Post New

On the Berkshire board

https://brklyninvestor.com/2026/02/13/lets-talk-ab...

Not a very uplifting piece.

On Ted and Todd:
If Buffett can’t outperform with $250-300 billion, we can’t really expect anyone to. So it was not really that Buffett / Munger made a mistake in picking stock-pickers, or it wasn’t that Ted and Todd suddenly, upon joining BRK, became dumb. It’s just simple math.

We can't expect Abel to, either. And...
...so we are in the window of “probably between ten and twenty years from now…” where the directors “…will need to need to determine whether the best method to distribute the excess earnings is through dividends, share repurchases or both.”

“ …When thinking of all this, one thing keeps nagging at me and it’s BRK’s board. Of course, all the board members are highly qualified and highly respected people; I have no issue with anyone in particular. But when thinking of the future of BRK, and even the recent past, I get this sense that this board is kind of out of date and maybe not best equipped to oversee BRK. Yes, it is great, if not perfect, in maintaining the culture at BRK…”

The aging and “old school”board was much more of a factor years ago with Scott, Murphy Sr., Gottesman, Charlie & Olson.

Dimon or Bezos would be great potential additions imo. Tim Cook would be great, perhaps when he slows down, or perhaps a Larry Page/Sergey Brin type given how AI, tech and cloud are impacting the future of business.

I’m excited to read and re-read Greg’s letter in a couple weeks and hope it is lengthy with some valuable insight into his vision.

I found that post somewhat puzzling. My comment I ran to it:

So I’m a bit confused. Let’s see a few points clarified. I’m a 25+ year Berkshire holder, who has read every one of his letters back to the ’70s.

1. Board composition – Susan Decker isn’t listed, so I’m curious what your source is of who is on the board.

2. Board age and nepotism – that’s the real concern; despite holding the stock a quarter century, I’m younger than everyone on the board. You don’t get novel new ideas from an average age of 70something. Howard Buffett has no interest in these business dealings, and Warren’s positioning of him on the board to “preserve culture” is highly dubious. Ajit and Greg will do that far better.

3. Investing lieutenants – we all knew Todd was departing, but Ted? There is no press on his departure; if anything, Greg Abel will have Ted fill a bigger role as Greg will be learning more about the corporation, and serving in a bigger/more public/outward facing role, and have less time for capital allocation. As for Todd and Ted’s performance, Warren flat-out said in one of the annual letters that they were doing better than he. Assuredly, Apple – Berkshire’s biggest raw dollar gain in securities in its history – was not Warren’s idea.

The board is still quite old. They went from crypt keeper to an average of septugenarian.

“ Not a very uplifting piece.“ Hi partner, while I’m headed out too dinner in fabulous Las Vegas, can you do us a favor? How much net selling of our securities has Buffett done in the past five years? How much cash have those sales realized? How much appreciation have we missed out on as a result of those sales? Before you people start a gofundme for us poor brkb partners who have to much cash , how did we get to 370 billion in cash, assuming we were a net seller in Q-4? It is size or very poor capital allocation the past 5-10 years? I want Greg to say “ at the new Brk we trust but verify. Every material investment will be reviewed by a forensic accountant going forward. I believe Brk has been a buyer the past two months, we shall see. It’s too soon for Brk to declare a dividend, Buffett is way too stubborn for that and no doubt he’s still calling the shots. Thanks for the data AdrianC. Us old timers love and respect old friends like the Brooklyn investor, rw, etc, but they are wrong on several of these current issues. Hopefully Greg will prove me wrong and shock us all.

Not a very uplifting piece...

I don't see a big problem with the board.

What would concern me for the firm's future is this:

At its core, Berkshire's business is best described as buying businesses with material future owner earnings at decent valuations, then using the resulting free cash to repeat. That's about it. The core activity is investing. Public or private, makes no difference.

Mr Abel is not an investor.

As Mr Buffett has lectured at length, the key activity of any CEO is capital allocation, and even more so at Berkshire. On that front, the firm is bereft and adrift and likely to remain so.

