Quite the rally

The stock isn’t really expensive in any absolute sense, but it’s definitely more expensive than has been usual in recent years.

The ratio of market price to peak-to-date known book-per share is still not a bad valuation metric.

On that yardstick:
Berkshire has been more expensive than this 1.2% of the time since January 2009, which is 40 trading days.
Pretty much only Jan/Feb 2018.

Or 7.8% of the time since January 2005, if you want to include some of þe Olde Tymes before valuation dropped after the credit crunch.

Jim

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Berkshire has been more expensive than this 1.2% of the time since January 2009, which is 40 trading days.
Pretty much only Jan/Feb 2018…

Forward returns one and two years later were… uninspiring.

Jeff

Jim,
Pre QE (2009), I seem to remember that 1.5 book was normal. Now that it seems that QE is over and a normal rate structure may be coming do you think we trade at higher valuations?
Thanks

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“The stock isn’t really expensive in any absolute sense, but it’s definitely more expensive than has been usual in recent years.“

One of the reasons I prefer Berkshire over an index, is if we were to enter a 1973/74 or 1929/32 bear market that took 30 years to get back to peak, or even a garden variety 2000 or 2008 or 2020 type ‘blip’: I wonder if knowing what I own, might greatly help me ride out the storm. I think it would help. And of course being quantitatively cheaper than the index would also help.

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Buffett pointed out in this year’s letter something he’s never done in the past (please correct if I’m wrong); the impact of share buybacks while the insurance float has steadily climbed up, ergo, float/share has gone up 20+ % while share count has declined 10%. And that was before the Allegheny deal which should bring another 12B to the kitty. To me, this was a refreshing change from other mundane valuations. Like the BV x. Never seen that discussed much anywhere before the letter.

The Yardstick has changed and the market has been slow to catch up. What’s new?

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Go back a few years, you’ll find times when Berkshire was more expensive than this.

Just before the Gen Re deal, Berkshire traded ABOVE intrinsic value and around 2X book.Even higher Its trading roughly AT IV now.

Berkshire as structured in the ‘90s should have been trading at a lower book multiple than today. Berkshire was more tilted towards stocks…investees obviously valued at multiples of book before BRK book (i.e. Coke was dominant holding then…and KO was 8 times book =1X Berkshire book).

Buffett has said Berkshire should sell at a higher multiple of book as it evolves into a collection of subsidiaries. Which it did in a major way the following 15 years or so. Of course, the Apple moonshot has tilted Berkshire a bit back into the “lower book is more appropriate for investees” camp lol…but…

Berkshire is still a subsidiary-heavier entity than the 1990s. And it’s trading at lower multiple than that decade’s peak when it’s make up argued for a generally lower multiple.

PS…for those of you scoring at home, that 1990s valuation resulted in….Buffett swapping out a large chunk of Berkshire in return for Gen Re. It’s probably not yet time to think what Berkshire can swap out for $750,000 per share currency :slight_smile:

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I wonder if knowing what I own, might greatly help me ride out the storm. I think it would help. And of course being quantitatively cheaper than the index would also help.

What storm? The only storm that needs a riding out is your personal misfortune, may you never have one.
Do you know how to ride out a stock market tantrum? Don’t look at your portfolio. As J P Morgan said whenever asked what stock prices would do next, “they will fluctuate.” That is one of the immutable truths.
And if you do need to raise money, you should wish for the highest valuation possible at all times. The index is more of your friend than Berkshire, in that case.
Unless you are actively buying there is no reason to wish for lower valuations. It does not make Berkshire immune from a sudden drop.
I am not sure what the 14 people who liked your reasoning are thinking. I don’t mean this in a derogatory way, rather I really want to understand what y’all are talking about and I can’t.

I wonder if knowing what I own, might greatly help me ride out the storm. I think it would help

If someone knows what Berkshire owns and understands its holdings well enough, then you should have no problem in valuing the Index.

Take a look at the latest 10-K, the list of subsidiaries start on page 122 and runs up to 127. Of course many are insurance subsidiaries and many subsidiaries have other subsidiaries. However, the sheer number of companies there should make anyone humble.

I am lot more comfortable owning a REIT, because it is very straight forward to value, than something like Berkshire. You ride here on the principal.

