100 Shares

Buffett has stated before that if he could have it his way, Berkshire stock would be open to trade one day a year at a price set by himself and Charlie. I think this attitude is carried over from his days running the Buffett Partnerships. Some of his shareholders only own BRK because of him (especially true when he shut down the partnerships and moved his money into BRK), not because they are investors that buy and sell. He has a duty to protect them and keep them informed. The disservice to continuing shareholders is very small. If you do the math and he buys back 1% of stock at a 25% discount to intrinsic value, then the IV of the company increases by 0.25%. If he is buying back 1% of stock that is about $3.4B at this price that could have been used in other ways. Just because Berkshire is undervalued, doesn't mean its the appropriate thing to buy, its all opportunity cost. I'd like it to get to below 1.2BV so I can buy more not because I care if Buffett does.

1) There are the interesting dynamics when taking an initial position. There is the balance of how much to put in initially vs. how much to leave on the table so that further increases can occur. Some of his purchases have occurred over many quarters. Some during declining prices and some during rising prices of those stocks. How does he think through this when making deciding to invest in a stock? 2) If the trading volume of a stock is enough to build a position in 1 day, do you prefer to buy all at once at a known price or dollar cost average over a month (or any other time period)?

Great article. Love the emphasis on the repeatability :), and thanks for sharing the underlying numbers. At the end of the article, you state that Berkshire is trading at a discount to intrinsic value. I wonder as to how much of your assertion is based on the relative valuation compared to the S&P500? Thank you. I appreciate the compliment. It is highly based on relative valuation although I don't like the typical connotation of relative valuation. I like to look at it more like how graham would put two companies next to eachother and compare. I do not like looking at Facebooks's valuation and then saying it is trading at a discount to peers such as Twitter, which is the image I get in my head when I hear the term relative valuation. In the end it's all about opportunity cost, yes Berkshire may be more attractive than the S&P 500 but there are still many other investments within someone's circle of competence to compare to. I also like earnings yield. So if I determine Berkshire is attractive relative to other investments I think is the earnings yield now or in a few years something is find attractive as a business owner? 100 Shares, Nice work, thanks. I hope you own 100 shares of BRK -A :) I do a look-through calc which is somewhat different than yours. I include net operating earnings from all op's, including insurance, and then, like you, I add the undistributed earnings from the stocks ( but back out the dividends BRK has already collected, which are included in the operating earnings). I'm coming up with a look-through figure about 10-15% lower than yours, and it must have to do with the operating earnings number...so here is my question: Can you explain where you get the $20.7B number ( from article #2 in your series)? You wrote; "<....Now we take that and add it to Berkshire's TTM Net Earnings of $20.7B to get 25.7B.>" As I have it, the last 4 quarters of net operating earnings - including insurance op's - starting from Q4 2013: $3.8B, 3.5B, $4.3B, $4.7B = 16.3B. I might be way off, but I'm showing less operating earnings than you, and I'm including all of the op's. For reference, I pull the quarterly numbers from P. 24: http://www.berkshirehathaway.com/qtrly/3rdqtr14.pdf Thanks in advance! Thanks again for pointing this out. And thank you to everyone that participated in the discussion. I'm recalculating now and I get operating earnings of $24.4B so at 35% tax, so that's $15.8B after tax, right on par with what you were getting.

Yup. Agree 100%. I think my additional theoretical comments may have obscured the fact that I agree capital gains are not operating earnings and should not be included.

I agree with that capital gains are not operating earns. And I agree it is not conservative to include them. I included them for simplicity since they weren't very large in the past 12 months. Also I know buffett doesn't include underwriting profit but when did he say they aim for 100% CR. I've always thought CR and bond returns work in unison to achieve desired return on capital while still passing on as much of the saving as possible to the consumer. With bond yields so low they have to get some underwriting profit to get decent return on their capital in the insurance business. When bond yields are high insurers are more willing to let underwriting profits dissapear. Also I don't think the capital gains not counting as earning a can be settled that simply just because operating businesses have increased. Assume they bought $10B of equities this year at. 25% discount to intrinsic value. When they sell after reaching iv then they have gains of 2.5B related to this original discount. I'm not arguing that this should be included. I think it would be rather reckless to assume this value is constantly being generated on a yearly basis. However that doesn't detract from the fact that this value was created and could be accounted for if somekne wanted to. Like I said I included it out of laziest in the article I published but I do think it's an interesting discussion. It's certainly not operating earnings. But if you did look through earnings only then this value generated by skilled investors is never captured in your model. Im speaking strictly on a theoretical basis. IV isn't exact enough to actually perform these calculatiions.

