Berkshire 2030

[ValueMaven]

What does Berkshire 2030 look like?  Have we made another major acquisition at this point?  Has GEICO overtaken State Farm?  Is headquarters paying a dividend?  What does the float look like?!  Interested in what folks have to say!

[Xerxes]

Not a prediction but just to state that Buffet about a year ago did state in an interview with FT that Berkshire will return in aggregate a sum close to $100 billion to shareholders.

 

I am guessing his view might be that Berkshire machine will throw off so much cash that it cannot dispose of it fast enough through investments.

 

One thing for sure the 2021 AGM will be a super interesting event.

[John Hjorth]

Xerxes,

 

What's your source for that particular USD 100 B number? [ I don't recall having read or heard of it it anywhere.]

 

Facts :

 

2017:

 

Net cash flow from operating activities :  USD 45.728 B

Net cash flow from investing activities  : USD -41.009 B

Net cash flow from financing activities : USD -1.398 B

 

2018 :

 

Net cash flow from operating activities :  USD 37.400 B

Net cash flow from investing activities  : USD -32.894 B

Net cash flow from financing activities : USD 5.812 B

 

2019 :

 

Net cash flow from operating activities :  USD 38.687 B

Net cash flow from investing activities  : USD -5.621 B

Net cash flow from financing activities : USD 0.730 B

 

2020H1 :

 

Net cash flow from operating activities :  USD 17.466 B

Net cash flow from investing activities  : USD -42.551 B

Net cash flow from financing activities : USD -2.820 B

 

- - - o 0 o - - -

 

So, - in short -, if Mr. Buffett at some time said so, he was at that time misguiding the reader / listener, [because he was misleading the reader / listener  into mental projections & regressions] - He does not even know what he will do personally within the next twelve months!

 

 

[- & btw, That does not rule out, that Mr. Buffett may have said something in the lines of what you posted.]

[Guest longinvestor]

I’d like to speculate, why not?

 

Intrinsic value at 8-10% growth rate should be near the million mark on the A share basis.

 

Should the stock keep trading below IV until then, they would have retired 300k -400K A share equivalents. They have bought back approximately 50,000 A shares to date.

 

Apple will be a wholly owned sub, ha.

[DooDiligence]

www.reuters.com/article/us-berkshire-buffett-buyback/warren-buffett-says-berkshire-could-buy-back-100-billion-stock-ft-idUSKCN1S12PA

[John Hjorth]

www.reuters.com/article/us-berkshire-buffett-buyback/warren-buffett-says-berkshire-could-buy-back-100-billion-stock-ft-idUSKCN1S12PA

I’d like to speculate, why not?

 

Intrinsic value at 8-10% growth rate should be near the million mark on the A share basis.

 

Should the stock keep trading below IV until then, they would have retired 300k -400K A share equivalents. They have bought back approximately 50,000 A shares to date.

 

Apple will be a wholly owned sub, ha.

 

Thank you to Jeff for posting the link to the Reuters piece,

 

Well, it has been possible - subject to market volume etc. - for some years now -because Berkshire has now held more than USD [120 B - 20 B] for a few years.

 

- - - o 0 o - - -

 

longinvestor,

 

Naturally, it's OK to speculate away. However, what matters is what Mr. Buffett [or his successor] will do in the future [The difference between "saying" and "actually doing" - especially ref. the post by XerXes [, though giving credit to "Not a prediction but just to state that..."]].

 

The Berkshire buyback discussion has been going here on CoBF for now years - nobody here on CoBF has cracked the code [as far as I understand things from reading CoBF].

 

- - - o 0 o - - -

 

In short : "Buffett hot air".

[Xerxes]

Here is the FT article.

 

https://www.ft.com/content/40b9b356-661e-11e9-a79d-04f350474d62

 

I believe this to be the excerpt.

