What if Berkshire goes below book? I am not saying it will, but is it so inconceivable?
Not inconceivable at all, IMHO. Buybacks would be advantageous then.
Not what I want, though. My plan has been to live on our Berkshire taxable holdings once I early-retire. Would be very frustrating to be selling regularly at or below book.
What if Berkshire goes below book? I am not saying it will, but is it so inconceivable?
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Not inconceivable at all, IMHO. Buybacks would be advantageous then.
The distribution of market prices is quite interesting.
Itâs kind of a bell curve most of the time, but then there are wild excursions.
On one simple metric, ratio of price to peak-to-date book, Berkshire has been as cheap as it is now about 16% of the time since 2008.
Thatâs pretty good⌠youâd expect the cheapest to be not THAT much lower.
But youâd be wrong. The cheapest was 23% lower.
It has traded below book more than 1/200th of the time since then, an average of 1.29 trading days per year.
(not evenly spread through time!)
So, a good summary:
Most of the time itâs sane, with a normal distribution around some kind of typical valuation level.
But just occasionally itâs nuts.
The dark side of that observation: never ever do anything with your portfolio that relies on the price being sane. No broker margin loans.
The lighter side: such times donât last long. As long as you follow the first rule, theyâre really easy to wait out.
Jim
Most of the time itâs sane, with a normal distribution around some kind of typical valuation level
When Nobel laurates models fail? You have a fairly large sample and you have blotted your bell curve, you have your standard deviation, you realize you are in 2 sigma (95%), heck now it is 3 sigma (99.7%), has to be a fat pitch right?
Something fundamentally changes. A seismic change, that renders the data irrelevant. When you rely on quantitative model, you need to supplement it with qualitative model that has to reinforce the data set we are operating on is still relevant. Yeah 3 sigma is rare, fat pitch, but just make sure your data is relevant.
I think WEB no longer running Berkshire is such a seismic change, we need time to validate the dataset of previous price actions are valid. He is so freaking great, normally for most individual talents regression would be gradual and data will be showing it. Heck, he is tap-dancing at 91 to work. In any field a personâs best individual performance occurs in their prime or early prime. If the $100 B Apple unrealized gains, is his best investing performance, his peak, his prime, what is his runway? I donât know. I wish it is longer for Berkshire shareholder sake.
At this time I view Berkshire bench of managerial talent is âshow-meâ quality.
Berkshire Hathaway Energy has grown earnings about 18% CAGR for more than two decades, with a large portion of that attributable to Greg Abel.
Ajit from scratch built a truly mind-bogglingly successful and powerful reinsurance behemoth.
Which part of this managerial talent do you find unproven?
When Buffett took control of Berkshire Hathaway in 1965, the price was about $19/share. Today itâs $415,850, thatâs 21,886 times, not 7560 times.
Ooops typed the wrong number into my spreadsheet. Should have been $7.50 a share on 12/12/1962, Buffettâs first BRK purchase.
So my paragraph should have read:
But on quantitative metrics, Saul has grown $1 into $2000 in the 32 years over which he has reported his progress. Buffett took 30.5 years to do that with BRK stock. Buffettâs first BRK $1 is now worth $56,466.67, but that has taken 60 years. Whatever you might think of Saulâs dangerous practice of describing in detail what he actually does and why, his results may speak for themselves.
r:
Saul has grown $1 into $2000 in the 32 years over which he has reported his progress.
Quite some people have claimed 20+% annual return over some period, including Jim Cramer. There is one critical lacking detail: does it include cash? If not, how much was actually invested in each year? One could have invested 10,000 and lost 10%, then invested 1,000 and won 100%, and claimed to have annual return of 34%.
âQuite some people have claimed 20+% annual return over some period, including Jim Cramerâ
I doubt Cramer has a good long term record. He is a clown. It is hilariously to hear Charlie talk about him and say âjust ask Cramer, he knows everythingâ
There is a funny Twitter account âinverse Cramerâ - hilarious
Ajit from scratch
I like Ajit.
The reinsurance business got a boost by the M&A. I have not studied Berkshire, leave alone as close as many in this board. However, the impression I have is, re-insurance provides bigger float for longer, which allowed Buffett to make bigger equity bets or buy operating companies. It is not the profits of re-insurance business but the float that was useful to Berkshire. In other words, Berkshire re-insurance and insurance business are either average or slightly above average. Again, forgive my ignorance, Berkshireâs ability to act fast on some of the super-cat deals are not necessarily a strength that the division build, or even derived from Ajit but from Buffett.
Berkshire Hathaway Energy has grown earnings about 18% CAGR for more than two decades, with a large portion of that attributable to Greg Abel.
Again, I could be wrong, but this division profits, operating metrics are at par with others in the industry. Berkshire financial strength allowed the profits to be re-invested, and when coupled with debt (at 50/50) you are steadily investing. BHEL has $131 B in assets, now retained earnings is $40 B. Why is it important? Just take a look at any utility, you will see they pay significant dividend, often they have 70%, 80%, 90% payout ratio. For BHEL, they enjoy the luxury of retaining those profits and taking further debt to continue their investment. Not distributing the profits to shareholders and keep re-investing them is a WEB play book.
Again, this division success doesnât mean Greg is prepared to handle the wide conglomerate. I am sure he is handling their day-to-day operations, but we will come to know how well he can do that when WEBâs hand is still not guiding him. In fact, this is something we will not come to know at least few years after WEB. So, I am still in âshow-meâ mode for Greg.
âAjit from scratch built a truly mind-bogglingly successful and powerful reinsurance behemoth.â
Indeed! I also remember these glowing WEB comments as well from the ASM this year:
âAnd thanks, Ajit. You couldnât â Ajit is responsible for adding more value to Berkshire than the total net worth of Progressive. Thatâs not to knock Progressive, Iâm just saying one guy. (Applause)â
No worries here. Ajit has excelled for 36 years helping add dozens of billions to BRK value over the decades. He knows and will know WEBâs views on risk, underwriting and pricing as well as anyone after thousands of hours chatting over the years.
Listen Ajit is a great operator of insurance business. The question I have is, how much profit generated by underwriting even include any investment gains experienced by other insurance companies vs the outsized gains created by Buffett, and the fact that they never paid a dime out to shareholders and hoarded all the profits generated by the business.
It is difficult for me to separate that. Only post WEB world we will know how pervasive his value creation is.
âNo worries here. Ajit has excelled for 36 years helping add dozens of billions to BRK value over the decadesâ
I think any rational owner of Berkshire should have some worry about Ajitâs longevity.
I think any rational owner of Berkshire should have some worry about Ajitâs longevity.
Ha! Real Berkshire investors laugh in the face of mortality tables.
Which no doubt Ajit has memorized anyway.
Jim