berkshire - cheap?

[Guest longinvestor]

Of all words of significance, Munger’s: “Just the stuff we have is enough” is coming true. As the subs improve their per share value, it gets better. Buybacks makes it a whole lot better. An occasional loud phone ring could help but waiting for it won’t be a calamity. Idiot behavior will be around while we’re sitting around collecting.

[Guest longinvestor]

 

The gift still keeps giving.

 

It´s good to be 100% in Berkshire.  :)

 

Cheers!

 

Indeed! Tom Gardner expressed the same in saying that long term holders are accustomed to waking up wealthier every morning. Folks like yourself have nothing else to think about! You can help those around you, like you’re doing. It’s hard not to, besides family, I’m helping a few myself.

 

Enjoy life while Omaha works hard with your money

[Charlie]

"Enjoy life while Omaha works hard with your money"

 

+1

 

Yeah, 4 months ago my wife got twins, so there is so much to enjoy and also so much work.  :)

[Valuehalla]

I woke up for Omaha today at 7 am at my German time to buy a bulk of B shares in Lang&Schwarz directly at 7.30.

 

I paid 174.13 Euro ( = app 201.30 $) in first trade and 175,74 Euro (= app 203,16 $) in second on other account.

 

I hope my sacrifice will be rewarded, when Wall Street opens.

 

Hard work is done.  8)

[John Hjorth]

I had to look up what Lang & Schwartz is. At what listing are you getting Berskhire shares at that time of the day here in Europe, and outside NYSE, Valuehalla? Is it a separate "unofficial" listing in Germany? [i recall Dynamic talking about some secondary European Berkshire listing not so long ago.]

[Valuehalla]

Lang & Schwarz is a private exchange / marketplace opening at 7.30 am, than later at 8 am Tradegate is opening as well

 

The ticker of the B shares in Europe is BRYN. Depending on the bank or Broker you can also use the WKN (Wertpapierkennnummer ) A0YJQ2 for BRK.B

 

I sucked the maximum available shares at Lang & Schwarz for the mentioned price a few seconds after 7.30 am.

 

[John Hjorth]

Thanks Valuehalla.

[Dynamic]

I also bought some on BRYN ticker this morning filling at €175.49 via SMART routing on IBKR, but a couple of hours later than Valuehalla. It may just be a short-term trade. The volume is tiny normally, about 3700 shares per day. It's a lot more today. BRYN is used for a number of exchanges in Germany and XETRA and Frankfurt seem to be busiest. I usually track ETR:BRYN on GoogleFinance to see the price before the US markets open, but I'm aware that the spreads are wider and the volume smaller and commissions are higher, so it's not ideal most of the time. Try typing slowly into the Yahoo Finance search box to see a lot of different tickers, then go in and compare daily trading volumes.

 

For my UK Capital Gains Tax I am considering that this could be useful to take advantage of my tax-free gains allowance every tax year. I can sell my BRK.B position and buy some BRYN at about the same price, realising gains to increase my cost basis without exiting my effective position. This is completely legitimate and doesn't come under "bed-and-breakfasting" rules that stop you realising gains if you buy back the same security within 30 days because it is different under the identification rules. And if the volume is low, I can just do so gradually at times when both US and EUR markets are open. Likewise BRKB.MX is in Mexico City, but the market hours match the NYSE, so I can switch at any time the NYSE is open. Berkshire Hathaway Class A is traded in Euros too, and probably at very low volume.

[petec]

For my UK Capital Gains Tax I am considering that this could be useful to take advantage of my tax-free gains allowance every tax year. I can sell my BRK.B position and buy some BRYN at about the same price, realising gains to increase my cost basis without exiting my effective position. This is completely legitimate and doesn't come under "bed-and-breakfasting" rules that stop you realising gains if you buy back the same security within 30 days because it is different under the identification rules. And if the volume is low, I can just do so gradually at times when both US and EUR markets are open. Likewise BRKB.MX is in Mexico City, but the market hours match the NYSE, so I can switch at any time the NYSE is open. Berkshire Hathaway Class A is traded in Euros too, and probably at very low volume.