The only prayer for future better-than-muddling results is a corporate culture tradition of avoiding the more obvious stupid choices, like transformative M&A for the sake of looking in control. And maintaining a great balance sheet. Pretty thin gruel.

Jim

“ Mr Abel is not an investor.

As Mr Buffett has lectured at length, the key activity of any CEO is capital allocation, and even more so at Berkshire. On that front, the firm is bereft and adrift and likely to remain so.”

Not a very uplifting post… ;-)

And the firm has a record amount available to allocate. Perhaps Mr Buffett had something up his sleeve all along?

13 more sleeps.

And the firm has a record amount available to allocate. Perhaps Mr Buffett had something up his sleeve all along?

As he noted, he's not magnanimous enough to hold off just to make the next guy look good : )

To be fair, I suspect they haven't been quite as inactive as it sometimes seems. For every elephant that gets bagged, there are probably several deals that got a long way into the process but never came to fruition. I can think of two specific comments from Mr Buffett on things in the works, but without later fruition. One was a comment on why they were raising cash in a particular quarter, so it must have been reasonably close.

I expect that, as the deals get bigger it's a more institutional process, so the "go shop" thing becomes the rule rather than the exception. There is sadly little advantage to being a fellow who can do a giant deal on a handshake if there aren't any corresponding handshakes possible from counterparties. Except during panics, of course.

Jim

if sentiments tanks the shareprice when warren expires and 'abel is not an investor' ovewhelms, i will gladly be making my first direct purchases from former cult members.

more than happy to allocate on the basis that abel will be far superior as an operator.

"What would concern me for the firm's future is this: [lack of investment and asset allocation expertise, and stupid M&A."

I agree. Warren was the best investor and asset allocator of all time, and he did not do M&A for ego. His shoes will be impossible to fill. More expertise on the board will not solve the problem of losing Warren.

I did a quick and dirty calculation to illustrate your point about how important investments are:

Berkshire asset, percent of company by assets, trailing 10-year return

equities, 25%, 15%/yr
T-Bills, 25%, 4%/yr
Other (subs), 50%, 15%/yr
Total, 100%, 12%

It would take a large shift from T-Bills to equities, or preferably to subs, to change the total value growth rate. For example, converting half of the T-Bills into subs or equities earning 15% would only increase the total return from 12% to 13.6%.

Just another point about value growth... the period in time makes a huge difference. During the '80s and '90s Berkshire's BV grew 29% annualized. Since then it has grown 12% annualized. Warren was in charge during both periods. Even the best are not immune to the times.

I'm drifting off of the topic of the Board of Directors, but I wanted to show a few numbers illustrating the value growth rate of some good companies. These numbers come from Morningstar. Unfortunately Morningstar does not tabulate these numbers, so one can't screen by Fair Value growth rate. You have to go to each company individually and then take the numbers off of their "Price versus Fair Value" chart.

company, 10-year growth of fair value

NVDA, 84% annualized
GOOGL, 25%
Apple 23%
PGR, 22%
MA, 16%
BRK.A, 12%

It's possible to achieve high growth rates of FV without relying on acquiring companies if you can develop products internally that people want.

It's possible to achieve high growth rates of FV without relying on acquiring companies if you can develop products internally that people want.

Absolutely. But for context, you have to add the observation that the vast majority of such attempts to build great new things fail. We missed out totally on WeWork.

Berkshire's success to date has rested almost entirely on NOT trying that in any big way. Sticking with a collection of proven business models definitely doesn't work as well as trying "the new" and succeeding, but apparently works very much better than trying and failing. Fewer home runs, but way more base hits.

Jim

At some point won't the board and/or WEB simply institute a mechanical rule on share buybacks?

A constant $30-40B share buyback without regard to IV.

“At some point won't the board and/or WEB simply institute a mechanical rule on share buybacks?

A constant $30-40B share buyback without regard to IV.”

Calculating a rough IV can be mechanical, see Buffett’s 5-groves. He could write it down on a single sheet of paper, though if Greg can’t figure it out for himself we have bigger problems.

Buyback would never be without regard to IV.

Calculating a rough IV can be mechanical, see Buffett’s 5-groves. He could write it down on a single sheet of paper, though if Greg can’t figure it out for himself we have bigger problems.

