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Price to Book has been a quick, simple method for valuing Berkshire for a long time. Jim Mungofitch suggested using Peak Book in the denominator to improve the estimate.

I looked at quarterly, inflation-adjusted Book Value of Berkshire since 2000 and plotted it here, along with the least-squares trend line --> https://ibb.co/kMydfJt

A couple of things popped out at me. First, Book Value has gotten noisier than in the distant past. There were two dips below the trend line that happened in 2009 and 2012. These returned to the trend line within a few years. (This might not have happened if we ended up with the Great Depression 2.0, but fortunately that didn't happen.) But those short-lived drops below the trend line are what made peak PBV fit the data better by staying closer to the trend line.

But the last few years have seen book value become much noisier and moved away from the trend line in both directions. This was probably caused both by the easy money that's been available, as well as changes in how book value is calculated. But if the reported book value is indeed becoming noisier in BOTH directions, peak price-to-book may not produce a more reliable indicator.

In fact, I submit that the long-term trend line of book value would be a better value to use than the reported book value. Book is likely to grow consistently and reliably as long as there is no structural change to Berkshire. It certainly seems to have mean-reverted to the trend in the past and presumably will continue to do so going forward. I plan to use trend book, rather than the reported value. I'll watch for signs that book growth is slowing, but even if that happens, it will likely change very slowly.

According to my calculations, nominal Book Value has been growing over the past 20 years at 10.2% per year (2.46% per quarter). Here are the nominal trend line quarterly values for the next few years.

2022 EOY 311176
2023 318830 326672 334707 342940
2024 351375 360018 368873 377946
2025 387242 396767 406526 416525
2026 426770 437268 448023 459043
2027 470334 481902 493755 505900
2028 518343 531093 544156 557540
2029 571254 585305 599701 614452
2030 629565 645051 660917 677173
2031 693829 710895 728381 746296
2032 764653 783461 802731 822475
2033 842706 863433 884671 906431
2034 928726

The nominal values are easy to use because you can calculate them in advance as far into the future as you want.

But it's probably better to use real (inflation-adjusted) values. I show the inflation-adjusted trend line growing at inflation plus 7.95% per year (1.93% per quarter). Once inflation and BRK's book values for the end of 2022 are reported, I plan to update my spreadsheet and then calculate the values every month starting from the trend book value on 31 Dec 2022. I'll report those starting values when I get them if anyone is interested.

BTW, we're used to updating BRK's book value quarterly with a lag when it's reported. A side benefit of using trend book is you can calculate the value monthly or at any other period you want and it has no lag.

Thoughts?

quarterly, inflation-adjusted Book Value of Berkshire since 2000

As you have quarterly BRK BV data since 2000 with and without inflation adjustment already available --- and probably the according share prices too: Would you care to post them (saving quite some work to collect them)?

Credit for the quarterly book value numbers goes to longtimebrk from post 168 in this forum.

Here are his quarterly numbers in a single column if that helps, along with my inflation-adjusted book value in 1990 dollars.

2000 Q1 38023 28296
2000 Q2 37011 27312
2000 Q3 37810 27670
2000 Q4 38938 28260
2001 Q1 40436 29108
2001 Q2 38240 27334
2001 Q3 38464 27302
2001 Q4 37475 26416
2002 Q1 37854 26499
2002 Q2 39444 27503
2002 Q3 40819 28349
2002 Q4 41718 28860
2003 Q1 52575 36228
2003 Q2 45995 31515
2003 Q3 46870 31935
2003 Q4 50484 34205
2004 Q1 55806 37601
2004 Q2 52302 35006
2004 Q3 52455 34876
2004 Q4 55806 36860
2005 Q1 56160 36852
2005 Q2 57213 37228
2005 Q3 58125 37506
2005 Q4 59372 37994
2006 Q1 61878 39273
2006 Q2 62857 39575
2006 Q3 66282 41399
2006 Q4 70277 43549
2007 Q1 71210 43782
2007 Q2 74484 45470
2007 Q3 77475 46964
2007 Q4 78001 46953
2008 Q1 77075 46074
2008 Q2 76176 45104
2008 Q3 77555 45488
2008 Q4 70330 40865
2009 Q1 66208 38115
2009 Q2 73812 42530
2009 Q3 81282 46877
2009 Q4 82052 47364
2010 Q1 89378 51639
2010 Q2 86650 49858
2010 Q3 90836 52055
2010 Q4 95433 54467
2011 Q1 97073 55180
2011 Q2 98709 55670
2011 Q3 96901 54225
2011 Q4 99837 55437
2012 Q1 89378 49250
2012 Q2 86650 47500
2012 Q3 90836 49540
2012 Q4 95433 51782
2013 Q1 120520 65063
2013 Q2 122873 66092
2013 Q3 126763 67937
2013 Q4 134986 72083
2014 Q1 138454 73669
2014 Q2 142483 75507
2014 Q3 144580 76310
2014 Q4 146226 76870
2015 Q1 146979 76958
2015 Q2 149743 78382
2015 Q3 151097 79067
2015 Q4 155495 81344
2016 Q1 157350 82290
2016 Q2 160012 83419
2016 Q3 163813 85133
2016 Q4 171565 88884
2017 Q1 178082 91973
2017 Q2 182843 93932
2017 Q3 187450 95791
2017 Q4 211718 107625
2018 Q1 211000 106701
2018 Q2 217654 109399
2018 Q3 228772 114294
2018 Q4 212500 105529
2019 Q1 224950 111046
2019 Q2 233997 114992
2019 Q3 243606 119177
2019 Q4 261417 127320
2020 Q1 229293 111178
2020 Q2 245765 118799
2020 Q3 264323 127379
2020 Q4 287031 137901
2021 Q1 224950 107747
2021 Q2 233997 110778
2021 Q3 243606 114003
2021 Q4 261417 120950
2022 Q1 345469 158045
2022 Q2 314090 141184
2022 Q3 310652 137245

