Berkshire Hathaway stock Price, Book Value and 5 groves valuation.

Book value growth projection at 12% (reasonable according to Buffett). Note when Berkshire Hathaway buys back shares above book value and under intrinsic value, book value per share should decrease. 

For decades Berkshire Hathaway benchmarked Berkshire book value per share increase against the S&P 500 Total Return index. That changed in 2018: https://www.berkshirehathaway.com/2018ar/2018ar.pdf

Warren Buffett explained: 

"The fact is that the annual change in Berkshire’s book value – which makes its farewell appearance on page 2 – is a metric that has lost the relevance it once had. Three circumstances have made that so. First, Berkshire has gradually morphed from a company whose assets are concentrated in marketable stocks into one whose major value resides in operating businesses. Charlie and I expect that reshaping to continue in an irregular manner. Second, while our equity holdings are valued at market prices, accounting rules require our collection of operating companies to be included in book value at an amount far below their current value, a mismark that has grown in recent years. Third, it is likely that – over time – Berkshire will be a significant repurchaser of its shares, transactions that will take place at prices above book value but below our estimate of intrinsic value. The math of such purchases is simple: Each transaction makes per-share intrinsic value go up, while per-share book value goes down. That combination causes the book-value scorecard to become increasingly out of touch with economic reality."

An interesting side note from 2021:  "As it happens, repurchases automatically increase the amount of “float” per share. That figure has increased during the past two years by 25% – going from $79,387 per “A” share to $99,497, a meaningful gain that, as noted, owes some thanks to repurchases."

Whilst total float growth was "only" 14% (approximated $147 billion at December 31, 2021 and $129 billion at December 31, 2019). $164 billion at the end of 2022.  

Insert > 5 groves < 

Grove Number 1: 2022 Berkshire controlled non-insurance businesses:
Earnings 2022 $21,4 billion x 15 (Peter Lynch) Multiple = $321 billion value

Grove Number 2: 2022/3 Collection of public equities (stocks) = $353 billion value 

Grove Number 3: Shared control companies: Kraft Heinz, Berkadia, Electric Transmission Texas, and Pilot Flying J:
After Tax Operating Earnings: $2 billion? x 15 multiple = $30 billion

Grove Number 4: 2022 US Treasury bills, cash equivalents and bonds:
$97 billion + $66 billion = $155 billion

2021 US Treasury bills, cash equivalents and bonds:
$146 billion + $16 billion = $163 billion

Grove Number 5: A collection of insurance companies that generate "float", a source of (cost free) financing for the first four groves. The float in 2021 was $147 billion. Float exists because insurers are paid premiums upfront, but only pay claims later. See "Unpaid losses" in the balance sheet. Unpaid losses are booked as debt, but represent "other people's money" that Berkshire can use and invest temporarily. This grove is not added or subtracted to get to intrinsic value.

Sum of Grove 1,2,3 and 4 = $321b controlled business + $353b equities + $30b Shared control + $163b Cash equivalents = $835b - $93b Deferred capital gains taxes =

Berkshire Hathaway intrinsic value -> $ 780 billion

A shares outstanding  2023: 1,449,542 = Intrinsic value per A share: $538 000,- not including $113 000 float per A share. Price per A share September 26th 10th 2023: $548 000,-  (0% "korting" rebate). 

Per B share including float: A 538 000+113 000 = $651 000/1500 = $434 (B share stock price= $362)

A share is still on track to hit $1 000 000 per A share by 2030.

Old notes https://sinaas.blogspot.com/2022/03/berkshire-hathaway-2021-intrinsic-value.html