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https://static.fmgsuite.com/media/documents/bb5c10...

Thanks for the link. I thought if anyone could justify current prices, that would be the guy. His analysis always seems reasonable. I'd be interested to hear how or why he is too optimistic.

About Mr Bloomstrans report:
It has always been a mystery to me why someone would write a detailed report once a year to speculate on figures that are going to be published the next day (no matter how good or bad the arguments are).
The only explanation I can think of is that it's to divert some of the attention around the Berkshire report to Bloomstran - and that makes me very sceptical.

I guess to see how close he calls it...
His valuations are likely optimistic but i do appreciate his reports. His results since inception are not bad either and I particularly like his run down on the S&P 500 and potential fwd looking returns, if you read his letter from 2000, he was spot on concerning S&P500 returns 10years fwd. He says much of what Jim has been stating for a while but goes into a lot of detail and lays out the maths for you to then play with and make your own assumptions

He was indicating $420-430 a year ago and we are about there now.

The paper has a "sum of the parts valuation" on page 116:

Berkshire Hathaway Energy is valued at $81-86 billions. He probably used 2022 earning and projected some growth rate to get that valuation.

But based on 2023 earning of $2.33b and dim prospect of recovery, that number is no longer correct.

After reading further below the table on pg. 116, BHE's low earning in 2023 is mostly due to accrual for losses relating to wildfire in Oregon and California. Therefore its earning may recover pretty soon. And if it resumes moderate growth, $81-86b valuation would be justified.

1.8x book. Hmmm.

Does he still include assumed (made up) earnings for the excess cash pile, or is he happy with 5% interest now?

read it, Page 126 he breaks down how he gets net investment income.

Again, dont understand the hate its there for you to do with what you want and his funds performance since inception looks good.. Im personally grateful for investors such as Bloomstran and Jim who share their thought process so publically.

I took a closer look at BHE to see where the issues with earnings might be and the interplay with weather.

Pacific Power - utility rates in Oregon and California under pressure. Wildfire risk going forward, burying transmission lines (cost is exorbitant).

MidAmerican Energy - utility ROE/rates in Illinois under pressure. https://www.utilitydive.com/news/moodys-downgrades...

NV Energy - potential wildfire risk but rates are stable.

Northern Powergrid - UK electric delivery - rates are stable.

Altalink - Alberta Canada tranmission/delivery - rates are stable. Wildfire risk.

Northern, BHE GT&S, Kern River - gas pipelines - rate stable - FERC regulation a blessing maybe?

BHE Renewables - power generation is fine. Renewable tax credits, and plenty of utilities willing to take electricity.

BHE Transmission - not sure where these interstate transmission projects are located but suspect its Western US. So definite wildfire risk.

Homeservices - 11 federal lawsuits filed on broker commissions etc. Big liability of $5.4B in Burnett case. Other cases pending. Could judgements permanently impair earnings potential of real estate business? Either way, commissions are likely coming down and many RE agents will leave the business. This may help the brokerage overall though.

Climate factors - El Nino has been good to the western US re rainfall and snow pack. 2024 wildfire risk is drastically reduced.

Post script - OTOH, weather bloggers (see below) have already noted that the El Nino pattern could end by late spring 2024, and move into La Nina. La Nina pattern usually means more Atlantic hurricane activity, so the improvement in P/C insurance underwriting could change negatively in 2024, 2025, and as long as La Nina persists. This also intensifies drought in Western states, so wildfire risk probably rises in 2025 and later.

https://arcfieldweather.com/blog?category=Medium%2...

“I took a closer look at BHE to see where the issues with earnings might be and the interplay with weather.“

Thank you and much appreciated. To hear Buffett reference this is concerning. Hits to earnings are one thing and makes deploying capital into BHE in this environment another negative.

It’s getting harder and harder for Berkshire. Great to see GEICO doing well but plenty of things to not be excited about.

“ Again, dont understand the hate its there for you to do with what you want and his funds performance since inception looks good.. Im personally grateful for investors such as Bloomstran and Jim who share their thought process so publically.”

Not sure how you get “hate” from my post. I find it amusing that, in the one report of his I read, Bloomstran included earnings from investments that hadn’t actually been made yet. One guest on the Rational Reminder podcast called it “fan fiction”. That was laugh out loud funny, I thought.

Can you post his fund performance? I looked and it is available by request only.

FWIW. PCG in California is burying thousands of miles of lines and it is approved with appropriate Returns on Capital.

So this may not a critical issue for BRK Utilities.

