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- Manlobbi
Personal Finance Topics / Retirement Investing
No. of Recommendations: 4
When Warren was asked at the annual meeting about the difference in the price paid in Aug '22 for Greg Abel's 1% stake in BHE and the price paid in Oct '24 for the Walter Scott family's 8% stake, he replied that the value of the company had declined. As Barron's described
https://www.barrons.com/articles/berkshire-hathawa...the price paid to Abel was $1,175/share, whereas the price paid to the Scott family was $650/share, a decline of 45%. The 2022 purchase implied a value for the entire company of $87B, while the 2024 purchase implied a value for the entire company of $49B.
This is a huge decline in the implied value of BHE. Can anyone explain the decline in value of BHE in more detail than Warren gave?
No. of Recommendations: 8
"Can anyone explain the decline in value of BHE in more detail than Warren gave?"
Significant legal liability for fires in the service territory. Hostile regulators. I use that word purposely.
Early in my career I ran IT for a large regulated utility in the Northeast. I was at a corporate function where the CEO was boasting what a great business the regulated utility business was with a guaranteed 15% return on an ever growing "rate base".
I said to him: "Jim - what if the regulators aren't always so accommodating?" His head spun like in the Exorcist. Clearly that thought had never crossed his mind.
No. of Recommendations: 0
"Significant legal liability for fires in the service territory. Hostile regulators."
Thanks, but if you can, could you be more quantitative? We have to account for a $38B decline in value. How do we get to that number?
No. of Recommendations: 1
I don’t have a way to estimate. Obviously Warren did when he bought the last shares. But it would have been a great question for the annual meeting but I doubt he would have answered it directly
No. of Recommendations: 0
BHE also owns the real estate brokerage business, which is also impaired with legal liabilities in addition to the forest fire liabilities in the west.
No. of Recommendations: 0
We have to account for a $38B decline in value. How do we get to that number?
Probably the way the value of anything is determined. What a willing buyer pays to a willing seller.
No. of Recommendations: 9
Probably the way the value of anything is determined. What a willing buyer pays to a willing seller.
Though true, it might be more complex: it may have been based in whole or in part on a formula that was agreed (between willing buyer and seller) some time in the past. If the formula involved something like (say) 3 year average free cash flow, the calculated price may have dropped a lot.
Jim
No. of Recommendations: 1
This approach is probably the most accurate... However, it would put the valuation of BHE at above $100b, since Abel would not sell it below imho.
Anyways, thanks guys, this is a very good question. Based on Chris Bloomstran we might be closer to $90b, but a more defensive approach based on multiples might yield more like $50-60b (ex BYD),
https://brk-b.com/what-is-the-value-of-berkshire-h...
No. of Recommendations: 0
From the link, "You may need to decide for yourself where in-between the band of $49 to $87 billion you want to value the subsidiary."
Reluctantly, and with respect for Bloomstran and others who choose $87B, I'm going with Buffett at $49B. This reduces my estimate of IV from $720K/A-share (1.56x BV) to $695K/A-share (1.51x BV), a reduction of 3.2%.
On another issue from the annual meeting, I am considering how to adjust my IV estimate based on Warren's announcement that he will step down as CEO. Fortunately Warren will still remain Chairman of the Board, and he will give his input on acquisitions and other capital allocation decisions. However, when Warren is no longer available to give his input on acquisitions and capital allocation, I plan to lower my IV estimate, perhaps by several percent. No one is as good as Warren at capital allocation.
No. of Recommendations: 1
"However, when Warren is no longer available to give his input on acquisitions and capital allocation, I plan to lower my IV estimate, perhaps by several percent. No one is as good as Warren at capital allocation."
This is spot on.
Greg will be (way) better than Warren on operational efficiency but no where near Warren on capital allocation.
Lastly, Warren had the cult of personality and demonstrable track record to attract sellers of their businesses to Berkshire.
No. of Recommendations: 7
No one is as good as Warren at capital allocation.
I would modify that comment to: "No one is as good as Warren at capital allocation while, at the same time, minimizing permanent loss of capital." And, even there, he's lost permanent capital by issuing stock several times. OTOH, Buffett's long term batting average is great.
I've come to somewhat learn about one individual who started without the family capital Buffett enjoyed. So he's self-made even more so. He had to earn his initial capital by working in private equity.
