On a more serious note:

I really want rb to chime in here, on:

1. His thoughts about the discounting of the float liability,

2. His further comments about the piece by SlowAppreciation.

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I hope that rb is just having a good time off the board in the summer period up there in Toronto.

Thanks for asking John. Summer here in Toronto is lovely

. It makes you feel guilty about time you spend inside. The time to read annual reports is in the winter damn it! I'm actually still adjusting back to Toronto. I recently returned from a 3 week holiday in Italy. Posting has been more limited during that time.

Now onto the more serious things. Regarding SlowAppreciation's piece. As I've said it's pretty well written. He did miss the float liability, but we've beat on that enough. The other thing i would do different is doing a much deeper dive into the subs, not just group all the op-cos together and then slap a generic multiple on them. BNSF is very different from Sees Candy, which is very different from Clayton.

This is how I would go about it. A valuation for BNSF, one for BHE, one for Manufacturing, Services, & Retailing (hey you have to use a bucket somewhere), one for financial products and one for underwriting. If you want to be really through I would also split the insurance group into Geico, reinsurance ops, and other primary. Yes that's a gigantic pain in the ass. But Geico is valuable as hell (at least 3x book) and as a shareholder you want to understand that value and the dynamics of it.

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Ok. Enough about the blog post. Let's talk about about float discounting.

My thoughts are along Vinod1's. Basically the moment you capitalize the underwriting profit, the float liability just becomes zero-coupon debt. Yes it's a revolving fund and all that. But so is most corporate debt - through refinancing. So now that we see it as zero-coupon debt we can go ahead and calculate the discount. The discount will be equal to the capitalized value of the coupon BRK would have to pay to borrow the equivalent of its float.

So the formula is D=F*c*(1-t)/r where

D=Discount to float face value

F=Float face value

c=coupon BRK would have to pay on debt

t=BRK tax rate

r= hurdle rate

So, let's calculate it. We know F=106B, c would probably be between 3-4%, let's go with 4 to be conservative, t is 36%, r is maybe 9%.

Then D=106*.04*(1-.36)/.09=30.15. So the discount to float is about 30 billion. From this amount you would have to subtract the goodwill carried by the insurance cos in order to get to valuation.

I know this is a bit long.... but you asked for it.

Cheers