Anyone buying BRK.B at current levels?

[KPO]

1 hour ago, Gregmal said:

For a few years I had a picture of the article from some expert, I forget the guy, who was calling for a “further 20-30%” decline at like 680 S&P in 2009. Reminder to self, don’t ever be that clown. 
 

In 2008-09, the GFC occurred because the entire system was illiquid and propped up by ghost loans and phantom products tied to a housing market that was unsustainable in terms of pricing and supply. The 10 year then was what? Maybe 5%? As a result, major banks failed, housing which is the largest driver of the economy imploded and the market fell like 45-50% from the peak to the trough.

 

Today, depending on which index you think is most relevant, we re off maybe 25%. Why? Supposedly it’s a 3.5% 10 year and one minute the economy is too hot and needs to be killed and then next minute it’s OMG the economy is headed for a recession? Housing is fundamentally sound, job market strong, unemployment low, individual household balance sheets better than they’ve been in ages….Of course markets can go anywhere short term but it’s a little preposterous and definitely bombastic to currently be acting as if it s a given there is significantly more material downside. And yes, I am aware we can list every current fear, ignore the ytd declines and state that it’s not priced in, and then find further reason to be scared, but idk, I’d rather just look for good solid attractive long term investments than run in that hamster wheel.

At best timing markets is a difficult task and at worst it’s foolish for those that have a low stock allocation.  I’m actually not buying here, but I understand why folks would start averaging into this and several other quality names.  Who am I to question an investing legend, but I never loved the Apple position sizing and I think it carried Berkshire $30-40 per B share above fair value and is now pulling it down. Both are great companies, but that doesn’t mean they’re priceless. I last bought several times between $170 & $180 during Covid (out of pure luck), so would like to see the late 2019 prices of $210-220 before buying again….and this is partially because there are more interesting opportunities currently. 

[Gregmal]

Ya I’ve never loved the AAPL position, it’s size, or Buffetts indications he d buy more after what was a mere 10% dip. But I’ve also been wrong on Apple too for a while so that’s the appeal as well of BRK, outsourcing brainwork. In a way, I am to AAPL what a lot of the current general market bears are. “Woohoo it’s going down, I knew it!”….truth is I started mouthing off about it being overvalued at prices it’s still well above so I don’t really deserve a victory lap….
 

I agree there are much more compelling investments than Berkshire if you care to look. There are actually a lot of super compelling cheap ones.. Personally I’ve exhausted myself the past decade investing in a manner that requires being fully plugged in, 24/7, and after last year into Q1s bonanza I kind of decided I want to allocate more time to the real world and less to investing. Burnout I guess. So I decided the to wait for the next big market dislocation and begin the process is shifting to just buying shit I don’t have to spend too much time on, Berkshire kind of being the core of that. 
 

On the downside numbers, even the $200 EPS on SPY is what? Another 10% left? Meaning we re more than 2/3 the way through? And if 2023 is $200 are we entering a depression? Why and how? Don’t see it. You’d imagine once some of the kinks, mostly COVID related get worked out, we re back to status quo. I’ve heard the stagflation arguments, but don’t totally buy them. So if no stagflation, you can’t have higher rates and a recession scenario for too long. And this is what I’m kinda getting at, the real negative fear inspired scenarios are largely contradictory. If the economy craters the Fed stops raising rates. Market will bring bonds back down in a hurry. If rates keep going up, it’s because the economy continues to be strong and buck the trend. So there’s a lot of double and triple negative type theoretical stuff there, but none of them really pass the smell test.

 

Additionally, again I think we need to look a little further than just the indexes. A whole lot of stuff is off wayyyy more than that. Even look at the IWM. I think the only way you decide not to be a buyer of good quality businesses and assets here is if you expect some sort of Great Depression, and I honestly haven’t seen an ounce of anything to remotely support that. All I’ve seen is stuff ranging from minor to modest recession. Which again, if that occurs and for one year that market decides you get to buy everything at single digit or mid teens PE with no credit for future earnings….if your time horizon is more than a few years I think you take that and run.

[Xerxes]

Folks with a bearish tilt tend to look smart in a bear market, until they overstay their welcome, while folks with bullish tilt look smart in a bull market, until they overstay their welcome. 
 

It is one thing to be a mega contrarian like Jeremie Grantham, making a bet a year before the top, and willing to look stupid for a year, but staying the course with that view. 

 

it is entirely another thing for media pundits to state what is safe to say at the moment, “I.e it has 20-30% more to go”. The same people were saying “it has more legs to go up” as that was the safe vector.

