Author Topic: BRK.B $182! Buy?  (Read 8364 times)

Fru-Gal

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BRK.B $182! Buy?
« on: March 12, 2020, 08:42:00 AM »
Yay or nay? I sold some before the fall.


Boofinator

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Re: BRK.B $182! Buy?
« Reply #1 on: March 12, 2020, 09:28:59 AM »
I am by no means I stock analyst, but my concern with Berkshire at the moment would be how the coronavirus affects both its insurance arm and its reinsurance arm.

Full disclosure: I own a lot of BRK.B, but don't plan to be buying any more at any time soon.

Fru-Gal

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Re: BRK.B $182! Buy?
« Reply #2 on: March 12, 2020, 09:37:15 AM »
Ah. See, that is why I asked.

99% of my investments are in indexes but I consider BRK to be a kind of index.

bwall

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Re: BRK.B $182! Buy?
« Reply #3 on: March 12, 2020, 11:23:11 AM »
BRK.B is a kind of an index, but better, because it's also a kind of hedge fund. If the market keeps dropping I think this would be an excellent time to buy more shares.

Buffett ran a hedge fund until (in 1965?) he got tired of fielding the calls from investors asking 'how are we doing?'. He rolled all the assets into BRK and then told people to 'enter and exit as they please.'  in other words; 'don't be calling me asking how we're doing!'. If you own BRK then you own a piece of a hedge fund with all of the upside and none of the down-side (lock-up periods, minimum investment, etc). He gradually wound down the manufacturing side of BRK and kept up the investing side.

It's also got a huge pile of cash, around $120b or so, which will come in mighty useful in this market. I imagine the it will be put to the best use possible.

Insurance: I'm not sure how the corona virus would affect the insurance branch, other than early payouts for life insurance. But, I don't know the ins and outs of insurance very well. So maybe I'm overlooking something here.

Full disclosure: I have zero shares in BRK.


UnleashHell

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Re: BRK.B $182! Buy?
« Reply #4 on: March 12, 2020, 11:39:03 AM »
I am by no means I stock analyst, but my concern with Berkshire at the moment would be how the coronavirus affects both its insurance arm and its reinsurance arm.

Full disclosure: I own a lot of BRK.B, but don't plan to be buying any more at any time soon.

how much life insurance does Berkshire do? how much life reinsurance?
will they change they way they do business? Will they release cash that they owe any quicker than they do now?

They'll be fine.

Boofinator

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Re: BRK.B $182! Buy?
« Reply #5 on: March 12, 2020, 12:04:09 PM »
I am by no means I stock analyst, but my concern with Berkshire at the moment would be how the coronavirus affects both its insurance arm and its reinsurance arm.

Full disclosure: I own a lot of BRK.B, but don't plan to be buying any more at any time soon.

how much life insurance does Berkshire do? how much life reinsurance?
will they change they way they do business? Will they release cash that they owe any quicker than they do now?

They'll be fine.

I agree, they'll come out fine. The question is whether or not the stock will beat the rest of the index over the investor's time horizon given the current price and fundamentals. I know the former, but I don't pretend to know all of the details of the latter. That's why I usually try to stick to indexing these days (my BRK.B shares are a holdover from a more naïve self).

magnet18

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Re: BRK.B $182! Buy?
« Reply #6 on: March 12, 2020, 12:14:08 PM »
Seems like it's down the same amount as the rest of the index (20%), not seeming any more advantageous than VTSAX in that regard

Fru-Gal

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Re: BRK.B $182! Buy?
« Reply #7 on: March 12, 2020, 12:55:56 PM »
I put in a limit buy for the day for 2 shares at 178.00. We'll see if it goes through.

bwall

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Re: BRK.B $182! Buy?
« Reply #8 on: March 12, 2020, 12:56:54 PM »
Seems like it's down the same amount as the rest of the index (20%), not seeming any more advantageous than VTSAX in that regard

Everyone is throwing the baby out with the bathwater. Or, as the Oracle himself says 'in the short term, the stock market is a voting machine, in the long term, it's a weighing machine.'

For certain time frames, BRK doesn't outperform the market, until it does.

Fru-Gal

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Re: BRK.B $182! Buy?
« Reply #9 on: March 12, 2020, 01:00:14 PM »
I really need to start doing this on Fidelity instead of Robinhood but the latter is so much easier.

BicycleB

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Re: BRK.B $182! Buy?
« Reply #10 on: March 12, 2020, 06:47:11 PM »
Berkshire-curious here, periodic reader of Buffett letters, holder only of BRK shares through an index.

To me it seems like a crash or panic-driven dip is a better time than usual to own a cash rich investment hungry fund that has purchase skills. I haven't reached the point of acting on such thoughts though.

Fru-Gal

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Re: BRK.B $182! Buy?
« Reply #11 on: March 12, 2020, 07:48:08 PM »
Bought 2 shares at 178 on my limit order, then it dropped to 174. Seems like it often drops right before close. Limit orders are fun, though. Can anything go wrong with them during extended trading? Seems like if all I do is simple buy/sell, I can't get in too much trouble.

Anyway I am saving a ridiculous amount right now in various indexes in my 401k (40%) plus I have weekly automated savings going elsewhere, so pretty cash poor now. I also want to check on my 401k funds, they are 95% quite aggressive.

