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Jim (mungo) has often mentioned a tendency for stock prices to intersect fair value every 5-7 years on average. Assuming prices alternate between being above and below fair value, this might be construed to mean that prices follow a 10-14 year cycle with respect to on-trend fair value. If so, there would be, on average, 5-7 years in which prices are rising, followed by 5-7 years in which prices are falling. I realize this is far too neat for reality, but I'd like to better understand the average tendency. Maybe all that can be said is that price intersects fair value on average every 5-7 years, and what takes place in between is all over the place. For example, BRK might follow this pattern despite generally remaining above or below fair value for a dozen or more years at a time, and only touching fair value every 5-7 years. What clarification might be offered for this?

Tom
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First, be aware that the 5-7 year figure is plucked largely out of thin air from anecdotal experience.

As for this defining a cycle, it's more often just a very zig-zaggy line
that is weakly but inevitably attracted to a fair value level just
strongly enough to get it pulled back at last once in a blue moon.
Even if the 5-7 year maximum-time-to-fair-value figure is right, I
don't think I'd make the leap from that to positing a cycle.
Heck, for Berkshire a better characterization would be a very very
jagged continuous period of falling valuation levels since mid 1998.

A couple of other possible insights, or at least musings:

The longest time-to-fair-value for an individual company is generally
much shorter that the time-to-fair-value of the broad market simply because
individual stock prices move around so much. FWIW, for the broad US market since 1870
we've seen stretches of 12-13 years of continuous undervaluation for the broad market.
e.g., early '74 through late '86. That sort of thing is sufficiently rare for
an individual stock that if it had been the norm, there would be no value investors.

As the number of people using funds and ETFs explicitly or implicity tracking
indices and sub-indices goes up, the fraction of market participants who even try to
consider the value of a firm falls. The attraction of price to fair value is
caused by a rising number of buyers as the discount to fair value gets larger.
If there are fewer buyers acting on single-stock price to value ratios,
the typical maximum-time-to-fair-value for individual stocks might be rising.
This might make for even more extreme pricing anomalies and opportunities,
at the expense of longer waits for vindication. Conviction would be more important than ever.

For Berkshire we're in record territory in terms of the number of
consecutive months continuously undervalued. No matter what valuation
method you use, there's a pretty good chance you'll conclude that
Berkshire was last fairly valued some time around mid Feb to mid March 2008,
4.75 years ago as the price fell rapidly from 144000 to 127000.
(as an aside, book per share is up 43% in those same 4.75 years while
the market price is still in the lower half of that range)
On my figures the previous record was about 3.3 years of continuous undervaluation.
On the bright side, if my 5-7 years figure is good, then we have a maximum of 2.25 years to go!
By an amazing coincidence, my Berkshire call options expire in 2.2 years,
so Murphy will ensure we see fair value after January 2015 but before the ides of March : )

Broad US markets have had a good year, far better than most other markets.
US stocks seem unlikely to do as well as many other better-valued markets next year.
Thus, we may not see any multiple expansion in Berkshire next year
unless it happens to go briefly into fashion for a while.
The stock price will likely still rise at least as much as book does, of course.

Jim
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The attraction of price to fair value is caused by a rising number of buyers as the discount to fair value gets larger. If there are fewer buyers acting on single-stock price to value ratios, the typical maximum-time-to-fair-value for individual stocks might be rising. This might make for even more extreme pricing anomalies and opportunities,at the expense of longer waits for vindication. Conviction would be more important than ever.

The OID Year-End 2000 edition had some interesting comments about money managers and Berkshire, quoting from Andy K's 1998 Millenium edition of Permanent Value, who in term quotes a money manager about the difficulties of their holding Berkshire:

"So,what's the catch? There isn't any ... which is exactly why it's so difficult for most money managers to recommend that their clients buy Berkshire! Indeed in some sort of bass-ackwards way, there may be some part of human nature that actively works to prevent professional investors from buying Berkshire because it's so easy.

o Sell side analysts on Wall Street don't want to cover Berkshire becasuse management won't meet with analysts, except at the annual meeting, which is attended by more than 10,000 people. There's no "edge" to be gained there.

o Brokerage firms have no incentive to recommend Berkshire to their clients because Berkshire shareholders tend to be remarkably loyal and therefore generate few commission dollars.

o Investmant "gate keepers" - consultants who advise investors on which managers to hire - have great difficulty understanding a manager who holds Berkshire and are likely to critize holdings as lazy or dim-witted.

o Investors themselves are often ill-equipped to hold a position in Bershire because it provides no "action." For many investors, the act of meeting with, hiring, and firing investment managers is a raison d'etre unto itself. Holding a single position is unlikely to provide much satisfaction no matter how profitable it may prove to be.

o Most importantly, investment managers must jump over two nearly insurmountable psychological hurdles in order to buy and own Berkshire:

1. Buying Berkshire in some way means surrendering investment decision making power to Buffett. It means admitting that his is better at the game. Few professionals, in a business where ego is stacked up like cordwood, are willing to do this.

