What about Berkshire’s float? Since Berkshire is a successful underwriter, they actually make a profit on their underwriting. Thus, they have a pool of money that they are PAID to take. The present value of free money (or in this case, better than free money) is infinite. So is Berkshire’s intrinsic value infinite?

:)

Can’t speak for Raj but many bears–I lean towards the bear case on Berkshire Hathaway but wouldn’t consider it wildly overvalued and a short (I’m just a newbie with a poor record for what it’s worth)–would question whether one should blindly follow what Warren Buffett has said. Like any human, he has been wrong several times (he praised Jeff Immelt of GE when in fact GE appeared to have done little to reduced its financial risk–in fact, it probably increased its risk under Immelt.) Similarly, who knows how good Ajit Jain and David Sokol are?

David Sokol is fine–his job is straightforward and no different than other CEO jobs–but I don’t think anyone knows much about Ajit Jain. The opaque nature of Berkshire Hathaway, along with some opaque characters, is surely a bearish case.

On a different note, Berkshire Hathaway probably shouldn’t trade at a discount to book value but I’m not sure it deserves its current 1.5x (approximately) multiple either. One of the arguments by bears is that conglomerates should trade at a discount. This is especially true for Berkshire Hathaway, which is more of an insurance company and is essentially a black box. Who knows what is going on in the insurance operations?

I’m not saying Berkshire has mispriced risk like several insurance companies in the last decade; instead, I’m just saying the market should discount Berkshire Hathaway slightly due to its opaque nature.

(Of course, on top of the disagreement over book value multiple, it also comes down to the actual book value. I see many Berkshire bulls argue that book value is understated. Buffett, himself, has suggested that Berkshire Hathaway holdings are worth more than reflected on the book. Even on this thread–or maybe the other one related to this–someone was arguing that Burlington Northern Santa Fe’s book value is understated by billions. But it’s difficult to say what the true book value of Berkshire Hathaway is. This is especially true for newbies like me who is not very good at accounting and I have zero confidence in trying to come up with book value for an opaque firm (As for BNSF, I don’t share the view it is severly understated. Even if the land/access rights/etc were valuable, I don’t think you can easily monetize them. Remember, Sears Holdings, a favourite of some value investors, apparently has “hidden” real estate value; but it appears virtually impossible to monetize that real estate–at least within a decade.))

This job is so weak..
Should anyone waste his time over this?

Please don’t graduate this student: he will be another danger for financial world…

1/ Ring up CNBC etc and challenge Warren Buffett to a debate live on TV.

2/ Call a “Short Berkshire” meeting to be held at Omaha at the same time as the normal circus and invite some of the best Berkjshire ‘Shorts’ to give a presentation.

Anybody else got some ideas?

1) How can you not know who David Sokol and Ajit Jain are after writing a thesis on BRK? Listen/view/read previous shareholder mtgs and you’ll hear/see how much praise WB gives to both of them. Ajit has been with Berkshire since the mid-eighties and WB has praised him numberous times at shareholder meetings and within his annual letters. Mr. Sokol has been with BRK since 2000 and has also received an incredible amount of praise. Please also see WB’s opinions on Messrs. Simpson, Nicely, etc. for more examples.

2) Bailout obsession – Mr. Buffett has been offered ‘distressed’ deals over the last few decades from recent deals of GS, GE, bond insurers, etc. back to Long Term Capital Management and SB. If you’d like to learn more, Lowenstein’s book ‘The Making of an American Capitalist’ is a great read.

Per Wikipedia, Ajit Jain graduated from IIT Kharagpur, whereas the Raj’s resume states he graduated from IIT Bombay. Also, per Wikipedia, “All IITs are autonomous universities that draft their own curricula”. IIT Kharagpur is NOT the same school as IIT Bombay. So clearly, Raj is misrepresenting when he claims both he and Ajit graduated from the same undergraduate school. It would be as ridiculous as someone who graduated from UC Berkeley claiming they ‘went to the same undergraduate school’ as someone who graduated from UCLA. At least UC Berkeley and UCLA are located in the same state. IIT Kharagpur and IIT Bombay are in two different Indian states and are 1200 miles apart!

Also, what is the relevance of this disclosure? It seems like an ironic attempt to benefit through association with Ajit, with the logic being the following: “Buffet says Ajit,an IIT grad, is smart. I am an IIT grad too. Therefore, I must be smart too”. Such reasoning would be a classic example of the fallacy of the undistributed middle.

Also, shorting is much harder to calibrate than being long. The only downside of investing Berkshire right now would be the stepping down of Buffett (which may happen later than most people think) that will result in uncertainty in Berkshire’s capital allocation department which is a very important aspect of Berkshire, and limited opportunity to keep compounding at 20% due to its size.

http://www.rationalwalk.com/?p=5822