SPDR Dow Jones Industrial Average Message Board

LOL!

Guy's stop pumping growth rates from the days when dinosaurs roamed the earth.

Listed below is the yearend, split adjusted, book value per "B" share, for the last thirteen years (yearend 2000 to 2012).

{ 26.96, 25.28, 27.82, 33.67, 37.22, 39.58, 46.85, 52.01, 47.02, 56.32, 63.64, 66.57, 76.14 }

Grab some semi-log paper and plot the BV/s (log scale) vs Year (linear scale) and then draw the best straight line you can through the data. The best estimate of the compound annual growth rate is hidden within the equation of that line: projected BV/s = 25.07 * 1.0959 ^ (Yearend - 2000).

The compound annual growth rate over the last thirteen years was: 9.6 ± 0.5 percent per year.

And if you goal is to make 8% per year on your equity investments then, in my opinion, a price to book value ratio of 120% (9.6% / 8% ) makes sense. If you're willing to make less than that then go ahead and pay more.

mv, Please tell me that you're NOT doing what I believe you're doing.

I believe you're annualizing returns for periods that are less than one year.

That's easy.

It all depends on who you are.

IF you are a shareholder THEN dividends.

IF you are an insider with stock options AND you want to hide the fact that you got them AND you want those options "in the money" as soon as possible (I wasn't an insider, but mine were fully invested within four years, with a 10 year expiration date) at the highest possible price THEN buybacks.

Nah, it's probably just sleepy. Beer will do that you know.

I wonder if someday in the far future Howard will say what Roland (Ettore's youngest son by his first marriage) said half a century ago:

« But perhaps it's as Roland once ruefully remarked, "Bugatti essentially died when my father did." »

Berkshire did pay a dividend in 1967, it was ten cents per share, page 133 of Lowenstein's book: "Buffett - The Making of an American Capitalist".

By the way, I had a dream early this morning (FD: I'm making this up as I go) that BRK was forced to make a huge, involuntary distribution in the far future. I dreamt that BRK had apparently grown, on average, by about 8% per year over the preceding 21 years: 7 years at 9%, a second 7 years at 8%, and a final 7 years at 7%. And, in spite of token buy backs late in the game, the trading price had fallen to one times book value. After secret meetings with management proved futile, a well known PE firm (who wanted to buy it to break it up and sell the pieces) took their case directly to the disgruntled shareholders and successfully bought them out, taking BRK private at 1.2X book. I believe this is known as a hostile takeover, hostile to management, not the shareholders. When I woke up I calculated what the current IV/BV would be based on 21 years of growth at 8%, a terminal P/BV of 1.2 and a discount rate of 9% and came to the conclusion that Michael Price must be an optimist. I also resolved to no longer have a beer just before going to bed. By the way, did you know that SAM now comes in a can?

Now THAT should get NJ's blood boiling! LOL!

Dude, I've seen (read) you in action on the other board.

All you every do is copy BRK trades (when you're not begging for tips from others) and then you whine for confirmation that you've done the right thing.

I seriously doubt that you have ever had an original idea of your own, and if you did, I'm positive that it died of loneliness decades ago.

Get a life!

hc, I almost never watch that channel, but I do watch: Francine, Scarlet, Betty, Sara, Shelia, Julie, Stephanie, Christna, Julianna, Deirdre, Trish, Emily, Susan, Angie and Mia.

LOL! Yes, I could have written that. ( I didn't.) That is pretty much the way I see things.

I do have to plead guilty to breaking rule #5.

I don't know why, but when my ship begins to take on water, I suddenly suffer a rare bout of optimism.

But to be fair, I have lost both ways, by selling stuff too early that eventually did recover (PIR and HOOK which is now BREW) and selling stuff way too late (CDL, which became CTDB.OB, and finally, after bankruptcy, CDELA, a turd DIS dumped on me, and to which I foolishly added, before selling at a tremendous loss).

In my case, Hussman is preaching to the choir.

I did take his "geek test" and got a 14% valuation increase, which was within his predicted 5% to 15% range.

