Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 29
The price right now is somewhat below its recent peak. Yay! Forward returns are looking better!
But for whatever it's worth---
Price to peak book today (1.615) is pretty much the same as it was 2008-06-11 (1.619)
Other than brief moments, the inflation-adjusted stock price didn't get any higher in real terms before about 4.6 years later at end 2012 when it was actually a hair lower.
The precision is definition misleading, and that past result is just a single observation, but the general observation has some merit: returns starting from valuation levels which are above average tend to have returns which are below average. We certainly don't yet know what future valuation levels might be, but the current level is above the average in recent years, so one might rationally expect a period of below-average price returns coming soon.
An extremely simple back-of-the-envelope:
Price to peak book is not a perfect metric, but for a variety of reasons, the changes in the structure of the firm cancel out and thus (so far) it's about as good as it has ever been.
Price to peak book is currently 18.8% above its average since the start of 2008.
That same metric tends to rise at a round inflation + 8.0%/year. Surprisingly consistent as a trend since 1998, and the current value metric is still right on that trend.
So, of all future prices were to come out at average valuation levels since the crunch, you'd expect a flat share price in real terms for around 2.4 years from here.
Great firm, value rising every day, but the prospects for great short to medium term returns still don't seem to be particularly wonderful at the moment.
Jim
No. of Recommendations: 3
In 2018 with the adoption of accounting standards Update number 2016-01 issued by the FASB....it required companies to include UNREALIZED Gains and losses from equity investments in their net income.
Comparisons to a period when Berkshire could record those gains or loses in comprehensive income--to me are not useful ( I like the old rules better, so does Waren but...)
Comparisons to book value multiples with respect to both the composition of the company's investments AND the major accounting change--are, particularly, potentially quite misleading. My editorial judgment--useless. But to each his own.
Berkshire's present valuation is not cheap by any means. But it's not as expensive as you think. He bought the stock at an all-in after buyback tax price of $410--with a required margin of safety...
No. of Recommendations: 5
In 2018 with the adoption of accounting standards Update number 2016-01 issued by the FASB....it required companies to include UNREALIZED Gains and losses from equity investments in their net income.
Comparisons to a period when Berkshire could record those gains or loses in comprehensive income--to me are not useful ( I like the old rules better, so does Waren but...)
Comparisons to book value multiples with respect to both the composition of the company's investments AND the major accounting change--are, particularly, potentially quite misleading.
This is an inappropriate conclusion. The new FASB standard changed the recognition of unrealized gains and losses so that they are now reported as part of net income, as you note. But even before that rule, those unrealized gains and losses were included in equity, as they continue to be after the rule. Which means that price/book measures were not affected.
No. of Recommendations: 15
In 2018 with the adoption of accounting standards Update number 2016-01 issued by the FASB....it required companies to include UNREALIZED Gains and losses from equity investments in their net income.
Comparisons to a period when Berkshire could record those gains or loses in comprehensive income--to me are not useful ( I like the old rules better, so does Waren but...)
You may have misunderstood the accounting change. It had absolutely no effect on book value, only reported EPS. It changed only the line item on which the change was placed: either the earnings line, or the change to comprehensive income. Unrealized gains and losses were always counted in book.
The TCJA, on the other hand, did cause a big one time change in reported book value because the lower tax rates reduced the estimated tax liability from unrealized gains. But it was largely counteracted by the change in TRUE value due to the lower future tax rates. Trying to estimate the relative size of these two changes is extremely subtle, but in general they cancel out, and P/B remains as accurate as a valuation metric as it ever was.
Note, I don't just *assume* that is the case. I do a number of more sophisticated valuation exercises as well, and so far, more or lees by coincidence, the two still match. P/B is so far, as good as it ever was.
Jim
No. of Recommendations: 1
These kinds of posts are very informative/helpful and are making me want to sell even more than I have in my IRA
No. of Recommendations: 1
Unrealized gains and losses were always counted in book.
For book value, are unrealized gains/losses counted before or after estimated tax?
Aussi
No. of Recommendations: 1
For book value, are unrealized gains/losses counted before or after estimated tax?
After.
No. of Recommendations: 10
These kinds of posts are very informative/helpful and are making me want to sell even more than I have in my IRA
FWIW, my post was not a suggestion that anyone should sell. I just think it's good to have a rough idea of what's probably coming next--probably a flattish spot. One's reaction to that likelihood might or might not involve taking any action, depending on a whole lot of other factors.
As always I hope to be pleasantly surprised...maybe there will be some big unforeseen boost to value.
Jim
No. of Recommendations: 3
What’s next could be a discontinuity if Buffett departs.
I discounted complaints about his age for over a decade but at 94 it’s a real consideration.
Shaun
No. of Recommendations: 3
Great firm, value rising every day, but the prospects for great short to medium term returns still don't seem to be particularly wonderful at the moment.I ran across an article about "The Hidden Risk in “Religion” Stocks"
Old age and arthritis eventually catch up with “religion stocks.” No company can grow at a fast pace forever. Growth in earnings and sales eventually decelerates. That leads to a gradual deflation of the “religion” premium.He mentions a number of these kinds of stocks, and says that "With the exception of Berkshire Hathaway, all of these companies have [crashed]."
https://investor.fm/the-hidden-risk-in-religion-st...A number of people here have talked about exiting or reducing their BRK positions. Jim has been predicting very low returns over the next several years. I kind of like the idea of keeping long held positions in BRK in taxable accounts so that your inheritors get the stepped up basis, and exiting the holdings in IRA accounts.
I have had my eye on a mutual fund for some time, which I held for several years some 20 years ago but sold.
Its top 10 holdings are 57%, so those dominate the return. BRK is the #2 position at 9%.
So my idea was to sell my BRK.B in the IRAs and put that money into this fund. Then today, right at the market open I got a "S&P500 has hit a new high" notification. Hmmmm, maybe today isn't the best day to do the switch. How to decide when to do the switch?
Best day is when BRK is up and the fund is down. You don't know what the fund has done until after the market closes, which is too late. I don't think MFs report their NAV in realtime throughout the day.
A quick-and-dirty check would be to check the weighted gain of the top 10 (or 20) holdings and compare that with BRK's gain.
Well.
Anyway, just before the market close deadline, the weighted gain of the top 10 was 2.47% and BRK.B was 0.68%.
So, not today.
