You make lot of rhetorical argument where is your thesis for Berkshire?
These guys have no idea. They just repeat what Jim says.
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There is this false notion of âintrinsic valueâ with Berkshire crowd. Mostly it is subjective, and often folks substitute their âsubjective viewâ as âintrinsicâ, For ex, certain multiple of BV is acceptable for Berky, but folks fail to recognize that âcertainâ multiple is actually subjective and there is nothing âintrinsicâ about it. Now for Berky it is BV multiple and for stocks in general it is PE. An absolutely useless metrics.
They will never understand that a true value investor looks at business fundamentals and not PE, which is based on GAAP. Because of their obsession with GAAP EPS and PE, they will never get AMZN, NFLX, ⌠So the cure for that obsession to the PE is index investing.
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Not that thereâs anything wrong in disagreeing with the father of security analysis (he wasnât infallible), but Benjamin Graham believed in the notion of intrinsic value, as does Buffett.
Here is a formula used by Ben G
V = (EPS * (8.5 + 2g) * 4.4) / Y
where:
- V = intrinsic value per share (over the next 7-10 years)
- EPS = earnings per share (over the trailing twelve months (TTM))
- 8.5 = price-to-earnings (P/E) base for a no-growth company
- g = reasonably expected annual growth rate (over the next 7-10 years)
- 4.4 = average yield of AAA Corporate Bonds
- Y = current yield of AAA Corporate Bonds
The problem is hyper growth companies, for ex AMZN, NFLX have to invest heavily for the growth out of operating earnings and their reported earnings were so little. In the case of NFLX during its growth phase the average PE is 100+
Using Ben G or some version of it folks determined AMZN is worth only $10 when AWS was at its infancy. They thundered AWS is a commodity provider with commodity margin, look at IBM!! and its fat margins. Look at NFLX and its content creating cost they are not going to make any money!!! yada, yada⌠Instead of focusing on PE & EPS, if only they looked at the revenue growth, the new products, new services, new countries they are expanding to, the actual fundamentals of the businessâŚ
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None of which invalidates the concept of intrinsic value. One need not use any of Grahamâs formulas in an attempt to value a company or a security.
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Value exists in your mind, thatâs all it is. If you look at it as shiny yellow rock, it is a shiny yellow rock, or it is gold and has a value. What is the value of âknowledgeâ? Folks will cringe subjugating knowledge, yet, the economy is full of âknowledge workersâ, they are subjugating it to earn money. Some of this may be outside of your belief system. I donât want to change you. But if you are open, we all have lot of stuff to unlearn, even before we can attempt to learn.
Would you feel comfortable if you changed âValueâ to âEverythingâ in the above sentence?
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Top 5 S&P companies: Apple, Microsoft, Nvidia, Amazon, Google
High growth, high PEs throughout their existence making them $T companies.
People sulking on the sideline shouting high PEs and predicting doom and gloom missed out on decades of compounding.
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Whoâs on the sidelines? Also, the words âsulkingâ and âdoom and gloomâ may not mean what you think they mean.
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So, the sales growth of the S&P this century has averaged 4.3% per year. The stock prices canât outrun the revenue growth rate forever. And please, focus on the index. If you swap AOL for AMZN you find a different story. An index is made of winners and losers, and the long term results are an average.
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Iâm not sure what exactly this means, can you explain? For example, since Apple stock comprises a huge amount of the price gain in Berkshire, how much of Appleâs revenue are you including here?
I think the revenue change may be incorrect due to reliance on a non-primary data source.
Revenues are as reported by BRK management.
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Have you confirmed that? Why is the endpoint for Berkshire revenues so depressed? Doesnât look right.
Hence my comment/question above. The Apple holdings caused Berkshire price to rise by about $140B. How much did it cause their revenues to rise?
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I might say that the market price of the Apple position rose by $140 billion, but that wouldnât necessarily translate into a $140 billion increase in Berkshireâs market cap. And it wouldnât affect Berkshireâs sales unless one incorporated the portion of Appleâs sales owned by Berkshire into Berkshireâs own internal sales figures, which seems like it might be a reasonable thing to do.
You can choose to include Appleâs revenueâs in BRKâs revenues but then you have to include the corresponding price rise due to Apple.
It is erroneous to think in terms of sales growth co-relation with price growth. It is better to be directionally right than precisely wrong.
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