And finally some older book annual book value numbers I also borrowed from someone else, but I don't remember who/where.
1985 1644
1986 2073
1987 2477
1988 2975
1989 4296
1990 4612
1991 6437
1992 7745
1993 8854
1994 10083
1995 14426
1996 19011
1997 25488
1998 37801
1999 37987

I don't have EOQ prices for BRK, only daily prices which are easily downloaded from yahoo.
https://finance.yahoo.com/quote/BRK-A/history?p=BR...

Does anyone have a link that describes how to format tables when posting?

Extrapolating BV/share using a constant growth rate is probably OK, but as you probably know, the plot of BV/share since 1965 shows two, distinct knees, one in 1981 and one in 1999. From 1965 to 1981 BV/share grew at a more or less constant rate of 18.6%/yr. From 1981 to 1999 BV/share BV/share grew at a more or less constant rate of 28.8%/yr, and from 1999 to 2020 BV/share grew at a more or less constant rate of 10.2%/yr. The S&P 500 index showed knees at about the same times, with growth rates of 1.4%/yr, 13.0%/yr and 5.3%/yr during the periods 1965-1981, 1981-1999 and 1999-2020 respectively.

I looked at quarterly, inflation-adjusted Book Value of Berkshire since 2000 ...

Just to confirm, am I right in thinking that the inflation adjustment was done only for the purpose of generating a trend line? I can see a logic for this.

But for calculating P/BV, it would not make sense since price is not inflation adjusted.

StevnFool

But for calculating P/BV, it would not make sense since price is not inflation adjusted.

IMO, inflation adjustment is done for all purposes. Yes, it's used for generating the trend line, but looking at the real, inflation-adjusted stock price is also appropriate. Stock indexes on average increase by 6.5% (Siegel's constant) plus inflation. Eventually, when you sell your Berkshire stock, you spend that money on higher (inflation-adjusted) prices. So at the end of the day, the inflation-adjusted stock price is what really matters.

the plot of BV/share since 1965 shows two, distinct knees, one in 1981 and one in 1999

Yes, I agree. And we both also probably agree that the reason was 1970s Berkshire was structurally very different than 2000s Berkshire, the amount of money under management being a big part.

My reasoning for using trend book value is it will work better and be a more accurate measure until Berkshire changes structurally. Slow changes don't count (except slowly). So when Ted/Todd replaces Mr. Buffett and investment decisions decline from exceptional to merely great, the trend line will continue to be accurate.

Trend book value would lose its reliability if someone decided to break up the conglomerate and sell off the parts. Or change to buying and selling companies, a la Bruce Flatt. Or some other structural change. Until then, the trend line is the better choice because it is more accurate and less noisy than the quarterly stated book value.

2019 Q1 224950 111046
2019 Q2 233997 114992
2019 Q3 243606 119177
2019 Q4 261417 127320

2020 Q1 229293 111178
2020 Q2 245765 118799
2020 Q3 264323 127379
2020 Q4 287031 137901

2021 Q1 224950 107747
2021 Q2 233997 110778
2021 Q3 243606 114003
2021 Q4 261417 120950

Typo alert: 2021 Numbers in the table are a copy of 2019.

2021
$293,636
$311,276
$316,443
$342,622

"And we both also probably agree that the reason [for the abrupt changes in the rate of growth of BV in 1981 and 1999] was 1970s Berkshire was structurally very different than 2000s Berkshire, the amount of money under management being a big part."

It looks to me like the abrupt changes in the rate of BV growth in '81 and '99 were a result of the abrupt changes in the rate of growth of the S&P 500 index in '81 and '99.

"It looks to me like the abrupt changes in the rate of BV growth in '81 and '99 were a result of the abrupt changes in the rate of growth of the S&P 500 index in '81 and '99."

My guess is that neither the S&P 500 index nor Berkshire's book value per share will grow as fast from Dec 2021 to Dec 2031 as they did from Dec 2011 to Dec 2021, when they grew 12.3%/yr and 12.1%/yr respectively (least squares). I would guess that the S&P 500 index will grow closer to 5%/yr from Dec '21 to Dec '31 (It's already down 19% in 2022, and valuations are still high.), and that Berkshire's BV/share will grow closer to 8%/yr (possibly lower if Warren passes the reins.)