 

 

That's a very good idea. Thanks.

 

Out of interest what platform do you use to trade Mexico?

 

[John Hjorth]

Also thank you to you for the elaboration here, Dynamic, - very kind of you. I got it on Yahoo Finance. It's a no go for me, unfortunately, at my broker. I can only find the A in Frankfurt, but not the B. I'm a bit puzzled about it, and will give my broker a call.

 

Your considerations about using BRYN to raise your cost base makes perfect sense to me, based on what you have explained to me earlier about UK capital gain taxes in the "What are you buying today" topic.

[Dynamic]

I hope I'm not going too far off-topic, but here goes anyway.

 

John, when I first bought BRK.B (the pre-split stock) in 2003 in my tax-free ISA, I had to place the order by phone with a broker in Frankfurt and I used some numeric code supplied by my broker's customer services for the stock identification (about 10 digits). Since then I've been able to trade online and it does seem to actually be the BRK.B stock they hold and I can only trade during NYSE hours but I can only hold GBP cash in an ISA so my trades execute through a London Stock Exchange system, where it includes the currency conversion. The broker only updates US stocks in my Account Valuation screen about once or twice a month at the close, so I use a Google Sheet to track my positions and current valuations more accurately.

 

@PeteC, I used interactivebrokers.co.uk (the UK subsidiary of Interactive Brokers, regulated by the FCA) to buy BRYN this morning, an account I've only had open for a couple of months. Now the pre-market in the US and the BRYN price are roughly the same, when converted to USD, but I think the volume in US pre-trading is higher than on XETRA. Previously I only ever bought BRYN in a dummy "Paper Trading" account they let you try out with $1 million USD notional cash balance to play with. With the low volumes and my stingy limit order I only got filled for 2 shares of BRYN (notionally) and ended up getting about 10,000 shares of BRK.B (notionally) gradually later in the day once the US markets opened! I was experimenting with margin to see if I understood how it worked, and sure enough they started selling out my notional positions towards the end of the trading session to bring it in line with overnight margin, where you can borrow up to 50% of the market value of your stocks. The platform seems to be very powerful for professional users and people with fancy day trading strategies, forex trades and even some algorithmic strategies, and I'm sure I won't use 90% of the features available.

 

It's certainly worth checking out their trial account to see what you can do and then you can think about setting up a real account if you're really sure you can manage the risks. For your real money account you can pre-select which markets you allow in the account and what types of instruments and whether you will allow margin.

 

Certain instruments are only available to advanced traders with sufficient experience or who pass a test. I might like to sell some out of the money put options to either earn income or to enter positions (if I'm put to) at a price I find attractive, much like @boilermaker does, so I had to pass an online multiple choice test about options trading when setting up the account. I probably could have told them I had more experience than I really did and avoided the test, but it was interesting, even if most of it seemed too much like day-trading and technical analysis chartism to me and required Googling once or twice so I really understood the concepts and could work out the correct answer.

 

I have never actually bought or sold BRKB.MX but I've just successfully placed a DAY Limit order at 3,805.00 MXN in the "Paper Trading" account (a few options appear when you type BRK B with a space, not a period, into the Interactive Brokers ticker search box) to be notionally submitted at market open, so it seems to work. I had previously been almost exclusively using ISA accounts for myself and my spouse, which are exempt from Capital Gains Tax so no reason to switch tickers for the same stock.

 

Another way to avoid capital gains tax if you live in the UK or Ireland is through very careful use of DFT (Spread Bets) - read this post on 'Getting leverage' and those below for a story of what crazy and dangerous leverage you can obtain there - using a dummy trading account only. It turns out the CFDs offer similar leverage to DFTs but they are subject to UK Capital Gains Tax and they are available outside the UK and Ireland (except perhaps US and Canada, but possibly available routed via IBKR UK). The important thing is to fully understand the effective leverage you're taking on so you don't get wiped out or even owe more money than is in your account.

