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Berkshire Hathaway

Analysing companies' finances and value from their financial statements using ratios and formulae
Dod101
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Berkshire Hathaway

#390756

Postby Dod101 » February 28th, 2021, 12:26 am

Irrespective of where BH ended the year, I always find that Warren Buffet's Letter's are worth reading. This year he spends some time on the effect of share buybacks. I like them but many seem to prefer increased, or at least a special, dividend. No need for me to go into the difference once again; WB has done so in his letter.

Dod

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Re: Berkshire Hathaway

#390762

Postby compscidude » February 28th, 2021, 1:34 am

For those interested in BRK, remember that a huge part of the company book value now comes from Apple, which is on a PER around 33x last time I looked (and was far higher still until recently). Marking that down a little, and likewise adjusting part-owned company valuations to compensate for presently higher market PERs may be prudent when forming an opinion of the intrinsic value of BRK. That said, Buffett has been buying back around $210 and $226 it seems. Page K-30 of annual report.

AsleepInYorkshire
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Re: Berkshire Hathaway

#390799

Postby AsleepInYorkshire » February 28th, 2021, 8:40 am

I've got to ask. Probably the dumbest of Mcdumier questions. When BH buys its own shares back is it really a "simple" buy back? For example Boeing buy back their own stock. So Boeing bought Boeing. BH buy back their own stock and they are buying Coca Cola, Heinz etc.

I'm not sure it's a "simple buy back"?

BH are purchasing more of the stocks they are already invested in. It look's a a dividend reinvestment strategy to me at a time when the returns on cash aren't great and BH have too much cash sat about.

Or am I thinking out of my [expletive deleted]

AiY

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Re: Berkshire Hathaway

#390818

Postby scrumpyjack » February 28th, 2021, 9:48 am

AsleepInYorkshire wrote:I've got to ask. Probably the dumbest of Mcdumier questions. When BH buys its own shares back is it really a "simple" buy back? For example Boeing buy back their own stock. So Boeing bought Boeing. BH buy back their own stock and they are buying Coca Cola, Heinz etc.

I'm not sure it's a "simple buy back"?

BH are purchasing more of the stocks they are already invested in. It look's a a dividend reinvestment strategy to me at a time when the returns on cash aren't great and BH have too much cash sat about.

Or am I thinking out of my Pink marshmallows

AiY


They are simply buying Berkshire Hathaway shares on the open market. The result is that each remaining BH share owns a bigger percentage of BH and that BH has less cash. The number of shares in Coca Cola etc owned by BH is not changed by this activity.

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Re: Berkshire Hathaway

#390830

Postby dealtn » February 28th, 2021, 10:24 am

Dod101 wrote:Irrespective of where BH ended the year, I always find that Warren Buffet's Letter's are worth reading. This year he spends some time on the effect of share buybacks. I like them but many seem to prefer increased, or at least a special, dividend. No need for me to go into the difference once again; WB has done so in his letter.

Dod


To make it easier for people ...

https://www.berkshirehathaway.com/2020ar/2020ar.pdf

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Re: Berkshire Hathaway

#390880

Postby 1nvest » February 28th, 2021, 12:19 pm

compscidude wrote:For those interested in BRK, remember that a huge part of the company book value now comes from Apple, which is on a PER around 33x last time I looked (and was far higher still until recently). Marking that down a little, and likewise adjusting part-owned company valuations to compensate for presently higher market PERs may be prudent when forming an opinion of the intrinsic value of BRK. That said, Buffett has been buying back around $210 and $226 it seems. Page K-30 of annual report.

Back in March and Covid pretty much drove BRK share prices down to below 1.0 Price/Book Value levels, around 0.92 at the lows. Relative to being more usually up at around 1.3 P/B levels. I watched that period pretty much in real-time at the time and could sense BRK's individual repurchase trades.