Buyback would never be without regard to IV.


Yes, I totally agree. A very low bar for buybacks would have served Berkshire very well for the last 20 years. Buffett reluctantly began repurchases in 2011 with a very high bar - shares had to be below 1.1x book value - and then he raised that to 1.2x. Now there is no number, but we have seen repurchases stop when prices get close to 1.5x book. Of course it is easy to criticize looking backwards, but I think Buffett has been pretty clear for at least a decade that the prospects for big acquisitions are going to be few and far between, and that only the top 50 or so companies by market cap would move the needle (#50, IBM, is currently worth $245b). So what is the point of all this cash?

Without completely disregarding IV, it would be possible to say that repurchases right up to IV are still not destroying value, and solve the problem of all this cash generating low returns and with little prospect of ever using it. Buffett has expressed admiration for Henry Singleton who repurchased about 90% of the shares on Teledyne, and if Buffett had really taken this example to heart, Berkshire shareholders would have been much richer now. Although now that I think about it, making Berkshire shareholders as rich as possible has perhaps not been Buffett's primary concern for a long time.

Buffett talked about the 5 groves in 2019, but I have never seen enough detail about this idea to make it operational. The groves were:

Insurance: Operating with massive float.
Railroad: BNSF Railway.
Utilities and Energy: Berkshire Hathaway Energy.
Manufacturing, Service, and Retailing: A diverse group of companies.
Stocks/Cash: Passive investments and liquidity.

But how do you assess the value of the float? Do you include underwriting? If so, do you take the average underwriting earnings as a percentage of net premiums written, say over 20 years, and apply it to current NPW? How do you ascribe a value to the railroad and energy companies? Do you take average earnings of the MSR companies? Do you take stocks and fixed income investments at market value? What do you do with the future tax on unrealized capital gains? Buffett's five groves is a way of thinking about categories of value at Berkshire, but it never took us very far towards actually coming up with a number.

Of course he could do this internally, and set up a plan for systematically repurchasing below that number (say, with an annual Dutch auction for 5% of shares). An announcement that such a plan was in place would be a fantastic way for Abel to start his term.

Regards, DTB

Buffett's five groves is a way of thinking about categories of value at Berkshire, but it never took us very far towards actually coming up with a number.

I thought he laid it all out quite well in the 2018 letter:
https://berkshirehathaway.com/2018ar/2018ar.pdf

I follow what he wrote, use a multiple of earnings for the subs, include stocks and fixed income investments at market value, subtract some cash that will never be invested.
After discussions here I did add in a % of float for underwriting earnings (1.4% - the 10 year average). It doesn't make much difference.

It's only the last couple of years that the stock price has consistently been above my 5-groves.

So what is the point of all this cash?

Can't find anything to buy so it builds up. I don't think it's any more complicated than that.

Has anyone calculated the compounded annual return for Berkshire from here under the following cannibal conditions?

Exit at a Price to Book value at the current market ratio in year 5. A reasonable valuation.

All excess capital, defined as cash in excess of insurance float, plus annual free cashflow deployed into share buybacks over a period of 5 years at 1.4 price to book ratio (or whatever management considers an intelligent discount to intrinsic value.) would require a bit of luck but and intelligent capital allocation but not a lot.

No major acquisitions, or equity investments.

Maintenance capex only.

Existing businesses grow at the level of the US economy. Not a huge hurdle.

Equity investments grow in market value in line with the US economy. Again not a huge hurdle.

My unreliable AI assistant tells me it would be around 9% CAGR. That seems a bit high intuitively.

Although, in this scenario the buy backs at even a small discount probably add up to something significant.

5 years of FCF plus current excess cash would dramatically increase remaining shareholder slice of the pizza.

Given the foundation selling pressure; loss of Buffett and Munger magic narrative; tax efficiency; general market valuation risk; harder and for Greg Abel to remain over capitalised versus Buffett and perhaps rational - it does sound like a reasonable base probability outcome.

What’s your 5 year CAGR in this cannibal scenario?

