The tremendous growth in book value per share at Fairfax comes from decidedly un-Buffett-like transactions.
Year-over-year book value per share increased 8%, and tangible book value increased 12%.
When looking at Price to Tangible Book Value multiples, you have to ask yourself, what are the risks that Tangible Book Value per Share is overstated.
However, tangible book value per share is a good measure of liquidation value, or the amount that shareholders can reasonably expect to receive should the company go under.
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Whenever a company trading at a premium to book value issues new shares, whether from a secondary offering or in the course of an acquisition, the book value per share goes up.
In 2012, AHL grew its book value per share grew by 6% and delivered an operating ROE of 8.5%, which was very impressive considering the impact of Superstorm Sandy and low interest rate environment.
Fairfax's book value per share has risen at a 40% annual rate since Watsa, who started out in the late 1970s as a money manager at a Toronto life insurer, took over in 1985.
Berkshire's book value per share the measure of net worth that Mr. Buffett prefers as a yardstick to earnings, which he views as too volatile and subject to the whims of accounting rule makers increased 14% in 2012.
The Price to Book ratio is a formula that represents the most recent share price of a company compared to its book value per share (the residual dollar value for common shareholders after assets are liquidated and all debtors are paid).
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One example of a company that actually did make large repurchases of shares substantially below book value in 2011 is American Capital ( NASDAQ: ACAS), which announced it bought back millions of shares of its own stock, at prices considerably below its most recent reported book value per share, thereby elevating the per-share book value of the remaining shares.
Over the last three years, per-share book value has grown at a 14% annual rate.
The fact that the stock price has lagged the increase in per-share book value is what savvy investors should take note of.
Last fall Berkshire announced that if the per-share book value fell below 110% of the stock price (1.1x the stock price) the company would step in and repurchase shares.
Thanks to a Berkshire follower I have been informed that Berkshire is unlikely to pay a dividend since it would reduce book value both in the aggregate and per share.
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The top holding of both of those ETFs is Wells Fargo ( NYSE: WFC) which happens to be a Berkshire holding, and also happens to be among the financial stocks flirting with crossing below their per-share book value.
The company acquired the assets of Allied Capital below book value in April 2010, maintained its dividend of 35 cents per share for the past seven quarters and returned shareholders almost 25% per year on average since 2008 (with dividends reinvested).
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