When I talked to GEICO about my car insurance, I mentioned to them that I was a BRK shareholder and requested a discount, but they refused to give it to me.
Did it happen to anyone else?
Before or after taxes is not relevant. If, for
that newspaper example, the newspaper's actual P/E
(after-taxes) was 30 but Buffett's calculated "intrinsic" P/E
was 25, then Buffett would determine that the
newspaper was overvalued. If the actual P/E (after taxes)
was 20, then he'd determine the paper was
undervalued. Or you could use the pre-tax P/E values instead
to determine whether the paper was over or
under-valued. If the paper's actual pre-tax P/E was above 16,
then Buffett would determine the paper was overvalued;
if the paper's actual pre-tax P/E was below 16, then
Buffett would say undervalued. Whether you use the
after-tax or the pre-tax P/E is not relevant. Whichever you
use, you want to compare that to a company's actual
after-tax or before-tax P/E to determine whether the
company is over- or under-valued. That was the point of
Look at Coke. It's P/E is around
50. Its pre-tax P/E will, of course, be lower because
EPS will be higher. But whether you use the after-tax
P/E or the pre-tax P/E, you want to compare that to
Coke's "intrinsic" P/E (what the P/E SHOULD be), as
determined by discounting Coke's cash flow.
point of the newspaper example was not so much to say
anything about using after-tax vs. before-tax figures but
to show what the change in intrinsic value would be
if you change the assumptions used in the perpetual
annuity formula. If you say growth is 6% forever, then
intrinsic value = $1 mil. / (0.10 - 0.06) = $25 million.
$25 mil. would be the appropriate amount to pay if g
= 6%. If the company's market capitalization is
higher than $25 mil., then it's overvalued. On the other
hand, if there is no growth over time but earnings "bob
around" around an unchanging value, g = 0% and intrinsic
value = $1 mil. / (0.10 - 0.00) = $10 mil. In this
case, if the company's market cap. is $15 mil., the
company is overvalued.
If anyone can answer this please help. Ive read
all the information available and it looks as the
Buffett pays such high P/E multiples because he figures
his discounting process before taxes. You can see
this in the 1991 Chairmens letter when he uses his
example of a newspapers who's earnings are growing at 6%
a year and discounted at 10% that a valuation of 25
times after tax and 16 times pretax earnings is made.
If anyone can confirm this please do! Thanks
I am considering buying some brkb shares for my
children's college fund (16 and 18 years away still). With
the long horizon, I am thinking that now looks like a
good time to get in. Do you folks think I should wait
a little bit to see if we are in the midst of a
correction, or do you think the decline is about
Also, I realize this has probably been discussed in
previous posts, but I am interested to know what people
think will happen to brk when Buffet retires or dies.
Any input would be appreciated, even if it is just a
referral to previous post numbers where the topic was
<<I am interested to know what people think
will happen to brk when Buffet retires or
His advice is "When I die, buy".
He also says
he's been painting a canvas. You may want to figure
what happens to the paintings of famous dead painters.
....Here was my experiance............I didn't
start investing for my kids college early like you are
doing. However, when I did invest I picked the right guy
[Peter Lynch] and caught his run in the 80's so I lucked
out. Buffet's long term record is the best so if you
salt away a few shares your kids will thank you one
day. One advantage you have is the U of Mich system
which I believe has an investment program for parents.
Best of luck.......