Has anyone calculated the compounded annual return for Berkshire from here under the following cannibal conditions?

It depends on the valuation level at which buybacks are done. If done on average at fair value, the value of a remaining share axiomatically doesn't change.

Speaking purely for illustration, if the firm is currently valued at book for cash and investments, but at X times earnings for the rest, the mix of those two would change but the total wouldn't.

So, to a first approximation, the trajectories of value and price would be unchanged in a cannibal scenario.

It depends a bit on the multiple you think the cash pile is being given by the market. Face value? A pinch more because Berkshire has always managed to find a profitable way to deploy it before too long? Or lower, because the average market participant expects some of it to be wasted? (paid out triggering high dividend tax, earn nothing for too many years before being allocated in an average way, dumb capital allocation by the new boss, whatever)

Overall I don't think it would make a big difference. Which leaves the question of what the owner earnings are now. Maybe just look at the median rolling year rise in book recently?

Biggest recent wildcard isn't the cash pile, but the big permanent hit to the true value of BHE. Unquantified but immense.

Jim

That makes sense. If Berkshire bought back $500 billion of shares at intrinsic value, it changes the asset mix but there is no immediate benefit to remaining shareholders.

Whereas, if Berkshire bought back $500 billion at a 30% discount, $150 billion of value is created for remaining shareholders. Nothing spectacular but not bad at all.

I watch long dated Pacificorp and BHE bonds. Prior to the wildfires in 2020, long dated (2050+) BHE and sub bonds traded at 3-4% yield. Fed fund rate was 1.5-2.5%, so there was premium of about 1.5%.

Now long dated BHE/Pacifcorp bonds yield 5.5-6%. Fed funds rate 3.5-4.25%, so the premium has maybe widened - 1.75-2.5%

My recollection is that corporate term premiums have narrowed over the last year. So maybe there's some add risk.

Maybe my logic or math is off.

WA, OR, and WY PUCs have for the most part approved Pacificorp rate increases (including costs for wildfire mitigation etc). So it's possible that Buffett's letter admonishing rate regulators has done its job.

I thought he laid it all out quite well in the 2018 letter:
https://berkshirehathaway.com/2018ar/2018ar.pdf

I follow what he wrote, use a multiple of earnings for the subs, include stocks and fixed income investments at market value, subtract some cash that will never be invested.
After discussions here I did add in a % of float for underwriting earnings (1.4% - the 10 year average).[1] It doesn't make much difference.[2]


That approach certainly sounds reasonable, but there's a lot of filling in the blanks from what Buffett wrote. For instance, unless you do some adjustments, evaluating the first grove non-insurance subsidiaries just based on the previous year's earnings seems too volatile.

The second grove, public equities, is straightforward for the equities, especially now that Apple is down to a size similar to the others and doesn't need any adjustment.

The third grove, joint ventures, is getting less and less important, as KraftHeinz dwindles into oblivion, Pilot is now (unfortunately) a fully owned business, and Berkadia seems to have become tiny (in the 2024 annual report, it was lumped in with 'Other', with a carrying value of $452m.) Actually, no, scratch that, as I wrote that, I thought, "But it's not so insignificant to Jefferies, a much smaller company who owns the other half", thought I. And indeed, the Jefferies annual report that says it earned $192m pre-tax in 2024 which obviously gives us the number for Berkshire, too. And for 2025, a reasonable adjustment might be to count their 28% share of KraftHeinz's approximately $2.6b in earnings but not to count the huge writeoff in Q2 which will make earnings temporarily negative.)

The fourth grove, the fixed income investments, is harder. Much of it corresponds to float, and Buffett didn't really say whether it should be included (despite the fact that it is counterbalanced by obligations) or not. But I think it is a pretty much permanent source of fixed income earnings, and I'm not so sure you even need to subtract any cash - is it really true that it will never be invested? Isn't it ALL invested, mostly in treasuries? I don't think there's any cash sitting in a chequing account earning 0% interest.

The fifth grove, I agree with you, should be counted, although in 2018, Buffett seemed to waffle:

"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. We will explain the characteristics of float later in this letter."

So he doesn't really say anything about underwriting, which clearly has been a huge contribution to Berkshire's success for decades.



