Berkshire's Hidden $8 Billion Earnings Explained & Key Risk
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- Опубліковано 16 вер 2024
- Berkshire is a great business and I don't think Buffett's age is a risk given that the businesses are all doing business without Buffett now. Over the long-term there could be some capital allocation challenges but he likely instructed his managers well and the goal is not eye-popping performance as he recently shared in his letter. But, there is a significant risk when investing.
BRK Letter And Results • 7 Lessons & 4 Warnings...
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I backed up the truck in 2020 and loaded up on brkb. These wild markets up or down are where the opportunities are
yes!
6:23 I don't see a world where BRK hits $384 billion market cap, you don't take into account the $167bn usd on the balance sheet so at a minimum $551bn worst case. Also, comparing 2019 earnings to 2023 is difficult because we've had at least 20% of inflation in 4 years. Otherwise good video! I hope I don't sound like a hater because I like the channel, I'm just giving my thoughts
Absolutely, that is really an extreme risk!
If Nvidia can hit 12X in 4 years and valued second to Apple, why not BRK hit 384. The Market is now completely insane, drunk with money and day dreams. Anything can happen now.....
To be honest I had the same thinking on nvidia at 400 as you have, but they did deliver incredible results.. If you take 50bn$ of earnings for 2025 which is barely no growth from their last quarter, you have a forward PE of "only" 40.. if they keep growing like that for a couple of years the valuation is justified but I have no idea if that will happen of course. I'm not touching it but I see why others would@@slimjimjimslim5923
Great video Sven! Thanks for the rules about accounting, about when they include dividends and equity growth..
I have been wondering at 5:01 how did you estimate the losses in earnings for each company when there is a recession?
On what factors did you base those losses?
I'd like to do that to (because Charlie Munger said we have to analyze things as "cheerful pessimists") but I have no clear idea yet on how to "dismantle" companies' earnings like you do 😅
Thanks Sven as always for your insights. Perhaps a third part to your assessment of Berkshire's intrinsic value is called for...
Please refer to the FT article - "Buffett sounds wildfire alarm as utilities industry enters new era" which highlights how Berkshire Energy and other utilities in specific parts of the US are on the receiving end of lawsuits around wildfires and the capex entailed in converting overhead transmission lines to underground lines. Just a thought ...
yes, but that is $2 billion of the $45 billion made, plus BRK energy is one that is self financed, thus not such an impact on BRK as a whole, no matter how bad it gets..keep in mind if it even goes bankrupt, not a big effect on BRK as a holding company
Thanks for a great video and your calculations. If Berkshire would be hit in a scenario like you say, I can't imagine how bad other stocks would be!
Totally agree
People need to stop looking at PE ratio of conglomerates like BH that has underlying public stock holdings. Because it makes no sense. The accounting rule says you need to report unrealized gain/loss from stock investments in the report. In that case, their PE ratio could be negative because they are sitting on unrealized losses (as it happened in 2022). Instead, Warren Buffett always says to look at operating income. I only look at BH's book value and P/FCF ratio, PE ratio is irrelevant.
we adjust the accounting for real earnings, then go for PE
Thanks for this comment!
I never knew that people actually include unrealized gains/losses in computing PE!
What is included in the FCF? Does it include the net of operating income, and also gains when when selling assets?
Isn't it misleading to include gains from sold assets/investments because those may be only occasional earnings and would not give us an idea of the regular earnings of the businesses?
@@leverage2279 FCF is any cash left over after operating expense and CapEx. Selling of assets is considered as a non-operating income, so FCF cannot be used to manipulate earning.
I like the fact that you kind of admit you sold too early by doing these videos on brk., honesty helps investment returns.
:-)
I think the second biggest risk is that “size of the wallet” that Buffett has mentioned many times before. To move the needle (to outperform the S&P) they need huge investments that do well. That pool of possible investments grows smaller and smaller the bigger Berkshire gets.
I think that is why he is waiting with the cash, only the correct timing can give hime an edge, alongside the hedge.
Another excellent Analysis 👏👍
Glad you think so!
if a company cannot find a way to invest their net earnings and their stock is too overvalued to buyback shares...then the proper thing to do would be to issue a dividend?
Nah...just wait for the inevitable next crash.
but he is waiting...
I hope the share price goes down when he passes so I can pick up more shares at a better price. And I hope that others remain short-sighted and afraid to invest, so there will be more for me. Thanks for the great content!
thanks for sharing!
Thank you 👍👍.
:-)
I don't doubt that it will remain a very profitable business BUT the market simply isn't purely rational. When the man dies, the cultural capital that is has is going to be severely damaged. The price WILL go WAY DOWN!!!
P.s. that said, it might be a great buy a few days later, 😉
I would guess the price will rise as the uncertaintitly of WB's age will be removed. Hopefully the culture WB has put into BRK will mean it contiunes to thrive. For example Standard Oil made people rich for 100 years and nobody knows or cares who the second chairman was after Rockfellow's retired.
I'm not super sure it will. Apart from Apple, he hasnt really properly handled the portifolio very well the last few years. Hes 90. Time to switch was last decade I think.
If the "new buffets" in Berkshire are those who jumped In and out from Verizon and TSMC, not sure the future will be as bright as with Buffet around...
Such emotional moves in the market are extremely temporary though. I assume buffet and co have done serious succession planning considering they have a trillion dollar business with a 100 year old man at the head who any day now is going to shut off and not turn back on. I think it will would be bought right up after the drop. The real danger is if the succession planning puts someone inadequate in his place who just destroys the business itself.
I like your recession model
thanks!
HI Sven, a question on the accounting side : berkshire reports operating earnings (which is different from net income / loss because of interest / taxes etc...) but you are adding to Berkshire's operating earnings NET earings of the Berkshire investments; in other words your sum is not like for like it seems to me . Perhaps you should start from Berkhiser net earngins, add-back the market to market valuations of Berkshire investment and then add what you call Berkshire hidden earngin. Bottom line = it seems to me you are over-estimating Berkshire earning power
For Buffett those operating earning are after taxes and interest!
Is this analysis correct? P/E for privately owned BH businesses is around 12. Because if you would from market cap (885B) remove cash (165B) and portfolio value (355B) and divide that with operating earnings excluding dividends (around 5B) and excluding Earnings of OXY KHC DVA (2B) - 30B- you get PE of around 12.
Insurance liabilities are also to be counted
how much are they and what P/E for privately held businesses would then be?@@Value-Investing
Thanks for the video. I am not sure how BRK gets to a market cap of $384 billion with $167 billion in cash. I think Uncle Warren or Cousin Greg will be buying stock hand over fist. I think you have done several videos on the Inelastic Market Hypothesis.
Do you reckon Warren uses the 4% rule Sven ?
:-)))
Sven could you please cover $ETSY?
thanks for suggesting!
can you check Upwork stock? upwork maybe will be cashcow in the future
Thanks for suggesting!
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best of luck!
💔💔💔
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