BRK - Berkshire Hathaway

[jeffmori7]

Opportunity? David Sokol resignation..and now it's down more than 3% in after-hours..I wonder what it will be when Buffet himself will resign?

 

Still confident, but we all wonder how it will affect the succession plans.

[Liberty]

BRK.B under $80. Getting tempting!

[tombgrt]

BRK usually outperforms when markets only do average or bad.

BRK is at the same price as in July and I am wondering why with S&P500 up 25%+, it's not like BRK was overpriced back then...

 

Given current valuations and valuation of BRK in particular I believe we are entering a period where BRK stock will do a lot better than the overall market. And even it doesn't, will I really be a loser? Also, as a beginning investor I don't like to put a lot of my money in mediocre businesses after such a bull run. But I do like BRK more than cash under $80.

[StubbleJumper]

I bought another slice last week at $81.  I couldn't resist.  Already down 2%! 

 

This just seems like obvious money laying on the ground, waiting to be picked up.

 

 

SJ

[tombgrt]

http://www.tilsonfunds.com/BRK.pdf

 

Are they correct to take a 10x multiple on EPS before tax? Of course it is a low multiple on earnings growing almost 20% year over year, but still. And in the EPS they include the earnings from the insurance businesses, why is Buffett not doing this?

 

How can we measure the third element of BRK's intrinsic value = "the efficacy with which retained earnings will be deployed in the future" ?

I don't believe they add this in their calculation?

[shalab]

According to the 2010 AR, total investments were 158 billion dollars or 94730/share.

 

Also, according to the 2010 AR, per share pre-tax earnings at the end of 2010 for non insurance business was 5926/share. This excludes investment income.

 

Taking a multiple of 10 for pre-tax earnings we get a value of 153990/share.

 

Taking a multiple of 8 for pre-tax earnings we get a value of 142000/share.

 

Taking a multiple of 6 for pre-tax earnings we get a value of 130286/share

 

Taking a multiple of 4.36 for pre-tax earnings, we get today's market value.

 

The investments/share should be up by 4-8 billion in Q1 because of stock appreciation + retained earnings. ( 2.5% - 5% range ). In addition, EPS growth is atleast 10%. Let us assume it is 0%.

 

The pre-tax earnings multiple then is in the range of 3.75 - 4.00. Cheap by any measure.

 

If we assume that BRK has 15 billion in retained earnings in 2011 and EPS grows by 10% we have 104000/share in investments and 6500/share in operating earnings. The multiple then is around 2 for pre-tax earnings. This is very cheap for a company of the quality of BRK.

 

The unknown here is the Japanese earthquake and other catastrophic events in the year.

[alwaysinvert]

Dipped my feet a bit yesterday. Here's hoping for it to hit 80 again soon :)

[Liberty]

Dipped my feet a bit yesterday. Here's hoping for it to hit 80 again soon :)

 

79.66 right now, looks like you go your wish.

[Liberty]

Nice writeup here:

 

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/46323

[tombgrt]

Nice writeup here:

 

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/46323

 

I can't access it because I'm not a member.  :'(

[Liberty]

Nice writeup here:

 

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/46323

 

I can't access it because I'm not a member.  :'(

 

It's over 45 days old, so you should be able to see it with a free guest login.

[alwaysinvert]

Anyone else loading up?

[Liberty]

Anyone else loading up?

 

I'm seriously thinking about it, but there are many companies that I like that seem cheap right now.. Will have to make some tough decisions.

[tombgrt]

Anyone else loading up?

 

I'm seriously thinking about it, but there are many companies that I like that seem cheap right now.. Will have to make some tough decisions.

 

With the same quality and safety? I am not really interested in a 40% discount in a medium company when I can get BRK for roughly a 25-30% discount to IV.

 

I'm at 15% of portfolio already so I am waiting for sub $75 now, willing to double if we drop significantly. This is a no-brainer.

[Liberty]

With the same quality and safety? I am not really interested in a 40% discount in a medium company when I can get BRK for roughly a 25-30% discount to IV.

 

I'm at 15% of portfolio already so I am waiting for sub $75 now, willing to double if we drop significantly. This is a no-brainer.

 

In my mind, nothing has the same level of quality and safety as BRK, which is why it's my second biggest holding. But some other stocks that I really like seem pretty cheap these days (like EBIX, FTP.TO, ALS.TO)... But if it goes sub-75, I'll definitely be getting more.

