Valuation of Berkshire Hathaway

Valuation of Berkshire Hathaway

December 21, 2018 0 By admin

What would be a correct price for a share of BRK today (21 Dec 2018) ? This post is written with one BRK class B share at $ 192.

Which Berkshire? Ticker symbols etc

To start with, there are 4 ticker symbols: BRKA, BRKB, BRK-A, BRK-B.

Apparently there is no difference between BRK-A and BRKA, and the same applies to BRK-B and BRKB.

One BRK-B is equals one-1500 th of one BRK-A (Class A ) share. And there is a difference in voting rights. And A can be split in B but not vice versa.

What’s it worth?

Many website put effort in a calculation so I’ll just consolidate their findings, why re-do something which has been done properly by others.

The Buffett Put

“the Buffett put”  is the price which Warren Buffett publicly states he will purchase back massive quantities of (his own) shares. It is at 120% of book value. When the stock price comes in this neighbourhood (120 – 130 % of BV), you can call it cheap. That’s an easy measure isn’t it?

Buffett started effectively repurchasing his own shares in August 2018, with BRK-B at 206 – 208 $. Today’s price (192 $) is some 7 % lower.

Here you have a chart giving you this ratio over the last 5 years. It hoovers around 1.4 (average 1.41, median 1.35), extremely rarely drops to 1.3, most frequently is between 1.35 and 1.5.

Today (since Sept 2018) the BV is 151.8 (B) or  227.700 (A). See this site. With today’s price of 291.400 (A – 21 dec 2018) we are at 127 % BV, which is very rare, a once-in-three-years event. An average price level (1.41 x BV) would be 321 k (A)  or 213 (B).

A fair valuation at 1.35 BV (median) or 1.41 BV (average) gives a price of 205 or 214 for a B share. Or around 210. That’s a good number to keep in mind (end 2018). A purchase below 210 for a B share (2018) should not disappoint.

Wrap up

Image result for berkshire hathaway

So things are really simple when it comes to investing. You can stuff your savings account which will return you (in Europe) 0.50 % annually or you could purchase Berkshire and get this:

  • An annual return expected around at least 10 %. This comes down from the > 20 % returns in the past, to 15 % a decade back, to 10 – 12% returns during the last 10 years.
  • A purchase price today (21 Dec 2018) of 7 – 12 % below the average price level.
  • So your expected return for the next 5 years is at least 10 % annually, likely somewhere at 12 % or more.
  • ‘Risk’ as measured by intermediate drops is low, since we can trust Buffett to buy back shares once they would go below the 120 % bookvalue, which is 151 $ x 120 % = 181 $. But since he bought shares at 207 $ in August, I would not be surprised if he was buying already big time today. The A share has bottom at 288.000 $ (B at 192 $), who knows if this is the price for Buffett to start his ‘agressive buying’?

Then why is BRK dropping in price these weeks?

The currently low price levels of BRK are probably caused by two reasons:

  • the stock market drop and its impact on shareholders. BRK shareholders do not easily sell, but BRK is a large part of the S & P 500, so when index funds sell, BRK drops.
  • the stock market drop and its impact on Berkshire’s holdings. BRK has large positions in Apple, a number of banks, and other stocks which have all dropped considerably. When you calculate Berkshire’s bookvalue using the ‘market’ value of these holdings, the BV will have  dropped in the last quarter of 2018 and it may drop even further. So the 127 % BV price today could very well appear to be a 135 % price level in the coming months.

All in all, it is cheap today, you can expect a 10 % annual return, and risk on the longer term is very low. Investing has never been simpler.


Forbes is less optimistic and sees 171 $ as fair value for B shares


Buffett and elephants

Buybacks in August 2018

For projected returns read here