No. of Recommendations: 5
Thanks for the Tilson link.
Tilson: “To calculate my estimate of its intrinsic value, I take Berkshire's cash and investments per share and add the value of the operating businesses. (I believe Warren Buffett has long used a similar method.)”
Well, yes. Mr. Buffett laid it all out for everyone in the 2018 annual letter. Interestingly, Tilson doesn't do it that way, though. Perhaps for consistency?
Tilson again: “ A conservative, below-market multiple on Berkshire's earnings is 11 times. So with EPS of $30,181, that equals $332,000 per A-share.
I wondered where he got that earnings number. He lays it out:
Next, here's how I calculate Berkshire's pretax operating earnings for the quarter...
First, I take stated trailing-12-month operating earnings of $52.7 billion. Then I adjust for normalized earnings from Berkshire's insurance segment by subtracting $22.5 billion of profits from insurance underwriting and investments.
Then I add back half of the average over the past two years, which is $12.6 billion. (I think this is conservative, given that insurance and investment income has averaged $11.5 billion per year over the past decade, and Berkshire is much bigger now.)
The result is adjusted pretax earnings of $42.8 billion, equal to $30,181 per A-share.
He's adding $12.6 billion in insurance earnings at 11x AND including the full value of the portfolio. Hmmm.
Using a strict interpretation of 5-groves, which does not include insurance earnings, I'm at $516. Same method gave $486 back when Greg announced resumption of buybacks, which was about the stock price at the time.
But, whatever. We all know over 1.6x book is getting pricey (Tilson's IV of $577 is 1.61 x 2026Q3 book)
