Subject: 20 Year Review of Berkshire
Nothing new here folks. Just something for the new board. Actually it was a rehash of a post of mine from about 10 years ago that predicted the share price would be around $313,513 at Dec 2021. It turns out I was too conservative.

I have gone back over the last 21 years of Berkshire's annual reports and collected some key numbers in a spreadsheet which I summarise here and provide some very limited commentary.

Book value per share:
2001 -6.2%
2002 10.0%
2003 21.1%
2004 10.5%
2005 6.5%
2006 18.2%
2007 11.1%
2008 -9.7%
2009 19.8%
2010 13.0%
2011 4.6%
2012 14.4%
2013 18.2%
2014 8.3%
2015 6.4%
2016 10.7%
2017 23.0%
2018 0.4%
2019 23.0%
2020 9.8%
2021 19.4%

Book value per share CAGR 20 years 11.6% and last 5 years 14.8%. For a company of this size this is simply an incredible achievement. At the start of this 20 year period, book value was $58 Billion and ended 2021 at $506 Billion. Share repurchases helped. Peak of 1,651,000 shares at the end of 2011 (BNSF purchase) and down to 1,477,429 at the end of 2021. Buybacks started in 2019 with a low price to book ratio (**see below).

Year end share price:
2001 73,900 (I bought my first shares here)
2002 72,600
2003 84,250 (bought shares for my first son)
2004 87,900
2005 88,620
2006 109,990 (bought more shares for my second son)
2007 141,600
2008 96,600
2009 99,200
2010 120,450
2011 114,755
2012 134,060
2013 177,900 (bought more shares for my third son. Mind the gap)
2014 226,000
2015 197,800
2016 244,121
2017 297,600
2018 306,000
2019 339,590
2020 347,815 (backed up the truck on 8 July 2020 at $268,780)
2021 450,662

The share price has compounded at 9.5% over the 20 years and 13% in the more recent five years to 2021. The share price volatility is obviously much more dramatic that the year end numbers show.
During 2008 the share price swung by 100% between $74,100 and $147,000. If you bought on 23rd March 2020 and sold a year and a bit later on 28 March 2022, you made a cool 125%. Who needs crypto! A long term investor got low risk 9.5% from Berkshire over the last twenty years. Others experienced very different results in both directions.

Price/Book Ratio:
2001 1.95
2002 1.74
2003 1.67
2004 1.57
2005 1.49
2006 1.56
2007 1.81
2008 1.37
2009 1.17
2010 1.26
2011 1.15
2012 1.17
2013 1.32
2014 1.55
2015 1.27
2016 1.42
2017 1.41
2018 1.44
2019 1.30** (Buffett buying starts)
2020 1.21
2021 1.32

The Price/Book ratio has gone down from 1.95 at the end of 2001 to 1.32 at the end of 2021. The Price/book ratio at Friday's close of $454,620 per share is 1.46. With the share price up only a fraction since December 2021 ($450,662) that jump from 1.32x to 1.46x is related to the whopping decline in the equity portfolio in 2022. $82 Billion or 22% in the 9 months to 30 Sept 2022. Apple down another 3% since 30 Sept and only days now until 31 December.

If we adjusted the book value back up to the December 2021 equities market value, that would put us at 1.24X in old money. Although I really don't like that number, as Apple is still trading at 21 times historic earnings. So, I guess on a price to book basis of 1.46X Berkshire is maybe fairly valued. Buffett has certainly eased off on the share repurchases more recently. Then you have the firm size issue which gets harder to move the needle as Buffett says.

The Future

Looking to the next say, ten years, we can reasonably expect two things:

1. Book value will continue to grow but a lower rate than in the past (20 years 11.6%). Q3 2022 book value of $455 Billion is a big number. It might be asking a lot to just double it. Buybacks and potential dividends are also factors.

2. The Price/Book ratio will go up and down. The 20 year average is 1.44X, just a hair under the current 1.46X. Buffett's share buyback activity tells us: he thinks Berkshire is undervalued at around 1.2X and below.

Inflation and interest rates are important factors. I'm not entirely sure I understand the implications for my investment in Berkshire and how inflation interacts with the book value growth rate and the Price/Book multiple. I think the theory goes that inflation will eventually come under control. In the meantime, Berkshire will just keep increasing prices, so little to no impact. Interest rates are more of a concern for an investor in Berkshire maybe. To make it worthwhile Berkshire will have to beat inflation and deposit rates. That is a lot harder than 2 years ago.
Anyway, if book value grows at 7.2% and the Price/Book ratio is 1.46X at the end of 2031 the share price will be $909,240 plus inflation. Call is one million dollars, plus inflation.

