Subject: Re: Bloomstran annual letter is out
A few quotes from the letter with comments:

S&P500 is in a bubble. “The S&P 500 is dangerously elevated above levels seen at every secular peak in the last century. Most fundamental yardsticks of value are at records, even when adjusting for necessary factors.”

AI data center boom is like the fiber-optic boom of the late 1990’s [we don’t talk about “Level 3” in my house]. “As George W. Bush said, “This sucker could go down.” It’s not so much could, but when.”

On Berkshire:
“..the cash position beyond insurance needs is very large today, and we expect Berkshire’s new CEO, Greg Abel, to take big swings with it during the next deep recession or crisis, or when the rare elephant opportunistically crosses the path.”

“By Semper’s math, 2025 intrinsic value grew 9.3% from $1.126 trillion to $1.230 trillion, or in per-share terms to $855,396 per A share and $570 per B share.”
Note – this includes Bloomstran’s “Optionality Premium“, i.e. fictional earnings.

On Buffett: “The legacy of Warren Buffett is far beyond the investment record. While the world likely wouldn’t know Warren without the investment record and Berkshire Hathaway’s mammoth success over his more than six decades of stewardship, it’s the way the scorecard was created that is so important. His positive impact on so many people around the world is testament to who he is as a teacher, a mentor and a role model.”

On Abel: “I think Berkshire’s shareholders will find Greg fully up to the task of running Berkshire and allocating its capital.”

“A key question is how aggressive Greg will be in repurchasing shares when they are sufficiently cheap. My sense is he will be more aggressive than Warren was. Repurchasing undervalued shares is a terrific use of capital, and Greg is most certainly aware of the mountain of it lying around.”

On Berkshire valuation:
“The shares are less undervalued heading into 2026 than they have been in quite a while.”

“Against a S&P 500 trading at 26.0x earnings capitalized on a high 12.8% margin, we like Berkshire at 17.6x our measure of economic earnings. We liked it more at lower multiples.”

Optionality Premium p172-174: “We make a generally material upward adjustment to Berkshire’s reported profits that assumes much of Berkshire’s cash will be put to good use, and reasonably soon. Specifically, the adjustment assumes Berkshire will earn 7% pretax minus the current yield on U.S. Treasury bills on cash balances in excess of Berkshire’s stated $30 billion minimum cash floor plus the amount of cash expected to be paid in a year for claims paid in the insurance operation ($56.6 billion in 2025). Thus, we assume Berkshire’s permanent cash reserve is $86.6 billion.”

“The adjustment adds $7.3 billion to 2025 economic earnings, up from $6.2 billion in 2024.”

“Is it aggressive assuming a return that’s not being earned currently? We don’t think so.”
Hmmm. This adds about 10% to IV. Quite an adjustment. I believe it very unlikely that Berkshire will invest $280 billion anytime soon.