Warren Buffett’s Letter to Shareholders – Intrinsic Value
Warren Buffett just released his letter to Berkshire Hathaway (BRK.B) shareholders.
I’m reading it now. I’ll talk about it in depth later. But I thought I’d give you my first impression of what matters.
For Berkshire shareholders, Buffett goes into much more detail than usual concerning how to value Berkshire Hathaway. He even tells us what he thinks normal earnings are for Berkshire right now.
As usual, he’s also presenting my favorite way of valuing Berkshire – the two bucket approach. You take the investments per share and you slap a multiple on the pre-tax earnings per share.
Personally, I suggest 10 times pre-tax earnings is the right multiple.
So, if you look at page 6 of the annual letter, you’ll see per share investments are $94,370 and pre-tax earnings per share are $5,926.04. That suggests Berkshire’s intrinsic value – using the two bucket approach and no earnings normalization – is $153,630.
A “B” share is 1/1,500th of an “A” share. So, Berkshire’s “B” shares – the ones individual investor are most likely to buy – should be worth about $102.
The last trade on Berkshire’s “B” shares was $84.87 a share.
Of course, those earnings aren’t normalized. Buffett gives an estimate of normalized earnings this year.
But I thought I’d share the usual two buckets of value approach and what is says about Berkshire this year.
It’s a smidge undervalued.