I don't have much of an e-fund now as I invested it but am trying to build that back up.

Optimiser

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Re: BRK.B $182! Buy?
« Reply #12 on: March 16, 2020, 01:25:30 PM »
Don't forget you can get a discount on your Geico policies if you own Berkshire stock

ice_beard

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Re: BRK.B $182! Buy?
« Reply #13 on: March 16, 2020, 01:39:10 PM »
I'm watching it too....

A couple big plays he's made haven't turned out that great recently.  Occidental petroleum (woops!) and he's heavy on Delta Airlines too.  The Kroger acquisition doesn't really make much sense to me (I feel like huge, old grocery stores are going to be somewhat irrelevant during my lifetime).  I haven't scrutinized their portfolio and won't because of his company's historical record. 

He's also got that 120b pile of cash that will be ready to be deployed at some point I would imagine.  I just need to convince my wife...  probably an easier sell than MGM or CCL.

MaaS

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Re: BRK.B $182! Buy?
« Reply #14 on: March 16, 2020, 07:02:15 PM »
I'm watching it too....

A couple big plays he's made haven't turned out that great recently.  Occidental petroleum (woops!) and he's heavy on Delta Airlines too.  The Kroger acquisition doesn't really make much sense to me (I feel like huge, old grocery stores are going to be somewhat irrelevant during my lifetime).  I haven't scrutinized their portfolio and won't because of his company's historical record. 

He's also got that 120b pile of cash that will be ready to be deployed at some point I would imagine.  I just need to convince my wife...  probably an easier sell than MGM or CCL.

The OXY deal was poorly timed (in hindsight) but it's still not that bad. Berkshire gets "unique" terms.

They received perpetual preferred stock with an 8% dividend. If OXY cuts the dividend, they owe the balance to Berkshire in the future.

They also received a warrant to buy 80 million shares at $62.50. So if OXY were to ever go back to their 2018 high of $85, Berkshire could purchase 80 million shares and immediately bank $1.8 billion in profit. If it went to $107 they could make $3.6 billion.

It's how they stole the Bank of America. The preferred dividend is basically an interest payment while they wait to see how OXY's future plays out.
« Last Edit: March 16, 2020, 07:16:12 PM by MaaS »

Car Jack

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Re: BRK.B $182! Buy?
« Reply #15 on: March 16, 2020, 07:14:49 PM »
BRK/b is my "going to" when I tax loss harvest SCHB.  So yah, I've bought.

MustacheAndaHalf

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Re: BRK.B $182! Buy?
« Reply #16 on: March 16, 2020, 10:31:01 PM »
Normally Berkshire does well in a crisis by purchasing quality companies on sale.

I don't know how deeply the reinsurance business will absorb the impact of COVID-19.  One business might take out insurance on another business - insure against the lost of a key supplier, for example.  Berkshire's financial strength lets it be an insurer of last resort.  Does anyone know how exposed their re-insurance business is to COVID-19?

FrugalSaver

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Re: BRK.B $182! Buy?
« Reply #17 on: March 16, 2020, 10:38:11 PM »
Been awhil since he’s regularly beaten s&p, no?

Telecaster

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Re: BRK.B $182! Buy?
« Reply #18 on: March 16, 2020, 11:39:44 PM »
Berkshire-curious here, periodic reader of Buffett letters, holder only of BRK shares through an index.

To me it seems like a crash or panic-driven dip is a better time than usual to own a cash rich investment hungry fund that has purchase skills. I haven't reached the point of acting on such thoughts though.

Here's the scoop on Berkshire.  The era of outperformance is long over.  But we are now in the era of predictability.  BRK trades in a range of price/book value. We are now at the bottom of that range, which implies superior returns going forward.

Remember how much you paid for this advice.

MaaS

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Re: BRK.B $182! Buy?
« Reply #19 on: March 17, 2020, 07:55:41 AM »
Been awhil since he’s regularly beaten s&p, no?

A few years. Berkshire outperformed for a long stretch out of the GFC.

Also, with Berkshire's cash balance and predictable profits (ex: people won't stop using electricity), the story of the Teledyne is interesting reading: https://novelinvestor.com/the-teledyne-buyback-effect/

 

MustacheAndaHalf

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Re: BRK.B $182! Buy?
« Reply #20 on: March 18, 2020, 04:46:37 AM »
People summarized my thoughts above, but for those who asked, yes I agree Berkshire trails the S&P 500.  (So listen to Warren Buffet when he says to buy the S&P 500!  :).  But during a crisis, value companies are already priced at lower P/E ratios (by definition), and won't fall as far as growth companies that see their profits falling.  I could easily believe Berkshire performs better around this crisis than the S&P 500, and then the S&P 500 catches up again over time.

I don't own any Berkshire, but this would be a time to consider buying it.

As an aside, academics who study the factors impacting the market figured out how Buffet picks stocks.  Buffet figured out 2 new factors before any one else, and kept them to himself.  So there exist multi-factor funds that can probably mimic Buffet's investment style.  Berkshire Hathaway is limited by how big it's investments have to be ... they're already the #6 company in the S&P 500.

vand

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Re: BRK.B $182! Buy?
« Reply #21 on: March 18, 2020, 05:47:55 AM »
I've expressed before that Berkshire is not the animal it once was, primarily not because of its size but because Buffett is no longer the contrarian he once was.

