about by buying those names only when they were much more undervalued. And many individual investors of a similar mind but who don't choose to invest in funds are attracted to the familiar names they read about a lot too and want a piece of that action (especially if it has risen recently - 'momentum' again), without necessarily having any grounding in the difference between price and value.

 

But the passivity and moderate market volume caused by indexing and the static weighting (in terms of proportion of market cap and thus proportion of shares) - unless I'm entirely wrong here - should be relatively minor impacts, shouldn't they?

 

Perhaps the counter-argument is that indexing is a more insidious and powerful form of volume, because it is all in one direction (net inflow-and-reinvestment or net outflow of funds causing only either continual buying pressure or continual selling pressure respectively on all stocks in the index) while other market participants who are actively trading are acting on opinions about the correct current and future pricing of the securities under various strategies, and largely offset each other's bullish or bearish opinions, but nonetheless the balance is skewed by the one-directional pressure from indexers.

[rolling]

"indexing effects (in my thinely informed opinion) can be best understood if you imagine only two active investors exist and all others just index: every time those two agree in an above market purchase, all others will follow and bid the stock up  while dumping all other stocks to normalize the weighting. This two pronged move will feed on itself until the two investors act again.

 

Applied to the real market: companies in favour to active investors (be it because of momentum or real increase in value) will be bid up by indexing and the remaining will be sold down. Only active investors can stop this trends and will do so only after the first have risen further and the second have fallen further down." 

 

 

I may be misunderstanding you, but I think the index investors in your example would do nothing and the stock that was increased in price/market cap by the transaction between the active investors would have a higher relative weight simply because of the price as established by the active participants.

Let us do the math:

Stock 1 equals 50% of the 100 point index. Stock 1 doubles and is now 66,6% of the 150 point index. Index funds get the same boost in price.

 

It seems to me you are right    :o sorry to all

[Dynamic]

Don't worry, @rolling, I think it's been a good discussion to have and I value your contribution, and how indexing may or may not affect market prices is an important question to consider if people are pontificating about calling the top of the market based on such effects or thinning of gains to just a few popular names.

[aws]

I'm not sure if it's been mentioned before in this thread or others, but I would think you need to be careful with the 1.2x book calculations when there is so much cash laying around.  Cash is clearly not worth more than 1x book, and with around $42/B share in cash that's not insignificant.  If they were to buyback any material number of shares starting at 1.2 book, they would soon be buying above that level.

Imagine for a simplified example that there are exactly 2.5 billion B share equivalents, that the market value is $200/sh, the book value is 166.67/sh (so trading at 1.2/book, which is 416.67 billion total), and they have well over $100B in starting cash.  If they did a $100B tender at the $200/sh and it was fully subscribed then 500 million shares would be retired all at 200/sh, leaving 2 billion shares and a new market cap 400B, and a new book value of 316.67B.  Assuming the market value is still $200/sh at that point they would now be trading at 1.26 times book.

 

With that said, I've been a buyer lately in the high 180s and am glad to see it.

[Dynamic]

Interesting. You could argue that most of that cash is not included in book value anyway as it's roughly equal to the insurance float which is a balancing liability.

 

You could also argue that it is worth more than carrying value if you believe it will be wisely invested soon.

[nickenumbers]

BRK price over the last couple of weeks and perhaps the last month or so has not rallied like the Dow or the S&P.

 

 

Does anyone know an event or a narrative that might explain why it has not tracked the S&P with the rally?

 

I am buying because I think banks are going to have a great day tomorrow, and BRK is going to have a great quarter when it releases on 8/2/18 for various reasons.

 

 

Related question- Do you think with all the robo-trading/advising BRK is adversely affected by the volatility of its Net Income due to the inclusion of all investments now running thru the P&L?  I wonder if computer algos have been adjusted to include this muddling up of the Net Income.

[John Hjorth]

I recall that interview with Mr. Buffett that Dynamic in referring to, too. To my best recollection without trying to look up the video I consider Dynamic's description here accurate.

 

- - - o 0 o - - -

 

In Jeff's book [book by fellow board member rainforesthiker] there is a chapter 8 called "Investment Case studies - The Variant perception and the Inefficient Rationale". Investment case #6 is Berkshire Hathaway, and is called "Mispriced due to Indexation". [start p. 149.]