2. The investor must admit that Berkshire, by virtue of its internal leverage generated through the insurance float, is a better mousetrap than most investors can offer their clients. Berkshire is simply better than a mutual fund or a hedge fund for virtually any US onshore taxable invetor.

The manager of a Merrill Lynch mutual fund summed up this sentiment succiently:

" Berkshire is probably a good stock, but I could never own it. After all, I'm paid to DO something. One wonders, of course, what he is being paid to do other than make money for his clients? But implicitly, he is summing up the frustration a professional must necessarily feel in putting Berkshire in his portfolio - the mere act is a form of abdication and resignation. Even long-time Buffett observers are hard-pressed to hold large amounts of Berkshire in their portfolios for similar reasons, though their rationalization may be more sophisticated, at least on the surface ......"

We've never heard it said better."


I think this means that when one combines the reluctance of active money managers to hold Berkshire, the increasing use of ETF's and other index funds, and the growing use of algorithms to make investment decisions, those who buy Berkshire based on analyis of its value are few and shrinking.

Which supports Mungofitch's argument that the time to fair value may be long and lengthening. That's why, in my case, I've reached the decision to take advantage of the few occasions when it happens.
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quoting from Andy K's 1998 Millenium edition of Permanent Value

Correction. ... quoting a 1998 article from Andy K's 2000 ...........
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I think this means that when one combines the reluctance of active money managers to hold Berkshire, the increasing use of ETF's and other index funds, and the growing use of algorithms to make investment decisions, those who buy Berkshire based on analyis of its value are few and shrinking.

Which supports Mungofitch's argument that the time to fair value may be long and lengthening. That's why, in my case, I've reached the decision to take advantage of the few occasions when it happens.


I'm not so sure that this is the right interpretation of Berkshire's low valuation in recent years. The quotes from OID circa 2000 certainly still ring true in terms of the "stigma" professional money managers feel when they hold Berkshire, particularly in large allocations. But I don't think there is much reason to believe that the stigma has increased in any appreciable way over the past dozen years. Berkshire has traded at rich valuations as well as low valuations at various points since the turn of the century.

If Berkshire was the only stock viewed as a "financial" trading at a depressed valuation then it would make sense to look for something Berkshire-specific as a possible cause. But Berkshire is just one of many "financials" trading at low valuations. Of course, Berkshire isn't really a "financial" but it is viewed as such by the market. I think this explains much of the low valuation of the past few years.

To the extent that "pride" gets in the way of delegating capital allocation to Buffett, money managers may actually feel less of a stigma in a post-Buffett Berkshire and could feel safer buying the stock at that point. This seems ridiculous to me but I've never understood the whole stigma issue. A money manager pursuing an active strategy is paid to outperform. Berkshire is either a good investment or it isn't and the manager gets credit or blame accordingly.

I feel no shame in Berkshire being my largest position but I'm not paid to manage money. However, I have recommended Berkshire to family and friends over the years and get occasional questions (like on Thanksgiving). This year I briefly mentioned Berkshire's book value growth since 2000, solid performance in the insurance subsidiaries with another year of likely underwriting profitability, and the fact that the market is assigning a modest valuation to the stock. And I warned against "anchoring" to Berkshire's record high and selling when the stock gets back to the $150K level. That's about all you can do in a five minute "elevator pitch" -- or as it happens, a TV commercial during a post Thanksgiving dinner football game.
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it's more often just a very zig-zaggy line
that is weakly but inevitably attracted to a fair value level just
strongly enough to get it pulled back at last once in a blue moon.


Thanks for this and all your eloquent clarifications, Jim. I guess what I'm really looking for is a best effort toward systematically skewing purchases toward the very bottom of a rising price slope. No surprise there, of course. I'm mostly using VL's valuation to identify underpriced companies in an effort to mechanically manage selections within a watchlist. You once suggested this as a plausible approach, with ample reservations. I notice that VL projected annual 3-5 year returns don't parallel those for fair value. Ideally this discrepancy reflects VL's best estimate of 3-5 year timeliness.

