Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 6
Admittedly, I'm often late to the party. But I just recently became acquainted with the book plus float (or book plus float plus 1/2 deferred taxes) method of valuing Berkshire. Thanks To Tex (formerly Texirish) for bringing me up to speed. Think I'm going to stick with this for a while and see how it goes.
As an enthusiastic Berkshire shareholder (and certainly subject to the effects of confirmation bias), I have always taken delight in reading the steady stream of high IV estimates from Bloomstran, Tilson, et al. But I'm given reason to pause that market price never ever ever seems to coincide with these IV estimates. At best it seems like these estimates are accurate predictions of where Berkshire MIGHT be trading in a year or two.
Plus I guess I'm sort of enamored of the bracing simplicity of book plus float....appeals to the sluggard in me.
No. of Recommendations: 7
Thanks To Tex (formerly Texirish) ...
The board name is an accident of not reading the instructions closely enough when I signed up for this new board. I would happily go back to Texirish if I knew how to make the change. It is more descriptive of who I am - i.e. an Irishman living in Texas - than what "Tex" may imply to some about my values and political orientation.
Re B+F I assume you've done some of your own work in backchecking how it tract price. I still view it as good enough to make Buy, Sell, or Hold decisions. If one is a trader or uses options, you should prefer a more fundamental approach.
I'm always somewhat amused by the wide range of IV's different people come up with using a sum of the parts approach. It all depends upon the assumptions and attempted corrections built into the spreadsheet. I think Jim's 2 1/2 column approach is the most pragmatic.
Re the relationship between IV estimates and price, price does seem to approach them better a few years out. But with a business retaining and reinvesting earnings, that's what it should do. That doesn't explain why it always leads price - the market is supposed to be forward looking.
My "pet cat" theory is that buying Gen Re with stock - and not promptly repurchasing the stock - is one major reason. If the business you buy with stock grows slower in value than the business behind the stock you issued, then you've made a mistake. The spread between the value you received and the value you gave away compounds with time - and in a negative manner. If you buy at a discount, then the process takes longer, but it still happens. If you buy at a premium or buy a bunch of expensive problems you didn't know existed, the time is shorter.
Using optimistic values for a fixed Gen Re, that value spread is now somewhere around the value of 200,000 A shares. Those excess shares are a dilution on how the market values BRK results.
Bloomstran is dead wrong in stating the Gen Re acquisition has resulted in doubling the current value of BRK. None of the fixed assets and cash acquired have been needed to make any of the subsequent acquisitions Buffett has done. Bloosstran simply hasn't studied the data or paid attention to what Buffett subsequently said about the acquisition.
I have done the work - and ran it by a group of 20 long term BRK shareholders to check my data and conclusions. None have disputed the analysis.
No. of Recommendations: 2
you're forgiven, there are more Irish in Texas :-)
I too , like some of the posters on here note ,in the years I have owned BRK, that estimates of FMV are about 12-18 months ahead of market price.
I have a social behavioural hunch on this :
2 types of BRK investor :
Catious, long term holders, whi want to be sure every dime they pay is really worth 11 cents at minimum
or
cautious , long term holders who, perhaps like me, take on risky side bets and roll the gains into BRK for safety as until yields reached 5 %+ in a safe investment, there was nowhere else to go...as we too like to think we are getting 11 cents for every dime spent , but will take 10.5 due to timing and other gains.
so the demand is sluggish, lagging , but sure.. its the hare and the tortoise, and its about how many hares you can exchange for a tortoise.
No. of Recommendations: 0
Admittedly, I'm often late to the party. But I just recently became acquainted with the book plus float (or book plus float plus 1/2 deferred taxes) method of valuing Berkshire.
I set it up in my spreadsheet some years ago, and it spits out the number each quarter I do the update (currently $299/b).
But I've never really understood why this would be a good way to value Berkshire.
Float is valuable, of course. Last reported float is $165Bn. That's a lot of optionality. It's not like its spendable money, though.
(Bonds + Cash)/Float
2010-2022
105%
92%
100%
94%
101%
99%
102%
109%
105%
111%
113%
109%
92%
Bonds + Cash occasionally dips below the float value. Then cash builds up again.
Related, from my quotes file: 2/24/2020 WEB Squawk Box: "So, we're about 80% in-- roughly in equities and about 20% in cash"
Yep. Still is. Been that way for 10 years now.