 

The nice thing about UK Capital Gains Tax is that you get £11,700 of gains per person exempt from CGT this tax year, then for lower-rate taxpayers it's only 10% tax on the gains above the exemption until they push you into the higher rate band, then it's 20% tax on gains for higher rate tax payers. So even if you do pay some tax on some extraordinary gains, its about half the rate of income tax and with no National Insurance Contributions to be paid like in your employment. An ISA is even better and is the mainstay of our portfolio of long-term holdings, except for the restrictions on the types of instruments and the amount you can contribute each year being limited to £20,000.

[Guest longinvestor]

Is Berkshire still cheap?

 

I think so and if Omaha is buying back, they think so.

[StevieV]

Is Berkshire still cheap?

 

I think so and if Omaha is buying back, they think so.

 

I'm not sure if I'd sign up for  the shares being "cheap."  I'm more comfortable saying "not expensive".  FWIW, I think there will be better opportunities for purchasing shares in the future.

[Swedish_Compounder]

Quick and dirty valuation (just approximate figures):

 

Stocks and excess cash:

Value of stocks 200 BUSD

Excess cash 100 BUSD

=300 BUSD

 

After tax earning power:

Operating earnings 2018E : 19,5 BUSD

Normalized float increase: 8 BUSD

= 27,5 BUSD

Multiple of 14 - 15 = 400 BUSD

 

Total mathematical value 700 BUSD

 

In addition several factors which have additional value, which is hard to quantify:

1) more conservative accounting than basically any other large company

2) More owner oriented than basically any other large Company

3) World leading capital allocation skills

4) Preferred buyer for many family founded / owned businesses

5) No dilution from stock options to management

6) World leading management

7) More risk averse than most other companies

8 ) Extremely low turnover of senior executives

9) A highly rational compensation strucure, with no influence from comp Consultants

10) Accepting bumpy results instead of smoothness, if it is expected to give a better long term result

11) A contrarian mindset where they are greedy when others are fearful and vice versa

etc

[gfp]

Not a bad quick and dirty back of the envelope.  Seems a little aggressive to put a multiple of 14.5x some normalized float growth figure (you used $8B) and declare thats worth $116 Billion when we have already included the value of the stock portfolio, much of which is funded by float.  I do understand that growth in Float is a component of cash flow available to owners though.

[marazul]

Difficult to see float growing $8bn per year going forward...

[John Hjorth]

Difficult to see float growing $8bn per year going forward...

 

marazul,

 

That may be true going forward - time will tell. What is important here, is that the cash flow from operations from the wholly owned Berkshire subsidiaries now has a size, so that Berkshire now must be considered able to hold on to the listed investments portfolio, even in a downturn, and if the float starts to dwindle at the same time. Cash, cash equivalents & T-bills also serves as a buffer & cushion here.

[nickenumbers]

Quick and dirty valuation (just approximate figures):

 

Stocks and excess cash:

Value of stocks 200 BUSD

Excess cash 100 BUSD

=300 BUSD

 

After tax earning power:

Operating earnings 2018E : 19,5 BUSD

Normalized float increase: 8 BUSD

= 27,5 BUSD

Multiple of 14 - 15 = 400 BUSD

 

Total mathematical value 700 BUSD

 

 

Swedish_Compounder, as the self appointed reviewer of your numbers, I bestow you 3 green apples, and 5 thumbs up.  Apples and Thumbs are not convertible into anything.  Seriously,,  Thanks for sharing your math and taking a smart stab at the value!!! :) ;D :D

 

I like it!

