Confidential

Most people think Munger is the 2nd largest personal shareholder of BRKA/BRKB after WEB but that is not true. The 2nd largest personal shareholder is Sandy Gottesman of First Manhattan.

I used to work at First Manhattan and I have never shared this publicly but their BUY price on BRKB was never based on any of the formulas outlined by WEB or Mungofitch.

Their simple formula was: BOOK + Float +1/2 of deferred taxes. If it got below that level they would add.

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Moreover, Bloomstran’s most conservative IV estimate for 2017 (not 2022)was $241/B share.

PP. 96:

https://static.fmgsuite.com/media/documents/8b3d617a-4dc3-4d…

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Their simple formula was: BOOK + Float +1/2 of deferred taxes. If it got below that level they would add.

A friend and long time BRK shareholder passed that same info to me some decades ago.

I’ve tracked a correlation of book + float (slightly adjusted) against market price for every posted quarter since the Gen Re acquisition. The average is 96.3%, the median is 97.3% and the standard deviation is 10%. If the market is really a long term weighing machine, that should mean something. The median shows that the ups and downs are pretty evenly balanced.

It’s been an adequate guide to make buy, sell, or hold decisions.

When the “Gottesman Guide” started it made logical sense. Float back then was basically equal to equity, and some portion of the deferred tax (on equities only) was also. So it was basically an adjusted book value.

It still seems to work surprisingly well although BRK has changed quite a bit since then, becoming much more of an operating company. I think this may be a somewhat happy coincidence due to a number of offsetting up and down factors. So I now put more weight on Jim’s 2.5 column analysis which he generously shares with us. But B+F remains a quick and simple guide.

Want an even simpler one? Market price to gross assets has averaged 63.9% over that same period with a median of 64.7%. Std. Dev. is 7.8%. I won’t attempt to defend that as a guide - just more of an observation.

If you combine these measures with P/B, Price to Peak Book, etc. I think the real message is that the major highs and lows of BRK’s market price versus history are pretty easy to spot. The fine tuning re tops and bottoms is more of an art - or maybe deeper analysis for someone with Jim’s skills.

At that point, patience and guts as an investor are perhaps pretty important too.

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Based on 3/31/2022 quarter:
Book: 516.8 b
Float: 148 b
deferred tax: 91 b

book + float + deferred-tax/2 = 710 b (implied B share price 321, close enough to other IV estimates)
Current market cap: 592 b (B share price 268, nearly a 20% margin of safety)

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But why did WEB pay as high as $322/B share? Why did he buy a lot in low $300’s?

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There is no such thing as ground truth in IV estimates. Buffett has his own estimate based on circumstance at the time. His estimate could change when circumstance changes.

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“book + float + deferred-tax/2 = 710 b (implied B share price 321, close enough to other IV estimates)
Current market cap: 592 b (B share price 268, nearly a 20% margin of safety)”

sounds reasonable. I often wonder if Warren considers current book vs. last reported.

That was not fair value price. That was the buy the stock bigly under that price

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But why did WEB pay as high as $322/B share? Why did he buy a lot in low $300’s?

It presumes buybacks are following valuation. Berkshire may be using operating profits to do the buyback and as long the stock price doesn’t get crazy.

So, you may not see either higher buybacks during lower share price or lower during higher share price.

Their simple formula was: BOOK + Float +1/2 of deferred taxes. If it got below that level they would add.
…
A friend and long time BRK shareholder passed that same info to me some decades ago.

I posted something similar a few times.
I don’t think the float is worth its face value. But it’s clearly worth much more than nothing.
So, similarly including deferred taxes as another type of float, I used to use a valuation methodology what was book + 70% of float + 70% of deferred taxes.

There were many posts about “book plus 70% of float”, but here is one from 2011 that emphasized including the deferred taxes;
https://discussion.fool.com/b-7f-7dt-29461692.aspx

"What we’re doing here is using book value as a proxy estimate of the
amount of funds that the firm can invest on a long term basis without
resorting to any leverage**…**
There’s even a pic
http://www.stonewellfunds.com/B7F7Dt_2001-06_log.jpg
That clearly suggests that Berkshire was a particularly good buy at that time, Q3/2011.
The price rose 61% (30%/yr rate) in the next 1.8 years to end May 2013, and which time P/B was still under 1.43

If something is a good value estimate, it should have something useful to day.
That one seems to have passed the first test.

Jim

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Most people think Munger is the 2nd largest personal shareholder of BRKA/BRKB after WEB but that is not true.

Was this before or after Charlie’s big 2008 (2009?) sale?

As I recall, Munger unloaded most of his stake at the low of $76,000 or so. An amazing example of both estate planning, and market timing.

Of course the sale was probably to family members…

Essentially an adjusted BOOK VALUE method… That’s a pretty good barometer of when it would be a great buy… IV isn’t static nor is it anything more than an educated guess… There is nothing guaranteed about IV calculations… But - like WEB has alluded before - you may not be able to guess someone’s weight to the ounce but you can get a general sense that a person is overweight or skinny from a quick glance…

:wink:

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