I'd appreciate any insights on the relationships between these VL datapoints:
3-5 year projected price.
3-5 year projected annual return.
3-5 year fair value price.
'most recent' fair value price.

Tom
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Rational Walk,

Your points are well made.

But we have rarely seen BRK at fair value since the Gen Re acquisition.

We had the irrational peak during the Gen Re purchase. We had a nice bump in early 2004. It became fully to overvalued in late 2007, and for a brief time in 2008. But all occasions were relativly short lasting. Most of the time it has been below fair value.

I posted the stigma comments from 1998 just to show how long these views have persisted. It is my view that the market changes since that time (ETF, Index adds, algorithm trading) have only reinforced the discount.

The problem isn't one of BRK being a good buy relative to value. The problem is that this is rarely recognized.
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For years now I have clicked on "analysts opinion" for Berkshire Hathaway on Fidelity's stock research page, and for years now it has said something like; Not available, we don't have enough analysts analyzing Berkshire to provide a compilation of opinions, or some such thing. Yet, Fidelity has opinions to buy, sell or hold on just about every other major stock. What is up with that? Why will nobody analyze this wonderful company and provide an opinion? Ravi, Jim, all the other two column people? If Berkshire is truly too hard to value? Something needs to change?
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Hey there !

I, personally, think that BRK has so many "moving parts" that most analysts either don't want to spend the time working with it, or don't know how analyze it and are "afraid" to tackle it.

Just an opinion,
Rich (haywool) long BRK for a very long time
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For years now I have clicked on "analysts opinion" for Berkshire Hathaway on Fidelity's stock research page, and for years now it has said something like; Not available, we don't have enough analysts analyzing Berkshire to provide a compilation of opinions, or some such thing. Yet, Fidelity has opinions to buy, sell or hold on just about every other major stock. What is up with that? Why will nobody analyze this wonderful company and provide an opinion?

Analyst coverage is much more focused on estimating quarterly earnings than coming up with intrinsic value estimates. Without access to management and with absolutely no "guidance" provided, analysts would have to come up with quarterly earnings estimates independently which is very difficult to do with a company like Berkshire. Management makes no attempt to manage earnings which means Berkshire can realize capital gains/losses in an unpredictable manner. The derivatives portfolio cannot be sufficiently analyzed from an external perspective and quarterly swings sometimes are unpredictable. Even attempts to estimate operating earnings (excluding capital gains and derivatives) is not easy given the number of moving parts.

In addition, as others have mentioned, there is a stigma associated with recommending Berkshire to clients driven by some irrational feeling that doing so would be admitting that Buffett is a better capital allocator than the investment manager recommending or buying Berkshire. Also, it is not in the interests of investment managers or financial advisors compensated on a commission basis to put clients into Berkshire and leave them invested in the company for years or decades. There's also the risk that clients will attend an annual meeting or read Buffett's letters and realize that much of the "helper" industry produces no value.
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I, personally, think that BRK has so many "moving parts" that most analysts either don't want to spend the time working with it, or don't know how analyze it and are "afraid" to tackle it.

The way I understand this game (but I am a total outsider) is that most companies' management meet with analysts and "give guidance",
effectively telling them how much they expect to earn in the coming quarters and year.
The analysts then go back to their office and write reports and earnings estimates.

Berkshire does not give any guidance, so they (or most of them) wouldn't know what to write.
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We had the irrational peak during the Gen Re purchase. We had a nice bump in early 2004. It became fully to overvalued in late 2007, and for a brief time in 2008. But all occasions were relativly short lasting. Most of the time it has been below fair value.

Berkshire's price/book ratio averaged 1.52 from 1/1/2000 to 11/2/2012 (when I last updated my spreadsheet after the Q3 report). This is based on taking Berkshire's daily stock price and comparing it to the most recent quarterly book value figure.

From 1/1/2009 to 11/2/2012, the average P/B fell to 1.25. The average was 1.18 from 1/1/2012 to 11/2/2012. I would argue that the valuation from a P/B perspective has fallen into a lower range since the financial crisis at a time when most financial stocks are also at depressed levels.

If we look at the past 13 years, the majority of the time Berkshire's price has been at levels that most people would now consider "healthy" valuations measured on a P/B basis. Except for 2000 and much of 2005-2007, Berkshire traded consistently above 1.5x book prior to the financial crisis.

If Berkshire traded at 1.5x book today, the shares would be at around $168K and I think most people would consider that price to be in the neighborhood of intrinsic value (probably somewhat on the low side of most estimates).

