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Berkshire Hathaway Inc. Message Board

  • ignoramus_ ignoramus_ Aug 6, 1998 12:42 PM Flag

    GEICO refuses to give BRK discounts

    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?

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    • Thanks for the repy I already figured it out before you could get to it but your reply was still helpful

    • 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
      that example.

      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.

      The
      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


      Web_Brk

    • 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
      over?

      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
      discussed.

 
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