He has amassed a huge stake in the world's most popular stock, Amazon in recent times.
He started engaging in stock buybacks in in the last year

How is that not running will the bulls at a time when the market is running towards a possible cliff?

I'm sure Berkshire still owns quality companies, and the time may well come soon when value investing outperforms the wider market, but over the last decade Buffett has increasingly become a mouthpiece for Wall Street, reminding everyone how they should be heavily in stocks, rather providing any real wisdom or insight.

MustacheAndaHalf

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Re: BRK.B $182! Buy?
« Reply #22 on: March 18, 2020, 07:33:58 AM »
I've expressed before that Berkshire is not the animal it once was, primarily not because of its size but because Buffett is no longer the contrarian he once was.

He has amassed a huge stake in the world's most popular stock, Amazon in recent times.  ...
I think there's more correlation between those than you expect.  Look at some numbers...

According to Vanguard, the U.S. stock market grew about +9% per year for the last 3 or 5 years.
Berkshire Hathaway has a market cap of 450 billion.  Doesn't that mean Berkshire needs to make $40 billion in profits per year, just to keep up?

Take the 400th biggest public company, Godaddy Inc.  It's about $55/share with an average trading volume of 1.5 million shares/day.  So Berkshire can't buy $80M a day of this company - that would double the trading volume by itself, and send the stock spiking upwards.  So maybe... $10M a day?

Godaddy has an $8B market cap, so anyone owning over $400M has new filing requirements.  So maybe Berkshire can buy shares for a month, have $300M ownership, and stay under the 5% level.  Even if that stock doubles, that's a $300M profit for Berkshire, while needs a $40,000M profit to keep up with the market.  It's not even 1%, after it doubles, and it takes a month to invest in it (to avoid sending the stock price spiking upwards).

That's the situation if he buys the 400th largest company, even if he knows they will double in value.  Anything smaller or with less upside is even harder to consider.  Berkshire has to limit which companies they buy, in order to make a difference to their profits.  So I think becoming less contrarian is a natural by-product of their $450 billion market cap.

bwall

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Re: BRK.B $182! Buy?
« Reply #23 on: March 18, 2020, 07:52:52 AM »
@MustacheAndaHalf ; good point. As BRK gets bigger, it becomes harder and harder to find deals required to 'move the needle'. So, they're shopping for deals in a very small corner grocery store, not a supermarket.  Until a crisis comes along, that is.

I do think that the USA has more than 400 stocks worth $8billion (or more) market cap. There are over 3000 on the NYSE, IIRC.

vand

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Re: BRK.B $182! Buy?
« Reply #24 on: March 18, 2020, 08:14:56 AM »
I've expressed before that Berkshire is not the animal it once was, primarily not because of its size but because Buffett is no longer the contrarian he once was.

He has amassed a huge stake in the world's most popular stock, Amazon in recent times.  ...
I think there's more correlation between those than you expect.  Look at some numbers...

According to Vanguard, the U.S. stock market grew about +9% per year for the last 3 or 5 years.
Berkshire Hathaway has a market cap of 450 billion.  Doesn't that mean Berkshire needs to make $40 billion in profits per year, just to keep up?

Take the 400th biggest public company, Godaddy Inc.  It's about $55/share with an average trading volume of 1.5 million shares/day.  So Berkshire can't buy $80M a day of this company - that would double the trading volume by itself, and send the stock spiking upwards.  So maybe... $10M a day?

Godaddy has an $8B market cap, so anyone owning over $400M has new filing requirements.  So maybe Berkshire can buy shares for a month, have $300M ownership, and stay under the 5% level.  Even if that stock doubles, that's a $300M profit for Berkshire, while needs a $40,000M profit to keep up with the market.  It's not even 1%, after it doubles, and it takes a month to invest in it (to avoid sending the stock price spiking upwards).

That's the situation if he buys the 400th largest company, even if he knows they will double in value.  Anything smaller or with less upside is even harder to consider.  Berkshire has to limit which companies they buy, in order to make a difference to their profits.  So I think becoming less contrarian is a natural by-product of their $450 billion market cap.

Yes, I'm not saying that the size of Berkshire isn't a handicap going forward. It most certainly is. That's why most great money managers won't take new new money into their funds.

And for sure, this has increasingly influenced the way that Buffett goes investing. He basically needs a huge white elephant every few years to beat the market, and anything that is big enough to move the needle is already going to covered in every detail by every analyst on Wall Street. 

It gets more and more difficult to beat the market the larger you become. But if you're buying Berkshire today, you are basically accepting that handicap. On top of that, Warren is 89 and Charlie is now 95. They can't go on forever, and even if their successors are very skilled managers they are unlikely to be afforded anywhere near the same sort of slack from shareholders when they underperform for long periods.

AdrianC

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Re: BRK.B $182! Buy?
« Reply #25 on: March 18, 2020, 12:26:07 PM »
He has amassed a huge stake in the world's most popular stock, Amazon in recent times.
You mean Apple, $58B as of December 31, 2019.