So my main point really is that unless Berkshire and most financial stocks have descended into a new valuation range that will persist indefinitely, we should see a return to more normal valuations at some point. I don't know when that will happen, however.

I don't see anything Berkshire specific in today's low valuation and therefore I don't think we need to identify Berkshire specific causes for the low valuation. A better issue to investigate may be whether financials deserve a permanently lower valuation. And if so, will Berkshire forever be identified as a pure "financial" subject to lower valuations?

The link below illustrate Berkshire's price/book trends since 2000:

http://www.rationalwalk.com/wp-content/uploads/2012/11/BRKPB...

I would like to look at Berkshire's historical valuation with a method less crude than P/B but I only have two-column data on an annual basis. If I get around to putting together a trailing two-column analysis on a quarterly basis I'll post the results here.

One final thought: As others have pointed out many times, even if we never see a P/B expansion in the future, Berkshire's price should advance at roughly the rate of book value growth. 8-10% annualized growth in book value appears very achievable going forward and should beat the S&P 500. Of course this assumes no further P/B contraction.
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<< I don't see anything Berkshire specific in today's low valuation and therefore I don't think we need to identify Berkshire specific causes for the low valuation. >>

mornin rational, gives this some thought bro. what has the the P/B range been since sept 2011 when buffett declared he wouldn't pay 1 cent more than 1.1 xs book for brk ? thanks bud.

btw, june 2006 the date of the letters to the foundations and sept 2011 changed everything in brks world. some day buffett will step up and debate these issues with an adult who knows the markets and we all might learn something useful.
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what has the the P/B range been since sept 2011 when buffett declared he wouldn't pay 1 cent more than 1.1 xs book for brk ?

Average from 9/26/2011 to 11/2/2012 was 1.17 based on my spreadsheet with a minimum of 1.08 and a maximum of 1.25.

So we have had a period of low valuations based on P/B since the announcement but it is not obvious that the announcement caused the low valuations. From 7/1/2011 to 9/23/2011, the average P/B was even lower at 1.1 with a maximum of 1.19 and a minimum of 1.01.

We cannot know with any certainty what Berkshire's price behavior would have been in the absence of Buffett's buyback announcement.

But again, I think we need to look at other insurance companies, financials in general, and other "Berkshire-like" companies to see if Berkshire's low valuation is specific to the company or just part of a wider valuation discount for the market sector Berkshire is perceived to be in. Take Markel as an example. The following Markel charts are similar to the ones I posted on Berkshire. The multiple compression since the financial crisis is obvious for Markel. Markel has a buyback program in place with no specific P/B limitation.

http://www.rationalwalk.com/wp-content/uploads/2012/11/MKLPB...
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thanks i dont follow markel. What was the brk P/B for the 5 days prior to buffett putting out the buyback press release ? That's why i sold puts heavy at that time and that's why i predicted the buyback was coming. buffett had no other options to get the stock back above book, so that the foundations would stop sellling his lifes work, below book, asap. The buyback gimmick got the stock back above 1.1 xs book without brk buying much stock. I would LOVE to ask buffett, if your buyback limit was 1.25 xs book and if you bought 1 billion dollars worth since sept 2011 below 1.25 xs book IF you could, what would the average P/ B have been since sept 2011 ? Sad to say i'm not certain buffett could answer that question correctly ? What do you think ?
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Accurate analysis IMO on recent price/value cycles.

As a long time Berkshire owner, I just wanted to add that this is not a new or recent phenomenon.

I bought my first A share for $6,950. And I felt like I got ripped off because the shares were bidding $6,700. But that's not the point.

This was pre Internet and there were no Intrinsic Value estimates to be found. The only BRK analysis I found calculated only the value of the stocks, bonds, and cash. They omitted the value of the Insurance Companies as well as the modest collection of non Insurance Subsidiaries ( it sure was a different mix then).

Intrinsic Value then, assuming modest calculations of Operating Subs, including Insurance, was clearly north of $9,000. And the stock flatlined as IV rose to $11,0000 or so. No one recommended the stock as Buffett built the foundation of the company with huge savvy investments including Coke.

Yet allegedly intelligent Investment Pros told me "you don't get rich
paying $7,000 for a Single Share of Stock"..."Berkshire is like a private club, you pay thousands to get in but you know all the money was made before 1985"..."You pay that much per share to get access to
Buffetts teachings, the annual report, the annual meeting..buying a
share is a fee for an education so YOU can pick stocks and make money. No one ever got rich paying $7,000 for 1 share of (then) Nasdaq stock".