 

In short, it's about when the US financials go out of favour from time to time in the market, Berkshire does too, because of indexing and because Berkshire is a material component of S&P Financial Select Sector, while the properties of Berkshire as an investment are materially different than the properties of the other financials in that category/index.

 

Personally, I feel and think, that this is exactly where we are now.

 

It is the largest weighted company in XLF:

http://etfdb.com/etf/XLF/

 

Nickenumbers,

 

Above is my offer what's going on with Berkshire in the market at end of June 2018, with comment from Joel [racemize]. Also ref. the latest discussion in this topic between rolling and Dynamic. I still think today this thesis has merit.

[Valuehalla]

 

Every dollar of book value, except those where the after tax return is regulated (Energy) or competed away (McLane or auto insurance maybe over time), should now be more productive. Equally the economic goodwill of companies like GEICO gets ever greater as they grow without a mark up in their book value.

 

I agree totally with Dynamic

 

The buyback shall be increased. Its to long already on a level of 1.2

 

1) cause of tax reform

2) cause time passed by (goodwill effect fe geico)

 

Dynamic and Valuehalla saw it coming !!!

 

CHEERS !

[Valuehalla]

According to my calculation BV went up by app. 4,8 % since end of Q1 till today.

 

We are now/today  at app. 147.50 US$ and (KHC adj. at 148.50$)

 

IMO Intrinsic Value shall be minimum 1.4 above Bookvalue, which means marketprice for a B share shall be at app 208 US$

[walkie518]

According to my calculation BV went up by app. 4,8 % since end of Q1 till today.

 

We are now/today  at app. 147.50 US$ and (KHC adj. at 148.50$)

 

IMO Intrinsic Value shall be minimum 1.4 above Bookvalue, which means marketprice for a B share shall be at app 208 US$

 

Book value might be less of a measure for Berkshire's value the farther away the company gets from a big deal.  When buying Burlington Northern, for example, book was closer to intrinsic value.  There have been some other buys like PCP, but much of Berkshire's intrinsic value today is generated within the company's vast portfolio. 

 

My back of the envelope puts Berkshire worth around $369k/a-share using a (sloppy) DCF and adding back the cash on the balance sheet (since this is dead-weight for cash generation) then averaging out cash flow growth, you might want to add another 10% to the value of the operating businesses...then there should be a premium in the market for the value of Berkshire's float as well as the intangible value of assembling such a fabulous investment team. 

[Guest longinvestor]

According to my calculation BV went up by app. 4,8 % since end of Q1 till today.

 

We are now/today  at app. 147.50 US$ and (KHC adj. at 148.50$)

 

IMO Intrinsic Value shall be minimum 1.4 above Bookvalue, which means marketprice for a B share shall be at app 208 US$

 

Book value might be less of a measure for Berkshire's value the farther away the company gets from a big deal.  When buying Burlington Northern, for example, book was closer to intrinsic value.  There have been some other buys like PCP, but much of Berkshire's intrinsic value today is generated within the company's vast portfolio. 

 

My back of the envelope puts Berkshire worth around $369k/a-share using a (sloppy) DCF and adding back the cash on the balance sheet (since this is dead-weight for cash generation) then averaging out cash flow growth, you might want to add another 10% to the value of the operating businesses...then there should be a premium in the market for the value of Berkshire's float as well as the intangible value of assembling such a fabulous investment team.

They won’t go wrong at 1.8xBV

[Valuehalla]

According to the Semper Augustus Letter Feb 2018 they calculated in different methods IV with a range of

 

- 241 US$ to 255 US$ per B share for end of 2017

- alternative estimating IV is 1.75 x above BV, which means for today app 260 US$ per B share

 

So this underlines my estimation 1.4 x BV is for sure very low. Longinvestor with 1.8 x BV for IV is on high end, but reasonable.

 

We will see going BRK far more up during next weeks. 3th August will provide more details on the whole situation

[Valuehalla]

https://www.cnbc.com/2018/07/18/warren-buffett-finds-an-elephant-in-berkshires-own-backyard.html

 

 

"Berkshire's book value, based on its B shares, is estimated at $149 a share, while its intrinsic value is more like $236, according to calculations by J. P. Morgan Chase analysts."

 

BV with 149 $ is app close to my own calculations (148.50 $ KHC adjusted) for today after close.