That might be the reaction of the people selling their Berkshire shares in the last few years if today is any indication. Every railroad has seen their shares trade at a lower level today as a result of the snti-trust case decision but Berkshire seems to show no effect. So I guess the explanation for the recent mispricing of Berkshire's shares is that the sellers in recent months don't realize that Berkshire owns this railroad business that is worth in the area of $50-$60 billion or $31,000 to $37,000 per share.
Warren B. has always shown great insight with regards his fantastic investments and phenominal earnings and dividends! <We would all enjoy dividends on our purchases of Warren's successes also> CSX is a busy railroad and growing continuously. Go for it Warren.
Our future of moving almost everything across the U.S. depends more and more on the railroads. Container cargo when introduced was likened to a miracle - automobiles were loaded from rail to the decks of the freighters, so many were damaged by storms en-route . Along came containers and cargo arrived free of damage, less insurance claims and contented shippers!
All it says is that BURP's insurance ops would be hurt less than industry average. Does not say it would not be hurt, which gets me back to the original point that a measurable element of the past growth rate is attributable to the outside element of a secular decline in interest rates.
So Boo-Fay has at least partially insulated himself from a general rise in the interest rate environment: what does he have in his weapons arsenal that adds to his BV growth rate that replicates what he achieved during the rate decline? And, if such a weapon exists, will the volatility of those returns meet the low volatility standard that justifies your P/BV target? My estimate is "No!"
Todd, it appears that this crank old guy is just digging up old issues from the internet and knows nothing about Berkshire so no need to waste any more time.
As any one with any knowledge about the company would know Berkshire is positioned so that an increase in interest rates will be beneficial. Berkshire has $50 billion of cash and an immaterial amount of long treasuries. Most of the rest of its fixed income securities are the very high coupon preferreds and other loans Berkshire made which wouldn't see much change in value if long-term interest rates changed much.
I am not sure where the 10x pre-tax figure originated but for Berkshire's non-insurance businesses it seems appropriate if not overly conservative. If you look at the total LTM non-insurance earnings of 8.2 billion, about 40% comes from BNSF ($3.1 billion) and 16% from the utility business ($1.3 billion). Union Pacific (the only other western railroad and the one whose operations almost identically mirror BNSF's) is trading for about 17x trailing earnings. The utility business gets most of its earnings from the inter-mountain west region which has favorable growth demographics similar to the southeast where utilities such as DUK, NEE and SO are trading for 15x-17x earnings. So you have roughly 56% of Berkshire with good comparables that trade a blended multiple of about 16x.
To avoid making this post overly long I won't go into detail about the rest but will mention that industrial manufacturing companies are around 15x earnings now and companies like Mohawk and Sherwin Williams two very good comparables for Benjamin more trade at 20+x. The only below market multiple business that I can think of is the finance business but that only makes up about 6% of earnings so its really tough to get a multiple lower than 15x after tax or 10 pre-tax for the non-insurance subsidiaries as a whole.
<<A far more credible valuation would have subtracted the float from the investments per share...>>
That's not credible at all.
Float has a negative cost at BRK and as Buffett stated it's both long-enduring and costless. It's a revolving fund. To take that to zero as if it's all paid out today is to tremendously undervalue the benefit of being paid to take other people's money.
Book value, by the way, does just this. It strips out float in its entirety. It's another reason why book value tremendously undervalues the intrinsic value.