No. of Recommendations: 7
For me, the purpose of the exercise is to come up with an IV estimate that would be a decent buy for a long-term hold.
I'm not interested in paying 20x, and it's clear that Berkshire isn't, either.
Grove 1: 15x 23.2 = $348
Grove 2: $253, same
Grove 3: $22, same
Grove 4 & 5:
Cash & fixed income $387, not too controversial. Maybe also include the cash at BNSF, etc. I don't bother.
Buffett in the 2018 AR: "The interest cost on all of our debt has been deducted as an expense in calculating the earnings at Berkshire’s non-insurance businesses. Beyond that, much of our ownership of the first four groves is financed by funds generated from Berkshire’s fifth grove – a collection of exceptional insurance companies. We call those funds “float,” a source of financing that we expect to be cost-free – or maybe even better than that – over time."
IIRC, he did not include an amount for insurance underwriting. Being conservative, probably.
If we say float is cost-free and worth face value, Grove 4 + 5 = $387
If we say no, float is only worth 70% of face value, but we need to include an amount for underwriting earnings, Grove 4 + 5 = $387 - $176*0.3 + $36(your number above) = $370
Totals: $994 billion, $1010 billion
Per B share: $461, $468
All that work and argument doesn't make much of a difference. Maybe simple is best?
We are getting pretty close. I suspect Greg will knock on Warren's door today and get the nod.