While Berkshire's BV/share growth has been more or less constant since Dec 2000, and since Dec 2011, I'd be cautious extrapolating the same growth rate to the next 10 years. Just mho.

You're absolutely right about the incorrect data. Thanks for catching that.
It also threw my trend line off, but not too much. I'm unfortunately leaving today on a ski trip and will be out of touch for a bit.
I'm planning on updating the spreadsheet in early Feb when the EOY book is announced and I'll post an update then.

Here are the corrected numbers.

Year / Qtr / BookValue / InflationAdjustedBook
2000 Q1 38023 28296
2000 Q2 37011 27312
2000 Q3 37810 27670
2000 Q4 38938 28260
2001 Q1 40436 29108
2001 Q2 38240 27334
2001 Q3 38464 27302
2001 Q4 37475 26416
2002 Q1 37854 26499
2002 Q2 39444 27503
2002 Q3 40819 28349
2002 Q4 41718 28860
2003 Q1 52575 36228
2003 Q2 45995 31515
2003 Q3 46870 31935
2003 Q4 50484 34205
2004 Q1 55806 37601
2004 Q2 52302 35006
2004 Q3 52455 34876
2004 Q4 55806 36860
2005 Q1 56160 36852
2005 Q2 57213 37228
2005 Q3 58125 37506
2005 Q4 59372 37994
2006 Q1 61878 39273
2006 Q2 62857 39575
2006 Q3 66282 41399
2006 Q4 70277 43549
2007 Q1 71210 43782
2007 Q2 74484 45470
2007 Q3 77475 46964
2007 Q4 78001 46953
2008 Q1 77075 46074
2008 Q2 76176 45104
2008 Q3 77555 45488
2008 Q4 70330 40865
2009 Q1 66208 38115
2009 Q2 73812 42530
2009 Q3 81282 46877
2009 Q4 82052 47364
2010 Q1 89378 51639
2010 Q2 86650 49858
2010 Q3 90836 52055
2010 Q4 95433 54467
2011 Q1 97073 55180
2011 Q2 98709 55670
2011 Q3 96901 54225
2011 Q4 99837 55437
2012 Q1 106613 58746
2012 Q2 107356 58851
2012 Q3 111695 60916
2012 Q4 114196 61963
2013 Q1 120520 65063
2013 Q2 122873 66092
2013 Q3 126763 67937
2013 Q4 134986 72083
2014 Q1 138454 73669
2014 Q2 142483 75507
2014 Q3 144580 76310
2014 Q4 146226 76870
2015 Q1 146979 76958
2015 Q2 149743 78382
2015 Q3 151097 79067
2015 Q4 155495 81344
2016 Q1 157350 82290
2016 Q2 160012 83419
2016 Q3 163813 85133
2016 Q4 171565 88884
2017 Q1 178082 91973
2017 Q2 182843 93932
2017 Q3 187450 95791
2017 Q4 211718 107625
2018 Q1 211000 106701
2018 Q2 217654 109399
2018 Q3 228772 114294
2018 Q4 212500 105529
2019 Q1 224950 111046
2019 Q2 233997 114992
2019 Q3 243606 119177
2019 Q4 261417 127320
2020 Q1 229293 111178
2020 Q2 245765 118799
2020 Q3 264323 127379
2020 Q4 287031 137901
2021 Q1 293636 140646
2021 Q2 311276 147364
2021 Q3 316443 148090
2021 Q4 342622 158521
2022 Q1 345469 158045
2022 Q2 314090 141184
2022 Q3 310652 137245

A couple of things popped out at me. First, Book Value has gotten noisier than in the distant past....

I think you will find that this is not because of any change in Berkshire's business, but because
it seems you have graphed the change in book value in constant dollars rather than looking at percentage changes.

A 1% fluctuation in book value is no more meaningful than it ever was, but is a much bigger change in dollar terms than it was years ago.
So, in dollar terms, it seems like the fluctuations are getting larger and larger.
Which they are in absolute terms, of course, but they aren't getting any more meaningful as a fraction of the value.

Try replacing your Y axis values of "real book per share" with "log of real book per share", and *then* do a linear fit.

Jim

Try replacing your Y axis values of "real book per share" with "log of real book per share", and *then* do a linear fit.

The Y-axis is the log of real book value. (I subtracted a constant to make it easier to see on my graphing program.)
I'll be away for a bit, but when I get back maybe I'll see if the percentage changes have increased or not. I want to redo the whole thing when EOY 2022 values are available anyway. I'd be happy to send that spreadsheet to you or anyone else that wants to check my work. (Actually, I'd like to have someone check it.) I'll post my updated results in early February after Berkshire reports.

IMO, inflation adjustment is done for all purposes. Yes, it's used for generating the trend line, but looking at the real, inflation-adjusted stock price is also appropriate. Stock indexes on average increase by 6.5% (Siegel's constant) plus inflation. Eventually, when you sell your Berkshire stock, you spend that money on higher (inflation-adjusted) prices. So at the end of the day, the inflation-adjusted stock price is what really matters.

I guess to make my point another way. If you simply want to calculate P/B, you get the same answer if you inflation adjust both or neither so neither is easier but you definitely do not want to inflation adjust only one of them.

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