No. of Recommendations: 5
Can we make reasonably accurate estimates for the fraction of Berkshire's value represented by its various parts, such as cash, fixed income, equities and operating units, and their respective value growth rates? I think that with a little work we can. For example, as of Dec 2022 Berkshire's equity securities totaled $308.8 billion, less $77.0 billion in deferred taxes (assigning all tax liability to the equity portfolio). This nets to $231.8 billion in BV out of $472.4 billion of total stockholder equity, or 49.1% of stockholder equity. By my calculations, over the 23-year period 2000-2022 Berkshire's equity portfolio has returned 9.0%, compounded annually, before taxes. Over the same period Berkshire's BV/share has increased 10.6%/year (least squares), so it would appear that the rest of Berkshire, apart from the equity portfolio, has grown somewhat faster recently than the equity portfolio.
Can we make similar estimates for the other parts of Berkshire, and if so, what parts of Berkshire are growing in value the fastest? Also, how much does leverage in the form of bonds issued at low interest rates and low cost float add to Berkshire's value growth rate? Care to help me with the calculations?
The calculated, value growth rates above for the equity portfolio and BV/share are only for the last 23 years. Over the 58 years since Buffett took over, Berkshire's value, as measured by BV/share, has grown much faster, 19.4% for the first 50 years and about 18.2% for the 58 years. AS measured by IV per share Berkshire's value has grown 19.6%/year over 58 years, by my estimate. I think that this amazing growth was driven in large part by phenomenal returns in the equity portfolio in Berkshire's early years, amplified by low cost leverage. Very few operating units can grow 19%/year for 58 years.
Any help that you can give in analyzing the components of Berkshire's value growth, both historical and recent, would be greatly appreciated.
Sincerely,
rrr12345