MustacheAndaHalf

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Re: BRK.B $182! Buy?
« Reply #26 on: March 18, 2020, 01:08:54 PM »
I do think that the USA has more than 400 stocks worth $8billion (or more) market cap. There are over 3000 on the NYSE, IIRC.
When I said "Take the 400th biggest public company, Godaddy Inc", I was being quite literal.  Visit "Vanguard Total Stock Market", view detailed Portfolio Holdings, and click "next" until the top stock is #390.  Count down 10 spots, and you'll see "Godaddy" listed as the #400 stock in Vanguard Total Stock Market.

Bernard

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Re: BRK.B $182! Buy?
« Reply #27 on: March 18, 2020, 02:27:01 PM »
I own a truck load of BRK.B, started buying them around 2010. When years passed where Berkshire didn't beat the market, and further aided by his own advice to stick to index funds, I sold a portion of my BRK.B holdings at $220. Dumb luck.

But (1) given the current market situation, and (2) the fact that Buffets sits on a mountain of cash, and (3) the rumors that he's looking at BA as a possible acquisition, my gut feeling is that Berkshire can really outperform the market in the months ahead. I'll try to find the bottom and then buy BRK.B., AAPL, and MA.

bwall

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Re: BRK.B $182! Buy?
« Reply #28 on: March 18, 2020, 03:13:19 PM »
I do think that the USA has more than 400 stocks worth $8billion (or more) market cap. There are over 3000 on the NYSE, IIRC.
When I said "Take the 400th biggest public company, Godaddy Inc", I was being quite literal.  Visit "Vanguard Total Stock Market", view detailed Portfolio Holdings, and click "next" until the top stock is #390.  Count down 10 spots, and you'll see "Godaddy" listed as the #400 stock in Vanguard Total Stock Market.

EEK! I thought the US stock market had more breath than that. I guess it's more top-heavy than I realized.

vand

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Re: BRK.B $182! Buy?
« Reply #29 on: March 18, 2020, 03:30:00 PM »
I do think that the USA has more than 400 stocks worth $8billion (or more) market cap. There are over 3000 on the NYSE, IIRC.
When I said "Take the 400th biggest public company, Godaddy Inc", I was being quite literal.  Visit "Vanguard Total Stock Market", view detailed Portfolio Holdings, and click "next" until the top stock is #390.  Count down 10 spots, and you'll see "Godaddy" listed as the #400 stock in Vanguard Total Stock Market.

EEK! I thought the US stock market had more breath than that. I guess it's more top-heavy than I realized.

The top 5 stocks in the S&P500 make up 18%, and the top 50 make up half. That is more concentrated than at almost any point in the index's history, such is the way of the world now.

Given that Berkshire itself is one of the top 5 or 6, then it becomes easy to see how much more difficult it is for them to find something to buy that is both big enough and will do well enough to make a big difference to their own bottom line.

Berkshire has traditionally been very US focussed. I feel that if they are to have a chance of outperforming they will need to increasingly look to international markets.

bwall

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Re: BRK.B $182! Buy?
« Reply #30 on: March 18, 2020, 04:36:43 PM »
Berkshire has traditionally been very US focussed. I feel that if they are to have a chance of outperforming they will need to increasingly look to international markets.

All the big stocks are in the USA. I read that Apple market cap was larger than that of the entire German stock market. Obviously, this was before the recent gyrations. Perhaps it's still true.

Is there European Large Cap stock company (market cap above $100b) that was founded less than 50 years ago? (Prosus doesn't count!) I'll throw in Japan for good measure. There's nothing there for Buffet to find.

That just leaves China. And in China, the government decides if you prosper or not.

MaaS

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Re: BRK.B $182! Buy?
« Reply #31 on: March 18, 2020, 06:20:48 PM »
I own a truck load of BRK.B, started buying them around 2010. When years passed where Berkshire didn't beat the market, and further aided by his own advice to stick to index funds, I sold a portion of my BRK.B holdings at $220. Dumb luck.

But (1) given the current market situation, and (2) the fact that Buffets sits on a mountain of cash, and (3) the rumors that he's looking at BA as a possible acquisition, my gut feeling is that Berkshire can really outperform the market in the months ahead. I'll try to find the bottom and then buy BRK.B., AAPL, and MA.

Completely agree. Boeing has Buffett written all over it (IMO). When credit markets freeze up, Berkshire can get access to ridiculous deals other investors can't. If this climate continues, he's going to absolutely steal some businesses.

I think the odds of Berkshire outperforming the SP500 over the next few years are pretty damn good.



MustacheAndaHalf

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Re: BRK.B $182! Buy?
« Reply #32 on: March 19, 2020, 01:24:12 AM »
Completely agree. Boeing has Buffett written all over it (IMO). When credit markets freeze up, Berkshire can get access to ridiculous deals other investors can't. If this climate continues, he's going to absolutely steal some businesses.
Oh, crap, you're right.  You're talking about a business that's easy to understand, that has a large moat (one of two companies in the entire world that make airplanes), and has a double-whammy of both COVID-19 flight cancelations and the MAX problems.  They currently want a loan from the government that is more than their entire market cap.

I bet you Warren is talking to them right now.  Uh... does being right about one thesis mean I have to keep chasing other market timing opportunities?  It just feels like it would get old... and that's if I'm right.

I think the odds are excellent the U.S. doesn't let Boeing fail, and that Warren Buffet sees that struggle, and realizes there's a historic opportunity to own one of the best "moats" in the world - a company with exactly one competitor for the past several decades.

