Team Berkshire Vs. The Taxman: The Game Is About To Change [View article]
"Buffett himself admits that returns on investment going forward will not be nearly as good as returns in the past, and he would be satisfied if Berkshire outperformed the S&P by only a few percentage points. Net of taxes, those few extra percentage points may become no outperformance at all. "
When Buffett refers to a goal of Berkshire outperforming the S&P 500 by a few points per year is referring to per-share gains in book value which fully account for deferred taxes on unrealized capital gains, incurred at the 35% corporate tax rate.
I Would Rather Own Berkshire Hathaway Than A Mutual Fund [View article]
The $11.96 figure is incorrect and I also would like to know where the number originated.
The $1,380 figure cited is for Q3 2011. So maybe the author is comparing Q3 2011 to Q3 2001? So I went back and looked at Q3 2001 (the quarter of the 9/11 attacks) and found that net loss per share was $445. Not $11.96.
In any case, comparing one quarter of Berkshire's highly volatile earnings to a quarter a decade ago makes little sense to me. More relevant figures:
Berkshire's net income per A share was $2,185 in 2000 and $521 in 2001, recovering to $2,795 in 2002. Net income was $7,928 per A share in 2010.
Tom Gayner's Top 10 Positions Returned 18% Since September [View article]
"Markel is investing its float in the stock market just like Warren Buffett's Berkshire Hathaway. "
Actually Markel tends to invest float in fixed income investments and shareholders' equity in stocks. See this recent interview with Tom Gayner for details:
Investors Title Offers The Ultimate Margin Of Safety [View article]
I don't have any specific concerns other than that the entry into Texas has been very dramatic. From a standing start, they have gone to $23.4 million in premiums in Texas in the first nine months of 2011 which is 37% of direct premiums making Texas the largest state in terms of % of premiums. I don't get a great sense of what the competitive advantage is in entering Texas from the 10-Qs...
Having said that I like management's track record and believe the company is very undervalued. So no specific concerns, just a bit of unease given that the strategy for entry into that market hasn't really been articulated and it is a very dramatic shift.
Investors Title Offers The Ultimate Margin Of Safety [View article]
On the real estate in Chapel Hill, I did some work on this a while back. It looks like the value of the real estate exceeds book value by a significant amount. Not enough to move the needle in terms of an investment decision but a nice bonus nonetheless: http://bit.ly/hKYXGU
I am concerned about the very rapid expansion into Texas but will continue to own the stock until it reaches at least $50.
Warren Buffett's Investment In Bank Of America Is Doing Just Fine [View article]
No, he did not get the warrants for free. He purchased preferreds with a yield lower-than-market compared to BAC preferreds trading in the market. The warrants therefore can be viewed as carrying an opportunity cost in terms of lost potential yield on the preferreds. However, the warrants are good for ten years and the main point of this article is certainly valid: Buffett cannot be viewed as "underwater" on the investment.
Berkshire Hathaway: Is It Really That Cheap [View article]
"In fact, in 2008, EPS for the A shares was negative $7.5BB. "
Net earnings for 2008 was actually $4,994 million, or $3,224 per A share. However, book value declined by slightly over $6 billion due primarily to unrealized depreciation of investments (driven through other comprehensive income).
The only other comment I have is that one must treat the Q3 2011 portfolio decline on an after-tax basis when marking to market. Berkshire's deferred tax liability will be reduced proportionally to the decline in unrealized investment gains for the quarter. Although a rough approximation, I use a 35% tax rate for this calculation.
There are many ways of estimating Berkshire's intrinsic value but like Buffett says, you don't have to know precisely how much a man weighs to determine if he's overweight. Likewise, Berkshire today is unquestionably cheap. The main question is how cheap and we can only hope to come up with a rough range of intrinsic value. In the 2000 buyback announcement (which was never executed), Buffett seemed to suggest that a buyback might be appropriate at a 25% discount to conservatively calculated IV. If we assume that 1.1x book is a 25% discount to IV, that results in a 1.47x fair value multiple (1.1/.75) which gets us to an approximate valuation of $140K give or take a few thousand. That seems like the lowest "reasonable" valuation for Berkshire and is quite close to the $92 estimate in this article.
Berkshire Hathaway's New Share Repurchase Program - And What It Means [View article]
It is interesting to look at the wording of the proposed buyback in March 2000 because it definitely provides clues on what Buffett may think intrinsic value is today. By offering to buy shares at prices up to $45K and implying that repurchases would not be done with less than a 25% discount to intrinsic value, conservatively calculated, Buffett seemed to imply that IV was $60K.
Applying this same logic to today's announcement, we can derive an approximate price to book ratio that could approximate conservative intrinsic value: Buffett is willing to buy back shares at prices up to 110% of book value. Assuming his goal is to buy at a 25% discount to intrinsic value, this would peg the P/B ratio for IV at 1.1 / 0.75, or 1.47x. Depending on where book value is today, that could be a price between $140K and $145K.