 

"In 2014, Berkshire’s shareholders rejected a proposal that the company should start paying a dividend. But at the time, the company had a far smaller cash pile than today. And analysts wonder if stockholders would vote the same way if Buffett were no longer in charge.

 

The only way Buffett will countenance reducing the company’s massive pile of shareholder equity is to buy back shares when they are selling at a price he thinks is lower than their true value. This amounts, in his view, to buying out a partner at an attractive price. He says the time may come when the company buys back as much as $100bn of its shares (it bought back $1.3bn last year).

 

But what happens when Berkshire’s shares are trading at a fair price, and companies and stocks look expensive too? “That’s my nightmare,” Buffett says."

[John Hjorth]

Thanks for the quote, Xerxes,

 

It basically says it all : The nightmare of being old [read : less time to act] and loaded with cash, and at the same time with an almost life long pledge to do what's best for the long term partners / co-shareholders for the future.

 

There is to me, however, some comfort in that I could easily construct a worse nightmare for a nonagenarian person.

[Xerxes]

John

I think of Buffet comment about $100 billion return in the same vein as I do of Watsa being able to pull something close Teledyne’ buyback program. More or less as aspirational goals.

 

[StubbleJumper]

John

I think of Buffet comment about $100 billion return in the same vein as I do of Watsa being able to pull something close Teledyne’ buyback program. More or less as aspirational goals.

 

 

I don't view it that way. 

 

FFH has had no shortage of places to allocate its capital (some have been good, some have been disappointing), but it has been chronically in need of more to fund its acquisitions, pay that annual divvy and to (not) repay debt.  Prem's assertions about buybacks require a fundamental shift in corporate strategy, which is not an impossible outcome but as they say, I'm from Missouri. 

 

In contrast, BRK generates about $40b of cash from operations per year, and the investment portion of its SCFP and the cash balance sadly demonstrates a lack of opportunities to deploy that capital.

 

So, FFH might be willing to initiate a long-term significant return of capital, but it is largely unable to do so without a drastic change in corporate strategy.  BRK is *fully able* to return $20B per year, but is seemingly unwilling to do so.  The outcome has been similar, but the underlying problem is quite different.  I would not describe Prem's or Warren's statements as "aspirational" but rather as "disingenuous" in both cases.

 

 

SJ

[John Hjorth]

John

I think of Buffet comment about $100 billion return in the same vein as I do of Watsa being able to pull something close Teledyne’ buyback program. More or less as aspirational goals.

 

 

I don't view it that way. 

 

FFH has had no shortage of places to allocate its capital (some have been good, some have been disappointing), but it has been chronically in need of more to fund its acquisitions, pay that annual divvy and to (not) repay debt.  Prem's assertions about buybacks require a fundamental shift in corporate strategy, which is not an impossible outcome but as they say, I'm from Missouri. 

 

In contrast, BRK generates about $40b of cash from operations per year, and the investment portion of its SCFP and the cash balance sadly demonstrates a lack of opportunities to deploy that capital.

 

So, FFH might be willing to initiate a long-term significant return of capital, but it is largely unable to do so without a drastic change in corporate strategy.  BRK is *fully able* to return $20B per year, but is seemingly unwilling to do so.  The outcome has been similar, but the underlying problem is quite different.  I would not describe Prem's or Warren's statements as "aspirational" but rather as "disingenuous" in both cases.

 

 

SJ

 

Thank you to you both for replies, Xerxes & StubbleJumper,

 

Somehow, the whole thing boils down to "hunger" [for returns] vs. risk awareness. [ ; - ) ] - If & when I start selling out of the [monster] Berkshire position owned by my family and I, I'll post about it here on CoBF - You'll likely get no better buying signal! [ ; - ) ]

[Xerxes]

Based on Barron's

"Repurchases totaled $15.7 billion in the first three quarters of 2020, against $4.9 billion for all of 2019."

 

That is ~$20 billion done; so, $80 billion more to go to meet the $100 billion lofty target and some 10 years to do it.