He has accumulated about 5x the wealth - inflation adjusted - as Buffett had at his same age.
But he's done so that, while basically following the Buffett game plan of using insurance float as leverage, he's been more of a risk taker than Buffett. Don't ask - I'm not going to disclose any details.
Buffett made almost all his money after he was at this gentleman's age. So the future may well disclose that Buffett had the better informed and wiser strategy. That remains to be played out over future decades. He's still the GOAT until proven otherwise, but there are contenders out there.
It's the combination of capital allocation and risk judgment that counts over the long run. And it takes the long run to find out.
No. of Recommendations: 7
But he's done so that, while basically following the Buffett game plan of using insurance float as leverage, he's been more of a risk taker than Buffett. Don't ask - I'm not going to disclose any details.
Tex, I greatly admire you. You have taught me many things on this board, more than you could ever imagine. But I never thought of you as a tease. Until now.
Cheers.
No. of Recommendations: 11
<<It's the combination of capital allocation and risk judgment that counts over the long run. And it takes the long run to find out.<<
Absolutely, Tex.
And if you “don’t lose” while winning big on occasion, TIME creates results almost hard to comprehend. I was just thinking: I’m today a “not ancient” age 66. I was an adult living in Omaha when Warren was then a not-young, veteran of 3 to 4 decades of investing via his Partnership & then Berkshire. Warren was very rich, a Billionaire. When there weren’t many.
The concensus was “well he’s had a heck of a run—maybe another decade or so would be nice—but obviously his major wealth accumulation is in the rear view mirror. Too late to get on that train”.
In fact…yes, that lifetime run til then of 24% annual average gains WAS over. Size IS an anchor of growth. The future growth rate predictably dropped—a lot. Too bad?
But after that lifetime run—what happened? Buffett went on to earn 99% of his total lifetime wealth. AFTER that.
No. of Recommendations: 5
"Reluctantly, and with respect for Bloomstran and others who choose $87B, I'm going with Buffett at $49B. This reduces my estimate of IV from $720K/A-share (1.56x BV) to $695K/A-share (1.51x BV), a reduction of 3.2%."
My IV estimate of 1.56x BV was based on Berkshire's share repurchases:
Date, Price paid/beginning BV for quarter, P/ending BV
FEb '24, 1.595, 1.562
Mar '24, 1.601, 1.567
Apr '24, 1.561, 1.482
Oct '24 issue of B-shares as part of the purchase of Walter Scott family estate's BHE shares, 1.565x Sept 30 BV
It looks like Buffett valued Berkshire stock at about 1.56x BV at the time he bought BHE shares in October, so maybe I don't need to reduce BRK's IV based on the reduced price of BHE. I keep going round and round on this. Sorry. We'll find out when Buffett next repurchases shares. That may not be soon, as BRK-A is currently selling for 1.67x BV.
I'll try to sign off on this question now. I think we all want to know what Berkshire's IV is, and what it's IV growth rate will be in the coming years. Thank you for your patience and your input.
No. of Recommendations: 14
But I never thought of you as a tease. Until now.
Smurfdogg is correct, and I apologize to the board. I should have remained silent.
But, having not done so, I'll offer one more comment on the subject.
There seems to be by some that Warren is unique and without fault. He is unique in terms of his devotion to investing, an incredible memory for accumulating and recalling financial facts, and a willingness to share his insights. I think he might actually enjoy teaching sometimes more than investing. But investing remains his primary driver.
That doesn't mean he is unique in terms of investing in today's environment. He's been brilliant in terms of his long term record. But he's also had some very favorable tailwinds that may not apply to the current world of investing. And some very good mentoring from Munger and others.
That was my intended point. In today's world, others have learned from him - and maybe better adapted than he has. That isn't proven yet - that takes a long time. But don't dismiss that there may be other gifted investors.
Just trying to maintain some perspective.
No. of Recommendations: 9
Don't beat yourself up too hard, Tex. I was being light-hearted. Plus, everyone here wants to know WHO can manage their funds better than the averages. Every option I've looked into has fallen short. Some never beat the indexes and yet claim superior process. And then there's Joel Greenblatt, who offered up multiple options to help beat the market and then fell short when we (well, me) tried it. Even Mungo couldn't figure out the secret sauce.
Best wishes! We appreciate you, Tex.