Great article. Love the emphasis on the repeatability :), and thanks for sharing the underlying numbers. At the end of the article, you state that Berkshire is trading at a discount to intrinsic value. I wonder as to how much of your assertion is based on the relative valuation compared to the S&P500? Thank you. I appreciate the compliment. It is highly based on relative valuation although I don't like the typical connotation of relative valuation. I like to look at it more like how graham would put two companies next to eachother and compare. I do not like looking at Facebooks's valuation and then saying it is trading at a discount to peers such as Twitter, which is the image I get in my head when I hear the term relative valuation. In the end it's all about opportunity cost, yes Berkshire may be more attractive than the S&P 500 but there are still many other investments within someone's circle of competence to compare to. I also like earnings yield. So if I determine Berkshire is attractive relative to other investments I think is the earnings yield now or in a few years something is find attractive as a business owner? 100 Shares, Nice work, thanks. I hope you own 100 shares of BRK -A :) I do a look-through calc which is somewhat different than yours. I include net operating earnings from all op's, including insurance, and then, like you, I add the undistributed earnings from the stocks ( but back out the dividends BRK has already collected, which are included in the operating earnings). I'm coming up with a look-through figure about 10-15% lower than yours, and it must have to do with the operating earnings number...so here is my question: Can you explain where you get the $20.7B number ( from article #2 in your series)? You wrote; "<....Now we take that and add it to Berkshire's TTM Net Earnings of $20.7B to get 25.7B.>" As I have it, the last 4 quarters of net operating earnings - including insurance op's - starting from Q4 2013: $3.8B, 3.5B, $4.3B, $4.7B = 16.3B. I might be way off, but I'm showing less operating earnings than you, and I'm including all of the op's. For reference, I pull the quarterly numbers from P. 24: http://www.berkshirehathaway.com/qtrly/3rdqtr14.pdf Thanks in advance! it's from morningstar and i used net earnings not operating income so my number will be higher as it includes capital gains from sales of securities and other mark to market items that may flow into the income statement. Net operating earnings is probably more accurate and definately more conservative. Capotal gains really shouldn't be included as its double counting the stocks if I am adding back look-through earnings. However capital gains may also outpace look through earnings because of buying at a discount. So I do think some capital gains can be added back without effectively double counting occurring because some of the capital gains results from business results and some result from chnages in market valuation. The changes in market valuation occur because it is purchased when it is undervalued is definately a source of value and shouldn't be ignored. How much and which belongs to each category is a fuzzier line. In this case I think off the top of my head capital gains were about $3B in the ttm which would account for the 10-15% difference. I looked at the $3B as a fraction of the portfolio which is $115B so about 2.5%. I thought a 2.5% return from the undervalued securities appreciating excluding business results was probably along normalized maybe a bit high but I left it in there for simplicity. Hope all that made sense. Again this rests on the assumption that capital gains are outpacing look through earnings. If they are equal then what I said doesn't apply. And if capital gains trail look through earnings you can probably assume that means you are paying to muchh and a deduction could be applied.

Great article. Love the emphasis on the repeatability :), and thanks for sharing the underlying numbers. At the end of the article, you state that Berkshire is trading at a discount to intrinsic value. I wonder as to how much of your assertion is based on the relative valuation compared to the S&P500? Thank you. I appreciate the compliment. It is highly based on relative valuation although I don't like the typical connotation of relative valuation. I like to look at it more like how graham would put two companies next to eachother and compare. I do not like looking at Facebooks's valuation and then saying it is trading at a discount to peers such as Twitter, which is the image I get in my head when I hear the term relative valuation. In the end it's all about opportunity cost, yes Berkshire may be more attractive than the S&P 500 but there are still many other investments within someone's circle of competence to compare to. I also like earnings yield. So if I determine Berkshire is attractive relative to other investments I think is the earnings yield now or in a few years something is find attractive as a business owner?

Yes, of course. There's a lot in there so I'll just explain quickly, if you have more questions, pm me or ask here. Tab 1 is just charts and tables for the article and it has the data summarized by year on a high level. Tab 2 has all the top 10 holdings for 2006-2014. That's where all the good stuff is. The rest of the tabs just have lots of data which tab 2 is pulling from. BRK_rawdata.xlsx

In conjunction with 3Q earnings getting released I took a deep look at the Berkshire's results vs. the S&P 500 debate. Instead of the usual book value evaluation of Berkshire, I ignored GAAP accounting and put together a look at what Berkshire's income statement would have been if all stock ownership was consolidated. I put it into an article here: http://goo.gl/WcRkW6. I was actually quite surprised to see Berkshire has actually outpaced the S&P 500 in earnings growth by about 10% per year since 2006... looks like Berkshire is not too big to grow ::) It took me a few hours to compile all the data to do look through earnings so if anyone is interested in doing their own analysis I can post the raw data here and save you some time.