Tilson's IV estimate is $180K:Updated presentation:http://www.valuewalk.com/2012/12/berkshire-hathaway-long-the...
Tilson's IV estimate is $180KSeems a little more reasonable than his figures usually do.For earnings, he pencils in $8000 pretax plus $600 cyclically adjusted underwriting profit, total $8600.FWIW that's 13.5% higher than my $7236 pretax plus $344, total $7580.He used a figure for underwriting profit that implies -1.39% cost of float versus my -0.8%.The derivation of my figures is described here boards.fool.com/valuation-agrave-la-tilson-30414581.aspxUsing my earnings and his multiples you get a value of $173,473.He actually uses a higher earnings multiple than mine: 8x pretax earnings rather than the 9x I use.That's extremely conservative on his part.A P/E of 12.3x is pretty darned good for that set of businesses.On the other hand, mine is more conservative mainly due to placing a 20% haircut on investments per share due to the perpetual drag of cash.It's pretty much impossible these days to come up with a value figure under $150,000.Jim
Jim,I have been reading your posts for a long time, just not a big "poster" myself. I just thought I would chime in on this point that you make re. the money manager having other agendas. You are absolutely correct on this, and no you are not "being to hard on money managers". Tilson will love the fact that he now has a higher floor on the BRK position, offering safety on his investment(not sure if this will actually translate to a sense of increased safety at his investor level) Unlike the many investors on this board most do not take a long term view in thier investments. With the constant onslaught of market related news today it is no wonder. Investors placing funds for management tend to place far more emphasis on the nearterm returns than on what the manager is actually buying, or whether it is a good business - they may ask the question but seldom listen to the answer. You can consider the Fund Flow data showing the mass retreat from equities as a sign of shortterm investors voting with their feet. Whether you are buying a business, a car, or investing in whatever - asking "what is the agenda?" of the person(party) on the other side can be a very valuable question. It shouldn't necessarily change the decision - but it can be valuable information.LB
I have been reading your posts for a long time, just not a big "poster" myself.I just thought I would chime in on this point that you make re. the money manager having other agendas. You are absolutely correct on this, and no you are not "being to hard on money managers". To be balanced, I can make a case the other way.I think we can all agree that Mr Buffett is pretty good at capital allocation, company valuation, knowledge of Berkshire, and a feel forwhat constitutes a good margin of safety. We should do our own homework,but starting from hints from Mr Buffett isn't entirely a waste of timeif it's a topic involving all of those skills.If his assessment was that 1.1x book was a good enough margin of safety to constitute "definitely undervalued with room to spare",we can probably believe him. 1.15x or 1.2x or 1.25x might also be good enough, but we can be pretty sure that 1.1x definitely was.We all know that the fair price/book value for Berkshire should be rising slowly over time, but of course we didn't expect a change in the threshold any time soon. With the buyback number changed to 1.2x, thenumber Mr Buffett has prominently declaimed as "definitely cheap enough" is now higher.With "definitely cheap enough to give a margin of error and margin ofsafety" moved up, we the unwashed onlookers can reasonably reconsider what ranges of price/book now constitute "fair value" and "moderately underpriced".In short, it would not be nonsensical to adjust our expectations forthose to be a bit higher than they were before as well. So, though the company is not worth any more to a well informed observer, investorswho are mere humans might reasonably be expected to have higher valuation multiples in mind for "cheap" and "fair", and (importantly) this adjustment ofattitudes came pretty directly from the guy who probably knows best.It's unlikely in the extreme that this was an unforeseen consequence of the change:Mr Buffett wants us to understand that higher multiples make sense.So, one could conclude that Mr Tilson's purchases were sensible to theextent that the announcement might rationally colour one's estimate of fair value, including his. Maybe the attitude should have changed more for uninformed observers than for a prominent professional valuer of BRK like Mr Tilson, but an adjustment isn't crazy.Jim
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