Berkshire closed down to near book value

[rb]

BRK is basically this city on top of a hill with huge walls, surrounded by rows of moats filled with crocodiles and sharks and with dragons flying around. The S&P is the slum down below. If the economic performance is the same you should pick the castle. Sure the slum can be more fun than the stodgy castle. But when the Mongol hoards come around being in the castle is pretty sweet. And those damn Mongols have a tendency to come with some regularity to ruin the party.

 

BRK is this city on a top of a crumbling hill with dilapidated walls, surrounded by half empty moats with couple of zebra fish floating in them.

 

FAAMG are shining metropolis in the cloud(s) with glass and steel skyscrapers, flying cars zooming around, protected by laser beams, firewalls, and army of Agent Smiths.

 

SP500 actually includes the metropolis. Includes some slums too.

 

Your pick.

Google 2010 EPS 26.31

Google 2019 EPS 49.16

Google EPS CAGR  7.2%

 

Berkshire Net Operating income CAGR 12.6%

 

But hey, cat videos.

[frommi]

Google 2010 EPS 26.31

Google 2019 EPS 49.16

Google EPS CAGR  7.2%

 

Berkshire Net Operating income CAGR 12.6%

 

But hey, cat videos.

 

You should double check your numbers :)

[rb]

Google 2010 EPS 26.31

Google 2019 EPS 49.16

Google EPS CAGR  7.2%

 

Berkshire Net Operating income CAGR 12.6%

 

But hey, cat videos.

 

You should double check your numbers :)

The numbers are good. Maybe you can point where I made a mistake.

[frommi]

The numbers are good. Maybe you can point where I made a mistake.

 

At least according to ycharts 2010 eps was around 13$ which would be a cagr of ~14%.

[rb]

The numbers are good. Maybe you can point where I made a mistake.

 

At least according to ycharts 2010 eps was around 13$ which would be a cagr of ~14%.

Don't know about ycharts. I used the 10-k. See attached.

[racemize]

The numbers are good. Maybe you can point where I made a mistake.

 

At least according to ycharts 2010 eps was around 13$ which would be a cagr of ~14%.

Don't know about ycharts. I used the 10-k. See attached.

 

Missing the stock split--in today's numbers it was $13.16

[thepupil]

and just big picture, GOOG went from $30 bilskys to $166 bilsky's of revenue over that time frame.

 

i make this point often enough, but I'll just say that one can own both Berkshire and large cap tech. I think Berkshire's grown its intrinsic value per share over the last decade at a very nice rate that has preserved and grown shareholder purchasing power. Regardless of whether they are currently "expensive"* large cap tech has done that to a far greater degree and created gobs more value. This doesn't invalidate Berkshire ownership and you are still allowed at the Berkshire meetings if you admit you own tech stocks. Even dear Uncle Warren has made one of the FAAMG's his third largest subsidiary (1. Insurance 2. Railroad 3. Apple).

 

you don't have to choose between the two.

 

*I think they are and I think Berkshire is "cheap"...anti-berkshire sentiment is high and love for FAAMG seems to know no bounds, but we shouldn't kid ourselves and pretend that Berkshire has grown in value in the same way these cash spewing colossi of capitalism have over the past decade. 

[Viking]

Another factor boosting S&P 500 earnings per share data the past 10 years is the huge amount of debt taken on by corporations to buy back shares. Some call it effective use of balance sheet and others call it financial engineering.

 

BRK did not ‘lever up’. Did the opposite in fact by building cash to $135 billion. This should matter when looking at earnings moving forward. Especially as we start the ‘most severe recession since the Great Depression’.

[physdude]

The numbers are good. Maybe you can point where I made a mistake.

 

At least according to ycharts 2010 eps was around 13$ which would be a cagr of ~14%.

 

Yes, that is probably right. What is interesting is that it is not really that different from Berkshire's 12.6% but you might be forgiven for thinking that there was a vast difference in Google's favor by the way it is generally talked about.

[rb]

The numbers are good. Maybe you can point where I made a mistake.

 

At least according to ycharts 2010 eps was around 13$ which would be a cagr of ~14%.

Don't know about ycharts. I used the 10-k. See attached.

 

Missing the stock split--in today's numbers it was $13.16

Thanks racemize. I was surprised that the Google's number was so low too and did double check - not well enough.

 

So that puts Google's EPS CAGR at 15.7% vs 12.6 for Berkshire. It's still not bad for that decrepit company.

