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But, I can't resist.  The Buffett discount, not a premium but a discount, is so large that the company is trading at approximately 8-9x earnings after backing out investments per share.  Meanwhile, these operating earnings are compounding at a high teens average.  If WEB was in his 50s, this business would be valued at almost double its current price.  Huge discount.

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Two spectrums of thought on it, but it's definitely not the conservative way to do it - a lot of those investments are hampered by somewhat onerous investment restrictions brought on by insurance regulators. And, if you look at almost any insurer in the world, you could make the argument that for every $1 I invest in their common stock, I get $3 of investments. Why subtract investments from the stock price for Buffett, and not for every other insurer?

 

The counter-arguments to that are that Buffett and Prem are much better investors than normal, even in fixed income, so they should get more credit than normal. Also, some of those investments are outside the insurance subs. Long story short, if you are going to subtract the full amount for Buffett, it's worth considering why BRK-A is preferred to other P&C insurers valued on that basis.

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But, I can't resist.  The Buffett discount, not a premium but a discount, is so large that the company is trading at approximately 8-9x earnings after backing out investments per share.  Meanwhile, these operating earnings are compounding at a high teens average. If WEB was in his 50s, this business would be valued at almost double its current price.  Huge discount.

 

The market appears to have discounted BRK due to his advancing age but ironically, the longer that WEB runs BRK, essentially stretching the transition out, the crazier the discount looks. The BRK coiled spring gets tighter and tighter with WEB's age the compression force. Can't imagine how it would be, should WEB follow Irving Kahn in longevity!

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But, I can't resist.  The Buffett discount, not a premium but a discount, is so large that the company is trading at approximately 8-9x earnings after backing out investments per share.  Meanwhile, these operating earnings are compounding at a high teens average.  If WEB was in his 50s, this business would be valued at almost double its current price.  Huge discount.

 

You need to throw a 35% tax rate on those investments before backing out because of the huge unrealized gains and corporate structure (unless Berkshire spins off the investment portfolio like the partnership days). With that said, I definitely think your method is valid, I use the same technique as one of the ways to value BRK (and IEP; I also have never really looked at Fairfax some how). However, there are many ways to value BRK and I think you could run into issues if you settle on one technique. Since the investment portfolio is likely to always be around, pass-through earnings of this portfolio to get a more accurate view of the entitled earnings is another approach I like.

 

To state the obvious though, WEB is not in his 50's so I don't think you can place a premium on him at this point in life. While I owned BRK, I considered the remaining years of him at the helm as a bonus but did not alter my valuation of BRK

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In my opinion, "backing out investments per share" is analytically flawed and will always overvalue Berkshire. I'll start off by saying Berkshire has been between 20-40% of my portfolio since I started investing in 2011; I am almost completely out now but maintain a smaller "hold forever" position and continue to own for diversified accounts that I manage for my family. I am by no means a Berkshire hater, quite the opposite.

 

Investments / share is a shortcut to add back the deferred tax liability and the insurance float. Financial debt is accounted for in the other column from the deduction of interest from earnings, so all the assets and liabilities are accounted for.

 

The deferred tax liability from unrealized appreciation and the PP&E DTL related to accelerated depreciation at BNSF and BHE. I think this DTL has VERY low present value and agree with adding it back.

 

Investments per share also adds back the float in its entirety. This doesn't really make sense because the float has always been invested in cash and short term bonds. Because of this the value of float is limited to the profit it can generate from low return investments.  In a ZIRP world the float does not create enough value from the spread of underwriting profits/losses to interest income to justify a valuation that allows you to just add it all back.

 

Let's take 2014, pre-tax underwriting profit was $2.4B on about $80B of float, so its like borrowing money for -3%. I would love to borrow $80B for negative cost; that ability has positive value.

 

But Berkshire held around $80B (the value of the float not coincidentally) in treasury bills (0% yield) and short term mostly sovereign fixed income (0-1% yield). Let's just say they made 1% pretax on all that so that's $800MM. Berkshire's fixed income is and always has been short, low yielding paper; you can confirm this by looking at the sensitivity to rate shock tables (and Buffett says that's how he likes it).

 

So in 2014 the income generated from the ability to borrow $80B (the float) at -3% was about $3.2B pretax, -2.4B from underwriting and $800MM (estimated) in interest from cash and fixed income.

