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Berkshire Hathaway Inc. Message Board

jad1148 61 posts  |  Last Activity: 17 hours ago Member since: Dec 8, 2002
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  • Reply to

    jad, your kind of ibm,

    by hjclasvegas6969 Nov 21, 2014 7:09 PM

    « Can't the new guidance justify a 150 stock price or lower even if they don't cut the div ? »

    Yes.

    The first and second stage growth rates that I used were derived from the 3Oct2014 VL report, which was released just before the bad news hit (it has a "recent price" of 191.62 at the top of the page). It will interesting to see how the analyst modifies his 3-5 year projections on the next report, which I assume is due on 1Jan2015, and will probably be released during the last week of December 2014.

    Of course, what WEB has been doing is far more important, but we'll have to wait until mid February of next year for that, BRK's next 13F-HR is due 14Feb2015.

  • Reply to

    jad, your kind of ibm,

    by hjclasvegas6969 Nov 21, 2014 7:09 PM
    jad1148 jad1148 Nov 21, 2014 9:06 PM Flag

    Thanks, hc, for bringing that to my attention. It's vaguely similar to the type of calculation I do.

    One major complaint, the author isn't doing a pure dividend discount model. His sixth and last term has nothing to do with dividends, it uses earnings per share and an earnings multiple to fudge a terminal value, and unfortunately, the bulk of his final answer is determined by that last term. So, in reality, it's a thinly disguised earnings based model.

    JMO, but It looks to me like IBM might be worth $160 per share if one is willing to assume that it will grow the annual dividend per share by 7% per year for the next 4 years, follow that with an additional 96 years of growth at 4% per year, and then discount the entire 100 year dividend stream by 7% per year.

    =(4*1.1)*(-PV((1+7%)/(1+7%)-1,4,1,0,0)-PV((1+7%)/(1+4%)-1,96,((1+7%)/(1+7%))^4,0,0))

    The first and second stage growth rates were derived from the VL projections (3Oct2014 report) for the next four years.

  • jad1148 jad1148 Nov 21, 2014 7:20 AM Flag

    Sean, I totally agree with your assessment of IBM.

    My gambling days are over (retired, living on a pension + SS + distributions from my 401(k)), but at some price even a desiccated old turd like IBM becomes interesting.

    Based on the assumptions below, at $164 it looks like it is priced to deliver a return of about 9%. If the price goes a lot lower, even I might be tempted, unless, of course, the decline is market wide, in which case I would throw some money at an index fund instead.

    [(1+4.40/164)*(1+1.85%)*(1-1.5*4.40/164)^-1]-1 = ~9%

    First term - Dividend Yield.

    Second term - Organic Growth Rate based on VL's expected annual growth in Revenue (M$) over the next four years, ( YE2014 to YE2018).

    Third term - Faux Growth Rate due to share purchases (buy backs), assuming they throw at least 1.5X as much money at repurchases as they use to fund the dividend. Quick check: CapX is less than Depreciation and (1+1.5) times the annual dividend per share is less than diluted eps (ttm).

    Now, before that "dotty wee skid mark" from NJ shows up to tell you just how stupid I really am, I will admit to being human and that I have been wrong on occasion.

    As always, just my opinions.

  • Reply to

    where from here?

    by tomandjanewright Nov 20, 2014 9:30 AM
    jad1148 jad1148 Nov 20, 2014 10:46 AM Flag

    One guesstimate of the future is probable as bad as another, so why not just go with the Value Line analyst's projection?

    If BRK-B does trade at $195 by yearend 2018 (~1.5 X ~$129 BV/s) that would get you a nominal ATR of about 7.7% from here. A real return of ~5.5% (assuming inflation clocks in at ~2.2% per year) is actually quite good.

    Want a higher return? Lower your bid!

  • jad1148 by jad1148 Nov 19, 2014 5:25 PM Flag

    Robert X. Cringely's "Death Of The (IBM) Salesman" - Forbes

    Brilliant, absolutely riveting - this man can really write!

  • jad1148 jad1148 Nov 19, 2014 2:57 PM Flag

    Who knows what 3G is willing to do?

    In 1988 KKR bought Duracell/Gillette for 2,060 M$ with 83% leverage, held it for 9.53 years, and then flipped it for a ROI of 39.3%.

    Maybe WEB has become bored with Bridge and now favors Gin Rummy.

  • jad1148 jad1148 Nov 19, 2014 9:46 AM Flag

    You betchum NT. In years when pricing is soft you just walk away and let your trees grow a little taller, and then, some day in the future when pricing firms up, cut and sell them. Beautiful, absolutely beautiful.

