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Old 12-18-2008, 10:54 AM   #61
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I so wanted to have cash when Berkshire was collapsing. Ziggy, if you don't double your money on Berkshire in 5 years I'll be shocked.
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Old 12-18-2008, 12:02 PM   #62
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I so wanted to have cash when Berkshire was collapsing. Ziggy, if you don't double your money on Berkshire in 5 years I'll be shocked.
Interesting comment. I've been holding BRK.B since 2003 and even at its height last fall, it didn't double in 5 years. But, unlike other stocks that do double in five years, I am still in a gain position after five years and the latest stock market 'drop' (unlike most of my other investments).

It's a good investment and I'm planning to move my shares from my IRA to my Roth in 2009.

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Old 12-19-2008, 03:38 AM   #63
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Interesting comment. I've been holding BRK.B since 2003 and even at its height last fall, it didn't double in 5 years. But, unlike other stocks that do double in five years, I am still in a gain position after five years and the latest stock market 'drop' (unlike most of my other investments).

It's a good investment and I'm planning to move my shares from my IRA to my Roth in 2009.

-- Rita
A bit of context is in order, I am predicting a Dow 16,000 by 12/31/13.
Now my prediction is based on part on analysis of the stock market returns immediately after bear markets and part on wishful thinking . It is an exercise for the reader to assign percentages to analysis vs wishful.

However BRKB hitting $5,000 (and enabling Ziggy to double his money with perfect timing) is more on the analysis side.

You've been a Berkshire shareholder longer than I so I apologize if you know all of this stuff, I bought an A in 2005 at 85K and various B over the last two years at the 3500 to 4200 range.

First eyeballing the chart of Berkshire, it looks like if you managed to hit the low of the year and sometime during the next 5 years the stock doubled (exception 99 to 2004) and often way more than doubled. For instance there were plenty of opportunities to buy Berkshire in 2003 at below 70K and a short window to sell it for 140K+ or even 150K last Nov/Dec. I don't think this unique to Berkshire virtually any successful company would show a similar pattern because stock are volatile (although there is volatile and there there is the Fall of 2008 manic, crazy,nutso, bonkers, roller coaster....). T

If we look at the big picture of Berkshire the company had a book value in Q3 of 79K/share. (For simplicity I'll do everything in A shares divide by 30 for you jr. shareholders) Now you can argue that the meltdown of the market in Q4 drove the book value of Berkshire, to say 70-75K. So lets say Ziggy bought Berkshire at the book value. Berkshire stocks, derivative and such are valued at the current market prices. So if you believe the economy is going into the next great depression than perhaps he overpaid. But in addition to the mutual fund element of Berkshire there are companies that Berkshire owns outright that according to accounting rules are carried at cost, but in reality are worth far more now than when Warren bought them, like See's, and GEICO. So even if Warren decided I hate business I am going to sell everything Ziggy will get back way more than his $2500.

The most likely case is Berkshire keeps operating and the $1 billion a month that pours in Omaha continues sure maybe next year only $10 billion arrives as the economy shrinks but even assuming zero growth over 5 year, that leaves Berkshire with $60 billion in cash. With roughly 1.5 million A share outstanding that is another 40K/share in cash. Off course that assume that Warren goes on vacation and simply puts the money in a really big mattress (or invest in short term Treasury Bills same difference).

But this is Warren Buffett and he seems to be able to better than 0 percent. Lets assume he can find a few more deals like GE or Goldman Sachs. If the economy continues to stink for the next 4-5 years Warren merely collects 10%, if deflation sets in GE/GS will likely call the bonds and Warren gets a 10% premium and 10% interest, if the stocks return to there 2008 highs (well below all time high) Warren almost triples his money in 5 years. Now if GE or Goldman follow GM than it will be ugly for everybody not just Berkshire shareholders.

If we assume that Warren is able to make 10% a year on new cash (below the 2007 return of 11.2% on Book Value and 1/2 his historical rate). Than the 60 billion in new cash is worth $75 Billion in 5 years or 50K per share.

If we look in the future we have a company worth at least $75,000/share in liquidation value today. A new pile of cash, securities, new companies etc worth $40,000 (If Warren goes on vacation) to $50,000 if he does merely average. Adding together in 5 years we have a liquidation value of Berkshire between 115,000 to 125,000. This assume no growth in Berkshire operating business, nor stocks like Coke, American Express, Burlington Northern, Wells Fargo, Conoco or the world economy. It also assume Warren dies in the next 5 years and Bill Gates and directors decide to sell everything. and the future profit projections of all of the companies are zero. I guess you could argue there are worse case projection like, Berkshire is really Ponzi but realistically this about as bad as it gets.


Now I fully appreciate that value investing, fundamentals, and rational behavior aren't a big factor in the market right now. Still the fall of the stock to 75K/2500 was crazy few day event remarked on by many. If I didn't have to figure out what to sell to buy more berkshire I would have taken advantage of it. I am sure that people a lot smarter than me understand this but because of liquidity concerns would love to buy companies like Berkshire but simply don't have the cash. In the long run the stock market is weighing machine, and Berkshire is a heavy weight.