 

I would certainly not pay $80B for $3.2B of pretax income generated by insuring disasters and investing in cash and short term fixed income. Would you?

 

If not, investments per share is flawed and will overvalue Berkshire. Even if you normalize for increased interest rates, it's tough to get to $80B.

 

Note: I owe much of my thinking on this topic to brooklyn investor

 

But you will also notice that the amount invested in cash and bonds is rarely below the amount of float.  Buffett says bonds are in a bubble of historic proportions and yet owns $34 billion worth of it.  Why?  Because float needs to be invested in highly liquid assets; basically bonds and cash.

 

So when people assume that float is invested for high returns in stocks and the like, this has not been true in the past.  The entire float amount and often more has been invested in cash and bonds.

 

In a high interest rate environment, this is fine.  If bond yields were 8%, then this float can be worth a lot to an equity holder if the cost of float is zero.  That's a free 8% money; incremental to ROE.

 

But with cash rates at zero and bond yields at 2%, what is float worth to a shareholder?

 

Assuming zero cost of float and a blended 1% return on cash and bonds, pretax, that means float is worth to the equity holder the amount of (1%  - 0% cost of float) / 10% (equity discount rate) = 10%.

 

Float is worth approximately 10% of the face amount because this is the discounted value of the profits it will generate for the shareholder over time.

 

Sometimes in the world of BRK, you hear about this valuation model where you add the float to the shareholders equity of BRK because float is as good as equity.  While this is sometimes a good approximation of intrinsic value, it can be wildly off in an extended environment of low interest rates.

 

 

http://brooklyninvestor.blogspot.com/2013/03/value-of-investments-per-share.html

http://brooklyninvestor.blogspot.com/2011/12/so-what-is-berkshire-hathaway-really.html

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I don’t think it is right to compare BRK to other P&C insurance companies: BRK can make investments no other P&C insurance company could think of, because its streams of earnings are way much larger and more diversified than those of any other P&C insurance company in the world.

our earnings stream is huge and comes from a vast array of businesses. Our shareholders now own many large companies that have durable competitive advantages, and we will acquire more of those in the future. Our diversification assures Berkshire’s continued profitability, even if a catastrophe causes insurance losses that far exceed any previously experienced.

--WB 2014 AL

 

Of course, at Fairfax we are not there yet… But working hard on it! ;)

 

Cheers,

 

Gio

 

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Whenever I think about this issue I always go back to ERICOPOLY's discussion on this board of how much a rational person would pay for a "magic hat," in relation to valuing Fairfax.

 

Speaking of Eric, has anyone seen him lately?

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  • 2 weeks later...

Whenever I think about this issue I always go back to ERICOPOLY's discussion on this board of how much a rational person would pay for a "magic hat," in relation to valuing Fairfax.

 

Can you post/link the magic hat discussion? Sounds interesting enough.

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  • 5 months later...

Whenever I think about this issue I always go back to ERICOPOLY's discussion on this board of how much a rational person would pay for a "magic hat," in relation to valuing Fairfax.

 

Can you post/link the magic hat discussion? Sounds interesting enough.

Sorry to revive an old post but I found this tangent interesting enough to (hopefully) dig it out -if this isn't the reference then maybe someone can point me to it but I found it very enlightening:

 

http://www.cornerofberkshireandfairfax.ca/forum/fairfax-financial/time-to-buy-fairfax-again/msg189497/#msg189497

 

Starts from there and goes on a bit.

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In my opinion, "backing out investments per share" is analytically flawed and will always overvalue Berkshire. I'll start off by saying Berkshire has been between 20-40% of my portfolio since I started investing in 2011; I am almost completely out now but maintain a smaller "hold forever" position and continue to own for diversified accounts that I manage for my family. I am by no means a Berkshire hater, quite the opposite.

 

Investments / share is a shortcut to add back the deferred tax liability and the insurance float. Financial debt is accounted for in the other column from the deduction of interest from earnings, so all the assets and liabilities are accounted for.

 

The deferred tax liability from unrealized appreciation and the PP&E DTL related to accelerated depreciation at BNSF and BHE. I think this DTL has VERY low present value and agree with adding it back.