My parameters: 300 years, his 6% growth rate, I used a 10% discount rate, a turn of the century (1900, not 2000) payout rate of 60%, and I got an IV/E (intrinsic value of a trailing dollar of earnings) of 15.9. I then replaced the first 15 years (which is worth 6.78) with 15 years discounted by 6% instead of 10% (which is worth 9.0) and the IV/E did increase by about 14% to 18.1

I believe he's correct, but I doubt that anyone will heed his warnings. Momentum beats rationality every time, at least until it's too late.

I started investing (seriously for retirement) in 1995 and still vividly remember Fall 1999 and its aftermath.

The subject of the article (Corporate Profits as a percentage of GDP. Are they currently too high? Will they mean revert?) was also the subject of Question #10 (from Carol Loomis) at the annual meeting. I thought both CTM's and WEB's answers were inadequate and evasive. IMO it WAS one of the more important questions asked, and they both pretty much just blew it off. Hopefully we'll get a more thoughtful answer from WEB in a future Fortune Buffett/Loomis article.

Owner's Manual, page 5, excerpt:

The calculation of intrinsic value, though, is not so simple. As our definition suggests, intrinsic value is an estimate rather than a precise figure, and it is additionally an estimate that must be changed if interest rates move or forecasts of future cash flows are revised. Two people looking at the same set of facts, moreover – and this would apply even to Charlie and me – will almost inevitably come up with at least slightly different intrinsic value figures. That is one reason we never give you our estimates of intrinsic value.

Why does it have to be THAT network?

And why does it have to be a blonde?

And if the interviewer has to be a blonde, Bloomberg does have Francine and Sara.

The Mark Twain quote embedded within his: "Unasked Question No. 6 -- Is Your Optimism Justified?", cracked me up!

Answer: Near Zero.

balt is correct, w_s, the answer IS in the current 10-Q;

Page 27:

« We continue to hold significant cash and cash equivalents balances currently earning near zero yields, which will continue to negatively impact our earnings from investments. However, our management believes that maintaining ample liquidity is paramount and strongly insists on safety over yield with respect to cash and cash equivalents. »

And it isn't likely to change anytime soon. Janet has already put folks on notice that the low rates will continue long after both Ben and the problem(s) it was supposed to solve are gone.

Just a reminder, the ~44 B$ in C&CE does not belong to either WEB or to the shareholders (you), it belongs to the folks who paid the premiums on the insurance policies. It is part of the 73 B$ in float (the pool of insurance premiums) that has to be available to pay their claims.

IMO, the reason why you're upset is that I didn't give you the answer that YOU wanted to read.

I merely told you why I believe what I believe.

Again, IMO, speculators and investors do not share a common language, so discussions between the two are almost always confrontational and pointless.

[continued]

Undistributed earnings reinvested in a business cannot properly be considered a second form of payment to its owners. The money thus diverted remains at risk. It may finally fail to earn any profit at all. Unless it produces dividends sometime in the future, it comes to nought. Thus it is only actual dividends as such, paid in cash on common stock by companies not subject to regulatory ceilings on their earnings – it is only these particular dividends, to repeat, that drive the whole engine of industry.
…
The market value of a common stock is set by marginal opinion concerning true worth. Investment value, however, is set by the present value of future dividends. The two seldom coincide. To forecast dividends and estimate their present value is the task of the investment analyst.

Dividends rather than assets or earnings are what really count. After all, what good are assets without earnings, or earnings without dividends either now or later? If Congress were to levy a tax of 100% on dividends, with no hope of repeal, all stocks would become worthless. No matter how large their earnings, their prices would be zero. Clearly dividends determine value.

Reference: Williams, John Burr. Interest, Growth, and Inflation or The Contractual Savings Theory of Interest. Circa 1964-1974. Pages 141-142.

and finally:

Industrial enterprises, however, have the habit of going to seed eventually, with only the best being able to survive for two or three generations.

- John Burr Williams, "The Theory of Investment Value", 1938, page 406.