When to Sell BRK?

[Palantir]

We've seen this stock do well over the past year and half, but now I think it's important to start thinking about what BRK's IV really is. I'm not good enough to estimate IV, but I'm interested in hearing if any holders have a "sell rule" for this stock.

 

I bought this stock when it was trading at BV, at about 67.5 (The day before the buyback announcement  8) ;D). Since then we've seen both growth in BV to 74.44 - about 10%, and we've seen multiple expansion to the point it is now trading at 1.34*BV. I believe historically, BRK has traded at 1.4*BV, but this firm's IV is now in operating businesses to a greater extent than before, so likely IV should be higher. I'm currently thinking that 1.5BV would be a good time to consider a sale, but I am interested in hearing all thoughts.

[Gopinath]

You should sell when you find superior alternative uses for the capital invested in BRK.

[Palantir]

Part of determining whether other opportunities are superior is knowing the IV of what you hold.

[Guest wellmont]

i've been selling.

[rmitz]

If you want to get a basic feel for how certain components interact in the evaluation of Berkshire, you can play with the Berkshire Hathaway Intrinivaluator: http://www.creativeacademics.com/finance/IV.html

 

We don't have the data for the year end, but personally I think it's still at least 20% undervalued.  That said I don't have a trading allocation in BRK at this point, just a smallish semi-permanent allocation which I would only sell if things look obviously overvalued.

[Charlie]

Since value investors tend to buy to early and sell to early here is my advice:

 

Don´t sell to early.  :)

[beerbaron]

I'll sell when it makes sense tax wise, that is when:

 

-Berkshire does not create a dollar of value for each dollar retained.

-And when it pays dividends.

 

Besides that I'm very happy to get the tax free equivalent of a retirement account.

 

BeerBaron

[siddharth18]

When either:

 

1. The thesis for investing becomes invalid (in order to preserve your capital)

 

OR

 

2. You find better risk-adjusted opportunities for your capital (opportunity cost principle).

[JBird]

Palantir, why did you buy a security without knowing its value? Why are you asking other people to value it for you?

 

 

[boilermaker75]

Palantir, why did you buy a security without knowing its value? Why are you asking other people to value it for you?

 

You did not need to know BRK's value when it was trading at BV to know it was trading well below IV and a great buy.

[Palantir]

Palantir, why did you buy a security without knowing its value? Why are you asking other people to value it for you?

 

You did not need to know BRK's value when it was trading at BV to know it was trading well below IV and a great buy.

 

This.

[LC]

Palantir, why did you buy a security without knowing its value? Why are you asking other people to value it for you?

 

You did not need to know BRK's value when it was trading at BV to know it was trading well below IV and a great buy.

 

This.

I agree, but only in very selective circumstances. In this case yes, for two reasons:

 

1. BRK is a huge company, and estimating an intrinsic value would be very difficult.

2. We're all value investors here. We know about Warren's life, his character, his ethics. It's easier to read stories and letters and assess Warren's character as a business partner than it is to value his businesses.

 

So when you have a partner you trust telling you that IV > BV, and he's also telling you he's willing to buy back shares at 110% or 120% of BV, you can trust that moreso than a lot of the other uncertainties in the stock market. So in this unique case I think it's OK to invest without knowing an IV range.

[Palantir]

Not just BRK, but there are cases in which you can find a great company with great management that is undervalued for reasons you disagree with, and you may not need to know the intrinsic value very accurately in order to see it as a great investment.

 

I do not believe all the value investors on this forum that have gone into AAPL lately know Apple's IV.

 

 

I'm probably going to wait to sell BRK, maybe if/when it crosses 1.5BV I'll start thinking about it.

[Guest longinvestor]

Palantir, why did you buy a security without knowing its value? Why are you asking other people to value it for you?

 

You did not need to know BRK's value when it was trading at BV to know it was trading well below IV and a great buy.

 

This.

I agree, but only in very selective circumstances. In this case yes, for two reasons:

 

1. BRK is a huge company, and estimating an intrinsic value would be very difficult.

2. We're all value investors here. We know about Warren's life, his character, his ethics. It's easier to read stories and letters and assess Warren's character as a business partner than it is to value his businesses.

 

So when you have a partner you trust telling you that IV > BV, and he's also telling you he's willing to buy back shares at 110% or 120% of BV, you can trust that moreso than a lot of the other uncertainties in the stock market. So in this unique case I think it's OK to invest without knowing an IV range.

 

+1

 

The "too hard" pile Buffett uses on his desk comes to mind. BRK has been selling for such attractive prices for the past several years that it falls into my "So easy" pile, so much so that everything else is "too hard". The market has way overblown the Buffett transition (IMO) due to mistrust. The Street seems to be saying, "we don't know you succession plan, so we don't trust you" . Buffett on the other hand has fully positioned for his succession, the most important one being aiming his elephant gun on capital intensive businesses. Another couple of aquisitions (Utility-like) and just the captive use of capital will take care of bulk of future cash flows. Buffett's successor/s will receive a silver platter of capital allocation decisions already made for them by the greatest allocator of our times!

 

Thanks to the market's misunderstanding,  I've been able to buy in bucketfuls (average cost well under $100k).