BRK's migrated over to being more like a conglomerate comprising 33% cash and four majors of Insurance, Railroad, Energy and Apple (Tech) along with a bunch of other stocks that ball-park combined sum to around the value of Apple holdings. As indicated in the letter with Apple repurchasing its stock along with BRK also so doing ...
Berkshire’s investment in Apple vividly illustrates the power of repurchases. We began buying Apple stock late in 2016 and by early July 2018, owned slightly more than one billion Apple shares (split-adjusted). Saying that, I’m referencing the investment held in Berkshire’s general account and am excluding a very small and separately-managed holding of Apple shares that was subsequently sold. When we finished our purchases in mid-2018, Berkshire’s general account owned 5.2% of Apple. Our cost for that stake was $36 billion. Since then, we have both enjoyed regular dividends, averaging about $775 million annually, and have also – in 2020 – pocketed an additional $11 billion by selling a small portion of our position. Despite that sale – voila! – Berkshire now owns 5.4% of Apple. That increase was costless to us, coming about because Apple has continuously repurchased its shares, thereby substantially shrinking the number it now has outstanding.

But that’s far from all of the good news. Because we also repurchased Berkshire shares during the 2.5 years, you now indirectly own a full 10% more of Apple’s assets and future earnings than you did in July 2018. This agreeable dynamic continues. Berkshire has repurchased more shares since yearend and is likely to further reduce its share count in the future. Apple has publicly stated an intention to repurchase its shares as well. As these reductions occur, Berkshire shareholders will not only own a greater interest in our insurance group and in BNSF and BHE, but will also find their indirect ownership of Apple increasing as well.


I'm content to continue to hold what might be ball-park broadly rounded as being 30% cash, and 14% in each of a Index fund, Apple, Insurance, Railroad and a Energy businesses, but where Apple has risen to more recently be around 21% of the portfolio value. Even if Apple collapsed 75% that's diluted to a -15% type portfolio hit risk-factor, but where including a prior absent exposure to Tech better balances the portfolio IMO.

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Re: Berkshire Hathaway

#390887

Postby 1nvest » February 28th, 2021, 12:54 pm

30% cash, and 14% in each of a Index fund, Apple, Insurance, Railroad and a Energy businesses

https://tinyurl.com/2ucwfshe

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Re: Berkshire Hathaway

#390889

Postby compscidude » February 28th, 2021, 1:03 pm

1nvest, interesting comment, some thoughts:

> Back in March and Covid pretty much drove BRK share prices down to below 1.0 Price/Book Value levels, around 0.92 at the lows.

In fairness, that is 'book value at the last accounting period' vs 'current' book value as you might estimate it by marking down BRK's holdings to match current market levels at that point. If you had (somehow) been able to insist at the point of BRK being $190 or whatever, that their accountants provide an immediate set of mark-to-market accounts, I think you would find the price to book would still be consistent with about 1.2-1.3x.

I am not suggesting that you are wrong (book value is reported from books, which are provided at specific points; and the numbers you suggest I'm sure are accurate relative to those accounting points).

What I'm saying is that the thing an investor should keep in mind is 'current value' and the 'last reported book value, 3 months ago' may be a poor proxy for that in times of large, sudden market movements (or in times of tremendous change for a company, too! look at the airlines...) - and this is *especially* true for a conglomerate / holding company.

In any event: book value is only a proxy for trying to guess intrinsic value of Berkshire - which is what matters - and book is a proxy that Buffett himself now discourages. To quote Buffett himself in 2019, page 3:

"For almost three decades, the initial paragraph featured the percentage change in Berkshire’s per-share book value. It’s now time to abandon that practice."

https://www.berkshirehathaway.com/letters/2018ltr.pdf

That said, I don't think there's anything wrong with you or I using it, as long as we are also keeping an eye on tracking the 'rate of error' / divergence from classic book-to-intrinsic-value models of berkshire plus other types of divergence - e.g. temporal factors ('mark-assets-down-or-up-to-current-market-roughly, if the market's level changes quickly and dramatically from the last accounts')

all imho of course; you should approach this yourself however you like :-)

re: apple. I suggest a fair PER for most companies with slow growth (as apple is now displaying) is around 16. That is half-ish of where it is just now. You can estimate it by knocking off 10% of the 'portfolio' value of BRK in your own approach (which is roughly in line with what I suggested above).