 

Investments per share also adds back the float in its entirety. This doesn't really make sense because the float has always been invested in cash and short term bonds. Because of this the value of float is limited to the profit it can generate from low return investments.  In a ZIRP world the float does not create enough value from the spread of underwriting profits/losses to interest income to justify a valuation that allows you to just add it all back.

 

Let's take 2014, pre-tax underwriting profit was $2.4B on about $80B of float, so its like borrowing money for -3%. I would love to borrow $80B for negative cost; that ability has positive value.

 

But Berkshire held around $80B (the value of the float not coincidentally) in treasury bills (0% yield) and short term mostly sovereign fixed income (0-1% yield). Let's just say they made 1% pretax on all that so that's $800MM. Berkshire's fixed income is and always has been short, low yielding paper; you can confirm this by looking at the sensitivity to rate shock tables (and Buffett says that's how he likes it).

 

So in 2014 the income generated from the ability to borrow $80B (the float) at -3% was about $3.2B pretax, -2.4B from underwriting and $800MM (estimated) in interest from cash and fixed income.

 

I would certainly not pay $80B for $3.2B of pretax income generated by insuring disasters and investing in cash and short term fixed income. Would you?

 

If not, investments per share is flawed and will overvalue Berkshire. Even if you normalize for increased interest rates, it's tough to get to $80B.

 

Note: I owe much of my thinking on this topic to brooklyn investor

 

But you will also notice that the amount invested in cash and bonds is rarely below the amount of float.  Buffett says bonds are in a bubble of historic proportions and yet owns $34 billion worth of it.  Why?  Because float needs to be invested in highly liquid assets; basically bonds and cash.

 

So when people assume that float is invested for high returns in stocks and the like, this has not been true in the past.  The entire float amount and often more has been invested in cash and bonds.

 

In a high interest rate environment, this is fine.  If bond yields were 8%, then this float can be worth a lot to an equity holder if the cost of float is zero.  That's a free 8% money; incremental to ROE.

 

But with cash rates at zero and bond yields at 2%, what is float worth to a shareholder?

 

Assuming zero cost of float and a blended 1% return on cash and bonds, pretax, that means float is worth to the equity holder the amount of (1%  - 0% cost of float) / 10% (equity discount rate) = 10%.

 

Float is worth approximately 10% of the face amount because this is the discounted value of the profits it will generate for the shareholder over time.

 

Sometimes in the world of BRK, you hear about this valuation model where you add the float to the shareholders equity of BRK because float is as good as equity.  While this is sometimes a good approximation of intrinsic value, it can be wildly off in an extended environment of low interest rates.

 

 

http://brooklyninvestor.blogspot.com/2013/03/value-of-investments-per-share.html

http://brooklyninvestor.blogspot.com/2011/12/so-what-is-berkshire-hathaway-really.html

 

If I have understood you right, what you are saying is 1) you would place a low P/E on underwriting profits and 2) bonds are overvalued.  Is that the gist of it?

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I am saying that if you add back the float entirely, you are not acknowledging that a very large portion of the float will have to always be in bonds and cash and that you don't "own" those in that you can't just dividend them out or use the whole $80B for an acquisition*.

 

Now you do own the profits generated from underwriting and the interest income from that pile of cash/bonds. But that number hasn't been worth the full value of the float in years. Bonds may be overvalued, but it isn't relevant here because Berkshire holds cash and very short term fixed income with little credit risk. It's almost as if they hold $80B of cash ($60b after they buy PCP)

 

To increase the profits generated by the float ( and make the two column method and its inherent assumptions more appropriate)

 

1) short term rates have to rise substantially ( the earnings power of cash and short fixed income would have to increase to a level where you could say all that stuff they have to hold is earning a lot)

 

2) it could also work if regulators became less stringent and gave Berkshire credit for all its equities and wholly owned businesses and allowed them to use more of that cash and fixed income to buy businesses. As non insurance Berkshire becomes bigger in relation to insurance Berkshire, this may happen, though I wouldn't want to count on that.*

 

*berkshire will use $20B for PCP deal and buffet publicly stated this out them out of the elephant hunting game for a while. If he could use all of the $80b as he saw fit, then this would not be the case.

 

*i feel like I suck at explaining this; does anyone agree / disagree / get what I'm saying?

 

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And yes the profits generated from this deserve a low multiple, because it involves substantial risk.

