Leaderboard

P/B matters for balance sheet businesses but it should be looked at in conjunction with ROE. Assets that are marked below FV but are earning an appropriate return will increase ROE all else being equal. The relationship between the BV and ROE should be exponential. At a 10% ROE a P/B of 1x makes sense for a 10% required return. At a 20% ROE P/B should be much higher than 2x because the compounding effect over time of the return on incremental capital. For Fairfax, I use BVPS + float, 15x earnings and 2.5x BVPS to triangulate intrinsic value.