So now that I've thought about this, here's my estimate for end of 2024, which we will be able to update next week when we have 2025 results. My preferred approach is to subtract out the things we can value fairly precisely (equities and fixed income, or groves 2 and 4), and then calculate the earnings from groves 1,3 and 5, using the average combined ratio for the last 10 years applied to current net premiums earned for grove 5. That gets me:

Grove 1: $24.271b net earnings of BNSF ($5.031), BHE ($3.730b) and MSR (Manufacturing, service and retail; $13.072b) p. 5)

Grove 2: $271.588b market value (p. K-102)

Grove 3: $1.519b net earnings of associates (p. 5)

Grove 4: $349.565b (p. K-66)

Grove 5: Net premiums were $88.257 in 2024, average underwriting margin in the last 20 years has been 3.46%[3], so I'm saying $3.058b in normalized underwriting earnings.


So now I subtract the equities and ALL the fixed income stuff (including cash) from the market cap, so $1068b minus $621b from groves 2 and 4, and get $447b for the groves that produce earnings. (Of course, groves 2 and 4 produce earnings too, but no double counting, so they have just been valued at market price, without looking at their earnings.) Those $447b in assets produced a total of $28.848b in earnings, which is a P/E ratio of 15.5. (The alternative method, giving some arbitrary multiple to these earnings, say 15, and then asking whether the stock is overvalued or undervalued, gives you a similar answer, but I prefer to just calculate what the market is implicitly paying for groves 1, 3 and 5, and then anyone can be the judge of whether that multiple is too high or not.)

Bottom line, if you think Berkshire's equity and fixed income portfolio is fairly valued, and if you think that 15.5 is a reasonable multiple for a bunch of earnings streams (largely BNSF, BHE, MSR, a little bit of KHC and Berkadia and Occidental, and $3b of underwriting earnings at the average underwriting margin), then Berkshire is reasonably priced.

I have no position right now. I have been keeping a fairly close eye on the company, as it was my biggest investment for 20 years until a few years ago. I intend to wait to hear from Mr Abel who has seemed much more impressive to the people who know him well than to me, so far. I am keeping an open mind, but to reinvest in Berkshire I would want to hear that Abel has a vision for repurchasing shares at a rate that is an order of magnitude higher than what Buffett seems to have had in mind. I share some of the concern that Abel is not primarily an investor, and that is job #1 for the Berkshire CEO, but I presume Buffett and Munger thought he would be up to this part of the job, or they wouldn't have chosen him. I don't like a lot of the choices Buffett has made in the last 10 years, so, different from some investors on this forum, Abel is the reason I might buy shares again, not a reason to avoid them. And maybe if he sounds like he is not up to the job (public speaking does not seem to be his forte), Mr Market may give me a hand and allow me to buy those shares at a lower multiple.

Regards, DTB


Notes
(1) "After discussions here I did add in a % of float for underwriting earnings (1.4% - the 10 year average)." - I get 2.42% for the last 10 years, and 3.46% for the last 20 years. I just use insurance premiums earned (disclosed on p.K-68 last year) and divided by net underwriting gain (on p. K-33 last year). Maybe we are doing this differently? Or if you did the calculation 2 years ago, by my calculation it would have been 1.70%, much closer to your figure.

(2) I think it makes enough of a difference to be worth doing, at a 3.46% margin - they were 11% of all net earnings in 2024. Excluding those $3.058b in UW earnings would give us a P/E of 17.3 instead of 15.5.

(3) This is the fastidious part of the calculation, finding net premiums earned and net underwriting gains for the last 20 years. Of course, there has been no 9/11 in the last 20 years, so even 20 years may not be enough to be sure, especially for reinsurance. Reinsurance is now a much smaller part of Berkshire's overall business (shhrinking from 70% of insurance premiums in 2000 to 32% in 2024), and insurance itself has diminished from 57% of Berkshire's revenues to 23% in 2024, so while this was a major concern in the years after the GenRe acquisition, it's a small fraction of the risk now.