 

I ain't selling for a long time. Not even thinking about it. I want see BRK sell for IV first and then keep pace with the IV growth for several years. We are nowhere close.

[texual]

After I get my original investment back from dividend payments I'd consider selling because I'd have free shares to use for investments outside the core holdings

[JBird]

Palantir, why did you buy a security without knowing its value? Why are you asking other people to value it for you?

 

You did not need to know BRK's value when it was trading at BV to know it was trading well below IV and a great buy.

 

Why is that?

[Palantir]

Because all you need to know that the value is higher than what you're paying for.....but you may not have an accurate estimate of that number. I definitely cannot value BRK, but I (and my pal Warren) think BV is less than what it is worth.

 

 

I would actually go far as to say that I don't believe in the concept of intrinsic value. I just think in terms of cash flow or BV return. If I pay X I get Y% return.

[zarley]

Because all you need to know that the value is higher than what you're paying for.....but you may not have an accurate estimate of that number. I definitely cannot value BRK, but I (and my pal Warren) think BV is less than what it is worth.

 

 

I would actually go far as to say that I don't believe in the concept of intrinsic value. I just think in terms of cash flow or BV return. If I pay X I get Y% return.

 

Can you see how those two statements are inherently conflicting?

 

Further, are you saying that even the simple two-column method for valuing Berkshire is beyond your ability?  How can you think that value is more than BV is you don't know how to estimate it and even question its validity as a concept?  I find your comments in this thread baffling. 

 

 

 

[Palantir]

A) I have no idea how to value Berkshire. Fact.

 

B) I know that it is more valuable than book value. Fact.

 

 

A) I do not know how to measure LeBron James' skill level. Fact.

 

B) I know LeBron James is a better basketball player than I am. Fact.

 

 

A) I don't know how awesome it would be to date Kate Upton. Fact.

 

B) I know it will be pretty awesome. Fact.

 

 

I could go on....

 

[zarley]

A) I have no idea how to value Berkshire. Fact.

 

B) I know that it is more valuable than book value. Fact.

 

Given A, how is B true?  I suspect that A is indeed not true and you're just trying to be cute.  I already regret my participation here.  Carry on.

[Liberty]

Yeah, I think what was meant here is "no idea how to precisely value BRK", not "no idea at all". It's different to have an estimate, even if only based on what some other people you trust have said or done, than to have zilch.

[nwoodman]

I'm probably going to wait to sell BRK, maybe if/when it crosses 1.5BV I'll start thinking about it.

 

FWIW 1.5-1.6 is my baseline valuation as well.  I hope it never gets there as it will be difficult to find another investment that has the same "sleep easy"  characteristics.  If FFH was still at book then perhaps.... 

[berkshiremystery]

Today Berkshire reached a new milestone... but let's calm down of the euphoria. We have currently surpassed the old historic highs from before the financial crises. If there isn't some major market correction, the price might see Tilson's target range from his last research paper in the not to distant future. Not sure, who mentioned something about an observation about new heights in Berkshire, and/after repurchase announcements.

 

Only "Beware" as Buffett would say,... Berkshire's future decades should be more moderate compared with it's past decades, because of it's size of it's balance sheet. I personally would say,... It ain't easy to maneuver an aircraft carrier in a duck pond of investment opportunities to shoot elephant's, also after the Heinz deal, because with size come sooner or later diminishing returns. For me personally those new heights don't get me in any party mood at all. They are reasonable sooner or later in Berkshires compounding process, but nothing more.

 

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Buffett's Berkshire Hathaway Closes Above The $150,000 Mark

2013-02-19 SeekingAlpha.com

 

http://seekingalpha.com/article/1204921-buffett-s-berkshire-hathaway-closes-above-the-150-000-mark?source=yahoo

 

http://static.cdn-seekingalpha.com/uploads/2013/2/19/saupload_berk.png

 

http://static.cdn-seekingalpha.com/uploads/2013/2/19/saupload_brka.png

 

 

 

[Guest longinvestor]

Today Berkshire reached a new milestone... but let's calm down of the euphoria. We have currently surpassed the old historic highs from before the financial crises. ............ For me personally those new heights don't get me in any party mood at all. They are reasonable sooner or later in Berkshires compounding process, but nothing more.

 

...because with size come sooner or later diminishing returns.

 

What kind of value have they added/created since the crisis? How meaningful are the pre-crisis stock price highs in this context?

 

Now, regarding the diminishing returns: Diminishing from what, the 50 year return of 20%? Diminishing to what ROR? S&P return over the next 20 years (5%?)?

 

I'm good with a 2% outperformance over the S&P over the long term. With no fees, BRK is a steal relative even to the cheapest of  index funds. BRK was selling for a deal of our lifetimes over the past few years. I have never seen Buffett nudging his shareholders to buy more than he has over the past 2-3 years. I re-read the AR again and his comments at the recent buyback.

 

 

 

 

 

 

 

 

 

 

[Charlie]

"BRK was selling for a deal of our lifetimes over the past few years. I have never seen Buffett nudging his shareholders to buy more than he has over the past 2-3 years. I re-read the AR again and his comments at the recent buyback."

 

+1