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Thoughts?

Jim posted this (see page 3):
https://checkcapital.com/pdf/Current_Holdings_Website.pdf

Looks like Check Capital are estimating Q3 book value as 212/1.18 = $179.66

My back of the envelope estimate gets $174.25 with stock portfolio up 16% since Q2.
Currently 1.2x my estimated book.
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My expectation was in the $175-$180 per B range depending on operating earnings in Q3 and to a lesser extent the amount of buybacks. Looks like all independent estimates are clustering in that range so it would seem a reasonable expectation.
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I have BV as of 9.30 $173.78.

As of yesterday BV of $176.75 similar to your $174.25

I don't include an estimate for equity put option of which 40% expired in September. I also assume $5.5 BB of quarterly operating profits. Also buyback could reduce BV.

We will know in 2 weeks. I hope they are right.
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ppant,
Let’s say book value is 177.5, that would give us a P/B of 1.19. Below the last threshold. Is this a spot you would add? Or looking for a lower P/B.

Thanks
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Let’s say book value is 177.5, that would give us a P/B of 1.19. Below the last threshold. Is this a spot you would add? Or looking for a lower P/B.


Since I have too much Berkshire already, let's just say I would not be lightening up further at this price.

I did lighten up a bit after the AGM at lower p/b ratios and added to Alphabet. It was done for diversification and management of portfolio risk rather than being a valuation based decision

So far it worked out OK.
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ppant: I appreciate your perspective but the double digit growth rate in value creation in the last few years does not justify a multiple of 1.2, in my opinion.

You're right about the relatively poor capital allocation in the last few years, but the effect of that have not shown up in the numbers (yet?).

If this growth in value creation has been achieved despite the missteps and despite the relatively hostile environment for value stocks (which Berkshire generally favors), what would the growth rate (and consequently, the likely multiple to book value) be if the missteps are not repeated (perhaps, due to mean reversion) and in a more favorable environment for value stocks?

Thanks for your insights. I'm a fan of your work. :-)
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It is far worse than you think it is...the USD $ has lost a TON of value and the Fed's. balance sheet expansion makes the underperformance that much worse:

WEB is trapped in USD $'s"

https://twitter.com/lizannsonders/status/1319653924899606528...
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It is far worse than you think it is...the USD $ has lost a TON of value ...

There are two fairly reasonable ways to measure that.

The trade weighted dollar is pretty much flat over the last three years, and stronger than it was at any day at all 2006-2016.
So that's out: the US dollar is not doing worse than other major currencies.

It can also show up as inflation: lack of general purpose (monetary) purchasing power, for example traded goods.
But this too has been moribund for many years.
A dollar buys almost the same amount of standard "stuff" as it did a few years back.
The US consumer durables index is at the same price level it was in 1987, and the same as in March 2016.

True, some things that US consumers spend money on (especially older consumers) have risen in price relative to other things,
but that's not a problem with the dollar's value, so it's not monetary inflation, it's Baumol's cost disease in some service sectors.


So, I'm not sure about the notion that the US dollar has lost a ton of value.
It squiggles up and down cyclically with exchange rate fluctuations, but on a net basis it has been a lot of noise signifying...not much.
If anything, the dollar has been oddly and surprisingly stable as a store of value so far this century, all things considered.

Jim
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"A dollar buys almost the same amount of standard "stuff" as it did a few years back."


FALSE

CPI is bogus

House prices, bond prices, stock prices, college education, healthcare insurance
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"A dollar buys almost the same amount of standard "stuff" as it did a few years back."

FALSE
CPI is bogus
House prices, bond prices, stock prices, college education, healthcare insurance


Do read my post.
CPI isn't mentioned in it.
I'm talking about general purchasing power of a currency.

The price of bonds obviously has nothing to do with the purchasing power of the dollar.
(except perhaps in that high bond prices are a sign that the currency is holding up very well, and is expected continue doing that).

This is the thing to understand:
The things that have gone up in price a lot in the last few years are things that are seeing product or service-specific factors going on.

Most often they are services suffering from Baumol's cost disease.*
There are just as many things going down in price, because of their own industry-specific factors.
There is very little broad monetary inflation in the US in recent years.
For general "stuff", which is the best measure of monetary inflation and purchasing power, the dollar has mostly held its value very well.
Clothes, cars, hammers, ships, shoes, sealing wax, cabbages, you name it.
A deck of cards, a coffee cup, a card table, a bottle of bourbon.

Want to see whether a currency is holding its purchasing power?
Pick 25 things that are NOT undergoing large changes in prices relative to other things because of industry-specific factors, and look at what those are doing.
(That would NOT be houses or bonds or memory chips or health insurance or education)
Those stable things make a good guide for what the currency itself is doing in terms of remaining a store of value.
It's surprisingly resilient in the US.