I get dizzy when reading all this complicated stuff about groves and projections and calculations. It's like trying to follow a Feynman lecture on quantum mechanics.

So here's a thought.
Leave all that stuff to people smarter than me (us). They will buy the right stocks and sell the bad stocks.
Which will result in the "good" stocks going up in price and the "bad" stocks not.
So look at which stocks are doing what. And buy stocks that are going up.

Follow the trailblazers.
Just a thought.

Grove 5: Net premiums were $88.257 in 2024, average underwriting margin in the last 20 years has been 3.46%[3], so I'm saying $3.058b in normalized underwriting earnings.

FWIW
That's a bit higher than the figure I use, but doesn't seem unreasonable. I like to lean to the conservative side, since the occasional gigantic loss is not an exception, but something that happens in the normal course of business. I would rather be pleasantly surprised rather than unpleasantly.

I've found two quick estimates of pre-tax underwriting profit that seem to have held up well, in that aggregate P/L over the years has tracked aggregate estimated profit pretty well in the same period, as well as percentages. The two are:
-1.3% of float
+2.7% of premiums earned
The two give fairly similar results, and I use a simple average of those two methods. Four quarters to 2025-Q3 came out at $2.327bn before tax.

The only thing to watch out for is that under "premiums earned" there is the occasional spike, meaningless for this purpose, from retrocession agreements. The entire upfront payment counts as premiums earned in the quarter that the deal is done, even though a bunch of liabilities are taken on at the same time. $7.1bn in 2007 from Equitas, $10.2bn in 2017 from AIG. Because of that, using a percent of float is the easiest. You don't even have to add up four quarterly figures, just look at the most recent stated float balance.

Jim

Leave all that stuff to people smarter than me (us). They will buy the right stocks and sell the bad stocks. Which will result in the "good" stocks going up in price and the "bad" stocks not

This is true.* But one must also remember the large (presumably much larger) population of people who buy stocks for really stupid reasons, leading THEIR picks to go up too : )
At least for a while.

I would advocate a modest tax credit for dedicated short sellers of individual securities, as very few of them do so for stupid reasons, so both their sales and purchases tend to drive stock prices towards fair value. They perform a public service, and positive externalities are always under supplied.

Jim

* especially lately.
Imagine a fellow who in the four years 2022-2025 simply bought equal amounts of the 30 stocks (I used the Value Line 1700 database) that had gone up in price the most in the prior year, held them all for 1-6 months, and repeated. That would have returned over 40%/year. My suggestion: don't try this for the next four years.

So here's a thought.
Leave all that stuff to people smarter than me (us). They will buy the right stocks and sell the bad stocks.
Which will result in the "good" stocks going up in price and the "bad" stocks not.
So look at which stocks are doing what. And buy stocks that are going up.

Looks like you're out of Berkshire then?

https://stockcharts.com/freecharts/perf.php?SPY,BR...

"Which will result in the "good" stocks going up in price and the "bad" stocks not.
So look at which stocks are doing what. And buy stocks that are going up."

Looks like you're out of Berkshire then?

I have only 5.7% allocation to BRK. Most of that is in taxable accounts with a very low basis and a quite large capital gain which I don't want to pay taxes on. Anyway, BRK is still mostly going up. Long term. Just not right now. Haven't bought any more in a long time.

I have a larger allocation to GOOGL, 7.5%. And it is going up quite nicely.


Actually, I have been giving BRK the stink eye for quite some time, because the P/B has been stalled above 1.5

Grove 1: $24.271b net earnings of BNSF ($5.031), BHE ($3.730b) and MSR (Manufacturing, service and retail; $13.072b) p. 5)
Grove 1: 5.031+3.73+13.072 = 21.833

Grove 2: $271.588b market value (p. K-102)
Less taxes that would be owed if sold, per Buffett's explanation.
Cost basis 75.5, tax rate 21%
Grove 2: 230

Grove 3: $1.519b net earnings of associates (p. 5)
Same.

