FFH at multi-year high

[giofranchi]

Giofranchi,

 

If I understand your model correctly, it takes a look at 20 years, it assumes no growth for 4 years, then a 16 year growth of 12%, assumes it would be at book at the end of 20 years and discounts it back at 9%.

 

If I do this I get an IV of a BV multiple of 1.1. I compounded at 12% for 16 years and then discounted by 9% for full 20 years. I think you might have discounted only for 16 years. Maybe I did not understand you model correctly.

 

Vinod

 

No, Vinod! Not 20 years, only 16 years, and they are like this:

Year 1, 2, 3: 0% CAGR

Year 4, 5, 6: 35% CAGR

Year 7, 8, 9, 10, 11, 12, 13: 0% CAGR

Year 14, 15, 16: 35% CAGR

This would increase BVPS 6 folds in 16 years, which is more or less an average 12% CAGR.

I think I have linked the excel files in a previous post of this thread.

If you find some errors in them, I wouldn’t be surprised… and please let me know! :)

 

Gio

 

[giofranchi]

 

I think I have linked the excel files in a previous post of this thread.

 

 

Sorry, the excel files are in the thread about FFH Q3 2013 Results.

 

Gio

 

[vinod1]

 

No, Vinod! Not 20 years, only 16 years, and they are like this:

Year 1, 2, 3: 0% CAGR

Year 4, 5, 6: 35% CAGR

Year 7, 8, 9, 10, 11, 12, 13: 0% CAGR

Year 14, 15, 16: 35% CAGR

This would increase BVPS 6 folds in 16 years, which is more or less an average 12% CAGR.

I think I have linked the excel files in a previous post of this thread.

If you find some errors in them, I wouldn’t be surprised… and please let me know! :)

 

Gio

 

Gio,

 

Got it. Your model is probably a lot closer to how FFH generates value. It makes sense.

 

It all goes back to time frames. You are looking at really long term (16 years out), while I am focused on the next few years. Especially since, near zero growth in book value is is baked into the cake for the next few years and the lumpy growth that is expected several years out is less certain.

 

Vinod

[racemize]

 

No, Vinod! Not 20 years, only 16 years, and they are like this:

Year 1, 2, 3: 0% CAGR

Year 4, 5, 6: 35% CAGR

Year 7, 8, 9, 10, 11, 12, 13: 0% CAGR

Year 14, 15, 16: 35% CAGR

This would increase BVPS 6 folds in 16 years, which is more or less an average 12% CAGR.

I think I have linked the excel files in a previous post of this thread.

If you find some errors in them, I wouldn’t be surprised… and please let me know! :)

 

Gio

 

Gio,

 

Got it. Your model is probably a lot closer to how FFH generates value. It makes sense.

 

It all goes back to time frames. You are looking at really long term (16 years out), while I am focused on the next few years. Especially since, near zero growth in book value is is baked into the cake for the next few years and the lumpy growth that is expected several years out is less certain.

 

Vinod

 

I understand this point of view, but at the same time, I wonder--when it becomes clear that the growth is ready to turn back on (e.g., when the hedges come off), will FFH trade at a cheap P/B level?  Perhaps it will since that is likely during a market downturn.  On the other hand, perhaps it won't because people will know it will grow quickly then, and the price will reflect the expectation. 

 

I am very curious what it will feel like to look back at this 10 or 20 years from now.  Will it be like looking back 10 or 20 years at BRK, knowing we could have bought it near book value?  Or will the model collapse, and the record from the initial 25 years couldn't be sustained, even at the 15% level.