Berkshire Hathaway Valuation

[mpauls]

This will be published around the web over the next few days.

 

[value-is-what-you-get]

Terrific analysis - thanks for sharing that.

 

On the last page is a bar graph labeled 10yrs 15 yrs 20 yrs - I'm not sure what it means - I can see the labels etc but what is the chart showing over time and is it past or future projection?

 

Thanks again

[el_chieh]

It'd be interesting if you provided additional details for some of your calculations.

 

Eg, how do you arrive at float being worth $78BN?

 

Or, why is MSR worth ~$16BN when its book value is ~$30BN?

 

Or, if WEB paid a ~$34BN valuation for BNI why do you think it's worth $47.9BN?

[Munger_Disciple]

Mpauls,

 

Nice report. One suggestion is to add an estimated rate of growth in BV (or better yet IV) of Berkshire over the decade with some supporting evidence behind the prediction. Of course this number will vary from analyst to analyst.

[Munger_Disciple]

I meant estimated growth rate over the next decade in my previous post. Sorry for the confusion.

[beerbaron]

Nice job! It must take weeks to analyze such a big beast!

 

BeerBaron

[mpauls]

In response to the float calculation, that's something I simply don't openly discuss, though I assure you it was not pulled out of the air.  With respect to BNSF, I don't recall stating $47b.  I did however mention that I thought disputing Buffett's purchase price would be ridiculous.  That is, I took BNSF at cost.  If you provide specifics I'll see about clearing up that number for you, and it's not impossible that I made a typo, but I'd be surprised.

 

 

[mpauls]

Also to the question, Manuf. Service, Retail at $16b and not $30b? $30b includes intangibles.

 

Read the wording carefully, "Although, currently suffering from the global economic downturn, I am still of the opinion that Berkshire Hathaway’s non-insurance operating businesses command a liberal premium over basic net worth." Notice I said premium above net worth.  The $16b isn't what I think their worth, its a conservative bottom value.  Moreover,

I also mention early on, "This is not intended to be a complete explanation of Berkshire Hathaway’s intrinsic value, rather, it is meant to provide a clearer understanding of complicating factors and how to adjust them sensibly."  I don't think Manuf. Service, Retail is a very complicated calculation.  But the fact remains, Manuf, Service, Retail are currently not performing very well compared with the past, but also compared with what can be reasonably expected in the future.  That said, there is still plenty of uncertainty and were these businesses sold today he wouldn't get what he would under normal economic conditions.  

 

 

 

 

[mpauls]

$47b.  On page 21 is not for BNSF alone.  Notice Utilities = 13.9. 

(BNSF earmarked cash & 22.5% equity $14.6b) = 28.5 & (BNSF 100% consolidated) = 47.9, both include the 13.9b utilities figure. 

 

13.9 + 14.6 =  28.5

13.9 + 34.0 =  47.9

 

BTW, from page 9, "In 2011, Burlington Northern will be placed under “Utilities” for financial reporting purposes. To adjust the 2010 annual report for this, I transfer Berkshire's 22.5% Burlington Northern holding to the utilities operating unit also adding thereto the $8 billion in cash earmarked by Berkshire Hathaway Inc. That is, a total of about $14.6 billion."

[mpauls]

On the last page is a bar graph labeled 10yrs 15 yrs 20 yrs - I'm not sure what it means - I can see the labels etc but what is the chart showing over time and is it past or future projection?

 

I should have labeled the chart.  Indeed this is past 10, 15, & 20 yrs.

[Opihiman]

MPauls,

 

Thanks for posting the report - it reflects a lot of great work, and I appreciate you sharing.

 

Pls forgive my brashness in making a couple minor requests on aesthetics:

 

- On pp. 4-6 most of the numbers are presented with ".00" appended to the end. Perhaps the figures would be less cluttered and easier to read if all these numbers were simply reported in whole numbers? For example on page 5 there is Net Income Before Extra Items reported at 8.055.00, then only two lines down Net Income Before Preferred Dividends is reported as simply 8,055. I'd like to politely suggest that the second format is easier on the eyes, and ought to be used throughout these pages.

 

- On the same pages all of the ratios have "%" appended to them. Again, perhaps this needlessly clutters the presentation given we know these are percentage figures?

 

Again, great work. Perhaps it is just me, but I look at so many numbers and financials that sometimes I cringe when figures are unnecessarily cluttered. (Analysts commonly are so focused on getting the numbers right, they can forget about finer aesthetic points of presentation - we all do it.)

 

Thanks again.

[el_chieh]

Mpauls, thanks for clarifying.

[EricSchleien]

What's behind you not wanting to share how you calculated the float?

[mpauls]

He that would live in peace and at ease must not speak all he knows or all he sees.

[EricSchleien]

That's just the meaning your putting on it.

[oldye]

Berkshire's cost of debt is so low that debt can be considered float, if you normalize underwriting profits on the 63b in float and use that to pay for the interest on debt you probably get something close to mpaul's number.

[EricSchleien]

Got it Oldye.  Thanks you :)

[mpauls]

As with a well developed crossword puzzle, you can propose any word as the solution, but there is only one word that solves the puzzle in all its forms.  Given two or more numbers, you can arrive at several different ways of calculating one from the other. 

 

I'm not saying there is only one way to value float and as with all business valuations there may be several ways to arrive at the same conclusion.  However, having considered the problem in great detail, I have only found one method of appraisal that I consider acceptable.  It's both unique and convincing, but also confusing. 

 

But to the point, I just don't have any interest in sharing the details of my approach.  I don't think I'm alone, and if you look at all the people you admire, except maybe Benjamin Graham, you'll have a hard time getting the underlying logic behind a purchase.  You'll have plenty of hints, but I know no one that spoon feeds the details of their approach. 

 

I'm sorry if this sort of response is irritating, but everyone on this board has enough intelligence to arrive at the same conclusions that I have, you just need to take the time and think it through, but don't think you'll sleepwalk your way into it.

[lethean46]

mpaul

 

That was an awesome valuation report.  Thank you very much.

 

Would you mind posting it on another BRK board for their benefit, too?  Here is the site:

 

http://finance.groups.yahoo.com/group/chucks_angels/messages?o=1

 

Or if you yourself are unfamiliar with the chucks angels BRK board, perhaps someone else here familiar with them could cross post the PDF, with your permission?

 

Thanks again.

 

Lethean

[Guest Bronco]

M paul - I haven't had time to go through your entire report, so I can't say I agree or disagree on certain calculations.  But clearly you spent a lot of time on this, and it is very impressive.  I, like most others, thank you for offering it on this board.