Disclosure: Long PAM.LON

Highlights

• Flat revenue at £53.8 million (down 0.4%) masks a meaningful shift in the business

• Gross margin reached a 4-year high at 44.9%

• Operating profit fell 24% to £2.87 million. Operating margin fell from 6.5% to 5.0%.

• Net cash position (including all lease liabilities) of £1.05 million.

• Shares trade at a nearly 40% discount to book value and just 7.5x earnings.

FYE March 31, 2026 Analysis

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Precision Castparts - Company Analysis and Outlook Report 2026 (Updated)

Executive Summary…

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Lowering Construction Costs

Construction Physics

Can We Lower Construction Costs with Cheaper Labor or Materials?

Last time in our series on the nature of the construction productivity problem, we looked at economies of scale, finding that capturing economies of scale in homebuilding is difficult. Economies of scale primarily operate on the difference between the costs of the material inputs to some process and the cost of the fi…

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7 days ago · 123 likes · 14 comments · Brian Potter

A Look Into Berkshire’s Investment in Apple

Anomaly Investment Partners

Our Approach to Business Valuation

Most will agree that, to do well in investing, a basic requirement is to invest in businesses at a lower price than what they’re worth, or than their intrinsic value. The idea is simple enough: if something is worth 100 and sells for 60, then we have an investment opportunity. The selling price is always easy to find. The intrinsic value of the business…

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11 days ago · 5 likes · 1 comment · Anomaly Investment Partners

This Week in Berkshire History

Another quiet week in Berkshire’s history.

That’s it for this week. Hit reply and let me know what you think. What have you been reading that’s worth sharing? Let me know in the comments.

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Adam

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Disclosure: Long HIFS.

Q2-2026 Updates

Hingham released its Q2 earnings last Friday and its 13F on Monday.

The bank continues to make meaningful progress returning to a normalized level of profitability.

• Q2 annualized core ROA and ROE were 0.94% and 8.55%

• H1 annualized core ROA and ROE were 0.94% and 8.60%

The positives:

• Continued net interest margin expansion driven by impressive growth in noninterest-bearing deposits

• Continued overhead discipline

• Resolution of a Washington, DC loan relationship and progress on another

• Changes to the investment portfolio, including a new position in a bank, elimination of another bank holding, and reduction in Alphabet

The negatives:

• Two one-time, non-recurring expenses

• Additional reserves booked against the large WMA project

Read more

In Case You Missed It:

I was on two podcasts last week:

Full Warren Buffett CNBC Interview

How America Got Its Banks

Jamie Dimon Interview

A $1.2 million Dam - Built By Beavers

Robert Miles on Talking Billions

Bogumil Baranowski's Substack

Robert P. Miles: What 20 Berkshire CEOs Taught Him About Character, Inside the Temperament, the Moat, and the Culture that Keep Compounding

Robert P. Miles is an author, educator, and the world’s foremost authority on Berkshire Hathaway’s management culture. Robert has written three bestselling books on Warren Buffett, created the only graduate MBA course dedicated to Buffett’s philosophies, and founded the Value Investor Conference in Omaha. His journey from an entrepreneur to a globally r…

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17 days ago · 1 like · Bogumil Baranowski

This Week in Berkshire History

July 17, 2018: Berkshire’s board of directors authorizes an amendment to the share repurchase program, allowing purchases if Buffett and Munger believe the shares to be undervalued, conservatively estimated.

That’s it for this week. Hit reply and let me know what you think. What have you been reading that’s worth sharing? Let me know in the comments.

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Adam

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Disclosure: None

Revisiting BKSC

I first looked at BKSC in February 2023 (original analysis).

It recently came back on my radar, and I decided to take a cursory look to see what had changed over the past three years.

The stock price hasn’t gone anywhere over that time and, in fact, is down 12% over the past five years. Today’s market cap of $88 million is essentially unchanged from $92 million three years ago. In terms of the business…

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In Case You Missed It:

New President at Copart

On the heels of the CEO transition announcement, Copart announced the promotion of Jane Pocock to President.

Looking at the AI Infrastructure Players

Scenic Route Investing by Wagner Road

Investing in AI Infrastructure (Part 2: The Contractors)

When we talk about data centers built for the AI boom, there are a few different ways to approach it. In Part 1, I mentioned the 5 hyperscalers that are paying for data centers. But there are also 5 companies involved with building the data centers…

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4 months ago · 15 likes · 2 comments · Andrew Wagner

JPM Q3 Guide to the Markets

Brooks Looking to Beat the World Record Mile

This Week in Berkshire History

July 3, 2000: Ben Bridge Jewelers acquired.

