cobafdek Posted March 1, 2015 Share Posted March 1, 2015 I'm going to assume that folks here will not see Buffett's leaving as a positive, hence no voting option for "Increase in intrinsic value." For about the past 10 years, Buffett has assisted us shareholders in calculating a rough estimate of BRK's intrinsic value. Since the 2010 letter and in annual reports since, he speaks of the Three Pillars. Pillar #1 is float/investments. Pillar #2 is non-insurance operating results, where you can apply some appropriate multiple to aggregate pre-tax earnings. Adding these two pillars gives you a quantitative estimate. Finally, there is Pillar #3, which is qualitative, subjective, and forward-looking: how well will future retained earnings be deployed. This factor is the management intangible. Some of you might use Pillar #3 as a buttress to your confidence in your quantitative calculation using Pillars #1 and #2. Others might consider Pillar #3 as a Buffett Premium, and actually add some "X" dollar amount to the quantitative IV estimate. Regardless, Pillar #3 is Buffett. What happens to Pillar #3 (and, by extension, BRK's intrinsic value), when Buffett is gone? 1. Option 1 implies that Buffett is unique by having solved the succession problem. I really liked his discussion this year of how BRK's conglomerate form will actually enhance corporate performance compared to run-of-the-mill conglomerates. The culture will remain intact. Buffett has engineered a kind of DNA that will be self-replicating and self-sustaining without him. BRK's genetic structure is resilient (or, if you prefer, antifragile), and Berkshire's "practice evolution" (Munger's words) will continue for the next 50 years. OR, do you believe: 3. Option 3 implies that Buffett is unique because Buffett is Berkshire, and Berkshire is Buffett. If Buffett is gone, you are gone. When the jockey is gone, the horse is just another horse. Or something in between? Link to comment Share on other sites More sharing options...
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