This is just a back of the envelope calculation. Not all Berkshire companies are included so this should really be a lower bound of the intrinsic value of Berkshire
|BH Asset||Value in Billion USD|
|Their stock portfolio||205|
|Occidental preferred (10B payed, doing a 5B write down)||5|
|Pilot Flying J||3|
|Various construction and materials companies||5|
|Fruit of the Loom + Russell Brands||2|
This is a conservative estimate of the value. There are some big companies that are left out. There is also some small debt that is left out but in truth the company could take on an additional 100B loan if it really wanted – that would only be 50% leverage on their stock portfolio not even counting their other assets that they can lend against.
Even if you discount the value of the cash position with 25% (because it is just sitting there doing nothing) then Berkshire is very much undervalued. If you discount the entire 130B cash position then Berkshire is trading at fair value.
Some people might note that over the last 1,5,10 or whatever many years Berkshire has (slightly) lagged the S&P500. Well no shit if it is only trading at less than 80% of the intrinsic value then yes it has lagged. But if it were trading for its true value it would have clearly beat the S&P500. The fact that it has not beat the S&P500 because it is trading below what it is worth is what makes this an opportunity because this gap will close.
I know that many here will say that the stock is going to tank once Warren dies but really I think that would be good for Berkshire. It is trading at a discount in part because Warren has been very busy doing nothing for many years now. Once he dies that cash is more likely to be used than it is now, either for buybacks or for acquisitions, or even for buying SPY.
So many people have said they are waiting for Berkshire to go down once he dies and that will be when they buy in. I think there won’t be that opportunity. This thing is so much undervalued already and lots of investors are ready to go once he passes away.
Sure it could be another decade before he gives up control over Berkshire but there will be something done with the cash pile before then. Either they buy back stock, buy that elephant, or they buy SPY. Until then it is a well diversified company.
The only thing wrong with Berkshire is they are underleveraged. Not the worst mistake to make.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.