  • jad1148 jad1148 Nov 19, 2014 9:32 AM Flag

    In hindsight, if BNI's performance over the last five years was anything like UNP's, then Bruce Greenwald and I were very, very WRONG, and yes, in my opinion, BNI's former shareholders got taken BADLY on that deal.

    For Greenwald's 17Nov2009, take on that deal search for the article using the following string:

    « Bruce Greenwald It’s a crazy deal. It’s an insane deal. »

    I spent the weekend looking at UNP (as a makeshift proxy for BNI) just to see where I went wrong.

    In our defense, WHO would have guessed that UNP would grow sales 11% per year, buyback 2.3% of their shares per year, push the profit margin out 9.9% per year, and increase the payout ratio 1.3% year?

  • jad1148 jad1148 Nov 19, 2014 7:41 AM Flag

    Buffy wants KO? I want 50X earnings for my shares. WEB couldn't bring himself to sell at that multiple way in 1998 (the average annual P/E ratio was 51.3 according to VL), so they must be worth at least that much to him! Hopefully KO's shareholders won't allow themselves to get sucker punched on the deal the way BNI's shareholders did.

  • jad1148 jad1148 Nov 19, 2014 5:24 AM Flag

    I can rationalize 2250 for the S&P 500. That's a trailing P/E of about 22. JMO, but give Jeremy and his guys at GMO credit, they're willing to move the goal posts based on new thinking. On the other hand, it looks like JPH is pretty much stuck in his historical based beliefs and just won't reconsider.

  • Reply to

    We hit bottom.

    by holdenb75 Nov 18, 2014 10:25 AM
    jad1148 jad1148 Nov 18, 2014 12:44 PM Flag

    A great buying opportunity is when it trades at a DISCOUNT to NAV.

    As of 11/17/2014 NAV per share was $7.74.

    Some fun, hypothetical calculations:

    If you had bought this on 11/15/2013 and sold it a year later on 11/14/2014, you would have made a 13.0% return, (12*0.085+8.97)/8.84-1.

    But if it had traded at NAV on both dates, you would have only made 4.0%, (12*0.085+7.73)/8.41-1.

    You can thank the folks who bid the market price up (from a 5.11% premium on 11/15/2013 to a 16.02% premium on 11/14/2014) for your excess return.

    Note that the NAV of the underlying portfolio actually decreased in value by ~8.0% during the period.

    As always, just my opinions.

  • jad1148 jad1148 Nov 17, 2014 3:53 PM Flag

    Just my opinion, but it looks like this is currently too expensive! Folks have bid this up to the point where the market price has now exceeded the net asset value by more than fourteen months worth of distributions, ( (8.97-7.73)/0.085 = 14.6 months, as of 11/14/2014). Go to the "us.allianzgi" web site and look at the "Fund Premium/Discount To NAV". The premium has rarely been higher. My guess is the smart money is leaving while they're ahead.

  • jad1148 jad1148 Nov 16, 2014 7:53 AM Flag

    "Every loser in Vegas thinks they can do better! You know what winners do? They walk away from the table while they're up!" - "Hall Pass" (2011).

  • Reply to

    JADdie's Spreadsheets and BNSF:

    by spirach2 Nov 11, 2014 12:32 AM
    jad1148 jad1148 Nov 11, 2014 4:36 AM Flag

    LOL, Spirach2. I'll bet you stayed up all night looking for that. And you call me a loser? I'll give you this, it takes one to know one. Unfortunately, what you do is typical of what quite a few other folks who post here do as well. If you have nothing to contribute to the topic under discussion then attack someone who does. Mean, hateful, and spiteful ... that's NJ all the way. IMO, the folks who do that are nothing more than a pathetic, bunch of petty, dimwitted, character assassins. I'll be back, if and when, WEB does a "Mark Twain".

    « Twain was born shortly after a visit by Halley's Comet, and he predicted that he would "go out with it", too. He died the day following the comet's subsequent return. »

    WEB likes to joke that he was conceived during the 1929 Stock Market Crash.

  • Reply to

    OT - Hussman

    by jad1148 Nov 10, 2014 5:17 AM
    jad1148 jad1148 Nov 10, 2014 10:23 AM Flag

    « Like a lot of people, Hussman far underestimated the effect of near 0% interest rates and free money on asset valuations, and most particularly equities. »

    I believe Jim, on the other board, absolutely "nailed it" (msg# 213306) when he wrote:

    « Most notably, when interest rates are low, most investors are myopic and will pay more for stocks thinking low interest rates make stocks worth more. However it's easy to demonstrate that stock purchase made when interest rates are low and valuations high leads to bad returns. So it's the valuation at time of purchase that matters to value and to forward returns, not the prevailing interest rates at time of purchase.

