berkshire - cheap?

[alwaysdrawing]

AXP and KO might sound like pieces of shit to some folks, but last time I checked they both consistently earned 20-30% return on equity, and the longer you are in a business the more that basic figure matters to your outcome.  How much does this company earn on the actual capital tied up in running the thing, and how sustainable is that.

 

I totally agree with the above.  Except the stock price is almost 10x book....remind me what that means for investors today?  Will they be earning 20-30% on their investment? or 10% of that since they paid 10x the price of the book value equity?

 

At least they have great revenue growth:

 

2015 44,294,000

2016 41,863,000

2017 35,410,000

2018 Estimate 31,800,000

 

Great company. 

 

Sure it was a 10 bagger for Buffett....but does anyone think that it's the best place for his money?  I would take any random other S&P 100 company over KO...the price is silly.

 

 

 

[Viking]

Over the years I have held BRK as a bond substitute. I have held it for short periods of time (sold it after it has run up 6 or 8%). Rinse and repeat.

 

We will learn over the next couple of years if the bond bull market is officially dead. If we are indeed in a rising interest rate environment (i.e. if Gundlach is correct with his prediction that the 10 years US treasury could rise to 6% in the next 3 or 4 years) then at its current price BRK looks like a solid buy for portfolios as a substitute for part of their bond holdings.

 

Peter Lynch, in his book One Up On Wall Street, when analyzing stocks he suggests dropping them in one of 6 buckets; BRK to me would be classified as a stalwart. Solid company, well managed, slow grower. With a lower expected return. He would have some stalwarts in his portfolio to provide protection as they typically sold off less than other holdings. After purchase, if the stock ran up in price (and hit his sell price target) he would sell and buy another stalwart that was out of favour with Mr Market and on sale. Pretty simple but very effective over time.

[rolling]

Over the years I have held BRK as a bond substitute. I have held it for short periods of time (sold it after it has run up 6 or 8%). Rinse and repeat.

 

We will learn over the next couple of years if the bond bull market is officially dead. If we are indeed in a rising interest rate environment (i.e. if Gundlach is correct with his prediction that the 10 years US treasury could rise to 6% in the next 3 or 4 years) then at its current price BRK looks like a solid buy for portfolios as a substitute for part of their bond holdings.

 

Peter Lynch, in his book One Up On Wall Street, when analyzing stocks he suggests dropping them in one of 6 buckets; BRK to me would be classified as a stalwart. Solid company, well managed, slow grower. With a lower expected return. He would have some stalwarts in his portfolio to provide protection as they typically sold off less than other holdings. After purchase, if the stock ran up in price (and hit his sell price target) he would sell and buy another stalwart that was out of favour with Mr Market and on sale. Pretty simple but very effective over time.

If It's not asking too much, what other stalwarts do you have? Throughout this year I've intermitently been on brk, google and davita, accordingly to the price fluctuations, but I don't see them the same way I see brk... Thank you.

 

Ps: added brk today. 18% of the portfolio now.

[DooDiligence]

Nearly everyone on COBF will demonstrate their gains & mistakes with unflinching honesty.

(That's why I respect this place so much.)

 

Actually zero people on CoBF have posted their portfolios and (audited) returns. The annual return threads do not include portfolios and are mostly anonymous polls with very few people posting their returns explicitly connected to the poster. Even the ones who post their returns, don't post their portfolios.

 

So your request is IMO out of line.

 

The OP clearly stated,

 

 

I'll take my own portfolio against Buffett's common stock holdings.

 

 

Which begs the question, "so what are you holding?"

 

I'm not the only one here who raised the question but you apparently have some kind of axe to grind with me so grind away.

[Jurgis]

you apparently have some kind of axe to grind with me so grind away.

 

::)

[Viking]

Over the years I have held BRK as a bond substitute. I have held it for short periods of time (sold it after it has run up 6 or 8%). Rinse and repeat.

 

We will learn over the next couple of years if the bond bull market is officially dead. If we are indeed in a rising interest rate environment (i.e. if Gundlach is correct with his prediction that the 10 years US treasury could rise to 6% in the next 3 or 4 years) then at its current price BRK looks like a solid buy for portfolios as a substitute for part of their bond holdings.

