2021 Q4 BV

[Blugolds]

Omaha, and shareholders vote has been pretty clear about why there is no dividend and how they feel about it.  If looking for a div maybe BRK isnt what you are looking for. Personally, as a long time shareholder with the majority of my port in BRK, I would prefer they do not pay a dividend. I would prefer they continue to invest it, spend it (BHE has potential as a place to park a TON of cash in the future with satisfactory returns) or use it to buyback shares. A dividend would be pretty much dead last on my list of options I would like them to take. 

 

Their strategy is nothing new here. As a shareholder or potential shareholder, either you're on board or youre not. If not, plenty of decent dividend names out there as alternative options...its just not BRK and I dont see that changing while WB is still captain of the ship. 

[thepupil]

• 9 hours ago, aryadhana said:

   

   

  THAT SAID- if it's going to be perpetually cheaper than it is worth, it has to pay a dividend (and not just a token) or commit to repurchasing itself when it is less than fully priced.  Otherwise going to be a bad investment.  

   

• 97% voted against divvy in 2014 for a reason (tax inefficiency vs buyback, desire to have WEB retain/reinvest earnings). 
• Berkshire's been close to 100% payout ratio on operating earnings w/ some px sensitivity but $28B in 2021 of buybacks isn't half bad, capital return is robust. buyback is same as divvy, but better tax efficiency
• now net buyer of equities and balance sheet is significantly less lazy (Y purchase, big energy buys, etc)
• Berkshire has returned 14.8% / yr over last decade (+0.5% vs SPX), 13.8% over 5 (+0.5%), 16.9% over 3 (+0.5%), 13.6% over 1 (+13%). And you think it's still undervalued so fundamental intrinsic value growth has been even better(assuming you're right). In what world is that a "bad investment"?
• all seems well. 

 

 

[aryadhana]

12 hours ago, thepupil said:

• 97% voted against divvy in 2014 for a reason (tax inefficiency vs buyback, desire to have WEB retain/reinvest earnings). 
• Berkshire's been close to 100% payout ratio on operating earnings w/ some px sensitivity but $28B in 2021 of buybacks isn't half bad, capital return is robust. buyback is same as divvy, but better tax efficiency
• now net buyer of equities and balance sheet is significantly less lazy (Y purchase, big energy buys, etc)
• Berkshire has returned 14.8% / yr over last decade (+0.5% vs SPX), 13.8% over 5 (+0.5%), 16.9% over 3 (+0.5%), 13.6% over 1 (+13%). And you think it's still undervalued so fundamental intrinsic value growth has been even better(assuming you're right). In what world is that a "bad investment"?
• all seems well. 

 

 

I think the tax efficiency of buybacks over dividends, while real, is vastly overestimated.  We can get into it if you'd like.

2014 is very different from 2022.  At the end of the day, an investment made for its intrinsic value is good if you are happy with what you get if all markets were closed.  And that eventually requires a dividend.  

 

An undervalued to intrinsic value Berkshire is a bad investment in the world where I am right and the marginal buyer and marginal seller do not agree that I am right.  A dividend is a forcing mechanism, enabling the person who is actually right to reap his rewards in due time.  Repurchases are only a forcing mechanism insofar as there is a real and definite plan to eventually begin dividends, by increasing the dividendable amount per share.  

 

I don't really care if there are no dividends for a decade, just that there eventually will be one.  

[thepupil]

for those subject to state taxation, taxes on dividends can be 25 - 33%. it's a major factor,. I don't really love dividend paying C corps for the taxable account...until the dems tax repo's same as divvies, I think corps that pay a dividend are doing taxable shareholders a disservice (and this kind of makes sense because taxable shareholders aren't the dominant portion of equity holders)...if i were a low income florida resident i'd feel differently...I prefer pass through entities (partnerships/REITs etc) or earnings retainers for taxable. 

 

$100 of pretax earnigns

$80 post tax (20% corp tax rate) 

$80 dividend 

$56 post tax dividend (30% tax rate)

 

44% effective tax rate on dividended earnings. forced incidence of tax

 

$100 pretax earnigns 

$80 post tax 

buy back $80 of stock. 