[Parsad]

On 6/18/2022 at 3:49 PM, ValueMaven said:

 

@ParsadI am sorry - but that is a REALLY poor way to look at such a HIGH quality company as Berkshire.  Quality wins, and is never 'Graham and Dodd' cheap.  Hmmm...Let's see, operating income in 2022 will likely be $37B - $40B, they are aggressively buying back stock (true reduction of 10% over the last two years), putting sizable capital to work across the Energy and Insurance businesses...Which is more attractive - Berkshire at 1.3x BV, or Citigroup at 0.6x BV ... LOL 

 

Everything is based on "Graham & Dodd" cheap.  That's why Buffett didn't buy Costco as Munger said...he thought it was too expensive.  If you are a Ben Graham student, it makes no sense to buy BRK at 1.3 times book when you can buy other stocks at a much cheaper valuation and with a greater margin of safety.  Even if they are lesser quality businesses.  Graham and Dodd works!

 

By the way, I've owned Berkshire on and off for over 23 years now...I know as well as anyone when it is cheap and when it isn't.  And as a Ben Graham student, I can't buy it simply because it is a quality business...it has to be cheap and have a margin of safety. 

 

Now if you are buying in a taxable account, then that changes the narrative slightly, because you have taxes to deal with.  In that case, buying higher quality, long-term investments may end up being the better alternative to buying cheap stocks and then paying taxes on them as you sell and buy something else.  Cheers!

[ValueMaven]

@Parsad wont disagree w/you there - but we all know Berkshire's BV of 1.3x is understated.  BNSF for example is worth ~4x Berkshire's purchase price from just a decade ago.  Really depends how you define margin of safety I guess.  What would you pay for a durable ~$40B in FCF w/meaningful buybacks and 8-10% growth throughout a market cycle....it should be a lot more then 1.3x BV !!

Edited June 20, 2022 by ValueMaven

[Parsad]

4 hours ago, ValueMaven said:

@Parsad wont disagree w/you there - but we all know Berkshire's BV of 1.3x is understated.  BNSF for example is worth ~4x Berkshire's purchase price from just a decade ago.  Really depends how you define margin of safety I guess.  What would you pay for a durable ~$40B in FCF w/meaningful buybacks and 8-10% growth throughout a market cycle....it should be a lot more then 1.3x BV !!

 

Berkshire has about $520B in equity...do a discount cash flow analysis at 8% ROE and 12% ROE...that's a reasonable earnings range for Buffett to hit with the size Berkshire is at now.  You want a 15% ROI and growth rates on earnings of 12% and 15%, with a terminal growth rate of 6% after 10 years...this assumes that after Buffett, the two Teds and Greg Abel aren't going to be as good as Buffett, but still good.  The 15% ROI is your margin of safety.

 

With $120B of debt...you get a low of $413K per A share at 12% earnings growth to $845K per A share at 15% earnings growth.  Can they do 15% earnings growth at BRK going forward?  At its size, I find it hard to believe, and we know Munger has hinted that Buffett's target is lower now.  So 12% is probably the more reasonable target.  

 

So Berkshire today at $403K per A share is in the range of fair value with a relatively conservative expectation and a margin of safety.  Is it 1999/2000 or 2008/2009 cheap...not even close.  Will you get a reasonable return...probably better than the S&P500 long-term...yes.  Cheers!

[Spekulatius]

No way Berkshire can do 15% earnings growth. I even take the under on 12% from current levels, unless we have persistently high  inflation.

[maxthetrade]

11 minutes ago, Parsad said:

Is it 1999/2000 or 2008/2009 cheap...not even close. 

 

In 2000 BRK traded down to about BV. Most recent BV was $230, so it's not there yet but certainly on the cheaper side.

[ValueMaven]

@Parsad8% - 10% in operating income growth is much more realistic going forward!  Add timely buybacks, modest interest on the cash pile $2-$3B a year now, and some bolt on acquisitions like Y - and you could see 10% - 12% over a full cycle.  Those are my working assumptions.

 

Random thought but the timing of this recent market decline couldnt have been any better for Berkshire fully closing the Y deal.  Dont forget Berkshire lost to Y when trying to acquire Trans Re over a decade ago...now they are buying Y outwrite.

Edited June 20, 2022 by ValueMaven

[Parsad]

33 minutes ago, Spekulatius said:

No way Berkshire can do 15% earnings growth. I even take the under on 12% from current levels, unless we have persistently high  inflation.

 

I think they can do 12% for the next 10 years...that's why I use a terminal growth rate after that of 6%.  Yes, 15% is possible, but certainly wouldn't be a conservative estimate.  So based on my reasonable assumptions...$400K/A share is fair value.  Anything below that gives you a greater margin of safety.

 

Also, I'm calculating intrinsic value an easy way using a range of earnings on book value.  The proper way to value Berkshire is to separate earnings from insurance and non-insurance operating subsidiaries.  That will give you a more accurate number, but I bet you that I'm not far off using my more simplified method.  Cheers!