It took years to convince investors to affix a value to the Operating Companies. Not a "reasonable value"... A "value"..any number.

Berkshire stock was dormant for long periods of time, then traded like
a small cap Hot IPO at other times as momentum investors piled into it with no regard to it's worth.

If anything, the stock trades far more rationally today--though it seems locked into a discount to IV of between 10% and 35% or so. In the old days it still hit those discounts, but would surge well above IV for brief periods, too. Like when they issued B shares and Buffett all but said they were too expensive.

Personally, I believe Buffett has drawn a line in the sand at 1.1X Book Value. And with Berkshire evolving inti a collection of Operating Companies, the PE is no longer close to meaningless(which it WAS for decades). The ratio of Look Through Earnings to Reported Earnings keeps shrinking. That makes it easier to understand. You can see objectively that you're possibly getting the Investment Portfolio-Certainly the stock portolio alone--for free.

Another step in creating a virtual floor on the stock price is a Dividend issuance. WEB said he'll discuss the merits with shareholders this year. It's coming, but don't know when.

Given the size of Berkshire there's probably a lower ceiling on the high end of Book trade range. My hunch is we trade a 1.2 to 1.4 times Book for several years. This will be lucrative from this entry point.
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the foundations are selling about 25 million shs a year. IF they were enjoying an extra 8-10 $$ a share from proceeds from sales we are talking serious money over 30 years, another reason i thought buffett would make more shareholder friendly moves in 2006. buffett authorized the buyback because he HAD too not because he wanted too or believed in the concept for brk.
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So my main point really is that unless Berkshire and most financial stocks have descended into a new valuation range that will persist indefinitely, we should see a return to more normal valuations at some point. I don't know when that will happen, however.

I don't see anything Berkshire specific in today's low valuation and therefore I don't think we need to identify Berkshire specific causes for the low valuation. A better issue to investigate may be whether financials deserve a permanently lower valuation. And if so, will Berkshire forever be identified as a pure "financial" subject to lower valuations?


This illustrates the point I'm struggling to make. We see BRK trading like a financial stock, or an insurance stock - as an ETF sector. Or based on technical analysis of stock trading patterns - or who knows what other algorithms? What we don't see is it trading on a simple analysis of some combined value of the insurance businesses and the non-insurance businesses. This is even after Buffett has gone to some trouble to point out measures that indicate how undervalued Berkshire is. We don't see it trading based on the value of the company, which this board seems to agree is far above its market price. Is the market myopic, or do factors not related to value increasingly dominate? How much has the time period for whatever drives price to value been extended? And why?

I do agree that - providing WEB does act if P/B drops below 1.1 - we should see price growing with book value going forward.

Yet if WEB values "per share value" of Berkshire rather than empire size, it is difficult to see small town newspapers and rubber chicken peddlers as better values than Berkshire. So the premise that Berkshire will buy back stock in any significant quantities remains to be demonstrated. Like you, I view the 1.1 buyback point being set in stone as a questionable decision.
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What we don't see is it trading on a simple analysis of some combined
value of the insurance businesses and the non-insurance businesses.


From the "equal time for opposing viewpoints" department

We may be hesitant to admit that this isn't entirely true, but maybe Mr Market's view has some merit.

Price/book is a flawed metric, but it's the best single no-brainer metric for Berkshire.
Rate of increase of book value per share in the last 5 and 10 years is
beat by just under 1000 of the Russell 3000 companies.
(I get 975 for five year and 981 by 10 year)
These ~1000 that beat Berkshire's book/share growth rate aren't all
tiny firms that are getting their growth rates by having started from
a very low base, either: 275 of them have a market cap over $5bn.
(number 275 is Leucadia, as it turns out)
Thinking of it another way, percentage growth in book per share absent
dividends can be thought of as a pretty good proxy for ROE.
Berkshire's has been a decidedly humdrum single digit number in the last 1-10 years.

Now, one might argue that a firm with a large number of stock holdings
is going to have a hard time increasing book value per share when the
stock market is flat. True, but...it's still not a crazy metric.

On the simplest view using the simplest metric, it has been a long
time since Berkshire looked like an outperformer, so it doesn't get a premium.
If and when it has a couple of nice 20% blow-out years of growth in book value
per share (or value measured on other metrics), we might see higher valuation multiples.
Given the rate of change of non-investment earnings per share, it's
likely that that will happen not through growth in book per share
but rather in growth of good old fashioned EPS.
But not soon---EPS is lower than it was 5 years ago, and 3-year-
smoothed EPS is flat compared to 3-year-smoothed earnings 5 years ago.
Sure, that's only reported EPS, but that's what's visible.
If it isn't showing up in book and it isn't showing up in earnings,
Mr Market won't react and he might not be entirely irrational.

