Ashwin Bhagavatula's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.com/user/136408/comments http://seekingalpha.com/article/640291/comments?source=feed#comment-6317381 6317381
One strong reason why it would make sense to hold on to your Berkshire stakes is that they are trading not significantly above book value. As I tried to depict in my article above, intrisic value at this point is significantly above the current trading price. This has not happened very often in Berkshire's history. In fact, by Mr. Buffett's own admission, the shares of Berkshire were actually overvalued a few times in the past 10-15 years.

With prices this low, Berkshire now has a mandate to repurchase shares anytime they dip below 110% of book value. It's no coincidence that the shares are not falling below that line. For instance, the S&P 500 almost hit its 5 year high on March 30th. It consequently dipped 6% in two months thanks to crises in the Euro zone, while Berkshire lost 1%.

Of course, repurchases are not guaranteed, especially if Berkshire finds other potential bargains that it needs to hoard cash for. That is a good situation to be in too, given their history of acquiring good businesses for a reasonable price.

From this point onwards, if book value rises about 8% y.o.y. on average, then the shares are very likely to follow suit, due mainly to said repurchases, and the unprecedented amount of cash and securities on the balance sheet.]]> Mon, 11 Jun 2012 15:45:28 -0400
One strong reason why it would make sense to hold on to your Berkshire stakes is that they are trading not significantly above book value. As I tried to depict in my article above, intrisic value at this point is significantly above the current trading price. This has not happened very often in Berkshire's history. In fact, by Mr. Buffett's own admission, the shares of Berkshire were actually overvalued a few times in the past 10-15 years.

With prices this low, Berkshire now has a mandate to repurchase shares anytime they dip below 110% of book value. It's no coincidence that the shares are not falling below that line. For instance, the S&P 500 almost hit its 5 year high on March 30th. It consequently dipped 6% in two months thanks to crises in the Euro zone, while Berkshire lost 1%.

Of course, repurchases are not guaranteed, especially if Berkshire finds other potential bargains that it needs to hoard cash for. That is a good situation to be in too, given their history of acquiring good businesses for a reasonable price.

From this point onwards, if book value rises about 8% y.o.y. on average, then the shares are very likely to follow suit, due mainly to said repurchases, and the unprecedented amount of cash and securities on the balance sheet.]]> http://seekingalpha.com/article/640291/comments?source=feed#comment-6206981 6206981
Now as far as concerns over capital allocation abilities of a new CEO are concerned, it would be instructive to note that said free cash flows were not obtained by skimping on investments by any means. Both BNSF and MidAmerican, for example, are on track to spend record amounts this year, more than their competition. Otherwise, free cash flow for 2012 could easily top $18 billion from its current estimate of $15 billion. If this constant extra capital spending is what it takes to keep the subsidiaries happy after the departure of Mr. Buffett, so be it; It's already priced in.

The offshoot of this is Berkshire is very large now, and getting much larger in a hurry. The benefit of having an outstanding CEO at the helm is only marginal from hereon. And that's a good thing for shareholders.]]> Thu, 07 Jun 2012 14:20:43 -0400
Now as far as concerns over capital allocation abilities of a new CEO are concerned, it would be instructive to note that said free cash flows were not obtained by skimping on investments by any means. Both BNSF and MidAmerican, for example, are on track to spend record amounts this year, more than their competition. Otherwise, free cash flow for 2012 could easily top $18 billion from its current estimate of $15 billion. If this constant extra capital spending is what it takes to keep the subsidiaries happy after the departure of Mr. Buffett, so be it; It's already priced in.

The offshoot of this is Berkshire is very large now, and getting much larger in a hurry. The benefit of having an outstanding CEO at the helm is only marginal from hereon. And that's a good thing for shareholders.]]> http://seekingalpha.com/article/640291/comments?source=feed#comment-6165061 6165061 Wed, 06 Jun 2012 12:45:38 -0400 http://seekingalpha.com/article/640291/comments?source=feed#comment-6164651 6164651 Wed, 06 Jun 2012 12:37:43 -0400 http://seekingalpha.com/article/640291/comments?source=feed#comment-6163751 6163751 Wed, 06 Jun 2012 12:16:56 -0400 http://seekingalpha.com/article/163454/comments?source=feed#comment-693570 693570
Marc:
Thanks for the welcome, and appreciate your view points. I have no strong proclivity towards having a highly focused portfolio at the expense of diversification, but it so happens that my investing philosophy precludes owning a large number of companies. I need to be able to understand a business, be able to price it, and make sure it is trading below that appraisal price at the time of my purchase. I have a morbid fear of going anywhere near a business that doesn't meet all three of those criteria.