    When you see people paying more for stocks in a low interest rate environment it's a TINA effect: there is no alternative. Some people are required to allocate their capital. The person making that purchase at a high multiple "due to" low interest rates is still going to get lower forward returns as a result of the highly priced purchase. The low interest rates don't make the shares worth more, it makes them just temporarily more attractive on a relative basis.

    Thus the interest rate EXPLAINS the higher multiples, but DOESN'T JUSTIFY them. »

  • Reply to

    OT - Hussman

    by jad1148 Nov 10, 2014 5:17 AM
    jad1148 jad1148 Nov 10, 2014 9:57 AM Flag

    Beach, Hussman is, IMO, definitely old school, like in "John Burr Williams" old school, but then, I am too, so for the most part I'm in agreement with his views. He favors higher growth and discount rates than I do, but as long as one is consistently "wrong" on both in the same direction that isn't much of a problem. It's when one uses a high growth rate in combination with a low discount rate (compressing the growth adjusted discount rate beyond belief) that leads to problems, e.g.: 1999's "Dow 36,000".

  • Reply to

    OT - Hussman

    by jad1148 Nov 10, 2014 5:17 AM
    jad1148 jad1148 Nov 10, 2014 5:55 AM Flag

    So, let's apply Hussman's definition of intrinsic value to BRK-B.

    If BRK-B never, ever, pays a dividend (special and/or regular) in the future, then it is worth nothing.

    But I believe BRK-B could immediately pay a special dividend of $14.54 per share ( that's the insurance cash net of reserves to cover potential claims) and begin paying a regular dividend of $5.88 per share (that's ~70% of TTM diluted earnings per shares, my crude estimate of FCFE/s, and is an extremely generous assumption). Let's grow and discount future regular dividends by Grantham's historical rates (IMO, both historical rates are probably too high going forward, but using 1.0% and 5.5% instead, will still get you pretty much the same answer).

    IV/s = $14.54 + $5.88 * ( 1 + 1.8%) / ( 6.5% - 1.8% )

    IV/s = $141.90

    and currently, the
    P/s = $143.61

    So, hypothetically, optimistically, speaking, BRK-B may actually be trading at intrinsic value, right now, IF it immediately began paying dividends.

    As always, just my opinions

  • jad1148 by jad1148 Nov 10, 2014 5:17 AM Flag

    I know, I know, almost everyone here dislikes Hussman.

    An excerpt from this morning's WMC, "Do the Lessons of History No Longer Apply?":

    « For example, every long-term security is fundamentally a claim on a very long-duration stream of cash flows that can be expected to be delivered into the hands of investors over time {I, jad1148, will add my two cents ... that's dividends, folks - regular & special}. For a given stream of expected cash flows and a given current price, we can quickly estimate the long-term rate of return that the security can be expected to achieve (assuming the cash flows are delivered as expected). Likewise, for a given stream of expected cash flows and a “required” long-term rate of return, we can calculate the current price that would be consistent with that long-term rate of return. The failure to understand the inverse relationship between current prices and future returns is why investors frequently argue that rich equity valuations are “justified” by low interest rates, without understanding that they are really saying that dismal future equity returns are perfectly acceptable. »

    I believe, I believe, I believe.

  • jad1148 jad1148 Nov 9, 2014 9:31 PM Flag

    I submit anything I consider buying to a very simple stress test. I look at the capital loss over a very specific 52 week period. The starting and ending dates are: 3/7/2008 and 3/6/2009. The percentage change based on the actual closing prices where:

    -73.0% NCZ (leveraged CEF)
    -65.1% PFF
    -63.2% UTG (leveraged CEF)
    -47.2% S&P500
    -44.3% DJIA
    -38.6% VPU (I own it)
    -35.5% T (I own it)
    -22.2% VZ (I own it)
    -0.3% MCD (I own it)

    Just my opinion, but leverage (additional securities purchased with borrowed money) supercharges both the gains (when times are good) and the losses (when the market tanks).

    I have yet to find a leveraged CEF that I would be willing to invest in.

  • Reply to

    Book Value 144,500

    by axpkocop Nov 8, 2014 11:15 AM
    jad1148 jad1148 Nov 9, 2014 9:12 AM Flag

    You're not there yet, and with any luck at all, you want be there by yearend.

    Among other things, poor Spirach2, is also numerically illiterate: i.e., 143 is NOT 2 * 82.

    And remember, there are only enough lifeboats for the first 12.5% who will take $115. The rest of you can tread water and hum "Nearer My God to Thee", while you wait for the Carpathia.

BRK-A
219,935.00+1,685.00(+0.77%)Nov 21 4:00 PMEST

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