I don’t think using look through earnings is aggressive, as long as one doesn’t then double count the stock portfolio.
What’s more aggressive is to normalize the earnings power for interest rates without any other adjustments. He points out how much of the earning power this is so it’s easy to get rid of/not include.
We measure Berkshire’s normalized profitability at roughly $42 billion for 2020. How much of that is available for investment? Consider that $10 billion is spoken for because it stays with the stock market investees as retained earnings. Another $7 billion, at least, represents capital expenditures in excess of depreciation charges. Much of this is contemplated growth capital spending at predictable returns. Finally, another $5 billion of “assumed income” is presently not being earned thanks to interest rate suppression by the Fed. Our method for
deriving normalized profitability assumes that a portion of Berkshire’s current cash will ultimately be
invested in higher-earning assets. $5 billion represents the present value of the portion of cash likely be
deployed in the intermediate term, perhaps on share repurchases. In all, of the $42 billion in “profit,” just
over half is already accounted for (or doesn’t exist yet as cash profit).
Overall, appreciate his work.
EDIT: on second thought, this may actually not be that aggressive in that at reasonable earnigns multiples, you'll get a value lower than the actual cash amount.