Me: Can you post his fund performance? I looked and it is available by request only.

Scratch that.

Under investment performance it does say “can be obtained by contacting Semper Augustus”:

https://www.semperaugustus.com/investment-performa...

However, full performance figures are at the end of the latest report.
Yeah, looks pretty good. Nice presentation.

How does it compare to just holding Berkshire?

How does it compare to just holding Berkshire?

You can fairly easily make yourself a spreadsheet to compare the numbers from Bloomstran's performance table with the numbers from Berkshire's performance table on page 17 of Buffett's annual letter.

You can fairly easily make yourself a spreadsheet to compare the numbers from Bloomstran's performance table with the numbers from Berkshire's performance table on page 17 of Buffett's annual letter.

Sounds like a lot of typing and my typing is so bad. Portfolio Visualizer is easier.

Semper Augustus Fundamental Intrinsic Value Equity Net vs BRK.b CAGR
1999 (Feb 28)
8.8% SA
8.5% BRK.b

2004
7.4% SA
9.7% BRK.b

2009
9.7% SA
12.1% BRK.b

2014
8.7% SA
11.6% BRK.b

2019
12.9% SA
11.8% BRK.b

2021
11.5% SA
15.4% BRK.b

Bloomstran has certainly beat many value managers.

479......I'd be interested to hear how or why he is too optimistic.

Whenever somebody comes up with a number which might seem optimistic, for me it is primarily a question of "optimistic about what?"

Is the number intended to be what a share's actual fair value is? I wouldn't have a problem with the range of his number.
Is the number intended to be what he thinks it will be trading at in the markets, some time not long from now? I don't buy it.
Is the number a "sum of parts" valuation of what the firm would be worth if broken up and all parts trading at valuations comparable to others in their industries?

The last one would be a bit of a waste of time. First, the firm isn't being broken up, and second, market prices are not really a useful yardstick of value.

For me the big thing is that actual fair value and likely market price are pretty far apart. A share of Berkshire is usually somewhat cheaper than what it's actually worth.

Jim

So Berkshire and chill.

Funny how that has worked out for decades.

For me the big thing is that actual fair value and likely market price are pretty far apart. A share of Berkshire is usually somewhat cheaper than what it's actually worth.

Ultimately the fair value has to have some connection to the price, right? Just not to the short term gyrations of the price.

So, are you simply saying that price is below its long term trend more often than above it?

Ultimately the fair value has to have some connection to the price, right? Just not to the short term gyrations of the price.
So, are you simply saying that price is below its long term trend more often than above it?

I think of it as a long run trend of true fair value, and a long run trend of market price. The first line is X% higher all the time.
I agree that the market price and fair value are connected over time, but they don't seem to have a 1:1 relationship on average over time.

The market price is above its own trend line half the time, more or less by definition. But above the fair value line only a small fraction of the time.

For example, imagine you (not unreasonably) think that P/B is still a good-enough yardstick of value most of the time. Let's further say you think true intrinsic value is around 1.53 times book (or whatever), in which case the market price has been "fairly valued" or better only 8.3% of the time since the credit crunch. Very much less than half the time no matter what reasonable multiple you pick.

One line of reasoning for concluding that Berkshire has on average been trading below fair value:
Over the long haul the broad US market has historically generated value for you at around inflation + 6.5%/year, barring changes in valuation multiples. The average return from the average stock in the average year. That's a workable definition of fair value good enough for me: the price that would get you that rate of return over a reasonable forward investment horizon. Since Berkshire has generated a whole lot more value than that in the last X years without getting more expensive, it was undervalued X years ago.

Jim

So Berkshire and chill.

That was my take.

Bloomstran had a good two years at the outset. Since then, his performance has lagged Berkshire.
Looks like he charges 1% or so.

2001 - 2023 CAGR Net:
9.2% BRK.b
7.7% SPY
7.3% SA
7.0% VIVAX (Vanguard Value Index)
5.7% WPVLX (Weitz Partners Value - Wally Weitz is on the Berkshire board)
5.7% LLPFX (Longleaf Partners Value)

I did like his quote from The Bloomstran Report...

"Several years ago in a letter to Warren Buffett I mentioned having calculated a startling truth:
Berkshire could lose 99.3% of its market value and still would have outperformed the S&P500 from when he took over.
Warren responded, I'm sure Ben Graham would be proud and call it a margin of safety, but let's not put it to the test.
Later that year at a Wesco meeting I mentioned the same remarkable statistic to Charlie...Charlie's instant reply, Well of course, Chris,
that's just simple compound interest!"

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