Buffett's Saintly Proposal - Part 2

Answering Part 1 by my acquantiance: "If you took the stated book value of BRK and then adjusted it by adding in the value of the float from the insurance business ( which essentially was free capital for Buffett to allocate as long as the loss ratio was below 100 ) you could buy Berkshire for roughly 1X adjusted book. I thought that was a pretty good deal and the logic made sense to me [when I first looked it several years ago]. I could effectively hire Warren to manage my money on a dollar for dollar basis, no management fee!

At this point, I have a pretty substantial gain in BRK and I am concerned what Hillary/Obama and a Democrat [party] congress might do to me. They seem determined to raise taxes on capital and drive more capital and jobs overseas as a result. I love to point to Ireland as the antithesis of this warped way of thinking. Low taxes and favorable treatment of capital attracts capital and creates jobs. You know this as well as I do of course. Anyway - long winded way of saying I'm not sure what I might do with my holdings given the valuation, Warren's age, and the chance that taxes may go up. I would like to re-run the analysis on the value of the float however. It is an interesting viewpoint."

My response to the idea that BRK was still a good value:

"Your analysis / logic of BRK and mine are about the same. I read everything ever written on Warren Buffett during the mid 1990s. I became quite a student on his technique, and by extension, his mentor (Ben Graham). But, I also read the quips that he thought his own company was overvalued and wouldn't buy it himself. But you did choose the right time to buy (2002-03) his stock. That was near the end of a eight plus year plateau in BRK during the dot com bubble when insurance and consumer durables were too boring and that culminated with Katrina and concerns over his exposure through General RE. That period included a few mistakes like US Air and Solomon Bros that damaged his reputation as the untouchable / invincible investor.

But since that time, the B shares have spiked from $2000 to $5000 over a two year period as he has come back into vogue with his timely utility, CNOOC and railroad investments. At the same time, nothing special happened with BRK's fundamental value to justify that spike (the deals that went his way did not double the cash flow). This is a company that probably can't grow earnings / cash flow more than 10 to 12% annually, just based on its size, no matter how smart individual deals. So, a 150% pop in stock price has probably taken it past fair value. But I haven't done the analysis either, so can't say that for certain. I am also concerned about his age, and, irrationally, his politics.

You express concern about Hil-Obama. But Warren is a major benefactor to Hillary's campaign, and would back Obama, if not Hillary. He also came out with the ridiculous and dishonest position supporting raising income taxes on the wealthy, even though he shows very little income the way he compensates himself (minimized by paying no dividend). He is a hypocrite on this point and it was a big disappoint to me when he took this position. I wonder if he would support a wealth tax just as readily. The idea that the government can do a better job taking care of society than people of means, like himself, is against what he has always stood for. If he really believes his own hyperbole, Buffett should have just donated his wealth to the government rather than to the Gates Foundation. It would be more genuine for him to campaign for be tter treatment of charitable giving than to bash wealth. (BTW...he was notorious for being a skinflint and not giving anything to charity until the last few years when he finally realized he couldn't take it with him)."