BTW, random thing - you might find it interesting to read the 5-groves analyses various people have published on the TMF USA forum btw, I think you'll find they're broadly in agreement with what you're saying but it is interesting to try different sets of assumptions and see what numbers come out.

comp

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Re: Berkshire Hathaway

#390907

Postby SalvorHardin » February 28th, 2021, 2:59 pm

For me, one thing that stood out from the report was that Buffett put a price on the BNSF railroad. Quote:

"Our second and third most valuable assets –it’s pretty much a toss-up at this point –are Berkshire’s 100% ownership of BNSF, America’s largest railroad measured by freight volume, and our 5.4% ownership of Apple"

The Apple stake was valued at $120.4 billion, as of Dec. 31st, so Buffett puts BNSF on a similar valuation.

I've tended, when doing my sum of the parts valuations, to treat BNSF as being similar to Union Pacific which is currently valued at almost $138 billion. Berkshire Hathaway's current market capitalisation is $566.4 billion

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Re: Berkshire Hathaway

#390910

Postby TheMotorcycleBoy » February 28th, 2021, 3:10 pm

Whilst I can't help but admire Warren Buffet, I don't hold BH, and do tend to still read some the prevailing articles:

https://markets.businessinsider.com/new ... 1030087776

but..

Warren Buffett's Berkshire Hathaway has scored a $1.4 billion gain on its surprise investment in five Japanese trading houses.

The famed investor's conglomerate disclosed 5% stakes in Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo at the end of August. Berkshire said it purchased the shares during the preceding 12 months.

The five stocks have rallied an average of 23% since then, boosting the combined value of Berkshire's stakes from below $6.4 billion to nearly $7.7 billion in under six months.

However, the quintet of Japanese stocks has trailed the Nikkei 225. The benchmark index has jumped by about a third since the end of August, and surged past 30,000 on Tuesday for the first time since 1990.


and did he not mistime his gold adventure?

ADD https://www.forbes.com/sites/robertberg ... b016006a63
REDUCE https://www.kitco.com/news/2020-11-16/B ... lding.html

?

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Re: Berkshire Hathaway

#390921

Postby SalvorHardin » February 28th, 2021, 4:16 pm

TheMotorcycleBoy wrote:However, the quintet of Japanese stocks has trailed the Nikkei 225. The benchmark index has jumped by about a third since the end of August, and surged past 30,000 on Tuesday for the first time since 1990.[/i]

and did he not mistime his gold adventure?

Buffett makes mistakes. But unlike most investment managers he owns up to them. After all, his company is named after one of his bigger mistakes :D

Berkshire Hathaway was a failing textile business that could not compete due to changes in its markets and consumer demand. Yet Buffett kept it going, at great cost, for 21 years after buying it!

Nowadays I see my Berkshire Hathaway shares more as a capital protection investment. My aim is to preserve the real value of my capital and income in retirement and Berkshire does this. If I was twenty years younger (and still working), I wouldn't own Berkshire shares.

Also Berkshire tends to perform well when the general market is performing badly.

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Re: Berkshire Hathaway

#391155

Postby flyer61 » March 1st, 2021, 1:54 pm

Any thoughts on what happens when the Buffett/Munger partnership depart the fix and fly west?

Break up? Massive accounting scandal? Business as usual?

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Re: Berkshire Hathaway

#391237

Postby 1nvest » March 1st, 2021, 4:59 pm

flyer61 wrote:Any thoughts on what happens when the Buffett/Munger partnership depart the fix and fly west?

Break up? Massive accounting scandal? Business as usual?

A short dip below price to book value (0.9), at which time as its pretty much flying on auto-pilot will see share repurchases and the share price rebounding back to a 1.3 P/BV.

Pretty much a 80/20 to 67/33 diverse stock/cash blend conglomerate nowadays, that broadly tracks the S&P500 in a cost/tax efficient (and somewhat sporadic) manner, and has been such since 2000.

Whilst Buffett proposes his heirs invest in the S&P500, Munger doesn't and advocates his heirs continue to invest in BRK. If/when interest rates/inflation spikes BRK's large pool of 'free-money' will have it distinctly advantaged. The large pool of cash available will also have some calling BRK at times of distress - so continued more a case of BRK filtering rather than having to hunt for bargains.