 

The point I was trying to make is how well actually BRK did with rail and bricks and all the other boring stuff. If they have another one of these "lost decades" and one buys it at these prices I suspect that one will do quite well.

[thepupil]

Another factor boosting S&P 500 earnings per share data the past 10 years is the huge amount of debt taken on by corporations to buy back shares. Some call it effective use of balance sheet and others call it financial engineering.

 

BRK did not ‘lever up’. Did the opposite in fact by building cash to $135 billion. This should matter when looking at earnings moving forward. Especially as we start the ‘most severe recession since the Great Depression’.

 

Hmmm,

 

1) bank’s de-levered and de risked over the past decade.

2) large cap tech is extremely cash rich (GOOG, FB,MSFT, AAPL) and did not really lever up (though some did issue bonds) and these are the drivers of the index’s sales growth and stock price return (unsure on EPS)

3. Most of the S&P 500 has what I’d regard to be low debt to EBITDA

 

Can you point me to some S&P 500 specific data that indicates they levered up? And what % of the S&P the guilty parties conprise? The corporate / US wide includes PE owned and small companies which are a different and far more levered story

 

I have looked at this before and always conclude that large cap blue chip stocks have little balance sheet risk. My posts on this (and counters to it are in an old thread I can’t find at this time)

[ValueMaven]

Bought more just below $180.  Seems like 99/00 to me when Berk became extremely cheap.  Interesting confluence of many events: rails all-time highs, GEICO booming, APPL all-time highs, insurance pricing improving, stability of uts....yet sitting on a ton of cash, banks underperforming, equity portfolio is mixed.  Frankly, I have FV pegged at $240 - $260 currently.  By my estimation BRK is trading below ~1.2x BV, more like 1.15x currently.  Apply a reasonable multiple to the earnings (below market), add back investment-per share and I think you get a fair target for where it should be trading. 

 

In terms of next acquisitions - I dunno - Oaktree would have been extremely interesting to buy - but not typical BRK; something countercyclical?  WEB mentioning how $130B in cash is not high for worst-day outcomes was a really bad comment IMHO....Dont break it up - but start a small divy policy...esp given how stable the operating biz's have shown to be. 

 

Others - thoughts?? 

[LC]

I was buying in the 170s, and already own calls I purchased back in the 180 range.

 

I feel pretty good about Brk's main areas. The cash gives optionality as well.

[aws]

Berkshire seems to keep finding a way to get relatively cheaper.  In the past month or so the market cap is up $25 billion, but Berkshire's investment portfolio is up about the same $25 billion, so Berkshire as a business is the same price it was at the lows in May.  Much of that growth is Apple, which at the current market values represents 20% of Berkshire.

 

It's not like I need to sell or anything and actually I'd like to buy quite a bit more, so I shouldn't really mind, but sometimes the simian part of your brain just wants to see numbers getting bigger.  It's getting to the point now that I want to use Berkshire as a proxy for cash in my portfolio, where if I sell something else I immediately roll the proceeds into Berkshire.  It's about 1/3rd cash anyway.

[physdude]

There is some evidence that there might have been a decent amount of buybacks in Q2 - https://finance.yahoo.com/news/buffetts-berkshire-hathaway-reduces-share-160700854.html . 19,000 A shares is a decent buyback and above my diminished expectations after the AGM but I would have really liked 20-30 billion dollars of them at these really low prices.

[LearningMachine]

There is some evidence that there might have been a decent amount of buybacks in Q2 - https://finance.yahoo.com/news/buffetts-berkshire-hathaway-reduces-share-160700854.html . 19,000 A shares is a decent buyback and above my diminished expectations after the AGM but I would have really liked 20-30 billion dollars of them at these really low prices.

 
I'm calculating BRK repurchased 23,744.4 class A shares equivalent as follows:

• On Feb 13, 2020, BRK had 700,395 Class A and 1,385,994,959 Class B shares outstanding, adding up to a total of 1,624,393 Class A equivalent shares.  See https://www.berkshirehathaway.com/2019ar/2019ar.pdf.
   
  
• On July 7, 2020, Buffett owned 248,734 Class A and 10,188 Class B shares, adding up to a total of 248,740.792 Class A equivalent shares.  His total economic share in BRK was 15.54%.  This puts total Class A equivalent shares of BRK to be 248,740.792/0.1554 = 1,600,648.597. See https://www.sec.gov/Archives/edgar/data/315090/000119312520189490/d936378dsc13da.htm
   
  
• 1,624,393 - 1,600,648.597 = 23,744.4 class A equivalent shares repurchased

[redskin]

There is some evidence that there might have been a decent amount of buybacks in Q2 - https://finance.yahoo.com/news/buffetts-berkshire-hathaway-reduces-share-160700854.html . 19,000 A shares is a decent buyback and above my diminished expectations after the AGM but I would have really liked 20-30 billion dollars of them at these really low prices.