 

shareholder chooses when tax is realized (and may defer quasi perpetually via borrowing/margin)

 

think we'll have to agree to disagree here...i don't really see any real difference between 2014/2022 with regards to whether or not berkshir eshould pay a divvy. in fact, the capital return has become far more satisfactory (the repo program is more sensible, flexible, and material) so if anything, I see even less of  need for a divvy now than before

 

i also think WEB has cultivated a shareholder base that would very much not want a divvy...though that will depend on how a few big holders of a shares feel. 

 

Edited June 1, 2022 by thepupil

[Spekulatius]

Dividends work for me because I have 2/3 of my assets in tax free accounts. I do agree that buybacks are more tax efficient in theory, but buybacks also tend to be pro cyclical and companies tend to buy back stock when valuation are elevated. This even applies to Berkshire - Buffet didn’t  buy back stock when the B shares were at $200 (and below) but then went massive in when b shares were above $250.

 

Now I understand why he did it, but it’s an inefficiency nevertheless and there are many much worse cases than Berkshire in terms of timing buybacks.

 

Then again, WEB and the shareholders are crystal clear about their preferences. If you like dividends, there are plenty of decent choices to put your money in.

Edited June 4, 2022 by Spekulatius

[ValueMaven]

Berkshire is fairly cheap here given the earnings stability of the business, and Warren's recent capital allocation moves have been brilliant.  Ramping up OXY equity aggressive (cost basis in the high $40s vs. common at $70 day), acquiring Y, and some recent CAPEX approvals at BHE in the midwest (one was $3B in regulated electric power lines for renewable energy which was recently approved).  We are now also actually earning something on our cash pile as well!  

[LC]

Yep - I agree. Picked up some shares recently. They are a safe harbor in what may be choppy waters, and I agree with you that Warren's recent moves have been attractive.

[yesman182]

My 2022 normalized earnings estimate, dollars in millions:

$750  - Insurance Underwriting

$5,050  -  Insurance-Investment Income

$6,200  -  Railroad

$3,780  -  Utility and Energy

$12,000  - MSR

$952  - Amortization Add Back

$1,000  -Retained Earning at Investee Company

$15,000  - Pre-Tax Investment look through

-----------------------------------------------------------------

$44,732 Normalized earnings

I calculated the look through earning at 15B. I did this by taking the portfolio share count from the CNBC portfolio tracker for each holding.  I then used the 2022 earnings and dividend estimates from Valueline for each holding.

 

So with this estimate it’s trading around a PE of 15.

 

I’d be curious to see what others think the normalized earnings power for this year will be.

[flesh]

6 hours ago, yesman182 said:

My 2022 normalized earnings estimate, dollars in millions:

$750  - Insurance Underwriting

$5,050  -  Insurance-Investment Income

$6,200  -  Railroad

$3,780  -  Utility and Energy

$12,000  - MSR

$952  - Amortization Add Back

$1,000  -Retained Earning at Investee Company

$15,000  - Pre-Tax Investment look through

-----------------------------------------------------------------

$44,732 Normalized earnings

I calculated the look through earning at 15B. I did this by taking the portfolio share count from the CNBC portfolio tracker for each holding.  I then used the 2022 earnings and dividend estimates from Valueline for each holding.

 

So with this estimate it’s trading around a PE of 15.

 

I’d be curious to see what others think the normalized earnings power for this year will be.

Nice, I usually (in my head) just take the stock port of 330 b divided by the s and p pe , currently 21.... gets you close to same number. Also either take some of the cash off mkt cap or add a few percent earnings for the cash. 100b=3b etc. At least comparatively this works as the sandp has little cash. 

 

 

[scorpioncapital]

"$15,000  - Pre-Tax Investment look through"

 

Look through earnings would seem to be represented by the change in unrealized/realized capital gain/loss declared each year. Otherwise, how do you access these funds , as they are internal to the company. Even if they do buybacks, it still shows up in carrying value.