 

 

[ValueMaven]

Assuming 8% operating growth, w/a fairly recession proof business model, and a decrease in the share-count - you get some really interesting terminal value prices in 2030...BERK could retire $20B of shares per year and still be in a net-cash position each year - assuming operating income of ~$25B - ~$30B...and you still have the base $100B of cash on the b/s as well.  Basically, I think this has become a huge cash generator/capital return story with a slightly below market-ish growth over the next decade. 

[Swedish_Compounder]

I would not be totally surprised if they buy back 4-5 percent of their stock per year the coming ten years.

 

Stock portfolio could be worth 600-700 billion.

 

Cash flow from operations 80 billion.

 

Not an unlikely scenario in my view...

[ValueMaven]

I would not be totally surprised if they buy back 4-5 percent of their stock per year the coming ten years.

 

Stock portfolio could be worth 600-700 billion.

 

Cash flow from operations 80 billion.

 

Not an unlikely scenario in my view...

 

How are you getting $80B 10 years out??  Assuming another large deal?  Growth in operating businesses would have to be in the mid-teens (using 2019 as a base assumption) to even have a shot...what am I missing?

[StubbleJumper]

I would not be totally surprised if they buy back 4-5 percent of their stock per year the coming ten years.

 

Stock portfolio could be worth 600-700 billion.

 

Cash flow from operations 80 billion.

 

Not an unlikely scenario in my view...

 

How are you getting $80B 10 years out??  Assuming another large deal?  Growth in operating businesses would have to be in the mid-teens (using 2019 as a base assumption) to even have a shot...what am I missing?

 

Cash from Ops has been $46B, $37B and $39B from 2017 to 2019.  Hitting $80B would basically be a double over 10 years, which is about 7% annually, compounded.  Without undertaking a nuts-and-bolts analysis of how a 7% growth actually would occur, the notion doesn't seem outrageous at first glance.

 

 

SJ

[Swedish_Compounder]

Right. Cash flow from ops will probably have more than doubled from 2010 to 2020. Only really large acquisition during those ten years was PCP I believe (BNSF consolidated from Feb 2010). So 7% CAGR the coming ten years seems achievable I think.

 

Now, they have much more cash to begin with, which they could together with the incoming cash flows use for share repurchases if they decide to do so. If the excess cash stands still or goes down the coming ten years, that could mean they can both afford large repurchases and some acquisition activity.

 

Note that this is not a forecast, but more a view of how it could look ten years from now. Forecasts are always difficult to make... I really hope they step up their share repurchases even if the price goes up some. BRK is still very cheap compared to the market and compared to what they need to pay for acquisitions and other stocks, especially when taking quality into account.

[Guest longinvestor]

Right. Cash flow from ops will probably have more than doubled from 2010 to 2020. Only really large acquisition during those ten years was PCP I believe (BNSF consolidated from Feb 2010). So 7% CAGR the coming ten years seems achievable I think.

 

Now, they have much more cash to begin with, which they could together with the incoming cash flows use for share repurchases if they decide to do so. If the excess cash stands still or goes down the coming ten years, that could mean they can both afford large repurchases and some acquisition activity.

 

Note that this is not a forecast, but more a view of how it could look ten years from now. Forecasts are always difficult to make... I really hope they step up their share repurchases even if the price goes up some. BRK is still very cheap compared to the market and compared to what they need to pay for acquisitions and other stocks, especially when taking quality into account.

 

Well stated! Berkshire stands almost alone in today’s world by way of “Safe&Cheap”.

 

This from another board, there’re fools on both ends in the market right now; those foolish ones to be selling back to Berkshire and those buying shares from (nameless) serial share issuers. There’s lament about how Berkshire is going to intelligently spend their cash while the nameless need to issue shares for cash needs.

 

The tide will go out one day!