 

If you make $3B-$4B a year on underwriting profits and interest and then lose $20B in a bad cat year every 10 yrs, it is profitable and good, but not worth $80B today.

 

If you don't think Berkshire can lose $20B or more in a bad year, you shouldn't own in it. They can and will and I actually long to see some nice big losses and some destruction (minus the human suffering part of course) since it would make Berkshire take share and harden the market.

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I do get what you're saying and you don't suck at explaining it - but I only half agree.

 

My thoughts:

 

1. The *cash* belongs to the policy holder but the *cash flows* from investing the cash belong to Berkshire.  Since the float is likely to be permanent, and since the value of something is the sum of discounted cash flows, we can say we have an asset (the future cash flows) that is worth what the cash is worth.  It's a bit like owning shares of Coke that you will never be allowed to sell: I'd value that at market on my personal balance sheet (although I wouldn't argue with someone who applied a discount on the basis that they could not sell the shares in an emergency).  The problem that cash today doesn't earn anything (this is what I meant by bonds being overvalued - I should have included cash in that comment).  That means our asset (as opposed to the cash owned by the policy holder) is worth nothing unless rates rise...and we could spend days arguing about how to value that option!

 

2. Then you get the underwriting profits.  Here I do disagree.  I would actually give this a decent multiple, because the long term record is outstanding.  I don't depress the multiple for volatility.  I'd make an estimate of say 10y average annual underwriting profits after subtracting CAT losses and give that a market multiple, because I think that earnings stream is at least as sustainable as the average company and should grow with nominal GDP.

 

Useful discussion - I hadn't thought (1) through until I read your post.

 

   

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If you value the cash as cash because you own the interest, you are bearing equity risk (by owning Berkshire) to receive cash interest, when you could yourself just own cash. Cash and fixed income burdened by insurance risk and regulation will always be worth less than if it were unburdened.

 

You are effectively saying "my discount rate is 1%".

 

Let's say short rates go to 4% (something inhonestlye think won't happen for  like 3-15 yrs). You would still be "paying" 25x earnings. You can't separately count the underwriting profits and then capitalize the interest income to the full value of cash.

 

Let's imagine Berkshire's other assets did not exist. They only have the insurance operations which produce underwriting profits and losses, and the cash and fixed income. Let's say the insurance operations generate $3B /year in underwriting profits and then lose a low number like $10B on each 11th year (so they make $30B, then lose $10 for through the cycle earnings of $2B / year) Over a 10 yr period this operation would make $20B pretax.

 

Now let's say short term rates average 1%, 3 % or 6%, so they either make $800mm, $2.4B, or $4.8B / year in interest.

 

At 1%,  $2B + $800mm= $2.8B

At 3%: $4.4B

At 6%: $6.8B

 

At 10x pretax, this biz is worth $28B-$68B. At 15X pretax, it is worth $42-$102B.

 

Only at very high levels of short term rates and high multiples is this business worth $80B.

 

I think Berkshire will have an insurance disaster here or ther and will lose 11 figures in a few years so I don't think you should just capitalize underwriting profits and assume they happen year in year out.

 

EDIT: the curve looked a lot different when Buffett introduced the two column method in 1995

http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=1995

 

 

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If you value the cash as cash because you own the interest, you are bearing equity risk (by owning Berkshire) to receive cash interest, when you could yourself just own cash.

 

No I'm not.  I bear equity risk on the equity portion of Berkshire and cash risk on the cash portion.  The cash portion can't impair my equity, so that's fair. 

 

You are effectively saying "my discount rate is 1%".

 

That's not entirely stupid when a) there is zero risk (on the cash holdings), b) inflation is at 0.2%, and c) most other investments are priced to give a similarly poor risk-adjusted return.

 

You can't separately count the underwriting profits and then capitalize the interest income to the full value of cash.

 

 

Why not?  Someone pays me money to lend me money (underwriting profit) and I get to keep the interest when I invest at zero risk...in perpetuity.  Sounds like a good business to me.  Would it be worth more if I could invest all the float in equities?  Not necessarily: I'd get higher returns, but I'd take a massive levered risk with my own equity.

 

Only at very high levels of short term rates and high multiples is this business worth $80B.

 

That's because you're putting an equity multiple on earnings from cash.  I'm not sure that's the right thing to do.  When I value Microsoft, for example, I put an equity multiple on the earnings from the business and then add the net cash.  It's obviously different because they own the cash (Berkshire doesn't); but I don't value it by putting an equity multiple on the interest.