 

[Swedish_Compounder]

On 6/7/2022 at 5:10 AM, yesman182 said:

My 2022 normalized earnings estimate, dollars in millions:

$750  - Insurance Underwriting

$5,050  -  Insurance-Investment Income

$6,200  -  Railroad

$3,780  -  Utility and Energy

$12,000  - MSR

$952  - Amortization Add Back

$1,000  -Retained Earning at Investee Company

$15,000  - Pre-Tax Investment look through

-----------------------------------------------------------------

$44,732 Normalized earnings

I calculated the look through earning at 15B. I did this by taking the portfolio share count from the CNBC portfolio tracker for each holding.  I then used the 2022 earnings and dividend estimates from Valueline for each holding.

 

So with this estimate it’s trading around a PE of 15.

 

I’d be curious to see what others think the normalized earnings power for this year will be.

I would use owner earnings for BRK:s fully owned businesses. Doing that better captures the value of float increase and deferred taxes.

[Spekulatius]

On 6/6/2022 at 11:10 PM, yesman182 said:

My 2022 normalized earnings estimate, dollars in millions:

$750  - Insurance Underwriting

$5,050  -  Insurance-Investment Income

$6,200  -  Railroad

$3,780  -  Utility and Energy

$12,000  - MSR

$952  - Amortization Add Back

$1,000  -Retained Earning at Investee Company

$15,000  - Pre-Tax Investment look through

-----------------------------------------------------------------

$44,732 Normalized earnings

I calculated the look through earning at 15B. I did this by taking the portfolio share count from the CNBC portfolio tracker for each holding.  I then used the 2022 earnings and dividend estimates from Valueline for each holding.

 

So with this estimate it’s trading around a PE of 15.

 

I’d be curious to see what others think the normalized earnings power for this year will be.

@yesman182 awesome analysis and thanks for posting. I think this is how Buffett et all probably look at Berkshire’s valuation as well. The stock does not look screaming cheap but not expensive at all either.

[sfbm21]

1 hour ago, Spekulatius said:

@yesman182 awesome analysis and thanks for posting. I think this is how Buffett et all probably look at Berkshire’s valuation as well. The stock does not look screaming cheap but not expensive at all either.

Is n’t at PE of 10. Trading at 452000 off today .

[gfp]

2 minutes ago, sfbm21 said:

Is n’t at PE of 10. Trading at 452000 off today .

 

Not sure I am understanding your post but the figures posted here are not "per share" figures if that helps.

[sfbm21]

On 3/2/2022 at 3:30 PM, thepupil said:

 

i mean it's all one account, but Berkshire is the anchor tenant in my taxable account w/ IBKR. IT's about 30% of that account, which currently has no margin outstanding because i'm getting ready to send a boat load of money to uncle sam in april. if i choose to sell nothing and pay that with margin, I'd be about 20% levered in that account and <10% overall (including IRA's and stuff). 

 

I think margin usage is a very individual choice and one should potentially include the cost of "disaster puts" (way OTM) in order to prevent forced sales. 

 

In the past, I've used a general guideline of Buy $100 of Berkshire, Buy 30% OTM long term puts for 1-2%/yr, borrow $40 against the berkshire for general pupil purposes. that way i could always sell for a 30% loss and still be in line with general margin guidelines. 

 

IBKR would let me go nucking futs with margin. i could be 300% long if i wanted to. 

Could you elaborate on margin trade, $40 borrow against $100 of stock. Does IBKR allow borrow cash on margin?

[sfbm21]

5 minutes ago, gfp said:

 

Not sure I am understanding your post but the figures posted here are not "per share" figures if that helps.

My bad.is it 666b market cap by 44b earnings comes to 15?

[ValueMaven]

Added to my position here at $295 

[throw123]

same 294

[LC]

293 for me 

[sfbm21]

293 for me

 

[throw123]

anyone estimated current book Value? 

Edited June 13, 2022 by throw123

[backtothebeach]

15 hours ago, throw123 said:

anyone estimated current book Value? 

 

My Google sheet with BRK's stock holdings is a quarter out of date, but a rough guess would be current "realtime" BV around $210.

[yesman182]

Barron’s recent article says $210

 

 

[ValueMaven]

Bought a bunch today at $270 !!