hjc, in my opinion, a share reduction that doesn't increase the dividend per share is a worthless waste of money. The absolute dollar amount spent on paying the dividend, year over year over year, doesn't have to grow. It just gets distributed over fewer and fewer shares, which increases the dividend PER SHARE. And if the dividend per share grows then the price per share will grow, and everyone will be happy. The shareholders get income plus growth and the insiders's see the value of their options (which is pegged to the stock price alone) increase. THAT'S the beauty of it. Everybody wins.
hjc, I'm neither happy nor sad. I'm pretty much indifferent. I probable have a smidgen of IBM along with BRK-B indirectly via VPGDX, which probably owns a little bit of everything in the world, except for the securities of a handful of countries of dubious repute. By the way, that's not a recommendation.
My interest in IBM is strictly academic.
I was hoping for 13 cents (a 10% increase), but expecting 10 cents. So, no surprises there.
IMO, $1.40 per share per quarter is enough to support a price of $160 per share. That assumes that buy backs will continue to reduce the share count by at least 2% per year (2% in real, but financially engineered, growth) and that the market demands a real total return of 5.5%, which results in a capitalization factor of 3.5%.
hjc, I compose, edit and proof all substantial posts using an e-mail editor and save the result to "mail waiting to be sent" before I copy & paste it to the message board. I delete the mail copy only after I believe the message board has accepted it. So I almost always have a copy for a least a couple of hours after posting it. Having posts deleted is both insulting and frustrating, but I guess I just don't care enough to follow up on the "whys?".
All three posts contained an equation with numerical inputs.
The fist post contained a tilde symbol, which I use to signify "about" or "approximate". That's been a problem in the past. I also implied that the scenario I was suggesting would most likely require a change in control, which, of course, eluded to something natural, but unpleasant.
I removed the tilde and reposted. The repost was deleted.
Several days later I removed the offensive change in control language and tried again. The post was again deleted.
I gave up.
For me, the joy was in finally coming up with a solution that works for me to a puzzle that I've worked on since 2003. I don't care if anyone else appreciates it or not.
By the way, my first BRK-B purchase was a dud. Bought on 9/28/1998 at $1,978 per share, sold on 4/8/2003 at $2,305 per share, a 4.5 year IRR of 3.4%. My curiosity was piqued. What did I do wrong? And the journey began.
It does happen occasionally.
By the way, that's about 134% of BV, a MODEST premium (about 12%) to the 120% buyback threshold.
Tom, you and I are doing things differently, that's all I can tell you.
I've tried on three separate occasions in the recent past to post my methodology and each time the board moderator deletes my post.
IMO, only two types of people still value stocks by slapping an after-tax multiplier of 15X, or it's pre-tax equivalent (assumes a tax rate of about 33%) 10X, on earnings: the extremely naive and the incredibly lazy.
A long, long, time ago, in a time and place far different than where we are today, when companies paid a dividend that averaged about 60% of after-tax earnings and those companies could grow both their earnings & dividends annually by about 6% (in part, due to much higher inflation rates) a P/E of 15 made sense, it presumably would get you a 10% total return, i.e., 60% / (10% - 6% ) = 15. But that was a long, long time ago.
You would be well advised George, to watch out for that tree.
Of course he does!
"Berkshire Hathaway is Wedgewood Partners' largest holding" - Caveat emptor.
"We have chosen a pre- tax multiple of 10X,"
LOL!, If a credible valuation is the goal, then it's always best to just grab a number (multiple) out of the air without any justification whatsoever « sarcasm ».
Thank you for the suggestions, but I'll pass.
By the way, I do appreciate your "heads up" on articles of interest, do read them, and always "thank you" with a thumbs up.
hjc, my last post, made 26 minutes ago, has been censored. Apparently I am not allowed to share my opinion of what I believe BRK is worth. I'll take that as a compliment.
Thank you for sharing your thoughts. I did respond to you earlier today, but apparently the post was pulled.