[ourkid8]

Today we touched $74 and this is starting to get VERY interesting. I am not sure how long I can hold off before I am forced to finally pull the trigger! 

 

Shahed

[Viking]

Thanks to those who have posted links to a couple of well written BRK articles (in this thread). Buffett’s 2010 Shareholder Letter also provides great insight into how to value BRK stock.

From tombgrt: www.tilsonfunds.com/BRK.pdf

From Liberty: www.valueinvestorsclub.com/ (you will need to login to Guest/free part of site)

BRK 2010 Shareholder Letter: www.berkshirehathaway.com/letters/2010ltr.pdf

 

When I weave it all together it looks to me that BRK is trading today at an historic low; and being Canadian, after factoring in the CAN$/US$ exchange rate, BRK looks even more attractive. Please note, I talking in general terms when I say historic low; I am NOT including the very brief sell offs that occurred during financial panics (i.e. early 2000 or early 2009) as I see these as anomalies and not really actionable events.

 

To find BRK’s intrinsic value Buffett (2010 letter) says you must look at 3 things:

1.) the value of investments: stocks, bonds and cash equivalents = $158 billion (2010YE)

Value per share = $158/1.648 shares = $96,000/share

2.) earnings (from sources other than investments and insurance underwriting). Buffett gives you the starting point with his estimate of normalized earnings = $17 billion pre tax; investment income estimate = $7 billion (my number; was $5.1 in 2010 but let’s assume Buffett has normalized interest rates) and tax rate = 30%.

After tax earnings (ex investments & underwriting) = ($17 - $7) = $10 – 30% tax = $7 billion

Let’s give these earnings a low PE of 12 = $84 billion / 1.648 = $51,000/share

3.) efficacy with which retained earnings will be deployed in the future

This is really why one buys BRK; this is what has separated Buffett from the rest. The main issue with BRK is Buffett’s age. To be conservative, and as an offset to the risk of Buffett’s age,  I value this at zero.

 

BRK’s value = investments + earnings + efficacy = $96,000 + $51,000 + 0 = $147,000

Stock is trading today at $113,000 = 23% discount

 

BRK book value (Q1 2011) = $97,081; Price/BV = $113,000/$97081 = 1.16  

BRK’s Price/BV has been steadily falling from the 2 to 2.5 range during the 1990’s to 1.5 to 1.75 range during the 2000’s to the 1.25 range during the early 2010’s.

 

What does this mean?

1.) as BRK gets larger (and/or as Web gets older) investors are willing to pay a lower multiple for BRK.

2.) BRK is likely going to start repurchasing shares especially if the multiple continues to go lower.

 

In the 1999 letter Web states one of his pre-conditions BEFORE BRK would start buying back shares:

1.) available funds: yes, especially after all the repayments by Goldman, GE etc.

2.) stock selling below its intrinsic value, conservatively calculated: yes, see above

3.) “Shareholders should have been supplied all the information they need for estimating that value” Yes, this was done in the recent 2010 letter.

 

The table looks set for meaningful BRK share repurchases moving forward.

 

From 1999 Letter: There is only one combination of facts that makes it advisable for a company to repurchase its shares: First, the company has available funds — cash plus sensible borrowing capacity — beyond the near-term needs of the business and, second, finds its stock selling in the market below its intrinsic value, conservatively-calculated. To this we add a caveat: Shareholders should have been supplied all the information they need for estimating that value. Otherwise, insiders could take advantage of their uninformed partners and buy out their interests at a fraction of true worth. We have, on rare occasions, seen that happen. Usually, of course, chicanery is employed to drive stock prices up, not down.

 

We will not repurchase shares unless we believe Berkshire stock is selling well below intrinsic value,

conservatively calculated. Nor will we attempt to talk the stock up or down. (Neither publicly or privately have I ever told anyone to buy or sell Berkshire shares.) Instead we will give all shareholders — and potential shareholders — the same valuation-related information we would wish to have if our positions were reversed.

 

Recently, when the A shares fell below $45,000, we considered making repurchases. We decided, however, to delay buying, if indeed we elect to do any, until shareholders have had the chance to review this report.

 

 

[tombgrt]

Funny thing about BV is that now, maybe more than ever, BRK actually deserves a serious premium on it.

 

I am not sure if Buffett has already stated clearly enough that repurchases are an option given the current valuation.

