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Apparently, that's a significant number for some.

Wonder if Buffett is thinking of taking Berkshire private?

I'm amazed. Amazed and delighted.

It is quite remarkable. We're so used to the stock being out of fashion, it's easy to forget that prices can do unusual things in the "up" direction too.


But it does seem to be a bit ahead of itself, no?

Crude and conservative:

Average P/B since the credit crunch just a hair under 1.38
Let's say 1.4 is pretty normal in the modern era.

We'll know end-2023 book tomorrow, but let's guess about $388000, or around $259 per B.

Let's say book grows at around 2.5%/quarter these days. That might equate to a guess of inflation + 7%/year value growth, plus 3.38%/year inflation. In the ballpark.

So, if things were boring and on trend, a series of expected prices might look vaguely like this:

When 2023-Q4 book comes out, book 259, price around 363 (tomorrow we'll know)
When 2024-Q1 book comes out, book 265, price around 372
When 2024-Q2 book comes out, book 272, price around 381
When 2024-Q3 book comes out, book 279, price around 390
When 2024-Q4 book comes out, book 286, price around 400

Needless to say, that takes us out till a year from now, yet today's price is already higher than that.

Fun while it lasts, but I'm not a buyer at these levels.

Jim

Begs the question I asked earlier...who or whose algorithm is doing all this buying since mid January?

Starting to look spooky.

I fear for Monday's reaction.

m

Maybe I should sell my DITM calls and buy regular stock at $420.69

Having purchased my first BRK-B share in 2001, I sold my first share ever
BRK-A share at $588K a few weeks ago. We were raising some cash for a real
estate deal.

So, its my fault the price is popping.

Your welcome.

I fear for Monday's reaction.

I feel like Berkshire's stock price has been slow to react to the annual report. I always thought it was because of a Saturday release and lack of earnings calls. I'd be interested in seeing how much of the price movement between the Friday before the Annual Report and the following Wednesday close didn't happen on Monday.

whose algorithm is doing all this buying since mid January?

Who is the fund manager who writes a long annual letter to his investors, with a detailed analysis of BRK? It is often discussed here but I can't find it at the moment. He always has a reasonable and thorough analysis but comes up with a rather high value. I was wondering where today's price fits his valuation.

Who is the fund manager who writes a long annual letter to his investors, with a detailed analysis of BRK? It is often discussed here but I can't find it at the moment. He always has a reasonable and thorough analysis but comes up with a rather high value. I was wondering where today's price fits his valuation.

Chris Bloomstran. In recent years, I believe he released his annual letter a day or two before Berkshire's annual letter. No sign of this year's letter yet, though. Whenever he releases the letter, it should be available here: https://www.semperaugustus.com/clientletter.

“ I sold my first share ever
BRK-A share at $588K a few weeks ago. We were raising some cash for a real
estate deal.”

Sounds like you already lost money on the real estate deal.

Chris Bloomstran. In recent years, I believe he released his annual letter a day or two before Berkshire's annual letter. No sign of this year's letter yet, though.

He normally does. Has all sorts of data and projections on Berkshire, right BEFORE the annual report comes out.

Maybe this year he decided to use the most up-to-date information, trading publicity for accuracy?

Surprised the recent 'relaxed' share price of AAPL hasn't been a deterrent...
m

Bloomstran generally starts writing his letter around the turn of the calendar year. I expect him to post this year's letter by late today and am grateful for the diligence he puts into it.

Average P/B since the credit crunch just a hair under 1.38
Let's say 1.4 is pretty normal in the modern era.

For years now, it has felt like P/B should be an outdated, unreliable metric for BRK value. The more BRK moves away from being primarily a financial company (e.g., insurance), and the more its results are driven by the operating businesses, the more it should be valued using other metrics. But you have provided convincing evidence that the market doesn't seem to be valuing it that way even though Buffett has been pushing a sum of its parts valuation using the 5 groves approach. Too complicated for the market? Conglomerate discount?

I wonder if the divergence between value assessed using P/B and value based on actual understanding of its distinct businesses is finally started to change under the weight of its divergence. Seems premature for me to conclude that, I know. Its only a very recent period that seems to break the bands of P/B under which BRK has been trading for many years. But its struck me that the fact that it has adhered so closely to the P/B band Jim has shown in his data tracking is the real data anomaly. It shoudn't be the case, given the changes in the business. People on this board recognize that implicitly every time we complain that the business is being undervalued by the market. Maybe this is the period when that reassessment of valuation methods occurs.

I am also not a buyer at these levels but its nice to finally see BRK trading above 1.5 P/B. Look forward to reading the annual report tomorrow.

Average P/B since the credit crunch just a hair under 1.38
Let's say 1.4 is pretty normal in the modern era.
...
For years now, it has felt like P/B should be an outdated, unreliable metric for BRK value. The more BRK moves away from being primarily a financial company (e.g., insurance), and the more its results are driven by the operating businesses, the more it should be valued using other metrics. But you have provided convincing evidence that the market doesn't seem to be valuing it that way even though Buffett has been pushing a sum of its parts valuation using the 5 groves approach. Too complicated for the market? Conglomerate discount?
I wonder if the divergence between value assessed using P/B and value based on actual understanding of its distinct businesses is finally started to change under the weight of its divergence.

