No. of Recommendations: 15
A thoughtful post.
A couple of random thoughts---
If you combine these two comments
"...assume this price represents some unknown discount to his estimate of Berkshire's intrinsic value. We know that discount has been shrinking over time..."
and
".... It was a regulated industry where the regulators guaranteed reasonable returns -- until they didn't. They decided the costs associated with wildfires and climate change were not going to be covered, throwing a gigantic wrench into the works."
...then there is a thought that occurs to me: I think perhaps Mr Buffett expects the utilities division to recover fully, or almost fully, to its prior level of profitability. And one indicatino of that is that the buybacks are at valuation multiples that did not previously make a whole lot of sense. I value the operating subs based on a multiple of recent earnings, which gives a pretty low value lately...but if valued at something near historical net margins, you get a much bigger number.
I also view Berkshire as turning into a cash cow and realize that cash will need to be returned to investors in a more typical fashion.
There is no real reason that Berkshire's way of dealing with the cash has to be particularly typical--it never has been, really. As long it's a method in the acceptable range. For example, if it really is deemed excess to requirements then a tender offer can work very well, as Markel has shown.
The interesting question regards the implicit assumption of your post, that there won't be, any time soon, a time that large piles of ready cash are scarce and therefore valuable, more than justifying a wait. We haven't seen many weeks like that in the last 20 years, but that is not an absolute guarantee that such times won't appear once again. Maybe everything will be pretty smooth and richly valued almost all the time in future, who knows? But I would not assume that to be the case.
Jim
