BRK.B Financial Fortress

• Cost Basis: $200
• Clone(Cost basis): Buybacks $192-$207(Q1 ’19), Ajit Jain $195(Q4 ’18), Mecham incr. 55% $192(Q1 ’19)

Operation: Berkshire Hathaway has a source of recurring revenue from its existing operations. It uses the cash flow from those businesses to buy other great businesses at a fair price to compound it’s intrinsic value. These businesses drown the company in so much cash that it makes it difficult for them to find business to buy. It is a financial fortress that does not use any leverage. It is made up of

1. Non-insurance wholly owned businesses
2. Equity portfolio
3. Quartet of companies
4. Cash
5. Insurance businesses

Management is second to none with two of the greatest investors of all time who have compounded their knowledge for a combined 190+ years. Its success comes from great discipline coupled with great patience, coupled with great decisiveness. Who better to assess Berkshire’s intrinsic value than Buffett? No one. It behooves us to pay close attention to his buybacks.

Q1 ’19

• Buffett is “Ok buying it but not salivating over it” Bought back $1.7B @ $192-207
• He says if trading at 25-30% discount he would be more aggressive, pending there is nothing better to buy.
• My guess at intrinsic value is $230-235(using Buffett’s grove valuation).
• 25-30% discount should be $160-170
• Why back up the truck if $160-170 Business will thrive during recessions. It has $114B to deploy when blood is in the streets. Cash position will only continue to grow until then or be deployed with strict discipline.
• Until then I will be nibbling @ $191-209 like Buffett has been doing.

Q2 ’19
I have sold. I have decided that my strategy needs to have a higher hurdle rate. During the 1999 Berkshire annual meeting, Buffett guaranteed that he could get 50% annual return on $1M. I have less than $1M and should strive to at least get around 20%.

If I were to assume BRK.B operating cash flow were going to grow at

*10% a year for the next 10 years*
A 15% discount would expect 12%/year at fair value.
A 30% discount would expect 14%/year at fair value

Achieving these numbers with the financial protection the company provides is heroic. However I highly doubt Buffett would be buying the same thing if he had less money to work with.

He may need a bigger discount, say
A 50% discount would expect an 18%/year at fair value

This is a number I can strive for.

Disclosure: I am/we are long BRK.B