 

Bottom line here is that I agree that the float should not be valued at 100% of face value because I can't go and spend it as I could if it were my cash; but I do think that a very low risk stream of earnings should get a higher multiple than a high risk one, and I regard the interest on Berkshire's permanent float invested at zero risk as being a low risk stream of earnings.  Plus, there's optionality on rising rates (there's also a risk that inflation erodes the value of the cash, which we haven't considered, although presuming inflation gets reflected in rising premiums it ought to raise the nominal value of the float, so we ought to be inflation-hedged).

 

BTW I wasn't assuming underwriting profits would happen year in, year out.  What I'm assuming is that an operation as disciplined as Berkshire's will earn and underwriting profit on average over time and I'm happy to put a multiple on that.

 

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Put it this way.  Say you have $100 in the bank.  You promise to raise the principal in line with inflation, and you pay me the interest.  In return, I perform a service for you, and you also pay me slightly more than my average costs to perform that service.  We agree to have this relationship in perpetuity, so long as I provide a good service.

 

I would value that as:

1. equity multiple on the profits from performing the service, because I take risks.

2. a very high multiple on the interest payments, which are almost risk free to me. 

 

Why might I not apply the going discount rate for risk-free, inflation-linked investments to #2?

a. because I can't go out and spend the principal - which is not a major issue because I don't need to, but one day I might.

b. because there is a slight risk that I fail to provide a good service and you end the agreement - but I back myself that this will not happen.

 

But you can offset that a bit with:

c. the fact this is about the only investment I can think that is inflation linked and gives optionality to rising rates but doesn't risk a rising discount rate.  That's extraordinary.

 

The current rate on a 10y US government inflation-protected bond is 0.6%, implying a multiple of 167!  Knock a bit off for risks a and b and let's call it 100. 

 

Now, I'm not actually arguing that 100x is the right multiple.  My point is simply that a well-above-equity multiple is justified for this particular stream of earnings.  How high is up to you and is entirely up to how you want to weight risks a, b, and c.

 

EDIT: the more I think about it, the inflation-hedged nature of the float and the perpetual nature of it are very important and justify a high multiple.  Both are predicated on the following:

d. insurance will always be needed (not something you can say for many businesses)

e. insurance premiums will move with inflation over time (in fact I'd argue they'll grow with nominal gdp which is even better)

f. Berkshire will maintain its share of the insurance market (which is also probably fair given the fortress nature of its balance sheet and its reputation).

 

If you're not happy with these assumptions you should opt for a low multiple.

 

 

 

 

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I look at it as in insurance operation that has $80B of low risk assets and $80B of high risk, fat tail, liabilities. I don't think you can separate the two. As Frank Sinatra would say, "you can't have one without the ooooooooooooother!"

 

I think taking on insurance risk is a very high risk activity. Ajit is a genius but he is not omniscient and I want to get paid a decent rate to bear the risks that he picks for me. Berkshire has made money every year in the last 10 underwriting, but I'll happily bet that won't happen in the next ten. This is why I use an equity multiple for the earnings generated by the spread between underwriting and interest income.

 

Over the last 10 yrs, underwriting profits have averaged 3.3% of the float. I think 0-3% is a reasonable estimate for underwriting profits over time (some would even say 0% is optimistic given the capital flooding into reinsurance markets).  I think that underwriting profits are correlated to rates (as in if rates go up, you would imagine underwriting profits would go down because competitors would write less profitable biz)

 

So your key assumptions in valuing the insurance operation are

1) spread between interest rates and underwriting (I think of that as something like 1-4%, but in hard markets like post KAtrina it can be super high, look at 06-09 at General Re and BHRG)

2) multiple (10X pretax)

3) float growth over time (which would influence what multiple you'd want to pay)

 

In the end, if i'm wrong and you are right and berkshire continues to always make money on the underwriting side, frees up more of its cash/fixed income, and continues to grow float over time, and berkshire is worth the full $80B more from adding back float, then Berkshires is worth 15%-20% more than i think it is and I am undersized in the name.

Insurance_profits.GIF.7ef6b7cd1de1bdf355ecfedd6139ecd4.GIF

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It's up to you to pay whatever multiple you want...

