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Berkshire Hathaway Inc. Message Board

  • passbook_savings_beats_brka passbook_savings_beats_brka Jul 25, 2003 1:32 PM Flag

    Please read: Solid Q2 results

    (which are a near guarantee) will not be enough to lift this stock out of the doldrums.

    We need WEB to address the following issues if we are ever to see the stock move higher.

    1. Succession - How can anyone possibly run this complicated company (much more complicated than AIG/PGR/WTM) once WEB/CTM are gone. Who will this person be and why does WEB refuse to have a gradual handing over of the reigns similar to the Sandy Weill announcement last week (I'm not a Weill fan just using this as an example). Why does WEB want to see his stockholders suffer a 30% or more loss of capital the day he drops dead? With a transtion plan in place, this threat will be eliminated and WEB will still have voting control.
    2. Size - What is wrong with returning some portion of the outsized earnings to stockholders? The equity markets may NEVER get to the price WEB needs to justify an investment so why not gradually start paying a dividend. An easier way to accomplish this rather than having to worry about variable dividends would be through share repurchases. At this point in time the cash is doing nothing as far as a return on investment is concerned and a severe interest rate risk exists with the longer term bonds.
    3. Liquidity - It is extremely difficult to buy and sell large amounts of this stock and this prevents people who know the stock is undervalued from purchasing it. The idea of not splitting the stock was great until the share price started to move well above $10,000.
    4. Acquistions - Continuing to make acquisitions of small private companies is just muddying the picture even more. Look at the hassles Pampered Chef and Clayton have created over the last month, quite disappointing especially considering the minimal impact both of these can have on intrinsic value. If WEB adds too many companies, at some point you will regress to the mean as far as return on investment is concerned. And I know the point of many of these acquistions is to get access to the free cash flow for further investment, but is it really worth it if there isn't a place to allocate the funds?
    5. Equities - Far too many people continue to look at Berkshire as a closed-end fund. The time is right to spin off Berkshire's interest in KO/G/AXP. These stocks have very limited potential over the next five to ten years even after their stagnation since the late 1990s. They still make up around 20% of the current market cap and will weigh down intrinsic value growth.

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    • Yea i know Dazz, but the cash has so many future uses.

      Dont forget buffett's comment about interest rates. Money and Assets are never cheap together. Money has been cheap since the Bull market ended, so assets havent been cheap for a while.

      Maybe we can get the cont programs funds as a small dividend. That would make the owners manual complete correct?


    • Thanks for your note re the five year rolling test. Despite all my moaning and whining I love and respect Mr Buffett. He shaped my thinking and, as a result, not only made me a ton of money but also made the learning process fun. It does worry me that he is only human and a competitive human at that. If he chooses to ignore his own prinicple I will burn every book I ever bought about him. To me, discovering Buffett had let one of his own principals go to the potty would be like learning your favourite football hero was a wife-beating murderer.

      Best to you,


    • Jad,

      I take it you are a Citroen fan (??). I was thinking about the daringly different DS models. In fact anything post 1989 before they got a dose of marketing nouse, the cars were fun. Seems market research really blunts innovation. I always loved Citroen for their guts.

      Best to you,


    • <<That would be a market cap of $159Bn..... Much bigger than BRK.>>

      Hopefully not bigger than BRK is then :-)

    • << Then 2013 revenues will be 23b. >>

      EBAY fees are running at 9% of gross transaction volume. Revenues of $23Bn would imply gross transaction volume of $256Bn, a little more than WMT does right now. That's a lotta Pez!

      << We get 8b in 2013 earnings with 425m shares out, or almost $19 EPS. A 20x multiple gives a share price of $375 >>

      That would be a market cap of $159Bn. Between where BP and Intel sit now. Much bigger than BRK.

      The best companies find new ways to grow, but I have to agree that: "I am personally uncomfortable projecting 10x growth a decade out and thus would not buy EBAY at these prices."

    • I don't think the growth is sustainable. At some point they will have to hit a saturation point (although I have no idea where that is). But if you project $23 billion revenue, and estimate that they charge about 5% listing fees (I'm just guessing 3% actual listing fees and rounding up to 5% based on all their other fees) that would be $460 billion in overall auction sales.

    • absurd--- maybe.

      Doggy, we cant ever agree on those revenues. Ebay or Dillards.

      If they have 23B in rev in 2013 then those buyers at 110 should get 12+% return. They earned it.

      So for the IV of ebay to be at the current price of 110. (Assume 12% return) They need to in 10 year grow rev almost 800%, improve net margin just 14% of rev, and 7% growth rate of the bottom line for year 11 to forever(to get PE 20--1/.12-.07). That is a tall tall order. Maybe it will happen and I hope it does for those shareholders.

      Since they need all that to happen for them to make just 12%, I will look else were.

      Anyway, I am going to stop using Ebay as example. I dont want to start a fight about a stock that doesnt look like I will ever own. I respect Doggy opinion, but I will hold to mine here. Good luck to all.


    • <<I dont understand that? Is it worth the 110 or not?>>

      Lacking a crystal ball I am unable to answer with certainty. I doubt EBAY can grow earnings fast enough to deliver a decent return from current share prices. But they might.

      2004 revs are estimated at 2.9b, representing 67% CAGR over the five year period and 38% growth from 2003 estimates. If EBAY revenue growth comes in at:

      2005 35%
      2006 32%
      2007 30%
      2008 28%
      2009 26%
      2010 24%
      2011 22%
      2012 20%
      2013 18%

      Then 2013 revenues will be 23b. As EBAY grows their margins expand. Let's say net margins are up from 21% today to 35% in 2013. Let's further say employee stock options continue to inflate share count at the historic rate of 2.5%. We get 8b in 2013 earnings with 425m shares out, or almost $19 EPS. A 20x multiple gives a share price of $375, representing a market-beating 12%+ CAGR from today's price.

      Based on the above assumptions EBAY is underpriced at $110. These assumptions are not absurd -- EBAY might actually beat them. I am personally uncomfortable projecting 10x growth a decade out and thus would not buy EBAY at these prices. But unless you DO have a crystal ball your claim that there's "no way" it's worth $110 today is absurd.

    • Yea Doggy you math is correct. look like the jumped earnings from last time I looked. It drop the PE a lot too. it is down under a 100.

      Any using company earning and growing them at 52% and assuming 5% stock grants.(they arent helpful since they are current around near IV) would make the share worth around 1000(PE 20) which is 900% gain in 10 years. That is better than ok. lol

      the problem is they dont have a chance in hell of growing at 52% for the next 10 years. That would put earning at 30-35 billion dollars and market cap at 600-700 billion dollars. That is more than twice GE numbers.

      That isnt going to happen!

      You have defend Ebay twice now, doggy at 100PE. Yet you say it is almost certainly overpriced, but there is a chance it's actually worth more than $110/share today.

      I dont understand that? Is it worth the 110 or not? I dont see them having a growth rate near high enough to make 110 a good investment. The upper management must agree since they can't sell quick enough.

      Doggy, you were right about the 52% and I agree that it is overpriced. Why do you think it might be worth 110 and is that why you defend the current buyers?


    • I should have broken that up into two messages.

      Yoyoberkie might be his name? He trashed talked Mule about MXT after I said it was looking like a value play. It was last friday if anyone wants to go back looking for the post. I think it was titled MXT.

      I regret not spliting that into two messages and sorry that it looked like I was saying you said that.

      Again sorry.


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