One last historical example before I give up on this thread.
If you bought the S&P 500 on 3/31/2000, and pocketed, rather than reinvested the dividends, and then sold it on 3/31/2016, what would you have made?
Your return, XIRR, over that 16 year period would have been 3.45%,
Why so little?
You paid too much on 3/31/2000.
The Price to trailing twelve month Dividend ratio was a ridiculously high 89.4 ($1,498.58 / $16.76).
And why was it so high?
Pumptards had driven the price and the P/D ratio up over the preceding eight years. In just 8 years the pumptards had managed to eat your breakfast, lunch and supper, for the next 16 years.
For the sake of completeness, at the close, on 3/31/2016, the P/D was 46.9 ($2,059.74 / $43.88). Which is still too high!
Now, what should you have paid on 3/31/2000?
Assuming that you wanted a 10% return on your investment, and that dividends would grow on average 6% per year, what was the INTRINSIC VALUE of the S&P 500 on 3/31/2000?
IV = D / ( r -g ) = $16.76 / (10% - 6% ) = $419.00.
That's an IV/D of 25.
If I substitute $419.00 for $1,498.58 on 3/31/2000 and recalculate the XIRR, I get 13.50%, which is too high for a reason, the terminal P/D is still too high.
If I set both the initial price and the final price to 25 times the actual TTM D/s, I get an XIRR of 10.05%.
And that is, in my opinion, how you calculate IV, and use it in a buying decision.
« What price do you endeavor to pay? »
I would pay IV, but then I use realistic assumptions to arrive at the number.
Why don't you review WEB's 1991 worked example.
« Chairman's Letter - 1991 - Berkshire Hathaway »
Then scroll down to: "A Change in Media Economics and Some Valuation Math",
and then scroll down to the paragraph that starts: "The industry's weakened franchise has an impact on its value that goes far beyond the immediate effect on earnings. For an understanding of this phenomenon, let's look at some much over-simplified, but relevant, math."
Note that he is using a credible (for the time), 6% nominal growth rate, a 10% nominal discount rate, and even though he can't bring himself to use the word DIVIDEND, he all but says it, in his awkwardly contorted, convoluted, but otherwise precise, definition of "freely-distributable earnings".
So he's valuing the business using a price to dividend ratio of 25.
I'm still puzzling over the semantics of:
« What it's worth and where you should buy aren't the same things. »
IBM pays a dividend, has a dividend policy: our goal is to return 75% to 85% of free cash flow (in dividends & share repurchases) to shareholders, and is therefore relatively easy to value.
BRK, on the other hand, has no intention of paying a dividend any time in the next 10 to 20 years (if ever) and is therefore very difficult to value, which makes it an ideal vehicle for folks looking to run a pump & dump.
In this game of "Carnies vs Rubes", my sympathies are with the rubes. If the carnies get excessively greedy and begin to promote multiples that even WEB himself would not approve of, I'm going to call them on it. And if I have to call them clowns to get their attention, then I will. You can be forgiven if you slept thorough 2007 --- 2013. A quick recap. The carnies had a real field day pumping the price in the later half of 2007 and the very tool they are talking today, "the Page 4, 2 column method" was their weapon of choice. I did fight them, but threw in the towel in the fourth quarter, and went silent. By 12/12/2007 they had pumped the P/BV to 1.94 and I sold at the open, $5,020 per "B", a split adjusted $100.40. It would take slightly more than five years for the poor hapless soul who bought my shares to break even, BRK-B closed at $101.02 on 2/19/2013, 1896 days later. Do you really want a repeat of that? My guess is WEB doesn't, hence his valuation "hints", which the clowns conveniently choose to ignore.
My curious is piqued. Your screen name, which implies some sort of relationship with Yorkshire, England, and your need for proper etiquette, suggests that you might be a misplaced Brit, my guess is Canadian. Care to confirm or deny?