No. of Recommendations: 18
You all may disagree but today, in part, underscores a bigger picture: Berkshire Hathaway continues its multi decade transition into a collection of operating companies, consistently reducing stock holdings relative to the overall enterprise size.
I appreciate that this is our general understanding of the firm, and I kind of buy it as a general strategic direction, but for whatever it's worth these are my figures:
Investments per share as fraction of total value of company, end 2013: 61.6%, equities as fraction of investments per share: 79%
Investments per share as fraction of total value of company, 2024-Q2: 63.0%, equities as fraction of investments per share: 76%
If there is a trend of operating earnings coming to dominate the value, it is being very cagey about betraying itself in the numbers so far.
Similarly, if I divide my "fancy" company valuation by book value to find the implied fair P/B ratio, it is not a rising trend, but if anything a slightly falling one.
Granted, operating profitability has been dire in the last couple/few years in the utilities and railroad, so maybe they are worth more than they appear because earnings are only cyclically depressed, and by extension the operating companies are a somewhat larger fraction of the value pie than I have estimated. But I've tried to estimate that, and it doesn't really change the result.
For anyone wondering what I'm talking about, here are the inflation-adjusted rolling-four-quarter after-tax earnings in the rail and utility divisions in the last 21 quarters. Try graphing the figures.
BNSF Util
6571 3272 Four quarters to 2019-Q2
6647 3372
6695 3469
6580 3396
6385 3458
6158 3675
6228 3730
6236 3861
6542 3897
6659 3952
6767 3949
6759 3918
6722 3833
6519 3869
6267 4114
6091 3735
5602 3708
5324 2561
5203 2384
5044 2664
4949 2504 Four quarters to 2024-Q2
Rolling year real Manufacturing/Service/Retail profit has risen 3.3%/year in this period, but a good part of that is the acquisitions of PCP and Pilot--the businesses are not prospering in a notable way.
Jim
