The Incomparable Compounder

Chris Bloomstran is the President and CIO of Semper Augustus. We cover the specific elements that make Berkshire special, what it has taught the world about float, and why it’s unlikely any business can replicate Berkshire’s success.

https://www.joincolossus.com/episodes/21729827/bloomstran-be…

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Great interview but he fails to fully address current valuation. The attributes of BRK are well known.

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"Great interview but he fails to fully address current valuation. "

Isn’t it for us as investors to decide on the current valuation?

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“Great interview but he fails to fully address current valuation.”

He does provide his estimate of the normalized earning power of Berkshire (including look-through earnings from the stock portfolio, operating earnings, dividends, etc.) – $50 billion. Given that the market cap is currently $612 billion, the P/E comes to 12.24.

What else where you looking for him to provide regarding valuation?

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No. He is the BRKB expert. No conversation is complete without full discussion of valuation.

Recall, he has $400/B IV AFTER a $50B hit to investment portfolio in his year end letter.

IV real time

What else where you looking for him to provide regarding valuation?

“POUND THE TABLE”

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Yes. The valuation is the most important point NOW and it was glossed over.

“Recall, he has $400/B IV AFTER a $50B hit to investment portfolio in his year end letter.”

Bloomstran isn’t likely to think it’s worth any less now.
He’d be enthused about whatever Buffett is doing.

So if it’s worth $400 you’re getting a 30% margin of safety - it’s back up the truck time.

If you believe Bloomstran.

Me, I think he’s a bit optimistic. The latest in a long line of Berkshire fans promoting rosy valuations that never quite seem to pan out.

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Whoops.

I remembered many years ago I was looking at Marvel, and trying to decide if I shall buy the stock. The company was losing a lot of money back then. But a friend told me marvel is unique. It has some unique assets that you just can’t find it anywhere else. Soon after that, Disney saw the opportunity and bought marvel. Look how much money Disney made from Marvel characters.

Now Berkshire: Berkshire is not only cheap quantitatively—- trading at 12ish PE, but it’s also very unique - the way it’s structured, culture, moaty and unique businesses like insurance +railroad+utility, etc etc, just like Bloomstran has said, you can’t find another one like it, not now and perhaps not in another 100 years. So I think it worth much more than 12 PE.

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it’s also very unique - the way it’s structured

Unique doesn’t mean it is desirable, I am strictly talking about the structure. Separately, Disney is the catalyst for Marvel to realize the value, what is the catalyst to realize Berkshire value, besides aggressive buyback?

what is the catalyst to realize Berkshire value, besides aggressive buyback?

So what’s wrong with that? How many paths did Marvel have (to use your example?)

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There are other paths exist for Berkshire. At this time many are unwilling to entertain. Let us assume aggressive buyback is the catalyst that will push the valuation to “peers”. Now, you can fund buyback with cash-on-hand, but it seems the insurance business needs bulk of that cash. So you plow your operating profits into buyback, which is at steady pace not aggressive.

SO how will you fund the “aggressive” buyback?

  1. Some equity positions could be eliminated and use that capital to buyback
  2. Some of the “operating business” are either small (in size), cannot scale, not very profitable, just doesn’t align within the universe, whatever be the reason, sell them, and release capital and use that to buyback.

For these scenarios WEB stepping down may be the catalyst. It may or may not happen. If it doesn’t happen then the “unique” collection remain a unique collection.