And it so happens that in the small universe of businesses that I understand and can price (numbering about 25), only one is trading at a price that I like. For sure, risks abound, as with any company ('poortorich' highlighted a couple of risks pertinent to HANS in his comment above). My personal feeling is that the recession still has some steam left in it, so stocks may see another drop yet. Perhaps as much as 30% in Hansen's case. But unless I am convinced that the core business is suffering, I don't concern myself too much with the going price on any given day.

THofler:
The beverage business is not incredibly complicated. For instance, a typical 16 year-old has a better shot at comprehending Hansen's 10k report versus that of American Express. Moreover, people are creatures of habit, so if they have consumed about three billion cans of Hansen's energy drinks in the past three years, I am loath to think that this is a fleeting phenomenon. Will this ever be as big as Coca Cola? I am willing to stick my neck out and confidently say no. But do I need it to be as big as Coke to make money? No, again.

Ricard:
True, now that I think about it, Apple has had to cut prices on at least some models. I stand corrected. Although, most of those discounts happen to be offered for products that are on their last legs in the product life cycle, as newer models are introduced. But still, I have to agree with your assessment that pricing power is a somewhat tricky metric to be measured, and my treatment of that in the above article is somewhat informal.]]> Sun, 27 Sep 2009 20:59:11 -0400
Marc:
Thanks for the welcome, and appreciate your view points. I have no strong proclivity towards having a highly focused portfolio at the expense of diversification, but it so happens that my investing philosophy precludes owning a large number of companies. I need to be able to understand a business, be able to price it, and make sure it is trading below that appraisal price at the time of my purchase. I have a morbid fear of going anywhere near a business that doesn't meet all three of those criteria.

And it so happens that in the small universe of businesses that I understand and can price (numbering about 25), only one is trading at a price that I like. For sure, risks abound, as with any company ('poortorich' highlighted a couple of risks pertinent to HANS in his comment above). My personal feeling is that the recession still has some steam left in it, so stocks may see another drop yet. Perhaps as much as 30% in Hansen's case. But unless I am convinced that the core business is suffering, I don't concern myself too much with the going price on any given day.

THofler:
The beverage business is not incredibly complicated. For instance, a typical 16 year-old has a better shot at comprehending Hansen's 10k report versus that of American Express. Moreover, people are creatures of habit, so if they have consumed about three billion cans of Hansen's energy drinks in the past three years, I am loath to think that this is a fleeting phenomenon. Will this ever be as big as Coca Cola? I am willing to stick my neck out and confidently say no. But do I need it to be as big as Coke to make money? No, again.

Ricard:
True, now that I think about it, Apple has had to cut prices on at least some models. I stand corrected. Although, most of those discounts happen to be offered for products that are on their last legs in the product life cycle, as newer models are introduced. But still, I have to agree with your assessment that pricing power is a somewhat tricky metric to be measured, and my treatment of that in the above article is somewhat informal.]]> http://seekingalpha.com/article/58825/comments?source=feed#comment-108374 108374
Sure, no one is writing off VMWare yet. Most people agree that it will continue to be the leader of the pack in the virtualization space for at least a few years.

That said, I am not sure if it is a good buy at the current price ($80.5 on Jan 4, 2008), even though it has fallen close to 35% from its peak. Its traling 12-month P/E is about a 100, and it is hard to argue that there is a lot of upside left. Not many companies with $30 billion market-caps go for those P/Es (and sustain them over 2-3 years).

Consider this: The most optimistic estimates have VMWare growing earnings at about 70% in FY08, and 50% in FY09. At a stock price of $100, VMWare in Jan-2010 will be commanding a P/E of 50, when presumably the competition would have gotten at least some of their game together.

My gut says that 50 P/E is about the limit that VMWare will hit over the next 2-3 years. Unless, of course, they can continue to grow 70% a few years into the future, which I strongly doubt.]]> Sat, 05 Jan 2008 00:24:34 -0500
Sure, no one is writing off VMWare yet. Most people agree that it will continue to be the leader of the pack in the virtualization space for at least a few years.

That said, I am not sure if it is a good buy at the current price ($80.5 on Jan 4, 2008), even though it has fallen close to 35% from its peak. Its traling 12-month P/E is about a 100, and it is hard to argue that there is a lot of upside left. Not many companies with $30 billion market-caps go for those P/Es (and sustain them over 2-3 years).

Consider this: The most optimistic estimates have VMWare growing earnings at about 70% in FY08, and 50% in FY09. At a stock price of $100, VMWare in Jan-2010 will be commanding a P/E of 50, when presumably the competition would have gotten at least some of their game together.

My gut says that 50 P/E is about the limit that VMWare will hit over the next 2-3 years. Unless, of course, they can continue to grow 70% a few years into the future, which I strongly doubt.]]>