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- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A)
No. of Recommendations: 4
I have most recent book value per B at 291.72, so current price to book is 1.58x. In recent past, this is clearly on the high side of things.
Warren preferred to do buybacks at 1.2x (which is likely unrealistic) and commented that double book value is likely high. So, 1.6x is an average.
If they grow book at 10% year, we could still do well if the stock stays at a 1.6x ish valuation.
No. of Recommendations: 19
Fair value is a slippery concept.
For my own use, I define fair value of any financial investment as the price I would have to pay today to get inflation + 6.5%/year in the next 5-10 years. Historically in the US that was the "monkey with a dartboard" rate: roughly what the average stock returned in the average year.
Let's imagine Berkshire's intrinsic value per share grows at that same rate in the next decade or so. That's a bit lower rate than history which has been very close to inflation + 8% for ages, but Berkshire is a bit bigger than historically, and the market is more richly valued giving fewer opportunities, so it might be a pretty good guess. Another factor is that it's pretty certain Mr Buffett won't be the one allocating the capital by then.
To the extent that one is OK with all the reasoning above, the fair value of a share today is exactly equal to the valuation multiple that you expect to see as typical 5-10 years from now. If the next 10-20 years resembles the last 10-20 years, and book per share remains as good as ever as a quick yardstick of value, then fair value today is around 1.4 times book today.
If they grow book at 10% year, we could still do well if the stock stays at a 1.6x ish valuation.
Certainly true, but I personally would not bank on valuation multiples being that high. The average valuation multiple in the last 3 months is the highest 3-month average since 2008. I think it's rather more likely that we've been seeing a transient high spot. No matter, we'll all know soon enough.
Jim
No. of Recommendations: 4
If we define 'fair value' as the maximum price BRK itself is willing to pay for a share (admittedly against BRK statements that it only purchases at a discount to fair value), based upon P/Book, we're currently at or around fair value.
I believe March 2024 is the current repurchase high water mark if one goes by P/Book: A shares purchased at $623,205.69, or $415.87 per B share equivalent, while book was at $265.08 per B share (1.567...).
If you assume book as the valuation metric, today's adjusted price based on last reported book (or highest reported book to date) is $457.22 (1.567 * $291.72).
If we're looking at maximum price BRK has actually paid, we're at $626,685.61 in May 2024, or $417.79 in B equivalents.
One could do worse, but one could probably do better.
No. of Recommendations: 13
If we define 'fair value' as the maximum price BRK itself is willing to pay for a share (admittedly against BRK statements that it only purchases at a discount to fair value), based upon P/Book, we're currently at or around fair value. ...
If you assume book as the valuation metric, today's adjusted price based on last reported book (or highest reported book to date) is $457.22 (1.567 * $291.72).
There is likely a distinction between buybacks for capital allocation purposes (in which case that conclusion is probably merited), and buybacks from the estates of shareholders (which seem to take place at a wider range of valuations, so no firm conclusion should be drawn).
We know that some of the buybacks this year were from estates, and there seems to be a strong consensus that some high-multiple ones were among them. One slight clue at least for long time shareholders is when the buybacks are all, or nearly all, in A shares.
I for one am pretty sure that Mr Buffett would not be a buyer, as an investment-type repurchase, at above 1.5 times book these days.
For whatever it's worth, there has been no buyback of a B share above $357.22 (average price paid per B in the month of the buyback), which was 15 months ago. That was 1.437 times known book at the time. There have been 3 months with B repurchases in the range 1.45-1.48 times peak-to-date known book at the start of the month in question. Unless my table missed something, 1.4796 times "peak to date" known book at start of the month of the buyback seems to be the absolute top ratio paid for a B share (again, average within the month--presumable a few shares a bit higher and lower). That "top price paid" valuation level would be $413.11 right now.
Of course, we're reading between the lines here. There is no demonstrably right or wrong answer.
Jim
No. of Recommendations: 1
If top paid price to book was 1.48, book value on B is 291.72, that gets us to 431.75, I see Jim had 413.11, please correct me, just want to understand where the numbers came from.
No. of Recommendations: 6
If top paid price to book was 1.48, book value on B is 291.72, that gets us to 431.75, I see Jim had 413.11, please correct me, just want to understand where the numbers came from.
You're right, of course--sorry about that.
As you wanted to understand, it's simple: the book value I used was one quarter out of date. It was in my table of buybacks, and there weren't any buybacks in Q3, so I neglected to update the Q3 book value in that worksheet. Something about "garbage in..."?
Of course, as a reminder: just because it seems that Mr Buffett doesn't like buying B shares at prices above 1.48 times book, it doesn't mean that a share is actually worth only that much.
Jim
No. of Recommendations: 10
If top paid price to book was 1.48, book value on B is 291.72, that gets us to 431.75
Continuing that sense of context on the share price---
The highest valuation at which Mr Buffet has ever done buybacks of B shares, per above, equates to about $431.75 today.
If the shares were trading at the average valuation level since 2008, they'd be trading at around $378-405 today. The range is from using various methods for valuation. $390ish, basically.
If growth in observable value per share in the next year were to come out at inflation + 7.5%, and inflation is (say) 3.1%, and the valuation multiple is like the post-'08 stretch, then one might expect a nominal price a year from now at around $419-449. (equal to a future price in today's dollars of around $407-435)
Today's price, $456.51, is above all of those. Enough that there is no particular reason to expect a good year for the stock price, but not so much that it calls out for action.
Jim
No. of Recommendations: 1
Unless my table missed something, 1.4796 times "peak to date" known book at start of the month of the buyback seems to be the absolute top ratio paid for a B share (again, average within the month--presumable a few shares a bit higher and lower).
Another quarter in support of your point -- the stock dipped down to the low $440s a couple times in Q4 and Jan 1 - Feb 10, but we have zero buybacks in that span.
If past A purchases were the best guide, we probably would have seen at least some repurchase activity -- the buy trigger would have been about $457 based on Q3 book. If the top ratio paid for B is the better guide, the trigger point was ~$432, which was never hit.
New B-guided trigger point would be around $445.