Buffett likes the limelight and is very informative in the publishing of a yearly letter, which I suspect would be replaced with no letter and less limelight.

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Re: Berkshire Hathaway

#391239

Postby Dod101 » March 1st, 2021, 5:12 pm

I have said before that I think that BH will be broken up once Buffett and Munger depart this earth. It has just got too big and I do not think anyone but Buffett would sit on that mountain of cash. There are just not enough investmments of sufficient size to make any difference to BH.

That would not make it a bad investment currently because I am sure there will be value to be released.

Dod

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Re: Berkshire Hathaway

#391240

Postby SalvorHardin » March 1st, 2021, 5:15 pm

flyer61 wrote:Any thoughts on what happens when the Buffett/Munger partnership depart the fix and fly west?

1) Subsidiaries to carry on running as they are, which means mostly independent of Headquarter control but surplus capital that they can't justify reinvesting will continue to be sent to HQ rather than invested in sub-par projects.

2) Lots of investment bankers (salivating over the fees) and pundits will be arguing for a breakup, or at least for a few companies to be spun off. I expect this to be strongly rebuffed.

3) Huge increase in share buybacks to use much of the surplus cash.

4) Possible annual dividend.

5) Currently IMHO the most likely senior appointments are:

Non-executive Chairman - Howard Buffett. His job is to preserve the corporate culture, by keeping an eye on the CEO.

"“He has no illusions at all of running the business. He won’t get paid for running the business,” Warren Buffett said. “He’ll only have to think about whether the board ... needs to change the CEO.”
https://www.reuters.com/article/us-berkshire-agm-idUSBRE94307H20130504

CEO - Greg Abel. Currently boss of Berkshire Hathaway Energy. Has appeared at the 2020 AGM with Buffett and Munger.

"At Berkshire Hathaway's annual meeting only Greg Abel will appear with Warren Buffett, prompting speculation that Abel will succeed the legendary investor as CEO"
https://www.thestreet.com/investing/at-berkshire-annual-meeting-abel-to-appear-with-buffett

Vice-Chairman - Ajit Jain. He already runs the insurance businesses.

Investments - split between Todd Combs and Ted Weschler, who have been running portfolios for Berkshire for over 10 years.

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Re: Berkshire Hathaway

#391247

Postby 1nvest » March 1st, 2021, 5:26 pm

Is cash not part of the BRK diversification model. Built up as prices rise, deployed when prices decline. 67/33 type present levels, at other times possibly dipping to 90/10. Intentionally held in T-Bills for the liquidity that provides as and when opportunities present.

I would imagine that what determinants of 'appropriate cash reserves' to carry at any one time would be ingrained.

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Re: Berkshire Hathaway

#391267

Postby TheMotorcycleBoy » March 1st, 2021, 6:58 pm

1nvest wrote:Is cash not part of the BRK diversification model. Built up as prices rise, deployed when prices decline. 67/33 type present levels, at other times possibly dipping to 90/10. Intentionally held in T-Bills for the liquidity that provides as and when opportunities present.

I would imagine that what determinants of 'appropriate cash reserves' to carry at any one time would be ingrained.

Surely if held in T-Bills its a bonds/equities model?

Matt

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Re: Berkshire Hathaway

#391340

Postby Dod101 » March 2nd, 2021, 12:04 am

I hope to be around long enough to see what happens when Warren and Charlie have gone.

Dod

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Re: Berkshire Hathaway

#409064

Postby SalvorHardin » May 3rd, 2021, 6:38 pm

As a follow up, at yesterday's AGM it was let slip that Greg Abel, CEO of Berkshire Hathaway Energy, is the successor as CEO.

"Berkshire Vice Chairman Charlie Munger apparently inadvertently revealed who would succeed Chairman and CEO Warren Buffett.
CNBC confirms it would be Vice Chairman Greg Abel. "If, heaven forbid, anything happened to Greg tonight then it would be Ajit," Buffett said, referring to Vice Chairman Ajit Jain."


https://www.cnbc.com/amp/2021/05/03/whe ... d-him.html

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Re: Berkshire Hathaway

#409196

Postby CliffEdge » May 4th, 2021, 10:09 am

Look what happened to GEC after Weinstock. Makes me nervous.


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