Valuing BRK on book makes less and less sense as time goes on. It used to be mostly insurance cos with a portfolio of publicly traded stocks and a few operating businesses on top, but now it's also bunch of very large operating businesses of various kinds. The two-column valuation method makes most sense, IMO.
I certainly wouldn't compare the book value of BRK to GOOG or whatever...
Q: Do you think the equity positions in Berkshire will do better for Berkshire going forward or the wholly-owned businesses?
MUNGER: Well I think that wholly owned businesses will because we won't be paying any taxes on selling and I think they’ll continue to grow and I think they'll do better. I think the wholly owned businesses of Berkshire—or the the 80% owned or what have you—are on average, better than the S&P. So I think we'll do better in that part than the S&P. And I don't think our stocks located in a corporation subject to taxation will do enough better than the S&P when paying the taxes. But if we're buying the stocks with the float in some insurance company, of course it changes.
But no, I would say that of course, if you buy Berkshire, you should not be buying it on the strength of its little insurance portfolio.
People who buy Berkshire—when you bought Berkshire back 30 or 40 years ago you were getting a bunch of marketable securities that did this, count em up and the businesses were free. Of course those people made a lot of money. We outperformed the market by miles in those days and the businesses did well. And now, we've got businesses that are averaging out doing well and our marketable securities are a small percentage of our cap.
There were years when we had more marketable securities per share than our book value per share. Now, it’s quite different. And of course the market at its present modal—it’s a different world. The one thing about Berkshire that's interesting is we do get some opportunities that other people don't get. If you're 3G and want a partner for your next deal, who the hell are they going to come to? They know we're a good partner, so we see stuff other people don't see. That helps.
You get $106/share in Investments/cash, and ~$9/share in earnings. So at $170/share, you're paying around 7x Op earnings per share for a very diverse group of businesses, earning stable, predictable earnings, which have been selected by the greatest capital allocator of all time. The group probably earns 15-20% on capital, and while growth may be limited, I don't expect it to lag the S&P.
So as others have said, I think ~11-12% annual return from today's price is a reasonable expectation. This is why I hold Berkshire in my 401k rather than an S&P index fund.
