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jim poly

jim poly
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  • Berkshire Hathaway: Shooting Dead Fish In A Drained Barrel [View article]
    Are you saying we know the correct rate because the market tells us this? that the market is efficient and accurate values are always quoted? especially with all the manipulation going on eg QE etc etc?? cost of capital does matter of course and creditworthiness is focal to your cost of capital, but the way an enterprise is funded (ie equity vs debt) should not determine the value of that enterprise. Ben Graham would tell you that Enterprise Value should be arrived at by first assuming 100% equity funding. You then deduct all claims against the enterprise eg debt, prefs (and other minorities) pension liabilities etc etc. If you think deducting 100% of the debt is unreasonable, you need good reason. Anyway lets agree to disagree.

    I don't think the float is economically equivalent to a zero coupon perpetual. yes it has been zero cost in recent years, but principal is continually being repaid and redrawn on this facility. So I see it as more equivalent to a revolving credit facility. I'm sure Berkshire would opt to draw less on this facility if cost of float were to materially increase for any reason. Berkshire retains (and is required to retain) a liquidity& capital buffer against this facility to fund unforseen disasters. At minimum, I think the amount of this buffer ($20 - 30 Bn??) needs to be deducted from the Berkshire valuation, possibly more. How much exactly I don't know and would be grateful for any comments.
    Jan 29 10:58 PM | Likes Like |Link to Comment
  • Berkshire Hathaway: Shooting Dead Fish In A Drained Barrel [View article]
    that's the point. no one knows the interest rate. which is why it is safer to subtract the debt from enterprise value.
    Jan 20 02:49 AM | Likes Like |Link to Comment
  • Berkshire Hathaway: Shooting Dead Fish In A Drained Barrel [View article]
    The balls will just keep on getting bigger eg very large infrastructure and energy businesses and will be easy to keep in sight. Obviously such assets are hard to find on the cheap, but BNSFacquisition shows it is still possible.
    Jan 18 06:29 PM | Likes Like |Link to Comment
  • Berkshire Hathaway: Shooting Dead Fish In A Drained Barrel [View article]
    Berkshire is a powerful compounding machine supremely continuously reinvesting it's retained earnings. Each dollar of earnings generates at least 1.2x value. Cash generation is compounding at such an amazing rate. It is becoming a huge challenge simply to deploy it all, thus the strategic shift to infrastructure and energy (where capital needs are almost infinite). My prediction is that Berkshire will one day be faced with anti-trust calls to be broken up due to its sheer power. In the meantime we can buy it at a reasonable price and enjoy the ride.
    Jan 18 06:20 PM | Likes Like |Link to Comment
  • Berkshire Hathaway: Shooting Dead Fish In A Drained Barrel [View article]
    Enron is a perfect example of where earnings multiples give you a higher value than an in depth balance sheet analysis. I'm certainly not suggesting Berkshire is an Enron (I own Berkshire stock) just commenting on your methodology.
    Jan 18 05:06 PM | Likes Like |Link to Comment
  • Berkshire Hathaway: Shooting Dead Fish In A Drained Barrel [View article]
    It is still a liability which needs to be constantly funded from the firms assets. This is why Berkshire needs to retain a minimum level of cash/ liquidity on hand. So the float needs to be subtracted. The question is what value to ascribe to the deduction. I agree it is less than face value. But the float isn't an asset (nor a negative liability).
    Jan 18 05:02 PM | Likes Like |Link to Comment
  • Berkshire Hathaway: Shooting Dead Fish In A Drained Barrel [View article]
    Your analysis is too simplistic and dangerous. Whilst earnings multiples are a good start you need to do a balance sheet analysis, especially for entities with high gearing. I hope you're not taking constructive criticism personally.
    Jan 18 04:55 PM | Likes Like |Link to Comment
  • Berkshire Hathaway: Shooting Dead Fish In A Drained Barrel [View article]
    It is dangerous to calculate on this basis givencurrently record low interest rates. It is much safer simply to subtract the debt
    Jan 18 04:25 AM | Likes Like |Link to Comment
  • Berkshire Hathaway: Shooting Dead Fish In A Drained Barrel [View article]
    You have given a 13 multiple to NPAT of wholly owned businesses. Too simplistic. For these businesses pre tax Normalised Operating earnings less cap ex needs to be discounted (using a pre tax discount rate) to give enterprise value . You then need to subtract liabilities associated with those businesses eg debt (and float for insurance business). This is how Buffett does it. My calculations show Berkshire trading at slightly above intrinsic value. I have a very large position in Berkshire (80% of total portfolio ) and happy to stay put at these levels.
    Jan 17 10:33 PM | 2 Likes Like |Link to Comment
  • Berkshire Hathaway: Shooting Dead Fish In A Drained Barrel [View article]
    The float is a liability (albeit of a value significantly less than the balance sheet amount). If you are giving a positive value for future underwriting earnings as well as passive investments, eg stocks fixed income and cash (funded by the float), you need to deduct it. You also need to deduct the company's debt. I can't see these deductions in your analysis.
    Jan 17 10:17 PM | 2 Likes Like |Link to Comment
  • Berkshire Hathaway: Shooting Dead Fish In A Drained Barrel [View article]
    Thanks for the article. In your sum of parts valuation I can't see any subtractions for the company's debt (on and off balance sheet) nor for the insurance float.
    Jan 17 10:06 PM | Likes Like |Link to Comment
  • Market Rally A Function Of Liquidity And Speculation [View article]
    Yes, banks are not buying all these stocks, nor are the cashed up corporates (other than stock buy backs, which are not immaterial). The FIs you speak of are mainly hedge funds and other wholesale sophisticated money using very cheap leverage to Hoover up cheap stocks... A no brainer trade. They aren't the direct beneficiaries of the fed's largesse but have gained most from it. The rally up to quite recently hasn't been irrational (of course there are always exceptions. Eg gold), but it will be if it continues on from here at the same trajectory... No doubt fueled by leverage taken by less sophisticated players. Things are starting to get interesting.
    May 17 10:19 AM | Likes Like |Link to Comment
  • Market Rally A Function Of Liquidity And Speculation [View article]
    Just like JDiab I want to know how you can reconcile your comments suggesting a liquidity based rally with very low money velocity? I think the liquidity fueled phase of this rally has barely begun. We came off extremely cheap lows in 2009 to this point, and the gains are quite rational.

