This is the fifth and final installment of a multi-part series covering the Berkshire Hathaway 2008 Annual Report and Warren Buffett’s letter to shareholders.  In this post, I will consolidate the valuation estimates from the prior posts in the series and come up with an estimated intrinsic value for Berkshire Hathaway at December 31, 2008.  I will also briefly examine the events of Q1 2009 and determine what impact these events might have on Berkshire’s intrinsic value as of the end of February.

Based on the valuation assumptions in my prior posts on the Insurance and Non-Insurance subsidiaries, we have the following estimate for Berkshire’s intrinsic value as of December 31, 2008:

 

Valuation (Billions)

Insurance Subsidiaries

                188.0

Regulated Utilities

                 12.4

Operating Companies

                 22.8

Finance/Financial Products

                  4.8

Total

                228.0

The estimated intrinsic value of the Insurance Subsidiaries, including both statutory surplus and the estimate of the present value of cash flow attributable to float, was $188 Billion and accounted for the majority of Berkshire’s intrinsic value.  The Non-Insurance subsidiaries were valued at roughly $40 Billion using very conservative multiples of recession level earnings. 

On December 31, 2008, there were 1,549,234 Class A equivalent shares outstanding.  Given a total estimated intrinsic value of $228 Billion, we can estimate an approximate intrinsic value of $147,169 per A Share.  B Shares, with 1/30 of the economic rights of A shares, would have an estimated intrinsic value of $4,906 per share. 

What about Q1 2009?

Q1 2009 has been a dismal quarter for financial markets and, as I noted yesterday, Berkshire’s holdings have not been spared from the carnage.  It appears that a $13 Billion pre-tax loss that I speculated about yesterday may be approximately correct since Berkshire reports on page 77 of the report that consolidated shareholders’ equity has been reduced by approximately $8 billion since the end of 2008.  $13 Billion pre-tax is in the ballpark of $8 Billion after tax benefits.

I do not pretend to know whether the declines in Berkshire’s major investments in Q1 are permanent impairments or the result of temporary irrational behavior in the markets.  The declines in Wells Fargo and American Express are particularly troubling in they prove to be permanent.  Rather than speculating about whether the declines were justified or not, it seems prudent to adjust downward our estimate of intrinsic value by $8 Billion.  This would reduce the insurance subsidiaries statutory surplus and impact the insurance subsidiary valuation. 

If we deduct $8 Billion from intrinsic value, we are left with an estimate of $220 Billion, or approximately $142,000 per A share and $4733 per B share.   With A shares closing at $78,600 and B shares closing at $2,564 on Friday, February 27, it appears that the market is assigning a value to Berkshire that is far under my estimation of intrinsic value.

Berkshire Intrinsic Value Estimate: $142K

2 thoughts on “Berkshire Intrinsic Value Estimate: $142K

  • February 28, 2009 at 9:15 pm
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    Do you do blogroll exchanging? If you want to exchange links let me know.

    Email me back if you’re interested.

    • February 28, 2009 at 9:43 pm
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      Thanks for visiting my blog – email sent on the blogroll exchange question.

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