So... options to time the government relief / Warren's warrents.... or stock because it could all go wrong?

J Boogie

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Re: BRK.B $182! Buy?
« Reply #33 on: March 20, 2020, 09:50:51 AM »
I think it's time we put retire Buffet as some type of legendary investor. He offers nothing over the S&P except a late-to-the-party attitude towards the most important companies of the present and future. He was thinking about Coca Cola, Candy Bars, Ketchup, and Insurance while major breakthroughs in value creation occurred.

Its no wonder the guy hasn't been able to beat the market for a long long time. He invests in stagnant industries that seem to offer little upside. His big cash position gets eroded by inflation every day and I'd much rather invest in a big cash holder like MSFT who have a good track record of core business growth as well as strategic and well integrated acquisitions. In fact, sometimes they don't even need to acquire companies like Slack who they can simply, for lack of a better word, copy, and then integrate in into their ecosystem. I like companies who create sticky ecosystems. Buffet likes companies who create sticky fingers for their soda drinking candy eating customers.

Telecaster

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Re: BRK.B $182! Buy?
« Reply #34 on: March 20, 2020, 02:02:22 PM »
I own a truck load of BRK.B, started buying them around 2010. When years passed where Berkshire didn't beat the market, and further aided by his own advice to stick to index funds, I sold a portion of my BRK.B holdings at $220. Dumb luck.

But (1) given the current market situation, and (2) the fact that Buffets sits on a mountain of cash, and (3) the rumors that he's looking at BA as a possible acquisition, my gut feeling is that Berkshire can really outperform the market in the months ahead. I'll try to find the bottom and then buy BRK.B., AAPL, and MA.

Completely agree. Boeing has Buffett written all over it (IMO). When credit markets freeze up, Berkshire can get access to ridiculous deals other investors can't. If this climate continues, he's going to absolutely steal some businesses.

I think the odds of Berkshire outperforming the SP500 over the next few years are pretty damn good.

Buffett like companies with good management.  Boeing is filled with Jack Welch acolytes who have gutted the company to juice the stock price.  Not Buffett's style. 

Telecaster

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Re: BRK.B $182! Buy?
« Reply #35 on: March 20, 2020, 02:51:11 PM »
I think it's time we put retire Buffet as some type of legendary investor. He offers nothing over the S&P except a late-to-the-party attitude towards the most important companies of the present and future. He was thinking about Coca Cola, Candy Bars, Ketchup, and Insurance while major breakthroughs in value creation occurred.

Its no wonder the guy hasn't been able to beat the market for a long long time. He invests in stagnant industries that seem to offer little upside. His big cash position gets eroded by inflation every day and I'd much rather invest in a big cash holder like MSFT who have a good track record of core business growth as well as strategic and well integrated acquisitions. In fact, sometimes they don't even need to acquire companies like Slack who they can simply, for lack of a better word, copy, and then integrate in into their ecosystem. I like companies who create sticky ecosystems. Buffet likes companies who create sticky fingers for their soda drinking candy eating customers.

I have a slightly different take.  If there is one eternal investing truth this is it:  Your entry price determines your ultimate return.  Keep that in mind.   Buffett likes things that are predictable.  You're right BRK hasn't beaten the market for a long time, but it moves in a predictable range, about 1.2 to 1.5 times P/B.  At 1.2 P/B it is cheap and over the last 20 years or so if you bought at that level you in fact did beat the market.  So go ahead and buy it if you like, but do it when it is on sale. 

Back to the Eternal Truth:   Indeed Buffett hasn't made a major acquisition in years and is sitting on an almost unbelievably huge cash pile.  Why? Stuff is expensive.  He won't overpay.  Correction:  Stuff used to be expensive.  It is one whole helluva lot cheaper than it used to be now.  Having a giant pile of cash suddenly looks like a pretty smart move.

Speaking of cheaper:  Current P/B is less than 1.   Should you buy?  I dunno.  These are strange times.  The economy is taking a face punch.   People are spooked.  Many hedge funds and institutional investors are leveraged so when the market drops they are forced to sell, which makes the market fall, which forces more people to sell.  This might continue for a while.  Might not.  I dunno.  I've got some cash, but I'm holding onto it for now until the blood stops flowing in the streets.

But if you are considering buying, the current price is very, very attractive.


bwall

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Re: BRK.B $182! Buy?
« Reply #36 on: March 20, 2020, 02:55:15 PM »
I own a truck load of BRK.B, started buying them around 2010. When years passed where Berkshire didn't beat the market, and further aided by his own advice to stick to index funds, I sold a portion of my BRK.B holdings at $220. Dumb luck.

But (1) given the current market situation, and (2) the fact that Buffets sits on a mountain of cash, and (3) the rumors that he's looking at BA as a possible acquisition, my gut feeling is that Berkshire can really outperform the market in the months ahead. I'll try to find the bottom and then buy BRK.B., AAPL, and MA.

Completely agree. Boeing has Buffett written all over it (IMO). When credit markets freeze up, Berkshire can get access to ridiculous deals other investors can't. If this climate continues, he's going to absolutely steal some businesses.

I think the odds of Berkshire outperforming the SP500 over the next few years are pretty damn good.

Buffett like companies with good management.  Boeing is filled with Jack Welch acolytes who have gutted the company to juice the stock price.  Not Buffett's style.

+1

Gutted company.

