BRK as an investment

[Okonomen]

Hi all,

This may sound like a "boring" idea, but have you considered an investment in Berkshire Hathaway? Many probably thinks it must be fairly valued etc, but before you dismiss it completely, let me elaborate:

* the market seems to mostly view BRK as an asset manager dependent on old Buffett’s stock picking skills, valuing the company close to 1,3x BV, thus not putting much weight on the strength of their subsidiaries

* however, BRK has 270 high quality subsidiaries generating 30 bio USD pretax earnings, among others the railway BNSF which makes up 20% of net profits. Around 70% of pretax earnings are from relatively non-cyclical businesses. Around 7 bio. USD pretax is from insurance and 5 of the 7 bio. USD is investment income generated on their float

* they have 120 bio. USD in cash ready to be deployed in a good opportunity maybe during a market crash

* they have a market portfolio worth 200 bio. USD currently. With it follows a deferred tax liability of 50 bio. USD which we can views like an interest free loan from the government

The market cap is 500 bio. USD, they have only 4 analysts and I think a fair value is closer to 700 bio. USD due to undervalued subsidiaries, but despite an upside that is not mindblowing we get also a limited downside and a great long term compounder and a uniquely advantaged structured holding company.

Any thoughts?

I would especially like to get some inputs on how to value their insurance operations

[longinvestor]

That Berkshire is worth some $700 Billion appears all over the Berkshire Hathaway threads @ CoBF. So you’re not alone in thinking this way. You mention 4 analysts only following Berkshire. That’s four too many! Thoughtful, long term posters here (& TMF) are more worthy of our time.

As to how much the insurance business is worth, I’d just take their comparable competitors market value for a ball park. I’d just stick with the bigger ones like Geico and reinsurance. Or simply ignore insurance in the valuation and treat that as a margin of safety. At 500/700 it’s a 70 cent dollar. And if IV is believed to grow at about 10%, the business will be worth a trillion in a few short years. That is a happy thought. We’ve seen AAPL GOOG cross that milestone in market cap and I’ve no idea what their intrinsic value is but knowing that the weighing scale should soon register a trillion for Berkshire is a very happy thought.

Thanks for posting. Btw boring is good, some of us are learning to get used to this.😉