How is owning BRK any different than owning gold (the physical metal) or TSLA stock? It's sad that the only way a BRK shareholder can enjoy the profits of his fractional share of this business is to sell it. Why can't a shareholder keep his stake AND enjoy the profits it generates?
No, I've got to keep things simple for my wife's sake. She's five years younger than me and in better health. There's nothing left that I want or need.
So why does BRK-B currently trade for about $145 per share?
Because, in my opinion, folks believe that if Howard was suddenly in charge, he would pay out the $13.62 per share in excess cash immediately, like TODAY! And by year end he would have paid out a regular, annual, dividend totaling $5.25 per share. And that each and every year thereafter, until the end of time, he would pay them an annual dividend that was 3% bigger than the previous year's dividend. And that the net present value, all so known as "Intrinsic Value", of that stream of payments, discounted by 7% per year, is worth $144.87 per share.
Agreed, the correct yardstick is IV, NOT BV, and Intrinsic Value is the net present value of the stream of DIVIDENDS BRK will pay its shareholders in the future, discounted by an appropriate rate (desired rate of return).
Yep, I reckon, 13% of BRK's BV is excess cash. If BRK spent that cash buying back shares at 1 X BV/s, the absolute book value (the numerator) and the number of shares outstanding (the denominator) would BOTH decrease by 13%, leaving book value per share unchanged. But FCFE per share and the dividend per share that could be paid from it, would both increase by 11%.
If AAPL stopped the buy backs they could (almost) quadruple the dividend per share. But the price per share would then stagnant (look at T) and insiders with stock option awards would not be pleased.
LOL hjc, I've read your book, I know you're a smart guy, but I'll answer anyway - by reducing the number of shares that the absolute dollar amount is divided by.
Like Simpson, Munger likes "financial cannibals," companies that buy back a lot of their stock: ... read on.
Only if the buy backs increase the dividend PER SHARE.. Buy backs without dividends is kind of pointless, IMO.
What's not to like?
Trades for 10.6 times ttm FCFE.
Paid out 23.4% of FCFE in dividends and used 65.7% to buy back stock.
hjc, I finished your book last night and I did enjoy it! I didn't find any errors worth quibbling over. Since I'm neither a gambler nor a card player, I did have to take a break and bone up on Card Counting. I struggled a bit with the logistics of the Jai Alai bet, eight to the six power is a heck of a lot tickets! I'll have to reread the section on your small cap adventures. The inclusion of press releases, etc., was a nice touch. The book itself was probably printed by Amazon in Lexington, KY (one of their fulfillment centers) on 15 May 2016. Nice glossy cover, good paper quality, and the font & type size was good for old eyes like mine. The pages are not numbered, so citations will be difficult. You certainly have led a charmed life. Thanks for sharing.
I'm assuming the ticker symbol for the company was FONR. According to their website, they IPO'd in 1981 and did a reverse, 1 for 25, split in 2007. They're into MRI. I remember the first time I saw a MRI. After the technician explained what it did, I said, Oh, that's the same principal as a NMR spectrometer. I got a dirty look and was told, we don't use the N word anymore, patients don't like it.
Ah, Apple, what can I say? I bought an Apple ][+ computer system in 1980. It was my pride and joy, but it was very expensive. I ended up paying almost as much as I paid for my car, a 1979 Dodge Omni. I bought and sold 100 shares of the stock in 1982. In at $18.50, out at $28.375, to make a 53% return in just 239 days. But selling was a really, really big mistake. If I had held, I would now have 5,600 shares worth half a million dollars. To make things even worse, after I sold Apple, I bought StorageTek, and they completely wiped out my "fun money" trading account when they filed for Chapter 11 in 1983. Life sucks and then you die.
IMO, even BRK is priced to deliver about 7%. As of 3/31/2016, 13% of BRK's book value was excess cash that could have been paid out immediately and T4Q FCFE was about 6.6% of ending book. Assume BRK paid a dividend equal to about 5% of book, grew it at 3% per year, and you discounted it at 7%, that would put the net present value, IV, of the dividend stream at about 125% of book. Add in the excess cash and the IV increases to 138% of book. And that's pretty close to where BRK is currently trading.
Too early, IMO. The few things that i look at are still providing an annual total return of about 7%, which isn't bad in a low interest environment. Ticker, income yield, growth rate: SPY, 2.1%, 5.0%; T, 4.9%, 2.1%; and VZ, 4.4%, 2.6%. Now, when the Market demands more than 7% ...
Yeah, smart move. I should cash out too, but I'm greedy. Please embrace the current low interest environment and pump everything to the moon. When I leave I want what's do me and ten years' worth of the next guy's return as well.
That you could justify a PE of 100 for the market if you used a discount rate of zero for the next fifty years.
Now, whip out your financial calculator, and tell what would BRK be worth, if it paid a dividend equal to five percent of book, grew it annually by three percent, and you discounted the first fifty years of dividends by zero?
I get a P/B of 5.8.
Just think weenie,
while away the hours, conferring with the flowers,
consulting with the rain,
and your head you'd be scratching while your thoughts were busy hatching
if you only had a _____.