    Stock valuations are reasonable under most metrics. not cheap, yet not crazy expensive either. A correction from here would be based on technical (or systemic) rather than underlying fundamental factors. so if you are in for the long run a big correction would be a buying opportunity
    May 17 01:01 AM | Likes Like |Link to Comment
  • Gold Should Go Sideways In 2013, But Hedged Strategy Could Yield 40%-Plus [View article]
    gel

    Disagree that the same result is probable re USA and Japan. There is a global currency war going on and like any war, there will be winners and losers. I'm not sitting in the US (I'm in Australia) but would rather be there than in Japan any day of the week.

    Agree that the older generations are being asked to prop up the young in both nations. But isn't this what older generations are supposed to do? especially so in an environment where the young are suffering for lack of opportunity through no fault of there own? this is especially acute in europe right now.

    It isnt just the older generation that's being asked to cough up through inflationary stealth taxes, it is all savers/ creditors including foreign creditors and the multi-national corporations who are sitting on piles of cash.

    But the US has a growing population and enough resources to overcome all these headaches. Yes there will be suffering, but they will be the last drunk standing at the money printing party & your hyper-inflationary doomsday forecast is so unlikely. Mentioning Zimbabwe in the same sentence as the US is simply not credible.
    btw I also have a Zimbabwe $1Trillion note and love to show it off to everyone.
    Dec 13 11:11 PM | Likes Like |Link to Comment
  • Conducting Bernanke's Symphony No. 3 In F Major [View article]
    The new debt you are referring to will all be acquired by the fed and will be paid for by savers through inflation eventually...a stealth tax. Obviously this assumes there are enough savers out there to be fleeced, and it appears there are with every man and his dog heavily invested in fixed income/ cash. Future generations will only foot the bill if inflation cannot clear the debt and structural deficits aren't fixed. It is the later point that worries me.
    Dec 13 04:49 PM | 1 Like Like |Link to Comment
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