July 5, 2006: Berkshire pays $4 billion for an 80% stake in Israel-based ISCAR Metalworking Companies. Berkshire would go on to buy the remaining 20% in 2013 for $2.05 billion, implying a valuation of $10.25 billion, twice the original valuation.

That’s it for this week. Hit reply and let me know what you think. What have you been reading that’s worth sharing? Let me know in the comments.

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Adam

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Disclosure: Long CPRT

The Surprise Announcement

Copart surprised investors with a June 29 filing announcing that CEO Jeff Liaw would step down effective July 31.

Replacing Liaw, who spent 10 years at Copart, first as CFO, then as co-CEO in 2022, and finally as sole CEO in 2024, is Jay Adair, Copart’s Executive Chairman.

With this announcement came the company’s first-ever non-earnings-related conference call to discuss the leadership transition.

Below I’ll share my thoughts on what was said and the implications for valuation.

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Out of Office (But Not Out of Mind)

I’m midway through a week’s vacation as you read this.

Never fear, I’ve assembled a list of recently paywalled posts and some frequently revisited ones for your reading enjoyment.

See you next week, same place, same time!

Last Chance…

Oh, and I still have a few spots available this summer for one-on-one private investment coaching.

If you’re on the fence about joining, click here to hear from others who completed the program.

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Adam

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In Case You Missed It:

Fact of the Week:

Greg Abel Becomes A US Citizen

BNSF Just Had It’s Safest Year in History

800 MW Solar Project in Iowa by BHE

First Fatal Crash in NetJets’ History - Since 1986!

Progressive Overtakes State Farm for #1 (GEICO at #3)

Construction Physics

Biological Evolution and Information Acquisition

A few weeks ago we looked at a simulation of technological evolution by economist Brian Arthur, in which he was able to start with simple building blocks (such as a NAND gate) and evolve surprisingly complex circuits (such as a 12-way AND gate or a 4-bit adder) by randomly combining increasingly useful existing components. We analyzed this as a way of s…

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2 months ago · 130 likes · 6 comments · Brian Potter

This Week in Berkshire History

Another quiet stretch in Berkshire’s history. I’ll be on vacation next week, so here’s the following week’s history. Happy 20th BRK-versary IMC!

June 30, 2005: Berkshire acquires Medical Protective Company from a subsidiary of General Electric, paying $825 million in cash.

July 1, 1991: H.H. Brown acquired.

July 1, 2014: Berkshire completes its cash rich split off transaction with Graham Holding Company, acquiring a Miami TV station, cash and Berkshire shares in the process.

July 3, 2000: Ben Bridge Jewelers acquired.

July 5, 2006: Berkshire pays $4 billion for an 80% stake in Israel-based ISCAR Metalworking Companies.

That’s it for this week. Hit reply and let me know what you think. What have you been reading that’s worth sharing? Let me know in the comments.

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Adam

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Going Deeper On Growth

In a prior post, I examined growth as a concept: How it adds value, and the different ways companies can grow (i.e., margin expansion and/or reinvestment via retained earnings).

In last week’s post, I went deeper and presented a framework for thinking about the sources of growth embedded in our assumptions using a real-world example of Copart (Disclosure: Long).

A Simplified (But No Less Useful) Framework

The value bridge approach presented last week suffered from too much complexity. It wasn’t wrong, just too noisy.

I think a simplified model1 can serve as a useful middle ground between a complex Wall Street-type model with multiple sheets of inputs/assumptions and the too-simplified perpetual growth or shorthand models.

We’ll break the valuation into three components:

1. What is the value of the existing earning power?

2. What value is created by reinvestment over the next 10 years?

3. What is the value of the mature business at Year 10?

Existing Earnings Power

Note: Bruce Greenwald calls this the Earnings Power Value (EPV).

The base case scenario assumes all earnings are distributed. As such, the value of the business in this scenario is simply the after-tax earnings divided by the discount rate.

For example, Copart’s sustainable current after-tax earnings are $1,349 million. We take that and divide by 10% (my chosen discount rate) to arrive at a value of about $13.5 billion.