THere's no excuse for the 737-800 MAX problem. If you dig into it, Boeing's employees showed lots of arrogance vis a vis FAA. Now they've built a plane that crashes and one year later and they still can't figure out why. Or, if they have figured out why, they can't fix it. Which is worse?

J Boogie

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Re: BRK.B $182! Buy?
« Reply #37 on: March 20, 2020, 03:59:41 PM »
I think it's time we put retire Buffet as some type of legendary investor. He offers nothing over the S&P except a late-to-the-party attitude towards the most important companies of the present and future. He was thinking about Coca Cola, Candy Bars, Ketchup, and Insurance while major breakthroughs in value creation occurred.

Its no wonder the guy hasn't been able to beat the market for a long long time. He invests in stagnant industries that seem to offer little upside. His big cash position gets eroded by inflation every day and I'd much rather invest in a big cash holder like MSFT who have a good track record of core business growth as well as strategic and well integrated acquisitions. In fact, sometimes they don't even need to acquire companies like Slack who they can simply, for lack of a better word, copy, and then integrate in into their ecosystem. I like companies who create sticky ecosystems. Buffet likes companies who create sticky fingers for their soda drinking candy eating customers.

I have a slightly different take.  If there is one eternal investing truth this is it:  Your entry price determines your ultimate return.  Keep that in mind.   Buffett likes things that are predictable.  You're right BRK hasn't beaten the market for a long time, but it moves in a predictable range, about 1.2 to 1.5 times P/B.  At 1.2 P/B it is cheap and over the last 20 years or so if you bought at that level you in fact did beat the market.  So go ahead and buy it if you like, but do it when it is on sale. 

Back to the Eternal Truth:   Indeed Buffett hasn't made a major acquisition in years and is sitting on an almost unbelievably huge cash pile.  Why? Stuff is expensive.  He won't overpay.  Correction:  Stuff used to be expensive.  It is one whole helluva lot cheaper than it used to be now.  Having a giant pile of cash suddenly looks like a pretty smart move.

Speaking of cheaper:  Current P/B is less than 1.   Should you buy?  I dunno.  These are strange times.  The economy is taking a face punch.   People are spooked.  Many hedge funds and institutional investors are leveraged so when the market drops they are forced to sell, which makes the market fall, which forces more people to sell.  This might continue for a while.  Might not.  I dunno.  I've got some cash, but I'm holding onto it for now until the blood stops flowing in the streets.

But if you are considering buying, the current price is very, very attractive.

I'm guessing he didn't use a P/B formula to buy Amazon. Those would be some expensive warehouses :)

I think the eternal rule of investing about how your entry price determines your ultimate return would actually be overruled by Buffet's own words - it's better to buy a great company at an OK price than an OK company at a great price. Applied to Buffet, it meant that he couldn't figure out which tech companies were great, or what an OK price was the great tech ones, so he didn't bother with them until he missed out on the biggest gains they made.

Companies that can be valued on a P/B formula have nowhere near the upside that dynamic technology companies have. The variable costs of a technology company can shrink to insane levels, with virtually unlimited output from a handful of genius developers. Meanwhile to make 200x more bottles of ketchup, you need 200x more tomatoes and 200x more glass bottles and a smaller multiple on labor if you have invested heavily in your manufacturing lines.

US large caps have done so well over the past 15 or so years for two main reasons (Fed activity aside) 1 - tech gains and 2 - development/industrialization of the BRIC countries. You could categorize these as 1 - vertical growth (creating new technology) and 2 - horizontal growth (bringing existing technology to new countries).

There isn't much low hanging fruit left for globalism in my opinion. The double digit and high single digit YOY GDP growth of developing nations is slowing down dramatically. If you're not investing up, you're investing down, because there is little left to gain by investing sideways. I see zero tailwinds to support a Berkshire over the S&P thesis. He'll probably buy a whale of an energy company and continue to lose out to the S&P.

(edited to add the smiley face to communicate I am not trying to be combative, just humorous)

« Last Edit: March 20, 2020, 04:03:07 PM by J Boogie »

J Boogie

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Re: BRK.B $182! Buy?
« Reply #38 on: March 20, 2020, 04:01:53 PM »
Ok, I will exercise some self awareness. I am coming off as quite the Buffet hater. Take my comments with a grain of salt :)

Padonak

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Re: BRK.B $182! Buy?
« Reply #39 on: March 20, 2020, 04:11:03 PM »
PTF

MaaS

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Re: BRK.B $182! Buy?
« Reply #40 on: March 20, 2020, 05:22:48 PM »
I think it's time we put retire Buffet as some type of legendary investor. He offers nothing over the S&P except a late-to-the-party attitude towards the most important companies of the present and future. He was thinking about Coca Cola, Candy Bars, Ketchup, and Insurance while major breakthroughs in value creation occurred.

Its no wonder the guy hasn't been able to beat the market for a long long time. He invests in stagnant industries that seem to offer little upside. His big cash position gets eroded by inflation every day and I'd much rather invest in a big cash holder like MSFT who have a good track record of core business growth as well as strategic and well integrated acquisitions. In fact, sometimes they don't even need to acquire companies like Slack who they can simply, for lack of a better word, copy, and then integrate in into their ecosystem. I like companies who create sticky ecosystems. Buffet likes companies who create sticky fingers for their soda drinking candy eating customers.

