No. of Recommendations: 7
Thanks for detail. I had not updated my model in a while and I made some changes as well.
My updated number is $457. So we are closer.
What did I change and where might the difference be?
First, thanks for the detail, you too.
My comments, for what they're worth
Grove 1) I was using PE of 16. Now 15. I also am using LY Operating earnings plus 10% (22.92 BB). $160 for grove 1.
To be honest, I don't really like multiplying by anything in particular, and Buffett has given us no guidance here, as far as I know. To some extent, it is just a matter of having a constant way of doing things to gauge progress. There is no need to actually buy at exactly $457, if that's our estimate, you might well decide that you are a buyer up to 100% or 120% of that, and a seller at a much higher price, and if that's your intention, you just need to be consistent.
I would actually prefer a different technique, which is to take the current market cap, subtract off groves 2, 3 and 4, and then just see what multiple Mr Market is giving to groves 1 and 5. If it's a 15 multiple, then you might say that is fair value, but maybe Berkshire's businesses are worth a bit more than that multiple, who's to say? If the market price is currently 15 or 16 or 20 times the earnings, after subtracting off equities and equity method investments and cash, that's still a pretty good deal in a market where stocks are averaging much higher multiples. Anyways, if we do use a multiple, might as well use the same one. As for the 10% boost, I would just go with the last 12 months, since that's how stocks are usually evaluated, not the estimate of the current run rate, which is, I presume, why you add 10%. But your method is perfectly logical, too.
Grove 2) Basically the same. I update mine for QTD estimated gain or loss on the portfolio. You are $106 I am $104 to reflect recent activity since quarter end.
I would not adjust - this is, for me, a snapshot of what things were like on September 30, not an up to the minute account of the current status, where most of the information I would need to do the update is not available to me.
Grove 3) I do include the Oxy preferred and warrants. This is about $10 BB. Do you have these somewhere or am I doing a double count?
I guess this is probably right, and I should add them. I think they are neither equity nor cash, so this would logically be the place to put them. Does anyone else have an opinion on this? And are there no other preferreds or warrants?
Grove 4) I am now $160 and you are a little less at $157. The $3 difference is I am using estimated QTD retained cash from operations. No biggy.
Just like 2, I don't do this.
Grove 5) We are very similar. Should the retro losses by added to this as well? How are you viewing retro insurance contract losses?
I would have thought they eventually get included in insurance earnings, so if you are using a multi-year average as we are, I would have thought that there was no need to make any such adjustment, but what do I know.
Regards, DTB