What value is created by reinvestment over the next 10 years?

Providing an explicit growth period followed by a terminal value allows us to segment a value creation period that more closely tracks reality. We’re content to get closer to reality without deluding ourselves that we can predict the exact course of a company’s development.

This model uses the same beginning capital employed and return on capital. This time, however, I’m assuming that earnings grow at 10% per year for the first ten years.

Note that by using a growth rate equal to the discount rate, the present value of distributable earnings remains constant. Though you’ll notice that earnings retained for growth continue to increase in dollar terms (at the same 10% rate).

What we end up with is a present value of the first ten years of cash flows of $8.6 billion. We can also clearly see that we’ve retained $6.5 billion over that period of time to fund growth in earnings. If we hadn’t, all things being equal, earnings would still be $1.349 billion as in the no growth scenario. Instead, earnings at year 10 are $3.181 billion. It’s from this base that we’ll calculate our terminal value.

What is the value of the mature business at Year 10?

Quick math note: The terminal earnings we use in the table above are the year 11 earnings, which come from the year 10 ending capital x our return on capital.

Growth capital is lower (i.e., distributable earnings are higher) because we’re assuming a lower terminal growth rate, in this case 3%.

The distributable terminal earnings of $3.2 billion get capitalized at 7% (10% discount rate minus 3% growth rate) = $45.4 billion and then discounted back to today = $17.5 billion.

Putting It All Together

So now we have two numbers:

1. $8.6 billion: value of Years 1 to 10

2. $17.5 billion: value of Years 11 to forever

Together, they equal $26.1 billion, our present value estimate of Copart’s intrinsic value.

We can see that growth added $26.1 billion - $13.5 billion = $12.6 billion of value. That growth came from deferring capital equal to 10% of capital employed each year, or 10% / 33% = ~30% of earnings each year in the first decade, plus about 9% of earnings forever ($317 / $3,499) in the terminal growth.

Final Thoughts

This simplified model still suffers from the basic ailment of all models. Namely, its assumptions.

1. How did I calculate capital employed?

2. How did I choose which sustainable ROCE to use?

3. Is the initial growth period appropriate?

4. Can the company actually reinvest that amount of capital?

5. Is the terminal growth rate appropriate?

It also doesn’t account for structural changes as the business matures. What happens if competition or market saturation erodes returns or growth? Will return on capital change (+ or -) when the company matures?

You could certainly take this model and tweak any number of assumptions and add any level of detail you want.

Though what’s reassuring is that such a complex model probably wouldn’t get you much of a different estimate of intrinsic value. The complexity might look impressive (and who doesn’t like a good spreadsheet?), but it could come at the cost of either making a mistake in building it or data entry, or in the time you could spend thinking about various aspects of the business.

In my view, the big questions such as how the business develops, how much capital can be reinvested and at what return, and how long can that growth be sustained, get you 95% of the way there.

As I said last week:

The real value isn’t in having a high-powered calculator to spit out a number. Instead, it’s thinking through each part, reasoning based on what you’ve learned about the company and what seems reasonable, and considering the magnitude of each component and the risks of it getting disrupted.

Leave a comment

More thoughts? Let me know in a private message or leave a comment.

Stay Rational!

Adam

Pre-Order the 2nd Edition Now!

Amazon, Barnes & Noble, or directly from Harriman House, and at other major bookstores, for delivery in April 2026.

Praise for the 2nd Edition

I’m incredibly grateful for the people who took the time to review early drafts of the new material and provided feedback, as well as praise for both editions:

“If you want to understand how Warren Buffett built Berkshire Hathaway into one of the most valuable businesses in the world, you have to read this book. This is your opportunity to stand beside Picasso as he paints each brush stroke. A must read for all Buffett and Berkshire groupies.”

- Bill Ackman, Founder and CEO of Pershing Square

“I and my teammates at the Gabelli Organization have been tracking Warren’s success for some 50 years. Adam’s book captures the work and highlights the history of Berkshire and the hard and diligent work of Buffett and Munger, Jain and Abel, and Combs and Weschler.”

