Buffett’s SEC filing, Berkshire’s Intrinsic Value

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Whitney Tilson’s email to investors discussing Buffett’s SEC filing implies repurchases; his updated calculation of Berkshire Hathaway’s intrinsic value; Consumer Bureau scraps restrictions on payday loans; how payday lenders target consumers hurt by coronavirus; how to write a great cold email.

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Q2 2020 hedge fund letters, conferences and more

Buffett's SEC Filing Implies Repurchases

1) A blog post I saw this week does some clever analysis to conclude that Berkshire Hathaway (BRK-B) CEO Warren Buffett likely repurchased at least $5 billion of the company's stock in May and June.

While we won't know for sure until Berkshire's second-quarter 10-Q report is filed in early August, I think this will prove to be correct – and is bullish for the stock. Buffett's SEC Filing Implies Repurchases - Rational Walk.

Berkshire's Intrinsic Value

2) I just updated my estimate of Berkshire's intrinsic value to reflect the sharp rise in stocks since the end of the first quarter (the S&P 500 Index is up 25% since March 31).

Assuming Berkshire's stock portfolio has risen by the same amount – a conservative assumption, given that Berkshire's six largest positions have risen by 31%, led by Apple's (AAPL) 54% jump – this adds $27,700 to Berkshire's cash and investments per share, which ended the first quarter at $217,800 per A-share, for a total today of $245,500.

To this, we must add the value of Berkshire's wholly owned businesses – dozens of companies like BNSF Railway, various utilities, manufacturers, insurers, and so forth. These generated $29.25 billion in pre-tax earnings last year. To reflect the effect of the coronavirus crisis, I'm assuming that this number is 10% lower in 2020, or $26.3 billion.

From this, I subtract all insurance and investment income ($7 billion last year), but then add back $1.4 billion for normalized insurance earnings, to arrive at estimated pre-tax earnings of $20.7 billion or $12,760 per A-share.

I then apply a multiple of 11 times – again, I'm likely being conservative in light of the quality of these businesses and the high multiples being awarded to blue-chip companies in today's market – to arrive at a value for Berkshire's wholly owned businesses: $140,360 per A-share.

Adding cash and investments of $245,500 results in intrinsic value for all of Berkshire Hathaway of $386,000 per A-share ($257 per B-share) – 35% above today's price.

Berkshire is incredibly safe and has solid growth prospects. And the stock's underperformance this year – combined with the likelihood that Buffett has started to buy it back in size – has created a great entry point on the stock for conservative, long-term-oriented investors.

Consumer Bureau Scraps Restrictions on Payday Loans

3) What a total disgrace! Consumer Bureau Scraps Restrictions on Payday Loans. Excerpt:


The proposed rules would have been the first significant federal regulations on an industry that makes $30 billion a year in high-interest, short-term loans, often to already struggling borrowers. Those loans can leave borrowers trapped in cycles of debt, incurring fees every few weeks to replenish loans they cannot afford to pay off.

How Payday Lenders Target Consumers Hurt by Coronavirus

4) And here's a related disgrace reported in the Wall Street Journal: How Payday Lenders Target Consumers Hurt by Coronavirus. Hopefully this article will spur Alphabet's (GOOGL) Google and Facebook (FB) – and other similar companies – to crack down on ads by predatory businesses. Excerpt:

Lenders that target struggling borrowers for loans with triple-digit interest rates have overcome yearslong efforts to restrict their lending and are pitching their products to consumers in need of cash during the coronavirus pandemic.

How To Write a Great Cold Email That Will Actually Get a Response

5) There's some good advice here: How To Write a Great Cold Email That Will Actually Get a Response.

This reminds me of slide presentation I put together and taught entitled: "How to cultivate mentors, make friends, and develop deep relationships." I'm including it in the book I'm finishing, tentatively entitled: The Art of Playing Defense: How to Get Ahead By Not Falling Behind. There are five steps to cultivating a mentor, which I'll cover in future e-mails...

Best regards,