Or perhaps the recent run-up is simply the market doing what it does: fluctuating. Because maybe there is no such divergence, yet.

Whenever I mention P/B, I should add my caveat: I actually value the firm in a quite different way, based much more on earning power. But, almost entirely by coincidence, P/B has so far continued to give almost the same results. It makes a nice short hand that everybody can relate to.

I can take my non-book value estimate and divide it by book value for the same time period to get an implied "fair" P/B ratio. Perhaps surprisingly, in fact in the last year and few years the implied "fair" P/B has dropped a bit, not risen. Within statistical noise, I hope, but the long-believed notion that fair P/B should be rising just isn't visible to me yet.

The sad truth is that the net after-tax operating earnings (excluding a couple of volatile things like underwriting) have really disappointed in the last few years. Four quarter rolling after-tax inflation-adjusted earnings per share to Q3 were up only 0.7%/year rate from four years earlier. And that wasn't a blip: after seasonal adjustments, the figures have been almost perfectly flat the whole time. Measured the same way, that same after-tax inflation-adjusted per-share figure rose 8.85%/year in the prior four years, admittedly a stretch straddling the tax cuts. If the best test of pricing power is having earnings keep up with inflation without trouble, or seeing margins hold firm, Berkshire's units are not displaying pricing power.

Jim

"The sad truth is that the net after-tax operating earnings (excluding a couple of volatile things like underwriting) have really disappointed in the last few years. Four quarter rolling after-tax inflation-adjusted earnings per share to Q3 were up only 0.7%/year rate from four years earlier."


Warren's comments on weak Rail and BHE only bolster this earnings observations.

Whenever I mention P/B, I should add my caveat: I actually value the firm in a quite different way, based much more on earning power. But, almost entirely by coincidence, P/B has so far continued to give almost the same results. It makes a nice short hand that everybody can relate to. <i/>

While that may be true for how you estimate intrinsic value, you also make adjustments to intrinsic value that should not be reflected in a marked to market view of share price. Apple holdings, for example, get discounted in your estimate, but often end up being (on a market price basis) more of a % of total BRK value than would make sense.

I have to admit I have been lamenting some of the recent earnings performance as well. But I have been thinking they are a result of exposure to some of the more unique environmental circumstances of the recent era rather than long term structural declines in the business. So will be looking for how those hold up in the annual report.

While that may be true for how you estimate intrinsic value, you also make adjustments to intrinsic value that should not be reflected in a marked to market view of share price. Apple holdings, for example, get discounted in your estimate, but often end up being (on a market price basis) more of a % of total BRK value than would make sense.

I agree that the method I use "should not be reflected in marked to market view of the share price". But I also assert pretty forcefully that it would be wilfully dumb to use a mark-to-market valuation for a position that large and volatile: the goal is to estimate value, not price.

For a comparatively minor position, it doesn't much matter what multiple the market is assigning: OXY is at a low multiple of earnings and Moody's is at a high one. There are lots of positions in the portfolio average, and no single one is really material enough to bother about doing a cyclical adjustment.

But both the market value and intrinsic value of the Apple position make up a lot of the value of a Berkshire share, around a fifth, so the accuracy of its valuation is material. I don't see anything magical about using the current market price. We know that can be a sensible number, or not at all sensible, depending on the weather. It's arguably the worst of the obvious ways to go about valuing the position.

Since it's too big to ignore, I just treat Apple as I would any operating subsidiary: a multiple of net earnings. I apply the occasional eyeball adjustment to the EPS if the current figure seems anomalous, but the progress is pretty steady. Consequently my value estimate goes up with the look-through earnings trajectory, rather than gyrating with the stock price. Since none of us thinks the position is about to be sold, that seems pretty reasonable. Who cares what the market value is?

I am not unwilling to stipulate that it's a particularly valuable franchise: I do use an earnings multiple that is 40% higher than the one I use for every [other] subsidiary, and 55% higher than Apple's own historical average P/E in the 10 years to 2019. That hardly seems to be an overly conservative valuation peg.

The earnings-based approach has quite a number of advantages, to my mind. Primarily that the metric is much steadier over time, which gives a more reliable overall estimate of the value of a Berkshire share over time. I'm much more interested in getting a steady metric than in getting the "right number", as my main uses for my valuation exercise are estimating the rate of change, and looking at the ratio of price-to-yardstick compared to the historical average of that ratio.

FWIW, I created a trend line of the log real value per share for each quarter since end 2002, and the current value is smack on trend (0.5% difference). That value-per-share trend line has risen inflation + 7.95%/year. But it's up only inflation + 6.1%/year in the last 4 years, having been a bit above trend for a while there.

Jim

Jim,

I agree with the rationale for why your approach makes sense for estimating intrinsic value. I am not putting up an argument there because it seems prudent for a conservative estimate and a good way for a value investor to gauge tracking.

But it’s not the same as a market based sum of the parts valuation, which would have swings north and south of that estimate (agree your method is steadier). But BRK has traded at a discount to the market based view of appropriate multiples and has done so for a long time.

https://ycharts.com/companies/BRK.B/price_to_book_...

Interesting testing to see 5 year trend on y charts.

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