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This from Whitney Tilson's presentation at Guy Spier's VALUEx conference in Klosters, Switzerland last week.

'I think Berkshire Hathaway is 15% undervalued based on my updated calculation of its intrinsic value, using the same valuation methodology I've been applying ' with a high degree of accuracy ' for more than two decades:

At a 15% discount, Berkshire isn't a screaming, pound-the-table buy ' as it has been a few times in the past two decades when it's briefly traded at a discount of up to 50% ' but it should outperform the S&P 500 by a few percentage points annually over the next five years, which would likely beat 95% of active money managers.'

The link to his slides on Berkshire'.& other topics,

https://assets.empirefinancialresearch.com/uploads...

Conclusion of Berkshire trading 15% below current $556,000 fair value.

ciao

This from Whitney Tilson's presentation at Guy Spier's VALUEx conference in Klosters, Switzerland last week.
'I think Berkshire Hathaway is 15% undervalued based on my updated calculation of its intrinsic value, using the same valuation methodology I've been applying ' with a high degree of accuracy ' for more than two decades

Mr Tilson's valuation estimates are always somewhat high if taken as price targets. *

But his numbers are calculated pretty rationally, and the amount by which they're too high is probably always around the same percentage.
So, whether you like his number or not, if it's cheaper now (calculated by him) compared to history (calculated by him) then it's probably a rational indicator of a good buy.

Jim

* Less so this time:
It's rather surprising to me that the number he comes up with ($556k) is below last year's market high in real terms ($559.1k in today's money).

I use a simple short-cut to sense check these estimates.

Almost exactly a year ago, Buffett was repurchasing shares at a maximum price of around $323 per B after which he stopped as the price increased.
Based on his remarks on repurchases and valuations beforehand, it seems reasonable to expect that he would only pay a price that was at least 10% below the lower band of his intrinsic value estimate at the time. So we could assume that a year ago the lower band of his valuation for Berkshire was around $358 per B.

I don't think it is particularly aggressive to assume that in the year since, intrinsic value has probably grown at least at 8%. That would make a current IV estimate around $386 per B.

The indicates a 20% discount at the current price.

For me, that is closer to buy rather than sell territory.

WEB's view on the IV BRK will be impacted by interest rates. Wasn't it only recently that he and Charlie said if the environment stays the same (zero interest rates) many stocks are fair value?. Howard Marks refers to a "Sea Change"in environment. This will and has had a significant impact on values now and going forward.

WEB's view on the IV BRK will be impacted by interest rates.
That is true but the relationship between interest rates and an the value of an individual stock has multiple factors that need to be considered including the increase in earnings in some sectors and the increased probability of deploying the significant amount of excess cash intelligently.

In the 2017 AGM he said he could hope for intrinsic value to compound at 10% provided the interest rate environment had rates a bit higher than those prevailing at the time ( which were around 2% from memory). I think we are pretty close to the territory he was hoping for.


So the question is, 'At what rate has Berkshire compounded intrinsic value over the last 10 years? And at what rate, including your explanation for it please, do you think intrinsic value can be compounded over the next 10 years?'

WARREN BUFFETT: Yeah. Intrinsic value, you know, can only be calculated ' or gains ' you know, in retrospect.

But the intrinsic value pure definition would be the cash to be generated between now and Judgment Day, discounted at an interest rate that seems appropriate at the time. And that's varied enormously over a 30 or 40-year period.

If you pick out 10 years, and you're back to May of 2007, you know, we had some unpleasant things coming up. But we've ' I would say that we've probably compounded it at about 10 percent.

And I think that's going to be tough to achieve, in fact almost impossible to achieve, if we continued in this interest rate environment.

That's the number one ' if you asked me to give the answer to the question, if I could only pick one statistic to ask you about the future before I gave the answer, I would not ask you about GDP growth. I would not ask you about who was going to be president.

I would ' a million things ' I would ask you what the interest rate is going to be over the next 20 years on average, the 10-year or whatever you wanted to do.

And if you assume our present interest rate structure is likely to be the average over 10 or 20 years, then I would say it'd be very difficult to get to 10 percent.

On the other hand, if I were to pick with a whole range of probabilities on interest rates, I would say that that rate might be ' it might be somewhat aspirational. And it might well ' it might be doable.

Almost exactly a year ago, Buffett was repurchasing shares at a maximum price of around $323 per B after which he stopped as the price increased...

I think it's good to consider that there might be more moving parts to consider.
It's possible that it's not really that simple, and reading too much into it is getting ahead of one's skis.

For example, maybe Mr Buffett thought that Berkshire stock was a better deal in 2022 (slow repurchases) than in 2021 (fast repurchases),
but that OXY stock was an even better use of capital in 2022 so he did that instead.

The amount of capital that might be considered "excess" and therefore buyback-eligible presumably varies a whole lot based on other things going on.
In the economy, in the markets, and in Berkshire's businesses.

Jim

For example, maybe Mr Buffett thought that Berkshire stock was a better deal in 2022 (slow repurchases) than in 2021 (fast repurchases),
but that OXY stock was an even better use of capital in 2022 so he did that instead.


That is obviously true but my take was based on the maximum price actually paid not the quantity of shares purchased. The assumption was that whatever the competing candidates for capital deployment ( and obviously there will always be many), I assumed Buffett would never pay a price which was higher than 10% below his estimate of intrinsic value at the time.


That could be a wrong assumption, but it feels a fairly realistic one to me.

love the common sense of this post.

I assumed Buffett would never pay a price which was higher than 10% below his estimate of intrinsic value at the time.

I would certainly agree with that.

But not the reverse:
Just because he's not buying doesn't necessarily mean he thinks the price is too rich.

Jim

But not the reverse:
Just because he's not buying doesn't necessarily mean he thinks the price is too rich.


I agree which is why I didn't suggest the latter.

It can be tough to deduce too much from repurchase activity as a lot of it is opportunistic by design and we do not have visibility of the options available to him at any point in time.

There have been many times in the last 5 years where he hasn't bought despite the stock getting cheaper than where he was buying. I actually asked him to explain why via CNBC and he explained that he wanted to keep cash around because he was hopeful of doing a large deal which fell through. He also made clear that in terms of capital deployment, an acquisition of a whole business would always take precedence.

Obviously he was also building up cash when the price hit a low in 2020 and didn't buy back any shares in the vicinity of the bottom.

I am a huge fan of ppant's insights and so was happy to see that UBS agrees with his assessment that Berkshire is trading at a discount of 20% . :-)


https://www.cnbc.com/2023/02/07/berkshire-stock-is...


Title: Berkshire stock is trading at 20% discount, a level where Buffett typically ramps up buyback, UBS says

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