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Can we make reasonably accurate estimates for the fraction of Berkshire's value represented by its various parts, such as cash, fixed income, equities and operating units, and their respective value growth rates? I think that with a little work we can. For example, as of Dec 2022 Berkshire's equity securities totaled $308.8 billion, less $77.0 billion in deferred taxes (assigning all tax liability to the equity portfolio). This nets to $231.8 billion in BV out of $472.4 billion of total stockholder equity, or 49.1% of stockholder equity. By my calculations, over the 23-year period 2000-2022 Berkshire's equity portfolio has returned 9.0%, compounded annually, before taxes. Over the same period Berkshire's BV/share has increased 10.6%/year (least squares), so it would appear that the rest of Berkshire, apart from the equity portfolio, has grown somewhat faster recently than the equity portfolio.

Can we make similar estimates for the other parts of Berkshire, and if so, what parts of Berkshire are growing in value the fastest? Also, how much does leverage in the form of bonds issued at low interest rates and low cost float add to Berkshire's value growth rate? Care to help me with the calculations?

The calculated, value growth rates above for the equity portfolio and BV/share are only for the last 23 years. Over the 58 years since Buffett took over, Berkshire's value, as measured by BV/share, has grown much faster, 19.4% for the first 50 years and about 18.2% for the 58 years. AS measured by IV per share Berkshire's value has grown 19.6%/year over 58 years, by my estimate. I think that this amazing growth was driven in large part by phenomenal returns in the equity portfolio in Berkshire's early years, amplified by low cost leverage. Very few operating units can grow 19%/year for 58 years.

Any help that you can give in analyzing the components of Berkshire's value growth, both historical and recent, would be greatly appreciated.

Sincerely,
rrr12345

It's two years old, but you might find this an interesting starting point.
http://www.datahelper.com/mi/search.phtml?nofool=y...

It would be interesting to do the same exercise again today with the same methodology, to get rates of growth you seek,
but it has hardly been a normal couple of years.

It's a table worth staring at.
For example, most people wouldn't guess that the long tail of small subsidiaries outside the top 10 big ones account for more value than BH Energy.
(or did a couple of years ago, anyway)

Jim

Thank you, Jim. I remembered that post, but I couldn't find it. It's a good breakdown of the value of the parts. Now if we can just estimate the value growth rates. Or we could guess. The returns of a few of thee parts like cash and fixed income are easy to guess; the rails and utilities are allowed 10% ROE, etc. Morningstar provides some numbers in their sum-of-the-parts valuation.

My guess is that Apple is near the top of the list in both value and value growth rate. Berkshire's Apple position had a value as of Dec 31 of $116B, and according to Morningstar Apple grew fair value at a 30%/year rate over the five years ending Dec 2021 (I haven't yet updated that figure to include 2022. One has to calculate if from Morningstar's "price and fair vale" chart). If we assume that Berkshire's position in Apple is considerably leveraged, having been purchased largely with float, then the rate of equity creation of this part of Berkshire is well above 30%. Other parts of Berkshire, like T-Bills, grow in value by less than 5%/year.

Does anyone have rough estimates for the value growth rates of other parts of Berkshire?

After tax total (not per-share) income, trend rates of growth last 13 years

Rails                 Inflation +  8.70%/year  (27% of total of these three lately)
Utilities             Inflation +  5.16%/year  (17% of total of these three lately)
Manuf/Service/Retail  Inflation + 11.75%/year  (56% of total of these three lately)

Growth per share is of course a bit higher due to the falling share count.

There are not calculated as end-to-end annualized rates, which makes them sensitive to endpoints.
Rather, they are calculated based on the slope of the trend line through log real returns.
Utilities have trended the best. Rails a somewhat noisier, and below trend right now.

Remember that these are not growth rates as you would see in standalone companies.
The growth here is in large part funded by profits coming from the investment side of the firm, lots of capex and small acquisitions.
So, they are measures of capital allocation as much as they are measures of internal growth rates.

Jim

Thank you, Jim. That's extremely helpful. It pretty much fills in the values and value growth rates of all of Berkshire's parts, except for cash and fixed income, which are easily calculated. Adding in 2.5% inflation, over the last 13 years we have equities returning 12.4%/year (nominal, pre-tax) and operating companies, ex-insurance, growing 9.8%/year (weighted average of rail, utilities and manuf/service/retail in your post). I'm sure that there's some spread of growth rates within manufacturing, service and retail group, just as there's some spread of returns within the equity portfolio. Within the equity portfolio the companies with the highest growth rate are Apple, at 19.8%/yr (Morningstar's fair value estimates over 10 years), and Moody's, at 17.6%/yr (price over 10 years).

Since the original purchases of many of these parts have been funded by insurance float (which now stands at $164 billion), I would have to say that insurance is Berkshire's most valuable part, even if not currently the fastest growing part.

Thank you for your help. It gives me a better understanding of Berkshire's value and value growth.

Sincerely,
rrr12345

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