 

Peter Lynch, in his book One Up On Wall Street, when analyzing stocks he suggests dropping them in one of 6 buckets; BRK to me would be classified as a stalwart. Solid company, well managed, slow grower. With a lower expected return. He would have some stalwarts in his portfolio to provide protection as they typically sold off less than other holdings. After purchase, if the stock ran up in price (and hit his sell price target) he would sell and buy another stalwart that was out of favour with Mr Market and on sale. Pretty simple but very effective over time.

If It's not asking too much, what other stalwarts do you have? Throughout this year I've intermitently been on brk, google and davita, accordingly to the price fluctuations, but I don't see them the same way I see brk... Thank you.

 

Ps: added brk today. 18% of the portfolio now.

 

Rolling, my favourite group right now are the large US banks (surprise, surprise). For the past couple of years I have viewed them as turnaround plays. However, I now view the big US banks as more like stalwarts. As an example, you can buy BAC today at $29. It will earn about $2.55 in 2018 and close to $2.90 in 2019. 100% of earnings will be returned to investors for the next few years (2% dividend and 8% stock buybacks). It will grow top line by about 4% and bottom line by about 15% for the next few years. Under Trump US GDP growth may actually accelerate. The Fed will continue hiking rates. Mobile banking is dramatically lowering costs. Operating leverage continues quarter after quarter.  Deregulation has legs.

 

Do I expect 30% per year from my big US bank stocks? No. I will be very happy with 15-20% returns. Like shooting fish in a barrel. :-)

 

PS: I do think at some point in the next couple of years investors are going to fall back in love with bank stocks where they will bid up the PE multiple. When I see This happen I will be happy to sell and wait in the weeds for the next fat pitch.

[CorpRaider]

Is USB the best big(ish) bank?

[alwaysdrawing]

Berkshire itself is down 5-6% in Q2, and the public securities are up around 7 billion this quarter (4 billion of which is due to AAPL, a very fine investment), so depending how the closely held part of the company does, the relative value of BRK is improving.  Price to book will possibly be below 1.3, which puts it in buyback territory (stated as 1.2x book)

 

Here's hoping Uncle Warren sells KO for a giant taxable gain, and buys back BRK.B or almost any other company.

[rb]

Is USB the best big(ish) bank?

USB is a really, really well run bank. For that reason they always seem to have a premium-ish valuation. I also think that their growth prospects are inferior to the majours. Those two factors combined have always conspired against me building a position in USB.

[sleepydragon]

Over the years I have held BRK as a bond substitute. I have held it for short periods of time (sold it after it has run up 6 or 8%). Rinse and repeat.

 

We will learn over the next couple of years if the bond bull market is officially dead. If we are indeed in a rising interest rate environment (i.e. if Gundlach is correct with his prediction that the 10 years US treasury could rise to 6% in the next 3 or 4 years) then at its current price BRK looks like a solid buy for portfolios as a substitute for part of their bond holdings.

 

Peter Lynch, in his book One Up On Wall Street, when analyzing stocks he suggests dropping them in one of 6 buckets; BRK to me would be classified as a stalwart. Solid company, well managed, slow grower. With a lower expected return. He would have some stalwarts in his portfolio to provide protection as they typically sold off less than other holdings. After purchase, if the stock ran up in price (and hit his sell price target) he would sell and buy another stalwart that was out of favour with Mr Market and on sale. Pretty simple but very effective over time.

If It's not asking too much, what other stalwarts do you have? Throughout this year I've intermitently been on brk, google and davita, accordingly to the price fluctuations, but I don't see them the same way I see brk... Thank you.

 

Ps: added brk today. 18% of the portfolio now.

 

Rolling, my favourite group right now are the large US banks (surprise, surprise). For the past couple of years I have viewed them as turnaround plays. However, I now view the big US banks as more like stalwarts. As an example, you can buy BAC today at $29. It will earn about $2.55 in 2018 and close to $2.90 in 2019. 100% of earnings will be returned to investors for the next few years (2% dividend and 8% stock buybacks). It will grow top line by about 4% and bottom line by about 15% for the next few years. Under Trump US GDP growth may actually accelerate. The Fed will continue hiking rates. Mobile banking is dramatically lowering costs. Operating leverage continues quarter after quarter.  Deregulation has legs.

