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G&M Article: Say goodbye to the Buffett premium


CanadianMunger
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G&M Article: Say goodbye to the Buffett premium:

 

http://www.theglobeandmail.com/globe-investor/investment-ideas/features/vox/say-goodbye-to-the-buffett-premium/article2246837/

 

In my opinion, David Milstead should not forget Graham: "In the short run, the market is a voting machine but in the long run it is a weighing machine."

 

At some point, won't the market take into account the sheer earnings power of Berkshire, even on a post Buffett basis?

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G&M Article: Say goodbye to the Buffett premium:

 

http://www.theglobeandmail.com/globe-investor/investment-ideas/features/vox/say-goodbye-to-the-buffett-premium/article2246837/

 

In my opinion, David Milstead should not forget Graham: "In the short run, the market is a voting machine but in the long run it is a weighing machine."

 

At some point, won't the market take into account the sheer earnings power of Berkshire, even on a post Buffett basis?

 

Yup.  And in the meantime the absence of the Buffett Premium has been filled by the Buffett Put that is especially valuable in these bearish times in Europe and the whole world.  :)

 

 

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Operating earnings are at a cyclical low and insurance is in a soft pricing market. Cash on hand and earnings have been used to make a number of large aquisitions that will add nicely to intrinsic value. At some point in the next few years BRK earnings will grow nicely and the shares will outperform. I remember all the negative press Buffett got in the late '90's; my guess is there is a good chance that he be will be back in favour at some time over the next couple of years.

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Exactly. In a couple years we will have earnings power of $20 Billion per year at Berkshire - so that's 10x earnings or an initial earnings yield of 10% two years out. To that you need to add 1) inflation, 2) incremental earnings from further acquisitions, and you now have a 3) put on the price of the stock as well. If you lever that up two times, that's (10% plus 1 and 2) x 2 annually or in excess of a 20% return annually with government bonds yielding 3% and the overall stock market considerably more highly valued. Its a no brainer on a relative basis. On an absolute basis, you either get the former or we get a depression. I'm all in with regard to both possible scenarios. Investing doesn't have to be harder than that.

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G&M Article: Say goodbye to the Buffett premium:

 

http://www.theglobeandmail.com/globe-investor/investment-ideas/features/vox/say-goodbye-to-the-buffett-premium/article2246837/

 

In my opinion, David Milstead should not forget Graham: "In the short run, the market is a voting machine but in the long run it is a weighing machine."

 

At some point, won't the market take into account the sheer earnings power of Berkshire, even on a post Buffett basis?

 

Before or after BRK starts to issue dividends?

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What I love is that the two guys who do more than anyone to associate their name with Buffett & Berkshire are quoted in the article...Doug Kass and Whitney Tilson!  Kass always criticizes Buffett and Tilson always tells everyone how undervalued Berkshire is.  The only thing missing is a quote from Alice Schroeder!  ;D  Cheers! 

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