It is also worth looking a Berkshire from the viewpoint of SW of an early retiree. Right now an A share of Berkshire throws off $8,000 in cash per year. Sure you don't get to spend it, but I don't get spend the money from bonds or CDs in my IRA without jumping through hoops either. It is possible that cash flow could drop to $7,000 or $6,000, but then so could the interest rates on my CDs when I roll them over. On the positive side there is a 40 year track of beyond phenomenal performance. Warren salary works out to be a dime a share and corporate overhead is maybe $10/share. And people thought Vanguard had low expenses.

How much is an $8,000 income stream that will likely keep up with inflation worth? in SWR terms it is worth 25X or 200K. Right now Warren is a popular as the down-to-earth head cheerleader, who is also the class valedictorian, and daughter of the richest guy in town at prom time.
In order for my prediction to come true all somebody has to do is decide in the next 5 years that this income stream managed by Warren Buffett is worth more than 150K.

Let me turn my prediction on the head, how bad do you think the economy will get for Berkshire not to hit $150k/5000 a share?
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Old 12-20-2008, 12:55 PM   #64
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I think that the economy will be flat for the next 2-3 years (bumping up before the elections), and that SEC regulations (or improved oversight) will add more stability.

The companies that WB buys are not fast-growers, so again, doubling in 5 years isn't a possibility -- certainly growth of 35-50% is -- if there are no major 'financial industry' surprises.
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Old 12-20-2008, 01:10 PM   #65
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The companies that WB buys are not fast-growers, so again, doubling in 5 years isn't a possibility -- certainly growth of 35-50% is -- if there are no major 'financial industry' surprises.
Well, I have no idea exactly how much growth there will be in five years; all I know is that this stock was dirt cheap in the 2500s so I picked up some shares.

Plus, the stock more than tripled in seven years from 2000 to 2007, so a double in five years is certainly *possible*. Not saying likely or probable, but past history certainly indicates it's possible.
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Old 02-19-2009, 10:06 AM   #66
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Well, I have no idea exactly how much growth there will be in five years; all I know is that this stock was dirt cheap in the 2500s so I picked up some shares.
Heh. Back in the 2500s.

The last time the market bet this strongly against Warren Buffett was in the dot-com bubble of 1998 to early 2000, when the general consensus was that the old man lost his touch because he wouldn't buy tech. Of course, when that bubble popped and the Nasdaq was losing 75% of its value, Berkshire rallied strongly.

Now they're saying the old man has lost his touch again, albeit for different reasons.
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Old 02-19-2009, 11:35 AM   #67
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Good old Warren is out doing more deals in the past week.

He borrow Vulcan Materials some money at 10 1/8 and just borrowed Tiffany's $250Million at 10%. As long as King Warren can put his cash lying around into bonds and preferred stocks at 10% or higher, he's going to do fine........
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Old 02-19-2009, 11:40 AM   #68
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Also, sold off health care (J&J, Pfizer) in favor of bonds.

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Old 02-19-2009, 12:08 PM   #69
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Also, sold off health care (J&J, Pfizer) in favor of bonds.
Right now the stocks in recession-proof industries (like JNJ and PG) are the darlings of the market, at least relative to other stuff. But this is vintage Buffett in some ways. Although it's unusual for him to sell large stakes in great businesses, it's in character for him to take what's more fully valued (defensive/recession stocks) and trade them in for something that provides a deeper value. Especially since his positions in JNJ and other stocks are fairly new and don't generate a huge taxable gain like selling Coke would.

If we get down into the 2400s, I'll probably nibble on a little more. I think all this (probably overblown) talk about bank nationalization is making some people fear that his equity positions (including 10% preferreds) in financials will be wiped out.
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Old 02-19-2009, 03:25 PM   #70
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Ziggy: Hope you are right, bought at $85,900 on Tuesday, today it is worth $78,600. Unrealized loss in two days = $7,300.

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Old 02-19-2009, 05:38 PM   #71
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Both PG and JNJ have both outperformed BRKA for over 20 years 10year 5 year and 1 year 6 months and 1 month periods. And I am glad Warren sold them, I hope he sells even more and drops their price further, they are falling into a range where they are a very good value. Unfortunately the news of his sale of these stocks have driven them up the last 2 days.

I would expect both of those companies to outperform BRKA, certainly they will pay a reasonable dividend to retire on without having to sell a percentage of your ownership in the company.

