Swedish_Compounder

I agree with you that assigning a value of $116 Billion might be to stretch a little. Buffett has for a long time, at least 10-15 years, stated that further float increases will be hard to achieve, but as a matter of fact float increased by roughly $40 Billion from 2012 to 2017. I think it will continue to increase for a long time, but maybe it would have been more proper to assign a PV of 80 Billion or so for expected future float increases. Their float is extremely enduring / long tail, so Buffett has said that it can be compared to equity. On the other hand, maybe the multiple on the operating earnings should be higher than 14.5 given the quality and endurance of those businesses, so I still feel comfortable valuing the company at 700BUSD+.

Quick and dirty valuation (just approximate figures): Stocks and excess cash: Value of stocks 200 BUSD Excess cash 100 BUSD =300 BUSD After tax earning power: Operating earnings 2018E : 19,5 BUSD Normalized float increase: 8 BUSD = 27,5 BUSD Multiple of 14 - 15 = 400 BUSD Total mathematical value 700 BUSD In addition several factors which have additional value, which is hard to quantify: 1) more conservative accounting than basically any other large company 2) More owner oriented than basically any other large Company 3) World leading capital allocation skills 4) Preferred buyer for many family founded / owned businesses 5) No dilution from stock options to management 6) World leading management 7) More risk averse than most other companies 8 ) Extremely low turnover of senior executives 9) A highly rational compensation strucure, with no influence from comp Consultants 10) Accepting bumpy results instead of smoothness, if it is expected to give a better long term result 11) A contrarian mindset where they are greedy when others are fearful and vice versa etc

I would add 8 BUSD or so for expected increase in float. Buffett has said that due to its long term nature, float increase can be seen as earnings.

In calculating the look through earnings, I would include: - earnings from owned companies - earnings from stock portfolio investees - expected increase in float What can we expect for 2018? Probably close to 40 BUSD in total.

When it comes to the tax act and the implications of it for Berkshire, I actually Think we have not seen the last of it yet. I would like to connect the change in organizational structure to the tax act. It is likely not coincidenntal that the promotion of Jain and Abel took Place now. Buffett needs to devote al his energy to Think about how to best utlilize the opportunities provided by the tax act. There are multibillion dollar decisions to make both when it comes to CapEx decisions in existing businesses, but he can also paint new scenarios for prospective acquisitions. Think something similar to BNSF, which does not look cheap on the face of it, but due to a combination of CapEx/cost savings/debt strategy/dividend to parent Company decisions, he has made it into a homerun. Thus, Buffett needs to sit undisturbed in his room and read + think.

Does anyone know where to find details about Li Lu's annual track record to date as well as which are / were his major holdings?

I found their analysis of Berkshire Hathaway adjusted look through earnings very interesting and rather complete, but do they not forget the value of future annual float increase? Since BRK consider their float to be basically perpetual, it is 100% free cash flow (with some restrictions) and they usually make an underwriting profit I think the increase in float is to be seen as even more valuable than earnings from the earnings statement. Thus, as a minimum the average annual float increase is to be added to the look-through earnings. What do you guys think?

Thanks for your kind comments Valuehalla and Longinvestor. It feels great to have found a place with other ”Buffett nerds” after more than ten years on my own, without anyone to discuss my thaughts with and get new insights and angles from.

Yes Longinvestor, this is very interesting, because Berkshires repurchase criteria is linked to book value, but Buffetts method for valuing Berskhire is not linked to book value, which he has stressed several times in recent years. However, this does not seem to have been understood by the masses and once the shift in perception comes, whenever it comes, it will lead to higher valuation. Another potential for higher valuation comes from the fact that there are "hidden" earnings in the form av earnings retained by the stock portfolio investees, which are not included in Berkshires income statement. If they sell a large chunk of their shares to finance major acquisitions, I think this will also be positive for the Berkshire valuation, since those earnings are fully included in the income statement. In fact, I Believe Buffett is even more focused on cash flow per share than earnings per share. Thus, the increase in float is a contribution as important as the earnings. In below video he elaborates on this subject. https://www.youtube.com/watch?v=dssTPawSe-c One thought experiment I have made is regarding how large repurchases Berkshire can make once they decide to pursue that course of action (which Munger has mentioned is likely to happen one day). Since they will after the tax act be less "punished" for Selling stocks when they are selling above their intrinsic value, I would say that the following would be a possibility if they started today and focused on repurchases for ten years (which they will not do now, but most likely one day once all earnings can not be profitably reinvested, perhaps 10-20 years into the future, perhaps earlier): Starting Point assumptions, (current, under new tax rate): - Cash generation including float increase of 32 BUSD - Excess cash of BUSD 90 - Stock portfolio of at least BUSD 150 (after deducting deferred tax under the new tax rate) - Assuming that the underlying business momentum and some smaller acquisitions lead to increased cash flow by 6% per year - Assuming that the stock portfolio increases in value by 6% per year - Market cap of BUSD 500 Under above assumptions, Berkshire could easily buy back 10% of the stock each year for ten years, if digging into their excess cash and trimming their equity holdings a bit. If assuming that the Berkshire stock goes up by 10% or so per year. That would lead to a reduction in share count by close to 66% and earnings would go up by 80%. Under these assumptions, earnings per share would go up by (1/0,9^10)*(1,06^10)= 414% increase or close to 18% annually compounded. We need to deduct some dividend income because of reduced equity holdings, but I still think we could see 16 - 17% compounded EPS growth. This is of course just a though experiment, but one day I think something in that direction will happen and I think after running for some time it will fundamentally change the view of how the company is valued, partly because of the fact that implementation of such strategy would mean that the repurchase criteria can no longer be linked to P/B. In fact, if there are enough shares for sale and the price of the stock does not go up too much, I think such a program could run for several decades and lead to market beating returns for a very long time. The Danish Insurance Company TopDanmark did this for 18 years and the result can be seen on the link below. Despite relatively poor development in profits, the share increased by 15,7% per annum for 18 years due to aggressive share buybacks. https://valueandopportunity.com/2017/03/29/topdanmark-as-a-cannibal-soon-to-be-set-on-a-dividend-diet/

Normalized earning power after tax reform might be around 25 BUSD, assuming average investment gains of 3 BUSD. To this comes undistributed earnings from the stock portfolio of can it be 6 BUSD To this comes expected float increase of shall we estimate on average 7 BUSD the coming years. So, my conclusion is that earning power including the cash flow effect from increased float is at least 38 BUSD at the moment.