Global Macro Trading Journal
- Thread starter Daal
- Start date
Berkshire's "secret sauce" is drying up.
http://www.bloomberg.com/news/2012-03-02/buffett-s-insurance-engine-of-growth-set-to-stall.html
I'm a big fan of Buffett in the stock arena, namely his freakishly natural ability to understand the power of compounding, but I wonder how many fanboys and owners of BRK realize how much of its outsized gains IN THE PAST are a result of the near-free insurance premium float.
http://www.bloomberg.com/news/2012-03-02/buffett-s-insurance-engine-of-growth-set-to-stall.html
I'm a big fan of Buffett in the stock arena, namely his freakishly natural ability to understand the power of compounding, but I wonder how many fanboys and owners of BRK realize how much of its outsized gains IN THE PAST are a result of the near-free insurance premium float.
BRK has $98K in investments(Mainly stocks) and generates about $8K a year in pre-tax income from the business portfolio(Non-stocks).
The stock trades at $117K, so essentially you get Buffett stock and bond portfolio at market prices plus his business portfolio for a bit over 2times pre-tax earnings. Thats Iscar, Burlington, Gieco, Mid American etc. All at 2x pre-tax earnings
Its a no brainer, essentially a great collection of companies selling at way less of what they are worth
The stock trades at $117K, so essentially you get Buffett stock and bond portfolio at market prices plus his business portfolio for a bit over 2times pre-tax earnings. Thats Iscar, Burlington, Gieco, Mid American etc. All at 2x pre-tax earnings
Its a no brainer, essentially a great collection of companies selling at way less of what they are worth
Not sure. All major insurers had this type of decline. Saw an analyst the other day on CNBC saying that even though BRK book value was low, compared to the S&P500 it was still at the same level as many years ago(in terms of discount). So it seems a valuation compression due secular dynamics. But I'm willing to hear others on this
I wrote book value in the post above but I meant price to book
http://www.vectorgrader.com/indicators/price-book
US stocks as a whole have been declining in valuations. Both in PE and PBs. This matches up well with my theme that stocks are in a secular bear and commodities in a secular bull(I'm underweight commodities because I'm afraid of a cyclical drop)
This creates opportunities but one has to be patient because part of the capital gains won't appear due further declines in valuation. In the case of BRK the buybacks and its track record created some kind of floor on the stock. Which is why I like and might buy more soon
http://www.vectorgrader.com/indicators/price-book
US stocks as a whole have been declining in valuations. Both in PE and PBs. This matches up well with my theme that stocks are in a secular bear and commodities in a secular bull(I'm underweight commodities because I'm afraid of a cyclical drop)
This creates opportunities but one has to be patient because part of the capital gains won't appear due further declines in valuation. In the case of BRK the buybacks and its track record created some kind of floor on the stock. Which is why I like and might buy more soon
Its interesting, even though US stocks have been declining in valuations they still aren't cheap by any means(Shiller PE, Hussman estimates, and discount model I posted a while back). If the secular theme keeps playing either the economy will have to grow a lot(Unlikely unless the Fed adopts NGDP targeting) or stocks will collapse. There is the 3rd possibility that stocks do nothing while the economy grows(Taking earnings and book values with it)
Either way I'm cautious on stocks and I'm only buying in select opportunities
Either way I'm cautious on stocks and I'm only buying in select opportunities
What about long BRK and shorting 98k/117k = 0.837 dollar volume worth of ES futures against it to hedge out the direct equity exposure. You get the non-equity holdings for next to nothing then.