 

However my take on this is that intrinsic value is (I think) the present hypothetical liquidation value plus a discounted future stream of earnings.  That seems to be all the money you can ever derive from the business unless I'm forgetting something.

 

So the size of the investment portfolio contributes to the future income stream that you discount, but I don't think you can exaggerate it's value in the hypothetical liquidation component because of the offsetting insurance liabilities.  But that's just my method.

 

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I look at it as in insurance operation that has $80B of low risk assets and $80B of high risk, fat tail, liabilities. I don't think you can separate the two. As Frank Sinatra would say, "you can't have one without the ooooooooooooother!"

 

I think taking on insurance risk is a very high risk activity. Ajit is a genius but he is not omniscient and I want to get paid a decent rate to bear the risks that he picks for me. Berkshire has made money every year in the last 10 underwriting, but I'll happily bet that won't happen in the next ten. This is why I use an equity multiple for the earnings generated by the spread between underwriting and interest income.

 

Over the last 10 yrs, underwriting profits have averaged 3.3% of the float. I think 0-3% is a reasonable estimate for underwriting profits over time (some would even say 0% is optimistic given the capital flooding into reinsurance markets).  I think that underwriting profits are correlated to rates (as in if rates go up, you would imagine underwriting profits would go down because competitors would write less profitable biz)

 

So your key assumptions in valuing the insurance operation are

1) spread between interest rates and underwriting (I think of that as something like 1-4%, but in hard markets like post KAtrina it can be super high, look at 06-09 at General Re and BHRG)

2) multiple (10X pretax)

3) float growth over time (which would influence what multiple you'd want to pay)

 

In the end, if i'm wrong and you are right and berkshire continues to always make money on the underwriting side, frees up more of its cash/fixed income, and continues to grow float over time, and berkshire is worth the full $80B more from adding back float, then Berkshires is worth 15%-20% more than i think it is and I am undersized in the name.

 

I think this is also a perfectly fair way of looking at it to be honest (i.e. lumping the two earnings streams together and viewing it as one spread.  I'd personally argue that this is an example of the market being bad at *very* long run valuations.  Buffett's two-column approach rests entirely on his argument that Berkshire's insurance businesses will exist virtually forever.  If you are prepared to assume that then I think his method is right for the reasons I have given, but the market just doesn't do that.  With Berkshire, I probably sit somewhere between the two approaches.

 

EDIT: putting it another way, if you assume the spread between underwriting profit/loss and investment returns is fixed over time, and that the operation has the inflation linked/in perpetuity characteristics I describe above, then I think it is worth a high multiple of total earnings if you assume that no underwriting loss will permanently impair the business, which I think is fair here.

 

 

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intrinsic value is (I think) the present hypothetical liquidation value plus a discounted future stream of earnings. 

 

Completely different discussion but isn't it one or the other?  I mean, you can liquidate it *or* you can have the earnings stream.

 

So the size of the investment portfolio contributes to the future income stream that you discount, but I don't think you can exaggerate it's value in the hypothetical liquidation component because of the offsetting insurance liabilities.  But that's just my method.

 

I agree - unless you take the Buffett view that the business exists in perpetuity, in which case I can see why he argues that float is an interest-free permanent loan, worth its face value.  If you place a big weight on the possibility that Berkshire might see such big underwriting losses that its ability to earn what it currently earns on float is permanently impaired then the Buffett method is wrong.

 

Anyway... ;)

 

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It's up to you to pay whatever multiple you want...

 

However my take on this is that intrinsic value is (I think) the present hypothetical liquidation value plus a discounted future stream of earnings.  That seems to be all the money you can ever derive from the business unless I'm forgetting something.

 

So the size of the investment portfolio contributes to the future income stream that you discount, but I don't think you can exaggerate it's value in the hypothetical liquidation component because of the offsetting insurance liabilities.  But that's just my method.

 

Eric and petec, I think we all agree.

 

The present hypothetical liquidation value is $0. Assuming berkshire estimates its liabilities correctly, then cash and FI of $80 - float of $80 = 0.

 

And the discounted future streams of earnings is (normalized spread)*(float) + (value from growth in float).

 

Petec, I think the two column method is a little optimistic, but whatever, let's move on. There are probably more interesting debates to be had and we pretty much agree with the main drivers. 

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