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Tilson's latest intrinsic value on BRK as at 27 Feb 2018


kiwing100
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Slide 11 too states that the Tax Reform bill passed at the end of 2016 (rather than 2017).

 

That slide and slide 12 both could so easily look as though the implied multiple on pre-tax profit has been calculated after the fact to fit the real share price action, but I think given the interest rate and inflation environment as it has varied over time and the change to the tax rate environment being factored in as 2017 drew to a close, they are actually reasonable multiples, and $348,638 per A share ($232.43 per B share) is about right for an Intrinsic Value at the close of 2017.

 

(This works if you take IV to mean a value that allows for an excess return in the range of perhaps 6-9% above the risk-free rate) - which means you might still expect BRK's IV to compound at around 8-13% (or 6-9% in real terms, if inflation roughly matches the risk-free rate), given that the BV growth rate is probably in about that range too.

 

I believe growth in IV of around 9-12% is fairly probable by the end of 2018, so a BRK.B price as high as $260 later in the year likely wouldn't lead me to consider the stock significantly overvalued.

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Tilson calculates the intrinsic value growth and the cash pile growth separately?  Slide 13 shows 6% IV growth + $10,000 in cash build/A-share. 

 

It seems to me as though the cash build would normally be included in the growth of IV.  Putting in the growth in cash, the IV growth projection bumps up a few percent.

 

That makes more sense to me.  Even if BRK is very safe, 6% growth in a stock isn't something to get excited about.  On slide 22 it states an IV growth of 6-8%.  If that is ex-cash, and cash adds a few percent, then that makes more sense.  High single to low double digit growth in IV in a safe stock is a different story.

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Slide 7.... it looks like the data for 2015 non-insurance was repeated for 2017?  ......

 

Yup, I mentioned this above and emailed this and a couple of typos to Whitney Tilson, who said thanks and that he would fix it, so perhaps in a few days it will be revised.

 

The analysis is still pretty sound in my opinion, and I think this Berkshire slideset has been a valuable resource for a number of years, and I'm appreciative that he keeps it updated.

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Buffett said that even in a "so-so" economy he expects IV to grow at +8%...that is probably conservative...he has also said that in the last 10 years IV grew by 10% per year and he thinks he can do that in the next 10 years if rates rise a bit...Buffett has always been conservative so maybe 9-11% IV growth for the next decade is a good target

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Is the intrinsic value increase of 6% appropriate?  It seems like it should be higher from my experience (assuming no market collapse which will drag the equity portfolio down significantly).

 

I mentioned upthread that I believe Tilson was stating 6% IV growth without counting the cash build, which he put at 10,000/A share.  He also later used a 6-8% IV number.  So, that implies a higher IV number.  I am not sure I am correct here, but I believe that is how Tilson is putting things.  I think it is a little confusing, as the IV growth should include the value of any cash build.

 

I think 8-10% IV growth/year over the next 10 years is a good estimate.  If you buy at a good price, I think that you can boost the 10-yr CAGR you'll get as an investor a percentage point or so.

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