Whats the point of investing when Buffett will do it for you?

[imported_bingobazza]

FatOtt,

Valued as an investment trust, Berk is close to 100% NAV...therefore future growth is free.

Bingo

[FatOtt]

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Valued as an investment trust, Berk is close to 100% NAV...therefore future growth is free.

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I've read this sentence about 5 times and I still don't understand the point you're trying to make. Future growth is not "free" if the asset is valued correctly. If, for example, Wal-Mart is priced correctly to yield 10% for the forseeable future, you don't earn more than 10% if Wal-Mart's earnings grow. Wal-Mart's expected earnings growth is inherent in the market's valuation.

For Berkshire Hathaway, unless you're buying shares at a stock price equal to the firm's book value, that stock price already incorporates expectations of future growth in cash flow. The firm will turn out to be undervalued if the market is underestimating the future growth, but you're horribly wrong if you believe that Berkshire is priced as if it will never grow earnings/cash flow/your favorite metric.

[DesertCat]

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As for not thinking about about value, nothing could be further from the truth...see the post above...I dont believe that the value differs markedly at any time from the price, and thats not an accident.

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In July 2000, you could buy an A share for as little as $51,600. 7 months later you could pay as much as $74,600. Close to a 50% difference in a very short time. Do you think BRK's value actually changed almost 50% in seven months?

The price you pay will directly determine your total return.

[imported_bingobazza]

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Valued as an investment trust, Berk is close to 100% NAV...therefore future growth is free.

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I've read this sentence about 5 times and I still don't understand the point you're trying to make. Future growth is not "free" if the asset is valued correctly. If, for example, Wal-Mart is priced correctly to yield 10% for the forseeable future, you don't earn more than 10% if Wal-Mart's earnings grow. Wal-Mart's expected earnings growth is inherent in the market's valuation.

For Berkshire Hathaway, unless you're buying shares at a stock price equal to the firm's book value, that stock price already incorporates expectations of future growth in cash flow. The firm will turn out to be undervalued if the market is underestimating the future growth, but you're horribly wrong if you believe that Berkshire is priced as if it will never grow earnings/cash flow/your favorite metric.

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Im not saying its not valued to grow. The growth assumptions are held in the underlying assets like Coke and Gillette which it can sell tomorrow and cash in on those growth assumptions if it was to dismantle itself. In a liquidation sale, Berkshire can do this with its non cash assets. The net asset value calculation simply values what these assets can be sold for after debts and expenses at liquidation. In a firesale, Berks would return to shareholders an amount of cash/share approximating the current share price. So buying the berks stock gives you a margin of safety, BECAUSE of inherent growth assumptions, not despite them, if you value berk differently than you would value a retailer.

To put it another way, if you buy a share in a company in the knowledge that if that company goes bust you will get all your money back from the sale of the assets, any growth you get, hasnt cost you anything and is therefore free, if we ignore opportunity cost.

Therefore, any increase in future earnings, whether from using its cash better, using debt, increasing dividends from subsidiaries, writing off goodwill, share buybacks, under valued real estate, m&a activity, new business pipelines, or simply from the run of the mill increases in earnings in the underlying businesses when the PE ratio and the EPS growth rates stay the same, are totally and completely free, if it is currently valued at 100% or less of NAV. This is very different from book value.

Im not saying that the earlier liquidation model is accurate, but you seem to be saying that it isnt. If you could tell me why its wrong, that might help.

Investment trusts are generally sold at a discount to NAV as future rates of growth are uncertain. However, Berks when valued as an invesmtent trust is more expensive than most, being fully valued. But with such a long term track record, its understandable.

Valued as a company, when you say that a PEG value of 1 will return in share price growth to shareholders, on average, the annualised growth rate in earnings, I agree. If Berks grew its earnings by 15% a year, its share price should do teh same. Tthat is exactly what Im after....a 15% year on year increase, with no work to do and no stress. Thats basically what this post was about. i.e its so dependable in the long term, why do it yourself?

Yes, the share price will move away from the fundamentals despite Buffetts best efforts to ensure that it doesnt, but these will short term movements, hardly of bubble proportions...is a share that is worth 50c while selling at 75c in a bubble? These fluctuations wont make much difference to regular investors. One off investments need a little moe care.

Bingo

[FatOtt]

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Valued as a company, when you say that a PEG value of 1 will return in share price growth to shareholders, on average, the annualised growth rate in earnings, I agree. If Berks grew its earnings by 15% a year, its share price should do teh same. Tthat is exactly what Im after....a 15% year on year increase, with no work to do and no stress. Thats basically what this post was about. i.e its so dependable in the long term, why do it yourself?

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I don't think I ever said anything about PEG, because I believe PEG is a completely meaningless number. There's no reason that PEG should be equal to 1 or .5 or 2 - there's just not. You're mixing linear and exponential functions and the proper PEG ratio for a firm will be different depending on its unique growth rate, duration of that growth rate, and discount rate.

Also, here's where your argument blows up:
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If Berks grew its earnings by 15% a year, its share price should do teh same.

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This is completely untrue. Your return will be based on the price you pay, the market's expectations at the time you buy, and the realization of those expectations in the future. If the expectation of 15% earnings growth is baked into Berkshire's price right now, YOU WILL NOT EARN 15% RETURNS IF BERKSHIRE GROWS EARNINGS AT 15%. You will earn the market's discount rate.

[imported_bingobazza]

Peg is just shorthand for the relationship between the PE ratio and the EPS growth rate....its just a quick value measure. If the SP represents a NAV of 100% and the earnings grow at 15%, you are saying that the share price shouldnt move up by the same????????

FatOtt, if you have anything relevant to say, now is the time...the price talk is old. Ive answered it. For the last time, I beleive NAV is the best way to value Berk. That has different implications for future sp expectations. If you are going to say anything at all, tell me WHY BRK is currently a bad long term investment. Remember, I think it is valued fairly, but I use a different valuation than you, so is there any other reason?

Bingo