Obviously, this is taking a bit of a leap in terms of assuming that Buffett still regards a 25% discount to "conservatively calculated IV" as the relevant criteria for repurchases. But it seems like a reasonable way to look at things. As a point of reference, 1.47x is less than the average P/B over the past decade and Berkshire traded at 1.45x book value as recently as mid September 2010. (It is also well below my own estimated IV range of $150K-$170K)
In March 2000, it took a while for the market to reflect the meaning of Buffett's words. The price immediately rose to near $45K precluding any actual repurchases. But then it rose to the $60K level by mid April and closed the year at $70K as shown in this chart: http://on.fb.me/qFzevi
The past may not repeat exactly but it went according to script today: The shares are now near the 110% of 6/30 book value level. It's not possible to predict if the long term reaction will mirror the 2000 experience or not, but Berkshire is just plain cheap here ... and now we have a permanent authorization to repurchase at any time going forward under 110% of book. This is tremendously positive.
Western Union: Old Name, New Opportunities [View article]
Thanks for the response. I modeled Western Union assuming continued margin contraction and only minimal revenue growth and arrived at an intrinsic value estimate only moderately below the current price. More aggressive assumptions yield much higher valuations. So I think the risk/reward is starting to look better given the recent drop in the shares.
Will Warren Buffett Step Down As Berkshire CEO? [View article]
Buffett's genius as CEO is his ability to assemble a group of outstanding business units, delegate their management to outstanding CEOs, and intelligently allocate the free cash flow generated by these businesses toward new acquisitions or investments in securities.
I do think you should go back and check your facts on the performance of the wholly owned subsidiaries. NetJets is one of the rare failures but I think you would be embarrassed to have made that comment regarding See's and Nebraska Furniture Mart along with scores of other well performing subsidiaries.
Western Union: Old Name, New Opportunities [View article]
What is your opinion regarding the margin compression we have seen at Western Union for some time? The company has been cutting prices in order to grow transaction volume and higher transaction volume has offset lower margin per transaction so far. Still, this seems like a threat that needs to be more explicitly discussed.
Huntington Ingalls Industries: Certainly Worth A Look At Current Levels [View article]
Thanks for the good discussion regarding Huntington Ingalls.
I think we need to put current talk of defense cuts in the context of the dramatic reduction in fleet size that has already taken place following the end of the cold war. We have gone from 570 ships in the active fleet to 285 which is a dramatic reduction in force. The aircraft carrier fleet is at 11, down from 15 in 1991 and represents the single most important means of projecting power abroad, particularly in Asia. China has just announced the deployment of its first (very limited capability) carrier. More will follow. Maintenance and potential expansion of the US carrier fleet will be required to continue projecting power in the Pacific.
My view is that Huntington Ingalls has significant upside if management can achieve its goal of raising margins at Ingalls to near the level of Newport News and if procurement does not get dramatically cut in the upcoming budget debates. I view procurement cuts as less of a risk than continued problems at Ingalls. Although management hopes to gain efficiencies from serial production, they have yet to achieve margins approaching Newport News. The problem is that procurement cuts may lead to poor margins particularly at Ingalls.
The debt and pension liabilities keep me away from considering the stock but I can see the upside potential.
Why Berkshire Hathaway Will Underperform In The Long Run [View article]
First observation: A man who cannot even properly spell the name of the CEO of the company in question probably has a habit of sloppiness elsewhere in the "analysis". The fact that Seeking Alpha's editors did not catch this is not an excuse.
Second observation: The author has no idea what he's talking about with respect to Berkshire's business, particularly the ludicrous statement regarding Berkshire's lack of energy exposure, as one of the previous comments mentioned.
Does the author even realize that Berkshire has wholly owned subsidiaries or did he just look at the list of publicly traded securities that Berkshire holds? One assumes the latter and even that is being charitable given the lack of analysis displayed here.
Team Berkshire Vs. The Taxman: The Game Is About To Change [View article]
When Buffett refers to a goal of Berkshire outperforming the S&P 500 by a few points per year is referring to per-share gains in book value which fully account for deferred taxes on unrealized capital gains, incurred at the 35% corporate tax rate.
I Would Rather Own Berkshire Hathaway Than A Mutual Fund [View article]
The $1,380 figure cited is for Q3 2011. So maybe the author is comparing Q3 2011 to Q3 2001? So I went back and looked at Q3 2001 (the quarter of the 9/11 attacks) and found that net loss per share was $445. Not $11.96.
In any case, comparing one quarter of Berkshire's highly volatile earnings to a quarter a decade ago makes little sense to me. More relevant figures:
Berkshire's net income per A share was $2,185 in 2000 and $521 in 2001, recovering to $2,795 in 2002. Net income was $7,928 per A share in 2010.
Tom Gayner's Top 10 Positions Returned 18% Since September [View article]
Actually Markel tends to invest float in fixed income investments and shareholders' equity in stocks. See this recent interview with Tom Gayner for details:
http://bit.ly/xxVYXl
(Long MKL)
Investors Title Offers The Ultimate Margin Of Safety [View article]
Having said that I like management's track record and believe the company is very undervalued. So no specific concerns, just a bit of unease given that the strategy for entry into that market hasn't really been articulated and it is a very dramatic shift.
