Subject: Re: BACk to selling BAC
Of the $538.00 in market value for all other assets, what annual operating income can be attributed to this portion of assets?


The 'other assets' (not cash or cash equivalents, not equities) make about half the earnings, which they often call 'operating earnings' or 'operating income'. If you look at the Q2 report, for the first half of the year, Berkshire reported $22.8b in 'operating earnings', along with $20.2b in the much more volatile 'investment gains', which must now include realized AND unrealized gains on the equity portfolio, for a total of $43b. The comparable half-year figures for last year were $18.1b from operations and $53.3b from investments. This includes underwriting earnings which are also quite volatile.

Double the first 2 quarters' $22.8b in operating earnings to get a year's worth, $45.6b. To get a number per $1000 in value, you would half to divide that by 669.2 (using Jim's number for the A-share value, $669,225, although the A-shares are a smidgeon lower now), so that would mean $45,600/669.2 = $68.14 per $538 of other assets embedded in $1000 worth of Berkshire shares.

It's not sensible to do the same exercise with the investment earnings - even a year's worth is too little to establish a pattern, because of how volatile the equities are. It's not even ideal to do the above exercise without considering that 6 months' of underwriting, or even 12 or 24 months, is not enough, given the fact that these operating earnings include underwriting earnings. A big insurer expects lumpy results from underwriting. So ideally, one would back out the underwriting earnings from the above operating earnings, and add back in some percentage which is typical of the long term (say, 1% of premiums written), and then separately consider cash (easy) and the big equity positions, to make sure you think they are really worth as much as their current quotes say they are. If you do this with just Apple, you are already a quarter of the way there...

dtb