Grove 4: $349.565b (p. K-66)
I've gone back and forth on this. At one point the cash really was earning nothing. Now it is earning a little bit over inflation, maybe.
Let's include it all.
Grove 4: 318 cash +15.4 fixed = 333.4

Grove 5: Net premiums were $88.257 in 2024, average underwriting margin in the last 20 years has been 3.46%[3], so I'm saying $3.058b in normalized underwriting earnings.
I've been copying Jim.
Grove 5: 2.39

Using your market cap of $1068b
1068-230-333.4 = 504.6

PE = 504.6 / (21.833 + 1.519 + 2.39) = 19.6

Or, using 15x it adds up to an estimated IV at end 2024Q4 of $440/b share (1.46x book).
Same procedure for 2025Q3 gets $471/b share (1.45x book).
It's just an interesting exercise for me. I wouldn't buy at >1.4x book.

Berkshire asset, percent of company by assets, trailing 10-year return

equities, 25%, 15%/yr
T-Bills, 25%, 4%/yr
Other (subs), 50%, 15%/yr
Total, 100%, 12%

How did they get a trailing 10-year return on T-bills of 4%? Even today T-bills only yield 3.6-3.7%. But a few years ago, it was close to zero for a very long period (many years).

Grove 5: Net premiums were $88.257 in 2024, average underwriting margin in the last 20 years has been 3.46%[3], so I'm saying $3.058b in normalized underwriting earnings.

FWIW
That's a bit higher than the figure I use, but doesn't seem unreasonable. I like to lean to the conservative side, since the occasional gigantic loss is not an exception, but something that happens in the normal course of business. I would rather be pleasantly surprised rather than unpleasantly.

I've found two quick estimates of pre-tax underwriting profit that seem to have held up well, in that aggregate P/L over the years has tracked aggregate estimated profit pretty well in the same period, as well as percentages. The two are:
-1.3% of float
+2.7% of premiums earned
The two give fairly similar results, and I use a simple average of those two methods. Four quarters to 2025-Q3 came out at $2.327bn before tax.


I added another five years to include a gigantic loss that happened in 2001. From 2000 to 2024, the average underwriting gain was 2.30% of net premiums earned, close to your figure. I think this is TOO conservative, because it includes 3 years with losses (not just 2001, but also 2000 and 2002), just after acquiring GenRe and its book. Since then, reinsurance has gone from 40% of Berkshire's revenues to 7% of its revenues. So even if we got another terrible year like 2001, it should have about five times less impact on Berkshire than it did in 2001.

BTW, the other thing I should have mentioned is that, when counting the value of the equity portfolio (grove 2), I made no adjustment for the unrealized capital gains, which were $200b as of September 30 (10-Q, p.9), so there is about $42b in future tax liability. It is hard to know when that will come due, so to split the apple in half, one might dock $21b from the company's value and consider that the other half is float. That would take the P/E on groves 1,3 and 5 from 15.5 to 16.2, not completely insignificant.

Grove 1: $24.271b net earnings of BNSF ($5.031), BHE ($3.730b) and MSR (Manufacturing, service and retail; $13.072b) p. 5)
Grove 1: 5.031+3.73+13.072 = 21.833

Grove 2: $271.588b market value (p. K-102)
Less taxes that would be owed if sold, per Buffett's explanation.
Cost basis 75.5, tax rate 21%
Grove 2: 230

...

PE = 504.6 / (21.833 + 1.519 + 2.39) = 19.6

Or, using 15x it adds up to an estimated IV at end 2024Q4 of $440/b share (1.46x book).
Same procedure for 2025Q3 gets $471/b share (1.45x book).
It's just an interesting exercise for me. I wouldn't buy at >1.4x book.


Thanks for checking. Grove 1 I mentioned MSR at $13.072 but I should have said 'Other controlled businesses' and I seem to have added a couple of billion somehow, but you are quite right.

For grove 2, I noticed the same error you picked up, but since a lot of that tax is in the distant future, I apply the handy 0.5 factor to adjust it down a bit, and dock only $21b instead of the whole $42b.

With those changes, I get a P/E of 17.7, which I think is not outrageous but I come to the same conclusion as you, I have better opportunities. Primarily Fairfax, that is trading at 8x earnings instead of 18x and has, I think, much better growth prospects, and is less confined to the USA.

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