Investors Title Offers The Ultimate Margin Of Safety [View article]
I am concerned about the very rapid expansion into Texas but will continue to own the stock until it reaches at least $50.
Warren Buffett's Investment In Bank Of America Is Doing Just Fine [View article]
Warren Buffett's Investment In Bank Of America Is Doing Just Fine [View article]
Berkshire Hathaway: Is It Really That Cheap [View article]
Net earnings for 2008 was actually $4,994 million, or $3,224 per A share. However, book value declined by slightly over $6 billion due primarily to unrealized depreciation of investments (driven through other comprehensive income).
The only other comment I have is that one must treat the Q3 2011 portfolio decline on an after-tax basis when marking to market. Berkshire's deferred tax liability will be reduced proportionally to the decline in unrealized investment gains for the quarter. Although a rough approximation, I use a 35% tax rate for this calculation.
There are many ways of estimating Berkshire's intrinsic value but like Buffett says, you don't have to know precisely how much a man weighs to determine if he's overweight. Likewise, Berkshire today is unquestionably cheap. The main question is how cheap and we can only hope to come up with a rough range of intrinsic value. In the 2000 buyback announcement (which was never executed), Buffett seemed to suggest that a buyback might be appropriate at a 25% discount to conservatively calculated IV. If we assume that 1.1x book is a 25% discount to IV, that results in a 1.47x fair value multiple (1.1/.75) which gets us to an approximate valuation of $140K give or take a few thousand. That seems like the lowest "reasonable" valuation for Berkshire and is quite close to the $92 estimate in this article.
Berkshire Hathaway's New Share Repurchase Program - And What It Means [View article]
http://bit.ly/o2XX8g
Berkshire Hathaway's New Share Repurchase Program - And What It Means [View article]
Applying this same logic to today's announcement, we can derive an approximate price to book ratio that could approximate conservative intrinsic value: Buffett is willing to buy back shares at prices up to 110% of book value. Assuming his goal is to buy at a 25% discount to intrinsic value, this would peg the P/B ratio for IV at 1.1 / 0.75, or 1.47x. Depending on where book value is today, that could be a price between $140K and $145K.
Obviously, this is taking a bit of a leap in terms of assuming that Buffett still regards a 25% discount to "conservatively calculated IV" as the relevant criteria for repurchases. But it seems like a reasonable way to look at things. As a point of reference, 1.47x is less than the average P/B over the past decade and Berkshire traded at 1.45x book value as recently as mid September 2010. (It is also well below my own estimated IV range of $150K-$170K)
In March 2000, it took a while for the market to reflect the meaning of Buffett's words. The price immediately rose to near $45K precluding any actual repurchases. But then it rose to the $60K level by mid April and closed the year at $70K as shown in this chart: http://on.fb.me/qFzevi
The past may not repeat exactly but it went according to script today: The shares are now near the 110% of 6/30 book value level. It's not possible to predict if the long term reaction will mirror the 2000 experience or not, but Berkshire is just plain cheap here ... and now we have a permanent authorization to repurchase at any time going forward under 110% of book. This is tremendously positive.
(Long Berkshire)
Western Union: Old Name, New Opportunities [View article]
Will Warren Buffett Step Down As Berkshire CEO? [View article]
I do think you should go back and check your facts on the performance of the wholly owned subsidiaries. NetJets is one of the rare failures but I think you would be embarrassed to have made that comment regarding See's and Nebraska Furniture Mart along with scores of other well performing subsidiaries.
(Long Berkshire)
Western Union: Old Name, New Opportunities [View article]
(no position)
Huntington Ingalls Industries: Certainly Worth A Look At Current Levels [View article]
I think we need to put current talk of defense cuts in the context of the dramatic reduction in fleet size that has already taken place following the end of the cold war. We have gone from 570 ships in the active fleet to 285 which is a dramatic reduction in force. The aircraft carrier fleet is at 11, down from 15 in 1991 and represents the single most important means of projecting power abroad, particularly in Asia. China has just announced the deployment of its first (very limited capability) carrier. More will follow. Maintenance and potential expansion of the US carrier fleet will be required to continue projecting power in the Pacific.
My view is that Huntington Ingalls has significant upside if management can achieve its goal of raising margins at Ingalls to near the level of Newport News and if procurement does not get dramatically cut in the upcoming budget debates. I view procurement cuts as less of a risk than continued problems at Ingalls. Although management hopes to gain efficiencies from serial production, they have yet to achieve margins approaching Newport News. The problem is that procurement cuts may lead to poor margins particularly at Ingalls.
The debt and pension liabilities keep me away from considering the stock but I can see the upside potential.
Why Berkshire Hathaway Will Underperform In The Long Run [View article]
Second observation: The author has no idea what he's talking about with respect to Berkshire's business, particularly the ludicrous statement regarding Berkshire's lack of energy exposure, as one of the previous comments mentioned.
Does the author even realize that Berkshire has wholly owned subsidiaries or did he just look at the list of publicly traded securities that Berkshire holds? One assumes the latter and even that is being charitable given the lack of analysis displayed here.