[mattee2264]

 

What do you guys think about the key man risk? Most conglomerates tend to sell below book value. So there is still something of a Buffett/Munger premium. If you think book value can compound at 7-10% a year but book value falls from 1.3x book value to 1x book value (or lower) the returns become a lot less attractive. Obviously buybacks will help to some extent and most conglomerates do not really bother with this as a way of eliminating any discounts.

[Every Banana Counts]

 

What do you guys think about the key man risk? Most conglomerates tend to sell below book value. So there is still something of a Buffett/Munger premium. If you think book value can compound at 7-10% a year but book value falls from 1.3x book value to 1x book value (or lower) the returns become a lot less attractive. Obviously buybacks will help to some extent and most conglomerates do not really bother with this as a way of eliminating any discounts.

If Berkshire’s price to book hovered around one for an extended period of time (years), then I think the long-term shareholder would greatly benefit. I cannot imagine a tremendous amount of shares would not be re-purchased. If large amounts of shares are not re-purchased at that level, then they would likely be getting opportunities to make much higher returned elsewhere. This would also be a great scenario for Berkshire. It is a good point you make, but that is why it is important to entrust your money to great capital allocators.

[longterminvestor]

Some old timers of COBF may have discussed this and I know Chris Bloomstran discusses a little in his letter; I have been thinking quite a lot about Differed Taxes (21% - maybe going to 35%) on the stocks - specifically Apple.  Relevant to the 2030 Berkshire equation. 

 

Apple goes from $35B to $135B - that's a gain of $100B.  Pause....we are talking about $100,000,000,000....incredible value creation in 5years.  Just to put that in perspective, that's the entire value of:  IBM ($106B), Caterpillar ($104B), American Express ($102B), Goldman Sachs ($100B), GE ($97B). 

 

OK, back to the post, $100B Gain in Assets and the offset on Liabilities is 21% Tax Differed on Gain for eventual sale at $21B.

 

My point, if we are valuing Berk on Price/Book - can we "adjust" the differed tax liability amount essentially boasting the book value on basis that there will not be a sale in these holdings?

 

Here are some positions that I would consider perma-holds:

 

American Express...Cost:$1.287B.........Market Val:$19.124B.........UNREALIZED GAIN:$17.837B

Apple....................Cost:$35.287B.......Market Val:$134.163B.......UNREALIZED GAIN:$98.876B

Bank of America.....Cost:$12.560B.......Market Val:$32,586B.........UNREALIZED GAIN:$20.026B

Coca Cola..............Cost:$1.299B.........Market Val:$19.396B.........UNREALIZED GAIN:$18.097B

Moody's.................Cost:$248M...........Market Val:$6.579B...........UNREALIZED GAIN:$6.331B

Visa.......................Cost:$349M..........Market Val:$2.017B...........UNREALIZED GAIN:$1.668B

                                                                                      TOTAL UNREALIZED GAIN:$162.835B @ 21% = $34.195B Differed Tax

 

With differed tax at $67B as of Q3, we could call the gains in the above 6 names 50% of the differed tax....that hopefully never gets paid.  Isnt there an adjustment for this?  At very least cant we allocated the $35B and call it "Float"?

 

I could be missing something here - and I am sure someone has thought about this.  Just wanted to share something I was noodling on.  Hope all is well - looking forward to new site layout. 

 

 

 

 

 

[woodstove]

Interesting post LTI.  Well, just thinking laterally -- Apple could acquire BH and thereby achieve a big stock buyback.  Would that resolve the deferred tax liability?

[no_free_lunch]

Berkshire has a number of wholly owned subsidiaries that are not publicly listed. if they were they would trade relative to earnings not book value. As such it may not be fair to compare them other conglomerates.

 

Another way to look at it, imagine if Berk had bought apple outright. They would list it at book, purchase price, and you would only see gains to book. However I suspect the stock price of apple has outgrown the book value increase of the same company.  So by owning the equity shares their "book" has gone up more than if they had owned the same company consolidated on their balance sheet.  Hence why buffet believes true book is some multiple of the reported value.