Jim
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If it isn't showing up in book and it isn't showing up in earnings, Mr Market won't react and he might not be entirely irrational.

Mungofitch,

I rec'd your post, and agree that BRK is not as unreasonably priced as many think. But you have also posted on numerous occasions that it is priced well below value. And it was your post I was supporting that the factors that drive price to value are being increasingly diluted, stretching out the time when we might expect a return to fair value.

As the number of people using funds and ETFs explicitly or implicity tracking indices and sub-indices goes up, the fraction of market participants who even try to consider the value of a firm falls. The attraction of price to fair value is caused by a rising number of buyers as the discount to fair value gets larger. If there are fewer buyers acting on single-stock price to value ratios, the typical maximum-time-to-fair-value for individual stocks might be rising. This might make for even more extreme pricing anomalies and opportunities,at the expense of longer waits for vindication.

Which, I think, makes it important to take advantage of those few opportunities when BRK does approach fair value. This is particularly true of those of us who are in the withdrawal years rather than the accumulation years.
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I rec'd your post, and agree that BRK is not as unreasonably priced as many think.
But you have also posted on numerous occasions that it is priced well below value.
And it was your post I was supporting that the factors that drive
price to value are being increasingly diluted, stretching out the time
when we might expect a return to fair value.


I have merely laid out a particular line of reasoning for why many
people might see Berkshire as a not-particularly-undervalued firm
based on some approaches which aren't entirely silly.
I don't actually believe that line of reasoning; I believe BRK
is worth >=1.5x book value based on my reasoned expectation that we
will see rates of book and earnings expansion that are interesting,
and I also believe that we will see the stock trading at those multiples
when we that growth shows up in highly visible simple metrics.

The whole ETF speculation, if true, merely means that the wanderings away
from fair value might last a bit longer than they did in the past.
This isn't a qualitative change, just a quantitative one.
Stock prices have always wandered far from fair value for lengthly periods.

Which, I think, makes it important to take advantage of those few
opportunities when BRK does approach fair value. This is particularly true of
those of us who are in the withdrawal years rather than the accumulation years.


I agree that if one is embarking on a disinvestment program, one should
do it in a way that reacts to the current stock price.
That involves lightening up as the price rises.
You don't need to predict the stock price at all in order to realize
a bit better average sale price than you'd get with (say) a monthly sale program.
http://boards.fool.com/scheduled-selling-29566688.aspx
That includes a link to this graph showing a list of sale dates that
would be suggested by a simple formula http://stonewellfunds.com/SWRpri075.jpg
However, that's a discussion related to selling for income.
From the point of view of making money in a patient and safe way, I
don't think there is a case for lightening up much below 1.5x book
unless perhaps you are way, way overweight Berkshire in your portfolio.
Certainly not below 1.4x.
Quite aside from all the nuanced discussions of fair value, even if the
value really were lower than that, the price is likely to wander up that high
at some point just through the usual random noise of the market's mood.

Jim
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This is particularly true of those of us who are in the withdrawal years rather than the accumulation years.

Ideally, funds needed over the next five years wouldn't be in any stock including Berkshire but we are in the 4th year of persistent low valuations. It is a tough call for anyone seeking to liquidate shares soon who have lived through the past four years and refrained from any sales hoping for more normal valuations.

I think that we could see quite a bit of selling as we reach the record high around $150K. The main issue with this is the fact that even at the record high Berkshire would trade at 1.34x book which is far below its long run average and most reasonable estimates of intrinsic value.

At the very least those seeking to sell should set a p/b minimum below which they will not sell rather than a fixed price that gets cheaper in valuation terms as book value advances. I have a selling plan in place that will reduce my very high allocation to Berkshire to a still large but not outsized position by selling in increments between 1.4 and 1.6x book. I would be willing to (and in fact have) sold at lower valuations in the past but only to raise funds for opportunities offering a demonstrably superior risk/reward scenario, not simply to raise cash.

I still think that Berkshire's valuation is much more related to depressed valuations for financials generally rather than some rethinking of Berkshire specific factors. This will pass sooner or later but I don't deny the dilemma for those who need cash and sit here in the 4th year of low valuations wondering when this state of affairs will ever change for the better.
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