- Mario Gabelli, Chairman and CEO, Gabelli Funds

“Adam Mead’s discussion of the values and virtues which have shaped Berkshire Hathaway over 50 years is a must read for those investors in search of the forces that have delivered such investment value over time.” – Thomas A. Russo, Gardner Russo & Quinn LLC

“Few activities can be more rewarding for any value investor than studying the history and evolution of Warren Buffett and Berkshire Hathaway. Adam has done us a huge favor with his yeoman efforts in producing this treatise. Since it is chronologically ordered, it is an invaluable reference guide for all things Berkshire.” — Mohnish Pabrai

“Adam continues to deliver a resource very valuable to both Berkshire fans and the investor community as a whole, his depth of knowledge is clearly demonstrated here again. I thoroughly enjoyed this latest addition.” - Dan Calkins, Chairman & CEO, Benjamin Moore

“The question must be asked, ‘Why another Berkshire book?’ When you read this monumental effort by Adam Mead, the answer will be obvious. Read cover to cover, both the uninitiated to Berkshire and its most ardent followers will derive enormous utility and satisfaction from it. I learned so many new and important things about Berkshire and its history. It is my pleasure to encourage you to enjoy this gem.”

- Christopher P. Bloomstran

“Whatever Adam writes is always first-class - guaranteed.

-Andy Kilpatrick, Author, Of Permanent Value: The Story of Warren Buffett

In Case You Missed It: The Value Bridge: Zooming In on Copart’s Growth

Fact of the Week: Solar just overtook coal as a supplier of electricity, at 12.8% vs. 12.2%.

BNSF’s BIG Project Approved

BNSF will spend $1.5 billion on a 4,500-acre integrated rail facility.

JP Morgan Report on GLP-1s

New Seth Klarman Video

Squishmallows in Happy Meals

The New Joule Order

China has done a better job with its energy security.

AI Servers Should Get Closer to Wind Farms

This Week in Berkshire History

Another quiet stretch in Berkshire’s history.

That’s it for this week. Hit reply and let me know what you think. What have you been reading that’s worth sharing? Let me know in the comments.

Leave a comment

Stay Rational!

Adam

Order the 2nd Edition Now!

Going Deeper On Growth

In a prior post, I examined growth as a concept: How it adds value, and the different ways companies can grow (i.e., margin expansion and/or reinvestment via retained earnings).

Here, I go deeper and present a framework for thinking about the sources of growth embedded in our assumptions using a real-world example of Copart (Disclosure: Long).

The “Standard” Approach

The typical approach of taking the current earnings yield + growth = holding return isn’t wrong. It’s just consolidating a whole bunch of assumptions. I want to take apart those assumptions and examine them in greater detail.

Copart

No Growth Scenario

The Base scenario is no growth.

I’m making certain assumptions, which you can agree or disagree with, but the basic logic is sound.

Here we arrive at a sustainable level of earnings, which are assumed to be distributable and distributed. At a 10% discount rate, it’s worth $13.5 billion.

We can say, then, that the market is pricing in $14 billion of additional value. But how, and when, does that value happen?

Perpetual Growth

This analysis shows that Copart must grow 5.5% forever to justify its current price. Note that the model deducts the capital required for that growth.

You can’t have your cake (growth) and eat it (distribute it) too!

The problem is that companies don’t grow at a linear rate forever. A typical growth pattern has a period of growth followed by slowing or sustained growth thereafter, perhaps (gasp!) followed by a period of decline.

Disaggregated Growth

I think it’s worth going deeper and thinking about the components of growth. Here I’m guided by the excellent work of Bruce Greenwald in Value Investing: From Graham to Buffett and Beyond, 2nd Ed.

A few things are going on here, so I’ll break them down:

1. We start with the base earnings, the same $1,349 million from above.

2. I’m assuming the company can retain $500 million a year in growth capex (depreciation = maintenance capex is already in earnings). See the capital progression table below to follow the effect on capital employed.

3. From that investment, I’m assuming the company can earn 30% after-tax, which is based on historical performance.

4. Finally, I’m also assuming the company will expand its operating margin by 5 percentage points over ten years, or 50bps/year. This assumption is rooted in continued economies of scale in G&A expense in the US (again, proven by historical figures), and improvements in international margins.

The whole 10 year progression looks like this:

We then have to decide what to do with the terminal value. We can either assume no growth or some sort of Y11-forever perpetual growth. With this model, we can see what that looks like.

1. No growth: Adds $11.9 billion to the present value, resulting in a value of $10.2b + $11.9b = $22.1b.

2. Perpetual 3% growth: Adds $3.4b for $15.3b total terminal value or $25.5b total.

The summary looks like this:

Taking It Apart Further:

But we can go deeper and examine all of the sources of value in what I’m calling a value bridge.