 

[Viking]

Buffett also says in the 2010 letter: "To eliminate subjectivity, we therefore use an understated proxy for intrinsic value - book value - when measuring our performance."

1.) BV is the best way to measure performance at BRK (via changes year to year).

2.) BV, by itself, understates intrinsic value of BRK. "To be sure, some of our businesses are worth far more than their carrying value on our books." Buffett explains later in the letter that Geico goodwill is carried on BRK books at $1.4 billion; "the real value today of Geico's economic goodwill is about $14 billion." The difference = $12 billion = $6,000 per share.

 

BRK is trading at a Price to BV ratio of about 1.15

Buffett states that BV understates true intrinsic value of BRK.

 

This suggests to me that Buffett must view BRK as being incredibly cheap at current levels.

What could stop Buffett from repurchasing shares? Should the market have another ugly sell off Buffett will likely find many great buying opportunities. Also, as soon as word got out that BRK was buying back shares then there likely would be a run up in the price making it difficult for Buffett to buy a large quantity.

 

 

[DCG]

 

This suggests to me that Buffett must view BRK as being incredibly cheap at current levels.

What could stop Buffett from repurchasing shares? Should the market have another ugly sell off Buffett will likely find many great buying opportunities. Also, as soon as word got out that BRK was buying back shares then there likely would be a run up in the price making it difficult for Buffett to buy a large quantity.

 

 

Well, he didn't buy back shares when the price was cheaper than this over the last 3 years. He might still find other companies he can buy cheaper than BRK.

 

I bought some BRK-B shares this morning.

[zarley]

I really doubt Berkshire will do a buy back.  Yes, BRK is cheap -- on a relative basis maybe cheaper than spring of 2009 (maybe).  Heck it traded about a year ago at around $105k (vs. $110 right now).  But, everything I've read about/from Buffett on the potential for buybacks has been lukewarm and largely hypothetical.  IIRC, even his comments in early 2000 were framed as a hypothetical private transaction rather than a formal buyback plan as ordinarily practiced by other companies.  Plus, merely the hint that BRK would initiate a buyback plan would probably move the market to revalue the company, so implementing it would be difficult if not unnecessary.

 

 

 

[returnonmycapital]

Buffett may announce an intention to re-purchase shares if BRK.A = investments per share. In his 1999 letter, he intimated that $45,000 was a potential re-purchase price and at the end of 1999, investments per share were $47,339. Those investments were, on average, overvalued. I don't think he would claim the same today.

 

Meanwhile, isn't it nice to be able to acquire an interest in Berkshire Hathaway's operating busineses at between 2 & 3 times pre-tax earnings (33% - 50% pre-tax earnings yield).

 

Value won't get much more obvious than that.

[Liberty]

http://blogs.wsj.com/marketbeat/2011/06/15/berkshire-hathaway-shares-creeping-closer-to-book-value/

 

(mostly repeats what we've said here)

[prunes]

I'll probably pick up shares if this goes to $70 *crosses fingers*

[matjone]

I was trying to get a rough idea of the value of BRK, mainly just for practice, and I was hoping some of you might be able to help me. 

 

Looking at the three things he mentioned

 

1. investments - $158B market value

 

2. earnings from non-insurance businesses - $6B

 

3. efficacy with which retained earnings will be deployed in the future

 

For  #3, you'd have to give buffet credit for being buffet.  That would mean that the investments would have to be valued at some premium to market value, say 20%, and the earnings from the businesses should get a 10X multiplier.

 

For #2, you'd  get $6B times 10 = $60B

 

For #1, I was thinking that before tacking on the premium to investments, you should take out the cash.  So you have $158B in investments, less $38B cash, times 1.2 and you get $144B from the investments, add back the cash and all this is worth at least $182B.

 

Total value is $182B + $60B = $242B.

 

I have some questions that I was hoping some of you might help me with though.

 

1. Why shouldn't you include earnings from insurance when coming up with a valuation?

 

2. What liabilities should be subtracted out?

 

3. Instead of just coming up with a  simple multiplier for the investments, maybe you should go through and estimate berkshire's share of the earnings for all of its common stock holdings, all of the interest on its fixed income securites, and put a multiple on that.  I don't know if this is proper or not.

 

4. For viking, why do you come up with $10B of pre-tax earnings for non-insurance businesses while buffet used a $6B figure in the letter?  I am confused on this.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

My first question is, shouldn't you also count the earnings from the insurance businesses?