How good a business is Berkshire? How has it performed over the last 20 years? It's a good business as the numbers below demonstrate but it's a big business. But then we don't have unrealistic expectations. If 2022 has shown investors anything: over the long run, avoiding permanent loss of capital can do wonders for your returns.
Insurance float has grown from $35.5 Billion in 2001 to $147 Billion at Dec 2021. That is a 20 year CAGR of 7.4% and 9.9% in the last 5 years. And its still growing, reaching $150 Billion at 30 Sept 2022. In the last 19 years there was only one year when underwriting made a loss. That was 2017: '3.2 Billion. Berkshire has an incredible insurance business. Below are underwriting profits/(losses) in Billions:

2001 -4,067
2002 -398
2003 1,718
2004 1,551
2005 53
2006 3,838
2007 3,374
2008 2,792
2009 1,460
2010 2,013
2011 248
2012 1,625
2013 3,089
2014 2,668
2015 1,837
2016 2,131
2017 -3,200 *
2018 2,000
2019 400
2020 657
2021 728

That adds up to $24.5 Billion before investment income.
Cash Flow from operations, which includes underwriting, totalled $477 Billion in the 21 years to 2021. Maintenance capex has to come out of that but that is quite the river of gold. And it's of course growing due to business acquisitions, organic business growth and expansion capex (energy business runway). This is the 21 years of Cash Flow from operations:

2001 6,574
2002 11,135
2003 8,438
2004 7,405
2005 9,446
2006 10,195
2007 12,550
2008 11,252
2009 15,846
2010 17,895
2011 20,476
2012 20,950
2013 27,704
2014 32,010
2015 31,491
2016 32,535
2017 45,725
2018 37,400
2019 38,687
2020 39,773
2021 39,421

Here is the Capex maintenance and growth with BNSF and Energy no doubt driving it:

2001 727
2002 928
2003 1,002
2004 1,201
2005 2,195
2006 4,571
2007 5,373
2008 6,138
2009 4,937
2010 5,980 (BNSF)
2011 8,191
2012 9,775
2013 11,087
2014 15,185
2015 16,082
2016 12,954
2017 11,708
2018 14,537
2019 15,979
2020 13,012
2021 13,276

Capex totals $175 Billion over 21 years to 2021.
Capital allocation has been the magic behind Berkshire Hathaway as everyone knows. Like this whole post there is nothing new that has not been said a thousand times before but here are some more numbers.
First net purchases of equities and other listed investments through the years:

2001 -2,806
2002 416
2003 -1,317
2004 -578
2005 6,392
2006 5,395
2007 11,057
2008 3,300
2009 -1,056
2010 -1,621
2011 14,142
2012 -712
2013 4,689
2014 -1,882
2015 6,731
2016 -11,956 (Apple $6.7B)
2017 814 (Sells IBM buys more Apple $14B)
2018 24,427 (Buys more Apple $15B)
2019 4,306
2020 -8,595 (sells airline)
2021 -7,401

The above net equities purchases totals $43.7 Billion. We know 2022 is shaping up to be an exceptionally big year for equity purchases with $49 Billion net in the first nine months with the oil buys.
But Buffett has been more interested in buying wholly owned companies in the last few decades. Acquisitions shown below and totalling an enormous $170 Billion over the 21 years to 2021. Alleghany which completed in October will be another great use of $11.6 Billion. More float, more underwriting profits, more investment returns, more assets and more talent onboarded.

2001 4,697
2002 2,620
2003 3,213
2004 414
2005 2,387
2006 10,132
2007 1,602
2008 20,502 (Marmon)
2009 7,176
2010 15,924 (BNSF)
2011 13,685 (Lubrizol)
2012 3,188
2013 18,681 (NV Energy, Heinz)
2014 7,824
2015 16,082 (Van Tuyl Auto)
2016 31,399 (Percision Castparts $32.6B)
2017 2,708
2018 3,279
2019 1,683
2020 2,532
2021 456

We must be due another big acquisition soon.
Below is Cash and Fixed income as a percentage of the Insurance Float. (I am grouping these as they are more liquid and have to be held for insurance regulatory reasons as I understand it.) It looks like Buffett doesn't like this percentage to get below 100 too often. During the financial crisis he put $30 Billion to work (acquisitions $21 Billion: equities $3 Billion and $6 Billion capex).

2001 191%
2002 164%
2003 163%
2004 162%
2005 153%
2006 142%
2007 129%
2008* 98%
2009 107%
2010 111%
2011 98%
2012 108%
2013 102%
2014 110%
2015 111%
2016 120%
2017 120%
2018 107%
2019 113%
2020 115%
2021 111%

Interestingly the Cash and Fixed income ratio to insurance float was down to 85% at September 2022. Some aggression from the capital allocator while everyone else is selling. By the way after 2008 when the Price/Book ratio was 1.37X at year end the share price was $96,600.

I would say there is plenty of evidence in the Berkshire numbers to suggest it is an incredible company with a bright future. Unmatched capital allocation skills: shareholder friendly: deep bench: incredible culture: owns some quality assets in Insurance + Energy + Rail + Apple + all the rest and counting'

***Obviously take everything I say with a pinch of salt. I have gone through the annual reports and plucked out some numbers. I hope I haven't fat fingered anything.***