Forever is a long time. For now and the near future, equity in the company is still more valuable than outside of it. That said, in the future I'd welcome buybacks over dividends, but I would be surprised if dividends weren't part of the equation and howard seems very open to the idea. So I believe intrinsic value, even in a rigorous sense, much exceeds zero
I think I'd end up at the crazy horse. The type of investors who buy negative yield bonds are the ones that are unwilling to take any risk of loss in common stocks even if the stock will be higher in 10 years. Or they're told they need a certain percentage of their portfolio in bonds and the choices there are somewhat limited and none of them appealing. I better practice my bouncing skills.
Looking back, yeah it seems like it was a poor decision. When you make an investment, you need to make assumptions, I think the reality for IBM has turned out worse than the assumptions. Now there hasn't been a loss in the IBM investment but a close to zero 3 1/2 year return is lost opportunity. I said 3 years because I made the bulk of my berkshire investment in May 2012 at about $80
Its a good point, no share issuances is one of the things I like about Berkshire. I still think the valuation of berkshire is compelling although not as compelling as 3 years ago, still I wouldnt expect a buyback anytime soon. I also dont think berkshire will add much to its IBM stake, 70 million shares is a large enough position as it is.
I dont know if I'll ever understand the bias against IBM. Yes they buyback stock, doesn't make it financial engineering. In fact $1.1 billion of stock buyback is less than 3/4 of 1% of outstanding stock, not exactly aggressive. IBM seems to be doing okay, yes they divested some businesses and they have some struggling but they've grown operating earnings 9% yoy, not too shabby.
how can you authorize a buyback at a discount to a price that cant be precisely calculated?
you think if buffett would give up control of berkshire today, that it would really make that much difference?
My opinion is that such a vehicle doesn't exist. A higher yielding bond fund is closer to what you're looking for but they can definitely be exposed to losses exceeding 20%.
1 Billion. Oh no! That's like almost a third of a percent of berkshires market cap or almost a couple of tenths on an after tax basis. Berkshire shareholders should just throw in the towel.
yeah I think the decision for buybacks over dividends is still well into the future and likely beyond Buffett.
so if berkshire is fully valued, where's the rest of the market? Perhaps fully valued is not such a bad thing. As far as IBM goes, its 3% of the market cap, seems reasonably valued and any loss would be tax deductible. Berkshire will not live or die by IBM
well I was referring more to the time when berkshire has more cash than they can reinvest wisely that buffet writes about in the letter, which he estimates is maybe 10-20 years in the future. I think berkshire will opt for buybacks more so than dividends because they are so much more tax efficient. I wouldnt mind if it were solely buybacks but it certainly could be a mix of the two.
well in that case its hard to beat something like berkshire, at least for the time being. And my guess is that Berkshire will try to stay tax efficient and ultimately favor buybacks over dividends when the time comes.
Depends on your income. If you're in the 15% tax bracket (which includes married couples up to about 100k per year) then there's no long-term capital gain federally. Of course california will take a small bite.
the whole $16 thing is quite misleading. Yes, Lampert made a killing on the Kmart investment. Merging with sears has been less successful but merging the two investments together as if they were one gives a very distorted view
State Farm still by far #1 and will be for a long time but only a mutual company could afford to price this way.
State farm premiums: ~$35 billion
Geico Premiums : ~$20 billion
State Farm: Underwriting loss: -$3.4 Billion ~ -10% per policy
Geico: Underwriting gain: $1.16 Billion ~ 6% per policy
Of course State Farm does have $80 billion of net assets to lean against so they'll be just fine.
I haven't looked at that data but that seems pretty close. There is indeed a reason that Berkshire trades around 1.5 times book while the S&P trades nearly twice that. Still, that lower valuation also greatly lowers the return on equity the company needs to achieve in order to be a worthwhile investment.