[adesigar]

21 minutes ago, Parsad said:

 

I think they can do 12% for the next 10 years...that's why I use a terminal growth rate after that of 6%.  Yes, 15% is possible, but certainly wouldn't be a conservative estimate.  So based on my reasonable assumptions...$400K/A share is fair value.  Anything below that gives you a greater margin of safety.

 

Also, I'm calculating intrinsic value an easy way using a range of earnings on book value.  The proper way to value Berkshire is to separate earnings from insurance and non-insurance operating subsidiaries.  That will give you a more accurate number, but I bet you that I'm not far off using my more simplified method.  Cheers!

 

From the BRK Annual and Quarterly reports

"Berkshire’s common stock repurchase program permits Berkshire to repurchase its Class A and Class B shares any time that Warren Buffett, Berkshire’s Chairman of the Board and Chief Executive Officer, and Charlie Munger, Vice Chairman of the Board, believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined."

 

Buffett was buying back shares at $455K/A in Jan, $475K/A in Feb and $485k/A in March.

 

I think Fair value of BRK is closer to $600K/A

[crs223]

36 minutes ago, adesigar said:

 

Buffett was buying back shares at $455K/A in Jan, $475K/A in Feb and $485k/A in March.

just because WEB thought BRK was undervalued at $300 last December doesn’t mean WEB thinks BRK is undervalued at $270 now.

 

That said I hope WEB sees it as undervalued because I’m buying now…

 

and I hope it continues to drop.

[Parsad]

41 minutes ago, adesigar said:

 

From the BRK Annual and Quarterly reports

"Berkshire’s common stock repurchase program permits Berkshire to repurchase its Class A and Class B shares any time that Warren Buffett, Berkshire’s Chairman of the Board and Chief Executive Officer, and Charlie Munger, Vice Chairman of the Board, believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined."

 

Buffett was buying back shares at $455K/A in Jan, $475K/A in Feb and $485k/A in March.

 

I think Fair value of BRK is closer to $600K/A

 

Buffett's willing to pay higher, but he's not expecting at least an annual return of 15% on those purchases.  He's probably aiming closer to 12-13%.  Cheers!

[HeadOfLeverage]

23 hours ago, maxthetrade said:

 

In 2000 BRK traded down to about BV. Most recent BV was $230, so it's not there yet but certainly on the cheaper side.

The gap between BV and and intrinsic value has increased significantly since 2000 and will continue to do so when retiring shares above BV.

[Seoshin]

Thank you guys for such an awesome discussion on Berkshire's valuation! I've learned a lot. Even though I'm the author of this topic, I am embarrassed that I can't contribute much as I am still reading and learning a lot as I'm still relatively new (only more than a year of studying, dipping my waters and such). But I bought a lot of BRK.B lately as I use it as a better alternative than the available index fund. (30% of my port now damn hahah)

But again, hats down and hoping to learn more from you guys here. Cheers!

[Parsad]

5 hours ago, Seoshin said:

Thank you guys for such an awesome discussion on Berkshire's valuation! I've learned a lot. Even though I'm the author of this topic, I am embarrassed that I can't contribute much as I am still reading and learning a lot as I'm still relatively new (only more than a year of studying, dipping my waters and such). But I bought a lot of BRK.B lately as I use it as a better alternative than the available index fund. (30% of my port now damn hahah)

But again, hats down and hoping to learn more from you guys here. Cheers!

 

That's how it all starts!  Enjoy...and keep learning.

 

I've been doing it for almost 25 years now since I first heard of Berkshire back in 1998, bought my first B share in 1999, and then started the original version of this site in 2002...20 years ago February! 

 

Cheers!

[abominablenoman]

Thank you, Parsad, for your time, efforts, and generosity in creating and maintaining this site for all these years.  So very much appreciated!

[Parsad]

2 hours ago, abominablenoman said:

Thank you, Parsad, for your time, efforts, and generosity in creating and maintaining this site for all these years.  So very much appreciated!

My pleasure!  Cheers!

[Seoshin]

4 hours ago, Parsad said:

 

That's how it all starts!  Enjoy...and keep learning.

 

I've been doing it for almost 25 years now since I first heard of Berkshire back in 1998, bought my first B share in 1999, and then started the original version of this site in 2002...20 years ago February! 

 

Cheers!

Thanks man! and damn. 25 years ago? woah thats around my age now HAHAHAH 

[modiva]

2 hours ago, abominablenoman said:

Thank you, Parsad, for your time, efforts, and generosity in creating and maintaining this site for all these years.  So very much appreciated!

+1. Thank you Parsad!