In the past 22 years since 2000, I had experienced 3 times (2000, 2009, 2020) of my total liquid asset dropped more than 50% in a short period of time. BRK is the only stock I had never worried about during those periods, mainly because I knew the underlying businesses and balance sheets are rock solid and Buffett is in charge.

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I had never worried about during those periods, mainly because I knew the underlying businesses and balance sheets are rock solid and Buffett is in charge

Like I said, your faith doesn’t mean you know the business. Most here ride on the principal. If you want to believe you really understand all the underlying Berkshire business power to you. It is the hope that floats our life.

“It is the hope that floats our life.”

Float is a great choice of words.

Well done.

<<Like I said, your faith doesn’t mean you know the business. Most here ride on the principal. If you want to believe you really understand all the underlying Berkshire business power to you. It is the hope that floats our life.>>

True. Faith in Buffett is the main reason. I knew he would make mistake on some investments, but I never had doubt the balance sheets and the businesses as a whole had problem.

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the impact of share buybacks while the insurance float has steadily climbed up, ergo, float/share has gone up 20+ % while share count has declined 10%…
To me, this was a refreshing change from other mundane valuations. Like the BV x…
The Yardstick has changed and the market has been slow to catch up.

Bear in mind that I’m not assuming that a multiple of book value remains a pretty good yardstick.
There are many good reasons to assume that a given P/B ratio might not mean the same thing over time, so that would be a bad idea.
Mr Buffett’s warning not to rely on it was a good warning.

Rather, I’m stating that it remains a pretty good yardstick.
That result may be because of a bunch of coincidences, and that might change at any time, but so far there is no
divergence between a dumb multiple of book valuation model and what I believe is a pretty sophisticated
one taking into account operating earnings, the value of float, cyclical adjustments on various units, etc.
A given P/B multiple is (so far) as good as it ever was, and means about the same as it meant many years ago.
There has been no reason to assume that this would be the case, but it is the case so far.

Many expect the fair multiple of book to drift upwards ever so slowly over time.
But if anything, to the extent there is divergence between P/B and other valuation models,
based on my figures the fair P/B is either flat or has slid down just a teeny tiny bit in recent years.

There are quite a few moving parts determining the “fair” P/B and its evolution.
Over/undervaluation of big equity positions, buybacks, big acquisitions driving the fair P/B down
organic growth and capex within subs driving it up, and inflation driving it up.
So far, those things are in balance within my measurement error.

Jim

Geeky PS

On my reading, the biggest limitation of P/B at the moment is that I’m unwilling to assume that Apple is fully worth its current quote when counting my chickens.
If it is, great, but I’m unwilling to ascribe that high a value to it. I track the value of the holding with its earnings progress, not its market value.

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One suspected consequence of the rally: With BRK-A stock now selling at 1.57x latest reported BV/share I suspect that Warren has now suspended stock repurchases. My best guess is that BRK is worth about 1.5x BV, and that Warren would buy at prices up to about 95% of that value.

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Y charts shows the 5 year average at 1.357

Current pb 1.597 so trading at an 18% premium to the 5 year average :+1:

And so many of us continually predicted such a stock price movement. Ain’t it something!???

The stock price is far more cyclical in nature than the business. My guess, and remember I gain nothing from it all, is that Berkshire- the stock- won’t sell for anywhere close to fair value except when investor anxiety has increased.

Enjoy it while it lasts. We may stay awile at better valuation levels but as soon as investors are in sector chase mode we will weaken. The “likes” on the SAAS boards are down 75% for now…for now.

My guess, remember I sold Lowe’s at $245 to dump into an energy index, is that the next chase will be…

…ENERGY! Will Berkshire be part of the chased bunch? Never know!

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What about China tech :rofl:?

China tech very well could be the next chase! My long life’s experience says, “Love and hate…ain’t much distance apart!”

With BRK-A stock now selling at 1.57x latest reported BV/share…

I recall that Jim said when the P/B goes above 1.55 that you should take off the “leverage” of owning long-dated deep in the money calls. Doesn’t this mean that instead of rolling up to the Jan’2024 270 call we should have just closed out the call and bought the stock?

Interesting to hold both a Jan’24 270 call and a Jan’23 350 covered call. Hoping for a price increase in the long one and a price drop in the short one. Whatever happens, you’ll be happy in one and sad in the other. My brain feels like it’s getting pulled apart.