 

Do I expect 30% per year from my big US bank stocks? No. I will be very happy with 15-20% returns. Like shooting fish in a barrel. :-)

 

PS: I do think at some point in the next couple of years investors are going to fall back in love with bank stocks where they will bid up the PE multiple. When I see This happen I will be happy to sell and wait in the weeds for the next fat pitch.

 

15% means doubling every five years. I am ok with that :)

The banks are going to earn 15% roe in a few years, certainly this case for WFC.

[rb]

15% means doubling every five years. I am ok with that :)

The banks are going to earn 15% roe in a few years, certainly this case for WFC.

 

Such an underachiever :P

[Valuehalla]

The quarter in done

 

BRK is extremly cheap, just trading at 1,28 x BV

 

BRK.B price              $186.65                   -6.4% since end Q1

BV per B                 app  $145.20         1.29           app 3 % up since end Q1

KHC adj BVPS         app  $146.10         1.28    app 3 % up since end Q1

 

BRK a big big buy !

[Guest longinvestor]

The quarter in done

 

BRK is extremly cheap, just trading at 1,28 x BV

 

BRK.B price              $186.65                   -6.4% since end Q1

BV per B                 app  $145.20         1.29           app 3 % up since end Q1

KHC adj BVPS         app  $146.10         1.28    app 3 % up since end Q1

 

BRK a big big buy !

 

1.2x is the price Buffett is wanting to buy. So @ 1.28x it is overvalued by about 9%

[rb]

I wonder if the price gets close whether the buyback threshold will get altered due to the tax law.

[DooDiligence]

I wonder if the price gets close whether the buyback threshold will get altered due to the tax law.

 

Would you please explain the implications of the new tax law in regards to buybacks?

 

This is an honest question & not an attempt to be inflammatory.

I really want to understand, as I am slowly building BRK into my largest position.

[Dynamic]

I'm not answering for rb, but I recall an off the cuff example in an interview, possibly CNBC after the annual report in February, where Buffett said that if a large block of stock became available, for example from a family or foundation that couldn't easily sell in the open market and they felt it made sense the board might increase the buyback authorisation slightly to maybe 128% or something. A large enough block would be meaningful enough to move the needle in increasing intrinsic value per share.

 

I believe the question was asked in relation to the tax cut. 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.

[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.

[racemize]

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/

[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)

 

 

[Guest longinvestor]

A big block of stock for sale is Buffett’s own annual charitable giving. Wondering if that block could be bought back in a private transaction versus in the general market? As a one timer versus the remaining annual buybacks? That would move the needle, anyone know how many shares that is? My guess is he has another 12 years to give away?

[Guest longinvestor]

A big block of stock for sale is Buffett’s own annual charitable giving. Wondering if that block could be bought back in a private transaction versus in the general market? As a one timer versus the remaining annual buybacks? That would move the needle, anyone know how many shares that is? My guess is he has another 12 years to give away?

 

Of course that would make shareholders wealthier at the expense of the Gates foundation and the beneficiaries thereof. Unless there are clauses!

[John Hjorth]

longinvestor,

 

The donation to the Gates Foundation July last year was 14,220,001 B shares, equivalent to 9,480 A shares.

 

I don't think Mr. Gates would engage in such a transaction though.

 

Edit:

 

So, for this year, it would be about ~ [14,220,001 * 0,95 * ~USD190] ~ USD 2.6 billion. [it doesen't really move the needle! [ : - D] - Absolutely crazy to think about ...]

[Guest longinvestor]

longinvestor,

 

The donation to the Gates Foundation July last year was 14,220,001 B shares, equivalent to 9,480 A shares.

 

I don't think Mr. Gates would engage in such a transaction though.

So $34 billion worth is left to be given away?

[Guest longinvestor]

longinvestor,

 

The donation to the Gates Foundation July last year was 14,220,001 B shares, equivalent to 9,480 A shares.

 

I don't think Mr. Gates would engage in such a transaction though.

 

Edit:

 

So, for this year, it would be about ~ [14,220,001 * 0,95 * ~USD190] ~ USD 2.6 billion. [it doesen't really move the needle! [ : - D] - Absolutely crazy to think about ...]

 

The clause I had in mind is that Gates foundation “holds “ this block and sells it over time?

[John Hjorth]

longinvestor,

 

So you mean rinse and repeat yearly for all those A-shares earmarked for the Gates Foundation to be converted to B, donated to Gates Foundation and then sold back to Berkshire for Berkshire cash?