[John Hjorth]

... In addition several factors which have additional value, which is hard to quantify:

1) more conservative accounting than basically any other large company

2) More owner oriented than basically any other large Company

3) World leading capital allocation skills

4) Preferred buyer for many family founded / owned businesses

5) No dilution from stock options to management

6) World leading management

7) More risk averse than most other companies

8 ) Extremely low turnover of senior executives

9) A highly rational compensation structure, with no influence from comp Consultants

10) Accepting bumpy results instead of smoothness, if it is expected to give a better long term result

11) A contrarian mindset where they are greedy when others are fearful and vice versaetc...

 

Here I'm picking a part of your post, Swedish_Compounder,

 

It's not about returns, but about risk adjusted returns. Ex post - all risk - also here on CoBF, after a nice gain perhaps, has a propensity to evaporate.

[nickenumbers]

Great Barron's article on Berkshire.

 

They value the total company at around $700-730B.

 

https://www.barrons.com/articles/berkshire-hathaway-stock-record-high-1537481057

[gfp]

Thanks.  A good article.  Remember when even BRK fans were lamenting that he had lost it and vastly overpaid for BNSF at $34 Billion?  He's taken enormous (tax free) cash dividends out of the company since then and Rolfe is saying it could be worth something comparable to UNP.  I'll take 3 more fuck-ups like that one please

[Kapitalust]

Thanks.  A good article.  Remember when even BRK fans were lamenting that he had lost it and vastly overpaid for BNSF at $34 Billion?  He's taken enormous (tax free) cash dividends out of the company since then and Rolfe is saying it could be worth something comparable to UNP.  I'll take 3 more fuck-ups like that one please

 

Or that Apple was going to be a mistake, a la IBM... yet the stock price has doubled since the first batches they started accumulating over 2 years ago...

[Swedish_Compounder]

Not a bad quick and dirty back of the envelope.  Seems a little aggressive to put a multiple of 14.5x some normalized float growth figure (you used $8B) and declare thats worth $116 Billion when we have already included the value of the stock portfolio, much of which is funded by float.  I do understand that growth in Float is a component of cash flow available to owners though.

 

I agree with you that assigning a value of $116 Billion might be to stretch a little. Buffett has for a long time, at least 10-15 years, stated that further float increases will be hard to achieve, but as a matter of fact float increased by roughly $40 Billion from 2012 to 2017. I think it will continue to increase for a long time, but maybe it would have been more proper to assign a PV of 80 Billion or so for expected future float increases. Their float is extremely enduring / long tail, so Buffett has said that it can be compared to equity.

 

On the other hand, maybe the multiple on the operating earnings should be higher than 14.5 given the quality and endurance of those businesses, so I still feel comfortable valuing the company at 700BUSD+.

 

[Guest longinvestor]

Not a bad quick and dirty back of the envelope.  Seems a little aggressive to put a multiple of 14.5x some normalized float growth figure (you used $8B) and declare thats worth $116 Billion when we have already included the value of the stock portfolio, much of which is funded by float.  I do understand that growth in Float is a component of cash flow available to owners though.

 

I agree with you that assigning a value of $116 Billion might be to stretch a little. Buffett has for a long time, at least 10-15 years, stated that further float increases will be hard to achieve, but as a matter of fact float increased by roughly $40 Billion from 2012 to 2017. I think it will continue to increase for a long time, but maybe it would have been more proper to assign a PV of 80 Billion or so for expected future float increases. Their float is extremely enduring / long tail, so Buffett has said that it can be compared to equity.

 

On the other hand, maybe the multiple on the operating earnings should be higher than 14.5 given the quality and endurance of those businesses, so I still feel comfortable valuing the company at 700BUSD+.

+1 to $700B and multiple higher than 14.5x. Berkshire will continue to earn its way to deserve this. Buffett has been saying this about the numerator for many years now “our focus is on growing per share earnings”. With the quip “we bought a little stock” he has signaled that decreasing the denominator is also warranted now. Vicious cycle has begun.

[John Hjorth]

With regard to how to value the Berkshire insurance float, - popping up again here now -, I still think the best place I have read about it is rb's post #89 in this topic of July 19^th 2017. rb's angle & way of looking at it just makes so much sense to me.