My understanding of valuing Berkshire continues to evolve. I like that Buffett referred to the intrinsic value of the 5th grove (insurance) as fuzzy. The future in insurance is always uncertain even for a diversified insurance book like Berkshire's. Future underwriting and investment returns are clearly not conducive to analytical certainty to any degree.

The 30% of float handicap makes sense. Having liquidity to deal with anything is central to Berkshire's objective of remaining an insurance Rock of Gibraltar. But that comes at a cost on the expected investment returns and should be factored into a conservative intrinsic value calculation.

In his explanation of the 5-groves, Buffett says outright that some of the cash will never be invested:

https://berkshirehathaway.com/2018ar/2018ar.pdf
Page 6:

"In our fourth grove, Berkshire held $112 billion at yearend in U.S. Treasury bills and other cash equivalents,
and another $20 billion in miscellaneous fixed-income instruments. We consider a portion of that stash to be
untouchable, having pledged to always hold at least $20 billion in cash equivalents to guard against external calamities.
We have also promised to avoid any activities that could threaten our maintaining that buffer."

It is interesting that your [Jim's] K is to handicap future investment returns rather than to provide guaranteed liquidity for claims. Buffett's $30 billion short dated end of the bond portfolio (cash) sounds more like a liquidity guarantee. But maybe they are just the other side of the same coin. 30% of float is a similar number to 30% of cash ($50 billion v $49 billion). Then again both are higher than Buffett's $30 billion number. Although that number has probably increased since last stated.

It was $30bn in the 2023 second quarter report. Bloomstran says $50bn is about the maximum that Berkshire might have to pay out in a year, or something like that.

Good to know $115 billion of cash and counting daily could end up going into 9% return investments. That would be upside and a small reason for buying Berkshire today at around most people's conservative intrinsic value.

Well, buying at a conservative IV means a good chance of getting a decent result over a long time. The possibility of bagging an elephant could be icing on the cake. Not to be expected. Consider the last 13.5 years:

(Cash & Bonds)/ Float
2010 till now:
105%
92%
100%
94%
101%
99%
102%
109%
105%
111%
113%
109%
92%
99%

They drop the cash & bonds below float value sometimes, but not very far, and not for long.

Berkshire Hathaway FAQ

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