Valuation, Value Investing

Valuing Berkshire Hathaway

From what I’ve read so far, its tough to value Berkshire Hathaway. I thought it would be useful, as I come across any such articles, to note down how others have valued Berkshire. Here’s some:

  1. Barron’s on 13 Aug 07 carried an interview with Gifford Combs, Managing Director and Portfolio Manager of Dalton Investments (link here). Here’s how he got to his valuation:

    How cheaply is it selling, and what do you think the true value is?

    It is selling at $112,000 a share, and it is certainly worth somewhere north of $150,000 a share. That value is continuing to compound each year.

    How do you get to $150,000?

    The operating businesses are a superb collection that earn more than 25% on tangible net worth. They should be valued at 20 times earnings, or about $70 billion. I value the finance and utility businesses at 1½ times book value — together they are worth about $26 billion.

    The majority of the value at Berkshire is in the insurance entities, which hold virtually all of the investments. The insurance business depends upon the value one places on the $58 billion of “float,” which are the non-interest-bearing liabilities of the insurance companies. Adjusting for the float and making allowances for deferred taxes, I value the insurance companies at nearly $200 billion. The total comes to more than $290 billion, or about $190,000 per share. More conservative assumptions about investment returns over time would lower that value; but it’s hard to get to a number much below $150,000 per share

  2. A Motley Fool article by Philip Durell published on 9 Nov 06 (link here) highlighted a that a quick and dirty way is to use the P/B ratio.

    “A good place to start when valuing Berkshire is to take Buffett’s advice, which he outlines in the Berkshire Owners’ Manual. A simple way to view the company is in terms of book value per share (BV/S). In May 1996, when Berkshire first issued its B class shares, Buffett indicated that the stock price was somewhere close to fair value or possibly slightly overvalued then. At that time, the first-quarter reported BV/S was around $15,200, and the share price was around $34,000. Applying the same ratio to today’s BV/S of $66,300 results in a share price of more than $148,000 per A share, or $4,930 per B share. My more elaborate valuation produces a range of $123,000 and $144,000 per A share. Translated for B shares, this amounts to $4,100 to $4,800. At today’s price, that puts Berkshire between 13% and 25% undervalued.”

  3. I remember that Whitney Tilson had a presentation at the Value Investing Congress on his valuation of Berkshire. I’ll add to this post if I manage to get a copy of that.


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