Sunday, November 20, 2005

Thoughts on BRKA's valuation...

A number of interesting speakers spoke at the Value Investing Congress, which was held in New York this past week. Of note is a presentation by Whitney Tilson that tries to estimate Berkshire's intrinsic value. The file is located here.

The argument is a familiar one: Adjusted for cash and marketable securities, the operating businesses sell for 12-13x earnings. As the document makes clear, that's not a bad position to be in once super-cat pricing firms up and more cash builds up.

Finally... an interview with Wally Weitz, whom we visited in May.

Saturday, November 12, 2005

Two from the Journal, confirmation on Korea, BUD and BRK still cheap

A nice front page article on Warren from the WSJ. The article confirms what notes from the Tuck meeting already told us: he has been buying Korean stocks in his personal account:

Last year, Mr. Buffett says, he began buying Korean stocks for his personal brokerage account, investing a total of $100 million in roughly 20 Korean companies. He says that the investments were too small to be appropriate for the Berkshire portfolio. "These were not Berkshire-size remotely," he says.

He picked the stocks, which he declines to name, by leafing through a reference book compiled in Korea and provided by Citigroup to some clients. The book devotes a single page to each listed company. "You look for solid-looking companies at very low multiples of earnings, and sometimes with the added bonus of lots of excess cash," he said. After the shares rose in price, he unloaded some of them, though he still calls them cheap.

If you still think Korea is cheap, there is an ETF out there (up 28% this year).

From the same journal issue a very nice profile of Berkshire's specialist at the NYSE:

Mr. Maguire generally speaks with Mr. Buffett -- who is also 75 -- about once every six weeks, and they exchange jokes as often as they discuss business. Mr. Maguire notes that Mr. Buffett has referred to him as the world's greatest specialist. Mr. Buffett's response to that: "I tell Jimmy that if he keeps the spread at 200 [dollars], then I'll call him the world's greatest specialist," referring to the differential between buying and selling prices on A shares.

A document here which I had never seen before but which has apparently been around for awhile: an email from Buffett to a VP of Microsoft circa 1997. Warren's take on MSFT:

“In effect the company has a royalty on a communication stream that can do nothing but grow. It’s as if you were getting paid for every gallon of water starting in a small stream but with added amounts received as tributaries turned the stream in an Amazon. The toughest question is how hard to push prices and I wrote a note to Bill on that after our December meeting last year. Bell should anticipated Bill and let someone else put in the phone infrastructure while he collected by the minute and distance (and even importance of call if he could have figured a way to monitor it) in perpetuity.”

The makes the case for Berkshire being cheap. I agree it's cheap, however I would be very surprised if book value grows by 15% over the next 10 years. (Buffett-buddy Carol Loomis has written a great article about just how hard 15% is to do over the long-term titled " The 15% delusion.)

An interesting bearish piece here where the author argues the stock/bond/credit markets are all trading based on institutional macro factors, not individual company valuations, and many people are bullish and using credit derivatives to hedge themselves - like portfolio insurance in '87.

Morningstar tries to figure out exactly what a moat is.

Some video highlights from the Buffett/Gates Nebraska meeting here.

And you may have noticed we think BUD is cheap. Apparently Barron's does too.

Tuesday, November 08, 2005

Buffett & His Currencies - A Buyer of USD

Buffett admitted in the quarterly report here that his currency bets have been pulled in a bit, from over $21.5b to $16.5b. Buffett now a slight buyer of USD, as noted by the magazines here and currency markets, and interesting in light of his verbosity on the topic. Munger never agreed with trade, according to Buffett at last annual meeting. Too many variables...

Sunday, November 06, 2005

Buffett's Holdings, Pimco & Mauboussin

Great update on Berkshire holdings here, noting a probable discount to fair value of .73 for the stocks as a whole. Plus throw in the operating businesses…

Here is a link to an academic article for those few who stubbornly believe the Oracle is a coin flipper. The academics prove the absence of luck, risk adjusted.

Best quotes:

1) From 1993 Letter to Shareholders: “The strategy we've adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease if it raises, as it should, both the intensity with which an investor thinks about a business comfort-level he must feel with its economic characteristics before buying into it. In stating opinion, we define risk, using dictionary terms, as "the possibility of loss or injury."”

2) The authors state: “His philosophy places emphasis squarely on the determinants of value: the estimation of future cash flows and growth rates which is also consistent with his principle of investing in businesses that he understands and is not difficult to predict. “

One of my favorite Buffett quotes: “I invest in the absence of change.”

Like Bill Miller in his recent note here, I’m a buyer of stocks in 4Q. Weitz agrees in his 3Q letter, here, where he was adding to Budweiser, the best recession hedge I know.

If you haven’t considered the market that I think is headed into a 1982 bull market (exiting price instability, 30% of index trading below book value, etc), consider Japan. It is the only place in the world I know of where a bank account trades at a P/E of 200x (price:100, yield/earnings:50cents on 50bps yield), and the market trades at 25x. I think we will read in 10 years time about the pricing ‘mistake’ in Japan, echoing Buffett when he wrote about how US stocks looked so cheap in 1980/81. We’re a couple years into it, but that’s my view.

Finally, if you don’t read Gross at PIMCO and Mauboussin at Legg Mason, do so. Here is Bill’s latest, here, and a great one by Mauboussin is here.