I have a slightly different take.  If there is one eternal investing truth this is it:  Your entry price determines your ultimate return.  Keep that in mind.   Buffett likes things that are predictable.  You're right BRK hasn't beaten the market for a long time, but it moves in a predictable range, about 1.2 to 1.5 times P/B.  At 1.2 P/B it is cheap and over the last 20 years or so if you bought at that level you in fact did beat the market.  So go ahead and buy it if you like, but do it when it is on sale. 

Back to the Eternal Truth:   Indeed Buffett hasn't made a major acquisition in years and is sitting on an almost unbelievably huge cash pile.  Why? Stuff is expensive.  He won't overpay.  Correction:  Stuff used to be expensive.  It is one whole helluva lot cheaper than it used to be now.  Having a giant pile of cash suddenly looks like a pretty smart move.

Speaking of cheaper:  Current P/B is less than 1.   Should you buy?  I dunno.  These are strange times.  The economy is taking a face punch.   People are spooked.  Many hedge funds and institutional investors are leveraged so when the market drops they are forced to sell, which makes the market fall, which forces more people to sell.  This might continue for a while.  Might not.  I dunno.  I've got some cash, but I'm holding onto it for now until the blood stops flowing in the streets.

But if you are considering buying, the current price is very, very attractive.

I'm guessing he didn't use a P/B formula to buy Amazon. Those would be some expensive warehouses :)

I think the eternal rule of investing about how your entry price determines your ultimate return would actually be overruled by Buffet's own words - it's better to buy a great company at an OK price than an OK company at a great price. Applied to Buffet, it meant that he couldn't figure out which tech companies were great, or what an OK price was the great tech ones, so he didn't bother with them until he missed out on the biggest gains they made.

Companies that can be valued on a P/B formula have nowhere near the upside that dynamic technology companies have. The variable costs of a technology company can shrink to insane levels, with virtually unlimited output from a handful of genius developers. Meanwhile to make 200x more bottles of ketchup, you need 200x more tomatoes and 200x more glass bottles and a smaller multiple on labor if you have invested heavily in your manufacturing lines.

US large caps have done so well over the past 15 or so years for two main reasons (Fed activity aside) 1 - tech gains and 2 - development/industrialization of the BRIC countries. You could categorize these as 1 - vertical growth (creating new technology) and 2 - horizontal growth (bringing existing technology to new countries).

There isn't much low hanging fruit left for globalism in my opinion. The double digit and high single digit YOY GDP growth of developing nations is slowing down dramatically. If you're not investing up, you're investing down, because there is little left to gain by investing sideways. I see zero tailwinds to support a Berkshire over the S&P thesis. He'll probably buy a whale of an energy company and continue to lose out to the S&P.

(edited to add the smiley face to communicate I am not trying to be combative, just humorous)
This was a very thoughtful analysis. Here's my rebuttal:

Berkshire has significantly outperformed the SP500 coming out of pretty much every bear market: https://theatlas.com/charts/S1mAAANEz

But, the SP500 has beaten Berkshire mid to end cycle. I would make the argument that Berkshire as a business has still outperformed the SP500 over the full cycle - it's just not reflected in the price towards the end as investors penalize Berkshire for unproductive cash.

Here are my reasons that Berkshire will outperform the SP500 in the years to come:

  • An increased stated willingness to buy back shares. See the Teledyne buyback effect: https://novelinvestor.com/the-teledyne-buyback-effect/
  • $128 billion in cash (likely more as they were a net seller in Q4).
  • Credit markets are freezing up, and the government can't bail everyone out. Buffett has proven to be incredibly savvy in structuring deals for preferred shares with huge future warrants/options.
  • If you subtract Berkshires equity holdings and cash from their market cap it's trading at 5.7x operating earnings.

I might be wrong - but I'm confident enough to make a significant investment at these levels.

Telecaster

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Re: BRK.B $182! Buy?
« Reply #41 on: March 20, 2020, 05:54:44 PM »
I'm guessing he didn't use a P/B formula to buy Amazon. Those would be some expensive warehouses :)

I think the eternal rule of investing about how your entry price determines your ultimate return would actually be overruled by Buffet's own words - it's better to buy a great company at an OK price than an OK company at a great price. Applied to Buffet, it meant that he couldn't figure out which tech companies were great, or what an OK price was the great tech ones, so he didn't bother with them until he missed out on the biggest gains they made.

Companies that can be valued on a P/B formula have nowhere near the upside that dynamic technology companies have. The variable costs of a technology company can shrink to insane levels, with virtually unlimited output from a handful of genius developers. Meanwhile to make 200x more bottles of ketchup, you need 200x more tomatoes and 200x more glass bottles and a smaller multiple on labor if you have invested heavily in your manufacturing lines.

US large caps have done so well over the past 15 or so years for two main reasons (Fed activity aside) 1 - tech gains and 2 - development/industrialization of the BRIC countries. You could categorize these as 1 - vertical growth (creating new technology) and 2 - horizontal growth (bringing existing technology to new countries).

There isn't much low hanging fruit left for globalism in my opinion. The double digit and high single digit YOY GDP growth of developing nations is slowing down dramatically. If you're not investing up, you're investing down, because there is little left to gain by investing sideways. I see zero tailwinds to support a Berkshire over the S&P thesis. He'll probably buy a whale of an energy company and continue to lose out to the S&P.