 

I am just echoing above a discussion I read here years ago.  Essentially it is complicated and not all book values are the same.

 

[Xerxes]

John

I think of Buffet comment about $100 billion return in the same vein as I do of Watsa being able to pull something close Teledyne’ buyback program. More or less as aspirational goals.

 

 

I don't view it that way. 

 

FFH has had no shortage of places to allocate its capital (some have been good, some have been disappointing), but it has been chronically in need of more to fund its acquisitions, pay that annual divvy and to (not) repay debt.  Prem's assertions about buybacks require a fundamental shift in corporate strategy, which is not an impossible outcome but as they say, I'm from Missouri. 

 

In contrast, BRK generates about $40b of cash from operations per year, and the investment portion of its SCFP and the cash balance sadly demonstrates a lack of opportunities to deploy that capital.

 

So, FFH might be willing to initiate a long-term significant return of capital, but it is largely unable to do so without a drastic change in corporate strategy.  BRK is *fully able* to return $20B per year, but is seemingly unwilling to do so.  The outcome has been similar, but the underlying problem is quite different.  I would not describe Prem's or Warren's statements as "aspirational" but rather as "disingenuous" in both cases.

 

 

SJ

 

Thank you to you both for replies, Xerxes & StubbleJumper,

 

Somehow, the whole thing boils down to "hunger" [for returns] vs. risk awareness. [ ; - ) ] - If & when I start selling out of the [monster] Berkshire position owned by my family and I, I'll post about it here on CoBF - You'll likely get no better buying signal! [ ; - ) ]

 

John

Don't sell !! :)

 

Berkshire buybacks (pulled from the other thread):

2018: $1.3 bil

2019: $5 bil

2020: $25 bil

 

That is $30 billion right there out of the $100 billion Buffet tossed out in his FT interview in 2018.

The ten year timeline has been front-loaded and accelerated by the pandemic.

[StubbleJumper]

John

I think of Buffet comment about $100 billion return in the same vein as I do of Watsa being able to pull something close Teledyne’ buyback program. More or less as aspirational goals.

 

 

I don't view it that way. 

 

FFH has had no shortage of places to allocate its capital (some have been good, some have been disappointing), but it has been chronically in need of more to fund its acquisitions, pay that annual divvy and to (not) repay debt.  Prem's assertions about buybacks require a fundamental shift in corporate strategy, which is not an impossible outcome but as they say, I'm from Missouri. 

 

In contrast, BRK generates about $40b of cash from operations per year, and the investment portion of its SCFP and the cash balance sadly demonstrates a lack of opportunities to deploy that capital.

 

So, FFH might be willing to initiate a long-term significant return of capital, but it is largely unable to do so without a drastic change in corporate strategy.  BRK is *fully able* to return $20B per year, but is seemingly unwilling to do so.  The outcome has been similar, but the underlying problem is quite different.  I would not describe Prem's or Warren's statements as "aspirational" but rather as "disingenuous" in both cases.

 

 

SJ

 

Thank you to you both for replies, Xerxes & StubbleJumper,

 

Somehow, the whole thing boils down to "hunger" [for returns] vs. risk awareness. [ ; - ) ] - If & when I start selling out of the [monster] Berkshire position owned by my family and I, I'll post about it here on CoBF - You'll likely get no better buying signal! [ ; - ) ]

 

John

Don't sell !! :)

 

Berkshire buybacks (pulled from the other thread):

2018: $1.3 bil

2019: $5 bil

2020: $25 bil

 

That is $30 billion right there out of the $100 billion Buffet tossed out in his FT interview in 2018.

The ten year timeline has been front-loaded and accelerated by the pandemic.

 

 

Yes, we have finally seen some meaningful buybacks.  I'm still not sure why it took until 2020 to do it.  The cash to do it has been there for quite some time, and heaven knows that the valuation has been reasonable for a lengthy period.  It's good to finally see.

 

 

SJ