No. of Recommendations: 9
My 5 groves are:
1) Value of non insurance operating businesses. They earned $23.1 BB in 2025. This includes a) Manufacturing / service (Approximately 60% of NIAT), b) BNSF and c) BHEC
If you hold the price of gas constant at Pilot ( which has been a drag on sales), they are growing sales and earnings mid single digits over the past few years. Still below peak in some divisions, but growing as a group OK with 2025 being the highest earning year. 31% above 2019, pre covid. I will add that Pilot net cash flow is sharply higher than their Net Income.
Theoretically, I believe you could spin all of these businesses off without materially impacting the remainder of the company. As a group they generate enough cash to self fund all growth.
Float allowed them to be acquired but is not necessary to fund them today.
Peer rails, utilities, oil pipeline, and manufacturers typically trade today above 20 P/E. Likely above historical levels and what one might use if looking for a conservatively calculated IV. Nonetheless This piece of BRK is likely worth north of $460 BB IMO.
Please offer a different view of the value, but I think it should have some relevant comparison to the current level of interest rates and peer market values for a similar business.
Per Buffet in 2024 annual report, While our ownership in marketable equities moved downward last year from $354 billion to $272 billion, the value of our non-quoted controlled equities increased somewhat and remains far greater than the value of the marketable portfolio. I assume this statement excluded insurance operations? But that is not 100% clear. Any thoughts?
2) Equities.
BRK owns $297.78 BB in equities at a cost basis of $85.39 BB. Assuming a corporate tax rate of 21% this is worth $253.2 BB.
This category included Oxy preferred and excluded Oxy, KHC, and Berkadia equities.
3) Non controlled businesses
This is basically KHC & OXY equities.
As of today they are worth about $22 BB with no implied tax obligations and maybe some tax benefits due to a loss.
4) Cash and Fixed Income Securities
Cash $373 BB Itreasury payable was diminimus this quarter) + Fixed Income 17.8 BB. So this is worth somewhere between $300 & 350 BB. Anyone have any more precision to add here?
So what adjustment if any should be made to cash to cover insurance reserves? Basically unproductive or below optimally invested cash? Buffet has mentioned that he would not allow cash to run below $30 BB. But even that cash, while getting a low return, may not be idle. Some model reducing the cash pile by 30% of float. This is attributed to Jim. Can someone please elaborate on the mechanics of the economic drag for this calculation? What is the justification? I will concede that there may always be a lag from cash generation to utilization that may need to be addressed.
5) Value of underwriting profits. Some use underwriting profits as a percentage of float? I use underwriting as a percentage of Written premiums. I think the latter is more correlated but please feel free to argue for the float method. I will add that Buffet mentions specifically that underwriting profit over the past 20 years has run 3.3% of sales, which I infer means premiums and not float. However he mentions float growth in the next sentence. 3.3% of approximately 89 BB in sales / premiums is $2.93 BB per year. The overall current value of these AT profit is at least $36 BB. at a p/e of 12 similar to the overall insurance peers. Could be higher based on your p/e assumption.
So my range of values would be:
Conservative Full
1) $380 BB $460 BB
2) $253 BB $253 BB
3) $ 22 BB $ 22 BB
4) $300 BB $350 BB
5) $ 36 BB $ 50 BB
Total $991 BB $1.135 BB
Per Share $459 $ 526
Any thoughts or observations would be appreciated.
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.