(edited to add the smiley face to communicate I am not trying to be combative, just humorous)

Not much to disagree with there, but that's not what Buffett does.  He's almost 90, he's not going to change.  Although it does raise the question that with Gates leaving the MSFT board, that removes Buffett's stated reason for not investing in MSFT.  So who knows?   But if you are interested in BRK.B, AND if history repeats, then $170.06 should be an excellent entry point. 


One

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Re: BRK.B $182! Buy?
« Reply #42 on: March 20, 2020, 09:18:43 PM »
Yay or nay? I sold some before the fall.
No, there’s no dividend, hasn’t beat the s&p500 for several years, admitted they would have a hard time beating the s&p in the future because of their large size. He did think they’d hold up better in a downturn.

MustacheAndaHalf

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Re: BRK.B $182! Buy?
« Reply #43 on: March 20, 2020, 11:50:22 PM »
Value investing by itself doesn't get you Buffet's returns.  He figured out two market factors before anyone else, and deserves credit for doing so.

Having said that, his performance is actually worse than it seems.  Using the insurance business, Buffet has an estimated 1.4x to 1.7x leverage.  If you had the same starting assets as Buffet and imitated him, your results won't be as good.

Fru-Gal

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Re: BRK.B $182! Buy?
« Reply #44 on: March 21, 2020, 02:25:00 AM »
I bought optimistically at 178. Now I have an open-till-filled order for 165. We'll see if it happens.

I am getting nervous thx to the virus, buying a lot of stock and have little cash. I could lower my savings rate to have more cushion. However, I only 3 more months left to max 401k.

vand

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Re: BRK.B $182! Buy?
« Reply #45 on: March 21, 2020, 01:44:40 PM »
I bought optimistically at 178. Now I have an open-till-filled order for 165. We'll see if it happens.

I am getting nervous thx to the virus, buying a lot of stock and have little cash. I could lower my savings rate to have more cushion. However, I only 3 more months left to max 401k.

Why are you fixating on such a piffling difference?

Buffett himself says that if you're not prepared to tolerate a havling of your portfolio wealth on at least one occasion then you are doomed to forever have a mediocre relationship with the equity investing and should probably stay away (or words to that effect).

Ever since BRK.B split it stock so that you can buy it with pocket change it opened itself to short term traders as much as any other companies' stock. Nice move, Warren.

MaaS

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Re: BRK.B $182! Buy?
« Reply #46 on: March 21, 2020, 02:41:53 PM »
I bought optimistically at 178. Now I have an open-till-filled order for 165. We'll see if it happens.

I am getting nervous thx to the virus, buying a lot of stock and have little cash. I could lower my savings rate to have more cushion. However, I only 3 more months left to max 401k.

Why are you fixating on such a piffling difference?

Buffett himself says that if you're not prepared to tolerate a havling of your portfolio wealth on at least one occasion then you are doomed to forever have a mediocre relationship with the equity investing and should probably stay away (or words to that effect).

Ever since BRK.B split it stock so that you can buy it with pocket change it opened itself to short term traders as much as any other companies' stock. Nice move, Warren.

Unless you're joking, you don't have the history on that. Businesses started popping up that bought A shares and resold pieces for huge fees, which caused a similar speculative effect, among other issues.  Berkshire d

Telecaster

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Re: BRK.B $182! Buy?
« Reply #47 on: March 21, 2020, 05:29:42 PM »
Unless you're joking, you don't have the history on that. Businesses started popping up that bought A shares and resold pieces for huge fees, which caused a similar speculative effect, among other issues.  Berkshire d

The B shares were originally issued for the reasons you mentioned.    There was a split in 2010 that came about as part of the BNSF merger, which I believe had something to do with taxes.  I can't quite remember the exact rationale. 

However, the Bs and As track pretty closely as you might expect.   Interestingly, for a while this week the As were cheaper than the equivalent amount of Bs.   Usually the opposite happens. 

AdrianC

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Re: BRK.B $182! Buy?
« Reply #48 on: March 21, 2020, 06:39:07 PM »
You're right BRK hasn't beaten the market for a long time, but it moves in a predictable range, about 1.2 to 1.5 times P/B.  At 1.2 P/B it is cheap and over the last 20 years or so if you bought at that level you in fact did beat the market.  So go ahead and buy it if you like, but do it when it is on sale. 
This is what I've done and I've been quite satisfied with the results.
Quote
Back to the Eternal Truth:   Indeed Buffett hasn't made a major acquisition in years and is sitting on an almost unbelievably huge cash pile.  Why? Stuff is expensive.  He won't overpay.  Correction:  Stuff used to be expensive.  It is one whole helluva lot cheaper than it used to be now.  Having a giant pile of cash suddenly looks like a pretty smart move.
Yes indeed. Berkshire was built for times like this.
Quote
Speaking of cheaper:  Current P/B is less than 1.   
Adjusted for the recent drop in equities, price to book value is about 1.2. That's cheap. I've been buying.


Kroaler

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Re: BRK.B $182! Buy?
« Reply #49 on: March 21, 2020, 07:01:31 PM »
Everyone with Geico should have at least 1 Berk b share.

It qualifies you for like a 10 or 15% discount on top of the others