You might feel that leverage speeds up compounding. The problem is that leverage is more like compounding's hidden enemy: One million times zero equals zero.
- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A)
No. of Recommendations: 2
IV tracks BV extremely well. Here are John Kish's IV estimates by two models, DCF and two-column, over the period 1981-2014, plotted against BV. Here, too, are Whitney Tilson's IV estimates (two column) over the period 2003-2025, also plotted against BV. In all three cases r^2 is 0.99.
https://docs.google.com/document/d/1M6MZimylbxxbHi...
No. of Recommendations: 6
Those of you who followed John Kish's "Intrinsivaluator" will recall that John had a series of IVs, which he labeled "conservative," "more conservative," "liquidation," etc., depending on the discount rate used. They all tracked BV extremely well (log-log plots, r^2 = 0.99), but they were offset from one another. Which was right? I could think of two approaches to answering that question. One was to use a discount rate equal to the total return of the stock. Only a discount rate equal to the total return can bring a future stream of cash flows back to the present value. It's like buying a 6%, 30-year bond for $100. Only a discount rate of 6% will bring the future stream of interest payments back to $100.
The other approach was to use the stock price as a crude estimate of IV, and to plot price versus BV over a very long time period. In the long term the market is a weighing machine. It turned out that the stock price starting in 1965 did give a very good fit when plotted against BV, with short term ups and down along the way. In the short term the market is a voting machine. Mungofitch strongly objects to this method, but whether the method is reasonable method or unreasonable, the price data do at least track BV extremely well (r^2 = 0.980).
Estimated IV using DCF or two-column track BV extremely well (and FWIW stock price also tracks BV extremely well). I think that BV based valuations deserve strong consideration alongside valuations based on cash flows, operating earnings or look-through earnings. In fact, estimating IV as a simple multiple of BV works quite well, as long as one has a logical and proven method for choosing the correct IV/BV multiple.
No. of Recommendations: 2
"In fact, estimating IV as a simple multiple of BV works quite well, as long as one has a logical and proven method for choosing the correct IV/BV multiple."
I wouldn't, for example, just use Bloomstran's IV/BV (1.7) or Tilson's (1.6 ) or mine (1.5) or the 15 average P/B (1.4).
Maybe use Buffett's highest repurchase IV/BV in which he bought both A-shares and B-shares. Shares in Nov '23 were purchased at 1.51x beginning BV, or 1.37x ending BV for the quarter. I keep hoping that Buffett will repurchase more stock, if only to get an idea of his conservative IV estimate. It makes a good check on our estimates. Buffett knows Berkshire's value better than anyone.
No. of Recommendations: 1
Maybe use Buffett's highest repurchase IV/BV in which he bought both A-shares and B-shares. Shares in Nov '23 were purchased at 1.51x beginning BV, or 1.37x ending BV for the quarter. I keep hoping that Buffett will repurchase more stock, if only to get an idea of his conservative IV estimate. It makes a good check on our estimates. Buffett knows Berkshire's value better than anyone.
I got 1.47x trailing for that Nov '23 repurchase, but no matter, at the current 1.45x we are lower. They have bought lots at this level.
However, I doubt they are buying just yet. Buffett doesn't seem to buy when there's major uncertainty. They made zero repurchases in April 2020.
No. of Recommendations: 1
Me: "However, I doubt they are buying just yet. Buffett doesn't seem to buy when there's major uncertainty. They made zero repurchases in April 2020."
I realize this is different to what I wrote yesterday: "We are getting pretty close. I suspect Greg will knock on Warren's door today and get the nod".
I got a bit pessimistic in the last 24 hours. Maybe realistic.
No. of Recommendations: 2
"I got 1.47x trailing for that Nov '23 repurchase"
If I had to guess Buffett's estimate of IV based on stock repurchases, I'd go with his highest (not average) P/BV paid. These were the purchases in April, 2024 when he paid 1.601x March 31 BV, or 1.567x June 30 BV. On Sept 1, 2024 Berkshire actually issued B-shares as part of a larger transaction at $456.7 per share, or 1.636x June 30 BV, or 1.565x Sept 30 BV. If Buffett is issuing stock at 1.565x quarter-end BV and repurchasing stock at 1.567x quarter-end BV, then his estimate of IV must be pretty close to 1.565x quarter-end BV, or about 1.527x beginning BV for the quarter.
I've never really bought in to the argument that we should dismiss repurchases which were private transactions or where no B-shares were repurchased (2023 and 2024). None of us can read Buffett's mind, but my guess is that he doesn't veer very far from his estimate of IV.
No. of Recommendations: 2
Me: "However, I doubt they are buying just yet. Buffett doesn't seem to buy when there's major uncertainty. They made zero repurchases in April 2020."
Me again: “I realize this is different to what I wrote yesterday: "We are getting pretty close. I suspect Greg will knock on Warren's door today and get the nod".”
“I got a bit pessimistic in the last 24 hours. Maybe realistic.”
Well, I was right the first time! And wrong the second.
I still feel pessimistic for the short term. Keeping my powder dry. Already have a very large portion of net worth in Berkshire. Goes up, I’m good. Goes down, I’m good.
Good luck to all those following Greg in.
