No. of Recommendations: 4
In August of 2020, Berkshire wrote down the goodwill on the acquisition of Precision Castparts by $9.8 billion. Additional write down of intangible assets brought the total to $11 billion. Buffett admitted in his 2020 letter that he was "simply too optimistic about PCC's normalized profit potential," admitting he made a significant error in judgment regarding the company's future earnings, which led to an incorrect valuation.
However, subsequent to a horrific 2020, and weak growth in 2021 and 2022, PCC has been, to say the least, going gangbusters. However, according to US GAAP, once the goodwill impairment is recorded it cannot be reversed. Similarly, internal generated goodwill, say the franchise value of See's Candies cannot be recorded as a gain in goodwill.
So I guess my question is for "Grove 1" the operating earnings of Berkshire owned businesses, shouldn't the multiple that's applied whether one uses Price/Earnings or something else be increasing over time? And likewise, shouldn't the intrinsic value of Berkshire be increasing over time such that perhaps 2x Book Value is now a more appropriate measure than 1.5x BV?