 
I'm calculating BRK repurchased 23,744.4 class A shares equivalent as follows:

• On Feb 13, 2020, BRK had 700,395 Class A and 1,385,994,959 Class B shares outstanding, adding up to a total of 1,624,393 Class A equivalent shares.  See https://www.berkshirehathaway.com/2019ar/2019ar.pdf.
   
  
• On July 7, 2020, Buffett owned 248,734 Class A and 10,188 Class B shares, adding up to a total of 248,740.792 Class A equivalent shares.  His total economic share in BRK was 15.54%.  This puts total Class A equivalent shares of BRK to be 248,740.792/0.1554 = 1,600,648.597. See https://www.sec.gov/Archives/edgar/data/315090/000119312520189490/d936378dsc13da.htm
   
  
• 1,624,393 - 1,600,648.597 = 23,744.4 class A equivalent shares repurchased

 

There were 1,620,023 class A equivalent according to the 1st quarter 10-Q.  About 19,300 this quarter.

[gfp]

Yes, 19,374.65 A-share equivalents this quarter - actually since 4/23/2020 because there were virtually zero repurchases between quarter end and 4/23.

[LearningMachine]

Thanks redskin and gfp.

 

For April 23, 2020, you're right. I was able to confirm 1,620,023 Class A equivalent shares at https://www.berkshirehathaway.com/qtrly/1stqtr20.pdf

For July 7, 2020, I am getting 1,601,290.26 based on calculation above using numbers at https://www.sec.gov/Archives/edgar/data/315090/000119312520189490/d936378dsc13da.htm

 

1,620,023 - 1,601,290.26 = 18732.74 class A equivalent shares purchased between April 23, 2020 and July 7, 2020.

 

Are you getting different numbers for July 7, 2020 using a different calculation from what I did earlier?

 

Looks like the lowest the share price hit during that time was 168.52 on May 15, 2020. Wondering if he picked it up all under $170?

[gfp]

My math for July 7th implied share count is the same as your math a few posts above.  If 248,740.792 is 15.54% economic interest, then 100% of economic interest is going to be 1,600,648.597 A-share equivalents.  I think you had the July share count correct a few posts ago.  Not sure what changed your mind.

[scorpioncapital]

What's amazing is that such a large buyback is still only 1 quarter of earnings. And there is still over 127 billion of cash after the 10 billion for Dominion assets. It just seems they can't stop making $$$ )

 

[gfp]

They are not putting $10 Billion cash into buying the D assets.  And it won't happen until the end of the year.  They also sold all their airline stocks, raising cash.  Plus whatever rolled in through typical business operations and investment income.  Cash could be $145 Billion at quarter end I suppose.  I was thinking $150-ish before knowing the repurchase figures.

[Guest longinvestor]

What's amazing is that such a large buyback is still only 1 quarter of earnings. And there is still over 127 billion of cash after the 10 billion for Dominion assets. It just seems they can't stop making $$$ )

 

Even more amazing is the likelihood of them making about half a trillion of reported earnings  over the next decade. Just with what they own now!

[Charlie]

Also amazing is that Apple is at 1.663T market cap and Berkshire at 443.17B market cap.

 

There could be a share price run up pretty soon, because of the acquisition, buyback activity, Witmer insider purchases, good earnings (the mayor investments should be earning good money) and 5% of Apple. I bought more on Friday after I read about the buyback activity.

 

Cheers!

[LearningMachine]

My math for July 7th implied share count is the same as your math a few posts above.  If 248,740.792 is 15.54% economic interest, then 100% of economic interest is going to be 1,600,648.597 A-share equivalents.  I think you had the July share count correct a few posts ago.  Not sure what changed your mind.

 

Thanks gfp for figuring out the discrepancy.

 

You're right:  1,620,023 -  1,600,648.597 =  19,374.65 class A equivalent shares bought between April 23 and July 7, 2020.

 

I was getting 1,601,290.26 for July 7 in another column by doing longer math based on voting power percentage declared in the SEC document.  Because voting power percentage and economic interest percentage are both rounded to only 2 decimal places in the sec doc, they produce different figures, but good that the figures are not that far off.