All that said, BRKA is a much better value now than in Sept of 07 when buyers paid $2 for $1 book value.
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Old 02-28-2009, 09:41 AM   #72
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Warren Buffett's annual letter to shareholders posted this morning:

http://www.berkshirehathaway.com/letters/2008ltr.pdf

Always a good read.
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Old 02-28-2009, 09:58 AM   #73
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Here is the Fortune Article (much shorter) on the same subject: Warren Buffett reveals details of his worst year - Feb. 28, 2009
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Old 02-28-2009, 12:28 PM   #74
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From its top of $151,000, hit in late 2007, the stock is down 48%

Looks like the best couldn't hide from this disaster.
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Old 02-28-2009, 12:34 PM   #75
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From its top of $151,000, hit in late 2007, the stock is down 48%

Looks like the best couldn't hide from this disaster.
But the book value of Berkshire only eroded 9.6% in 2008 compared with a 37% drop in the S&P 500.

Yet the market punished Berkshire a LOT more than 9.6% in 2008. That suggests to me that Berkshire shares are clearly a better buy now than they were at the start of 2008. Then again, that's true for most companies whose long-term existence aren't being seriously challenged in this economy.
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Old 02-28-2009, 01:21 PM   #76
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Warren Buffett's annual letter to shareholders posted this morning:

http://www.berkshirehathaway.com/letters/2008ltr.pdf

Always a good read.
Here's a quote:

"Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood
using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often,
though, investors forget to examine the assumptions behind the symbols. Our advice: Beware of geeks bearing

formulas."

Warren is so heads and shoulders above anyone else commenting on markets, because he thinks about what the numbers mean, not just the numbers themselves.

Ha
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Old 02-28-2009, 01:33 PM   #77
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Both PG and JNJ have both outperformed BRKA for over 20 years 10year 5 year and 1 year 6 months and 1 month periods. And I am glad Warren sold them, I hope he sells even more and drops their price further, they are falling into a range where they are a very good value. Unfortunately the news of his sale of these stocks have driven them up the last 2 days.

I would expect both of those companies to outperform BRKA, certainly they will pay a reasonable dividend to retire on without having to sell a percentage of your ownership in the company.

All that said, BRKA is a much better value now than in Sept of 07 when buyers paid $2 for $1 book value.
Here is a comment regarding these sales from BRK 2008 Annual Letter-


"On the plus side last year, we made purchases totaling $14.5 billion in fixed-income securities issued
by Wrigley, Goldman Sachs and General Electric. We very much like these commitments, which carry high
current yields that, in themselves, make the investments more than satisfactory. But in each of these three
purchases, we also acquired a substantial equity participation as a bonus. To fund these large purchases, I had to
sell portions of some holdings that I would have preferred to keep (primarily Johnson & Johnson, Procter &
Gamble and ConocoPhillips). However, I have pledged – to you, the rating agencies and myself – to always run
Berkshire with more than ample cash. We never want to count on the kindness of strangers in order to meet
tomorrow’s obligations. When forced to choose, I will not trade even a night’s sleep for the chance of extra
profits."


So it appears that cash considerations and relative perceived value were behind these decsions rather than straightforward negative assessments of JNJ, PG, or COP.

Ha
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Old 02-28-2009, 02:50 PM   #78
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Here's a more positive view of the future than what we have been seeing on the news lately. I hope I'm still alive to see "America's best days".

Berkshire has worst year, Buffett still optimistic - Yahoo! News

He said America has faced bigger economic challenges in the past, including two World Wars and the Great Depression.
"Though the path has not been smooth, our economic system has worked extraordinarily well over time," Buffett wrote. "It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead."
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Old 02-28-2009, 05:29 PM   #79
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I've never looked into Berkshire so forgive me if this question is stupid, but couldn't one replicate it pretty closely and not have to pay 2x book?

Of course some of the investments would be excluded (say the CDS and the long-dated puts), as well as companies that are wholly owned and no longer traded. But aren't those two categories a minority of the fund stock?
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Old 02-28-2009, 05:52 PM   #80
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I've never looked into Berkshire so forgive me if this question is stupid, but couldn't one replicate it pretty closely and not have to pay 2x book?
Where do you get 2x book?

If you believe Buffett's numbers, book value for the A shares was $70,530 on 12/31/2008. Even if you assume it dropped 10% so far in 2009 -- more than in ALL of 2008 -- you have a book value of over $63,000. That's nowhere near "2x book value" based on a current share price of around $78,000 at Friday's close. It's more like 1.25 times book. Not many companies trade at that low a multiple of book value. I think part of it an obsession on things like P/E ratings and the fact that GAAP doesn't allow Berkshire to include "look through earnings -- the earnings of companies of which Berkshire has a very large equity stake -- as accretive to their own earnings.

But in calculating intrinsic value (the sum of the total discounted cash flow that can be extracted from the business over the life of the business), over time these do matter and they do impact a realistic valuation of the business. By these measures, I'd say Berkshire is very cheap now -- and it could be a lot cheaper on Monday. Though that's not certain; one of the reasons Berkshire releases its earnings on a Saturday morning is to give the market time to digest the details so there's less of a tendency to see a knee-jerk instant reaction to the news. The knee-jerk reaction to the "Buffett sees 2009 as terrible and Berskhire profit falls 96%" articles in places like Gloomberg have less effect when people have two days to digest it all.
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