This lack of monetary inflation--the currency holding its purchasing power value well--is completely different from the observation that some people are finding their own cost of living rising rapidly.
It's a subtle but important distinction.
Those people may be suffering, but it has nothing got do with rampant monetary inflation or a weakening currency.
They just happen to be spending a whole lot of their (stable) money on the things that are having industry-specific price rises like health insurance.
Other people, those buying computers and drones and fuel and tee shirts, are seeing the reverse effect.
Neither idiosyncratic experience says anything at all about the currency's ability to hold its value.
Which, as mentioned, has been pretty good in the US for quite a while.

Jim


* That's the effect of wages rising in low-productivity and non-traded sectors like health care
because of competition for staff who are getting justifiably higher wages in rising productivity sectors.
For example, you have to pay nurses and teachers and even barbers more in recent years because some of them could otherwise have become programmers or radiologists.
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"A dollar buys almost the same amount of standard "stuff" as it did a few years back."

FALSE

CPI is bogus

House prices, bond prices, stock prices, college education, healthcare insurance


Property taxes, food, copays and deductibles even if you have healthcare insurance, highway tolls, ...

They diddle what is in the list of "standard stuff" to keep the indicated CPI low, so they need not pay increases in social security and medicare.

As far as comparing the purchasing power of the US dollar with foreign currencies, afaik, all countries are debasing their currencies to improve trade. Beggar your neighbor.
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Property taxes, food, copays and deductibles even if you have healthcare insurance, highway tolls, ...

They diddle what is in the list of "standard stuff" to keep the indicated CPI low, so they need not pay increases in social security and medicare.



Think of it this way:

Bob has money in his pocket which is not losing value rapidly.
That's because there is no appreciable monetary inflation in recent years: the dollar really has held most of its purchasing power.

But... Bob spends most of his money on specific things that happen to be rising in price a lot lately.
Bill lives next door and buys a lot of computers, so he doesn't see the same problem.
CPI is designed to capture the experience of the "average" person like Bob and Bill.

This is an impossible task. No measure can do that because experiences vary so widely, and it definitely can't also tell you a good measure of monetary inflation.
It's also almost impossible to handle product substitutions (buy apples if pears get expensive) and improvements (faster CPUs for the same price) correctly.
So anybody that says CPI is well implemented is kinda right. And everybody who says it's measuring things incorrectly is also kinda right.
It depends on the question you are expecting it to be able to answer.

The US CPI appears to be designed to measure the monetary portion of inflation as it shows up in the average consumer's expenditure basket.
The monetary slant comes from using the median, not average, price rise in the basket: it tries to avoid things with product-specific and possibly transient big price moves.
But the basket itself is built up from consumer spending habits, so it hits the middle of the pack from among what people actually buy. Or tries to.

Jim
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you have to pay ... even barbers more in recent years because some of them could otherwise have become programmers or radiologists.

The barber shop I go to, when they reopened after covid settled down, bumped their price to $13 from the previous $11.

Next time I go in, I'll share your thoughts with the three of them -- Mike, Cliff, and Roger. Of course, they'd probably still want to have Mondays off.
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The barber shop I go to, when they reopened after covid settled down, bumped their price to $13 from the previous $11.

Next time I go in, I'll share your thoughts with the three of them -- Mike, Cliff, and Roger. Of course, they'd probably still want to have Mondays off.


My local barber shop (one of the few left these days) just raised their fee from $18 to $20 (plus tip). And they take Wednesdays off.
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In southern California, maid service used to cost $150 per day (one person and typically 6-7 hours of work). Now most charge $240 per day. So much for the Fed being worried about disinflation!
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In southern California, maid service used to cost $150 per day (one person and typically 6-7 hours of work). Now most charge $240 per day. So much for the Fed being worried about disinflation!

I am surprised it's that cheap tbh. ~$50/hour is the norm in the boondocks of SoCal where I live.
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Measuring CPI should be in the "too hard" pile. Just use earnings inflation instead.
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Forward book value is looking at major headwinds, assuming the polls are correct for next week.

The Biden plan is absolutely toxic for Berkshire. Berkshire would take a huge hit to book value with the proposed capital gains rate change. There's a substantial deferred capital gain on the books that Buffett would have to "tax" at a much higher rate. Berkshire is already one of the largest taxpayers in the country and I'm pretty certain no entity carries this large of a deferred cap gain on its books.

And the corporate tax obligation for Berkshire (and all others) is proposed to increase 33% --from the present 21% rate to 28%.

In terms of the actual stock price--even more headwinds. Berkshire has a group of very substantial long term owners sitting on massive unrealized long term gains. Gains that might be looking at their most favorable future tax treatment the next 9 weeks...and if lucky, 52 more. The difference between the present low cap gains rates and ordinary income is quite substantial.

The bad news just keeps on coming with the proposed new tax plan.
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