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Analysis of Guru Companies: Warren Buffett, Berkshire Hathaway

Of the investing gurus we follow at GuruFocus.com, six have publicly traded companies that are directly affected by their investments. They are either the chairman, chief executive officer, or the chief investing officer. I am going to examine each one of them to provide information about the guru, the company, the top holdings and an overall opinion. The companies that I will be examining are Berkshire Hathaway (BRK.A), Icahn Enterprises (IEP), Leucadia National (LUK), Markel (MKL), Fairfax Financial (FFH:TSX)(FRFHF), and Loews (L). The first guru I will be examining is Warren Buffett (Trades, Portfolio) of Berkshire Hathaway.

The Guru

Warren Buffett (Trades, Portfolio) (Chairman and CEO) is the greatest value investor of all time and many investors are trying to follow his lead. Buffett has been called "The Oracle of Omaha" for his impressive investing prowess. The story of Buffett has been extensively documented. As a child he would buy six-packs of Coca-Cola for a quarter and then sell the individual bottles for a nickel, netting a 20 percent gain. He attended Columbia University and learned from the father of value investing, Benjamin Graham. His investment philosophy was also shaped by Phillip Fisher and his friend and vice chairman, Charlie Munger (Trades, Portfolio).

The Company

Berkshire Hathaway (BRK.A)(BRK.B) is a holding company owning subsidiaries that engage in a number of diverse business activities including insurance and reinsurance, freight rail transportation, utilities and energy, finance, manufacturing, services and retail. In Buffet's latest letter to shareholders he describes insurance as the company's core operation and the engine that has consistently propelled its expansion. As long as underwriting breaks even, the float can be used as free money in order to make investments. Insurance float is money temporarily held in insurance operations that does not belong to the company. Including insurance, Berkshire has over 80 operating companies.

Top 5 Holdings


Market Value as of 3/20/14 ($ Billion)

Wells Fargo (WFC)


Coca-Cola (KO)


American Express (AXP)




*Bank of America (BAC)


*Berkshire owns warrants to buy 700 million shares of BAC prior to September 2021 for $5 billion.


Warren Buffett (Trades, Portfolio) sets the example that value investors are trying to follow. He has consistently performed throughout the years. He measures the success of Berkshire Hathaway by the increased book value per share (BVPS). The BVPS has increased at an annual compounded rate of 19.7 percent while the S&P 500 (including dividends) has increased 9.8 percent since 1965.

Buffett stated in his 2013 letter to shareholders, "As I've told you, Berkshire's intrinsic value far exceed its book value. Moreover, the difference has widened considerably in recent years." In 2012 he authorized the repurchase of shares if the value dropped to 120 percent of book value. They never dropped to that level in 2013, so he says that he will be aggressive if it gets there in 2014. The shares are currently trading at 136 percent of book value relatively low compared to the past ten years.

Due to the structure of Berkshire Hathaway, calculating the intrinsic value is a difficult task. S&P Capital IQ has used a multiple of their operating EPS forecast. In Buffett's letter to shareholders in 2010, Buffett laid out his three key pillars for valuing the stock.

  1. The value of the company's investments: stocks, bonds, and cash equivalents. At the end of 2013, the investments were valued at $129,253 per share.
  2. Earnings that come from sources other than investments and insurance underwriting. The figure for 2013 was given as $9,116 per share.
  3. The efficacy with which deployed earnings will be deployed in the future. This component is more subjective. Buffett wants to see an increase in retained earnings translate into at least a dollar-for-dollar increase in market capitalization. In his words, "Some companies will turn these retained dollars into fifty-cent pieces, others into two-dollar bills."

Since this component is subjective, he does not give a figure. He does pass his own test. For the past 10-years, for every dollar of increase retained earnings, the market capitalization has increased by $1.50.

Whitney Tilson (Trades, Portfolio), founder and Managing Partner of Kase Capital Management, devised the following methodology using Buffett's figures:

$129,253/share + ($9,116/share + $600/share) x 10 = $226,000/share intrinsic value of A share

The $600 per share is from taking half of the average annual underwriting profit. To figure out the B share value, just take the A share value and divide it by 1500. The A shares are convertible into 1500 B shares.

$226,000 / 1500 = $150.67/share intrinsic value of B share

There are concerns about Berkshire Hathaway are its size and succession planning for Warren Buffett (Trades, Portfolio). Berkshire is now at a market capitalization of just over $300 billion. It now has the fourth highest market cap of any U.S. stock. The larger Berkshire gets, the harder it will be to find enough investments that will make a sizeable impact on book value per share. Also on Jan. 22, multiple sources, such as Bloomberg and Reuters, stated that Berkshire Hathaway is being reviewed by regulators to determine if the company is important enough to the financial system to require Federal Reserve supervision.

Then there is the big question, "Who will replace Warren Buffett (Trades, Portfolio)?" He is now 83 years old. There is no official word on who will take over, but in his letters to shareholders he takes time to praise many of the investment managers working for him. The current consensus seems to be that Berkshire will be run by committee. The company has plenty of assets and superior management, so it should continue to operate efficiently.

At Berkshire Hathaway's price of $187,850.00 on March 21, 2014, the stock is undervalued by about 17 percent according to an intrinsic value of $226,000.00. The concerns about the company should be overcome by their superior management.


This article first appeared on GuruFocus.