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(1/n) Short thread on the $BRK 10-Q. Like many others, I was very encouraged by the $9bb buyback.
$BRK, with its financial conservatism, business diversification, and rational management, is a tremendous and unique asset.
$BRK, with its financial conservatism, business diversification, and rational management, is a tremendous and unique asset.
I made the case for it here as being interesting given that the above qualities mean that a long-term investor's true downside risk is about as low as you could ever get in a single company: https://concentratedcompounding.com/brk2/
It also appears to me to be quite cheap. Here's a write-up from 2018 using some purposefully conservative and even punitive assumptions. If you ran the numbers forward to today, you'd easily get >10% returns from today's price of ~$220: https://concentratedcompounding.com/brk/
For a more reasonable valuation, here's @ChrisBloomstran's excellent 2019 letter:
https://static.fmgsuite.com/media/documents/c388840b-3dda-41da-a062-077bf785255b.pdf
It makes a very good case for ~$300 / share in value using a market discount rate, a number I generally agree with.
https://static.fmgsuite.com/media/documents/c388840b-3dda-41da-a062-077bf785255b.pdf
It makes a very good case for ~$300 / share in value using a market discount rate, a number I generally agree with.
To bring it together and coming back to the buyback, buying $BRK stock doesn't expose you to much business specific risk, the capital structure is very conservative, and the stock looks obviously too cheap.
I think it's a fabulous place to allocate capital.
I think it's a fabulous place to allocate capital.
To my mind, that makes Buffett's opportunity cost quite high, *especially* on a risk-adjusted basis.
Even when I like the deals that $BRK does, like with $D recently:
https://twitter.com/kylerhasson/status/1282011038192304128
You have to wonder if that's a better risk-adjusted return than $BRK itself.
Even when I like the deals that $BRK does, like with $D recently:
https://twitter.com/kylerhasson/status/1282011038192304128
You have to wonder if that's a better risk-adjusted return than $BRK itself.
You could argue that you want Buffett to do outside deals, but even with a recent home-run success like $AAPL, you also have mistakes in Precision Castparts and Kraft-Heinz.
That's why I think $BRK is a great option on a *risk-adjusted* basis - little business specific risk.
That's why I think $BRK is a great option on a *risk-adjusted* basis - little business specific risk.
So I view buybacks around current prices to be a very low-risk, almost automatic way to generate value for $BRK shareholders. Buffett can obviously do well elsewhere, but I will always be happy to see buybacks in size around current valuations and hope much more are on the way.