The value bridge shows you exactly where growth adds value.

1. Existing earnings power is about half of the value

2. Growth requires investment, and that comes in the form of deferred current distributions totalling almost $3.1b on a present value basis.

3. However, Reinvestment adds $4.3b of present value.

4. Then another $5.8b of reinvestment value comes from the terminal value

5. We can also see the effect of margins, not only on the Y1-Y10 cash flows but also on the terminal value.

6. Finally, the impact of the terminal growth rate is shown, here $3.4b.

A Work In Progress

While I agree with Greenwald that DCF models, in general, do more harm than good (combining good current info with poor future info), the mechanics of growth require an expansion of assumptions to view each component in its proper context. You can call it a DCF model if you like; I don’t think it’s quite what Wall Street considers one.

The real value isn’t in having a high-powered calculator to spit out a number. Instead, it’s thinking through each part, reasoning based on what you’ve learned about the company and what seems reasonable, and considering the magnitude of each component and the risks of it getting disrupted.

Even if imperfect, at the very least, we’re able to take apart the growth equation and move beyond “grow at an average of 5.5% forever” to a more robust view of the parts and their timing.

Leave a comment

Here’s the full model:

More thoughts? Let me know in a private message or leave a comment.

Leave a comment

Stay Rational!

Adam

Pre-Order the 2nd Edition Now!

Amazon, Barnes & Noble, or directly from Harriman House, and at other major bookstores, for delivery in April 2026.

Praise for the 2nd Edition

I’m incredibly grateful for the people who took the time to review early drafts of the new material and provided feedback, as well as praise for both editions:

“If you want to understand how Warren Buffett built Berkshire Hathaway into one of the most valuable businesses in the world, you have to read this book. This is your opportunity to stand beside Picasso as he paints each brush stroke. A must read for all Buffett and Berkshire groupies.”

- Bill Ackman, Founder and CEO of Pershing Square

“I and my teammates at the Gabelli Organization have been tracking Warren’s success for some 50 years. Adam’s book captures the work and highlights the history of Berkshire and the hard and diligent work of Buffett and Munger, Jain and Abel, and Combs and Weschler.”

- Mario Gabelli, Chairman and CEO, Gabelli Funds

“Adam Mead’s discussion of the values and virtues which have shaped Berkshire Hathaway over 50 years is a must read for those investors in search of the forces that have delivered such investment value over time.” – Thomas A. Russo, Gardner Russo & Quinn LLC

“Few activities can be more rewarding for any value investor than studying the history and evolution of Warren Buffett and Berkshire Hathaway. Adam has done us a huge favor with his yeoman efforts in producing this treatise. Since it is chronologically ordered, it is an invaluable reference guide for all things Berkshire.” — Mohnish Pabrai

“Adam continues to deliver a resource very valuable to both Berkshire fans and the investor community as a whole, his depth of knowledge is clearly demonstrated here again. I thoroughly enjoyed this latest addition.” - Dan Calkins, Chairman & CEO, Benjamin Moore

“The question must be asked, ‘Why another Berkshire book?’ When you read this monumental effort by Adam Mead, the answer will be obvious. Read cover to cover, both the uninitiated to Berkshire and its most ardent followers will derive enormous utility and satisfaction from it. I learned so many new and important things about Berkshire and its history. It is my pleasure to encourage you to enjoy this gem.”

- Christopher P. Bloomstran

“Whatever Adam writes is always first-class - guaranteed.

-Andy Kilpatrick, Author, Of Permanent Value: The Story of Warren Buffett

I work with a small number of motivated investors to improve their ability to research businesses, build models, and make better investment decisions.

We work on businesses that they actually want to understand, helping them develop a practical, repeatable value investing process.

Who Is This For:

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"Adam's coaching class is a great value for the price proposition. Adam tailored the program to my level of knowledge and worked very hard to ensure I learned and was comfortable with all the concepts needed to improve my knowledge in intelligent value investing. Whether you are just starting out or have been investing for a while this course will be very valuable to you and pay off tremendously in the long term if you use the concepts he teaches."

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In Case You Missed It:

Fact of the Week:

The global market for bidets is approximately $50 billion per year.

Latticework Summary of Bloomstran’s Zurich Presentation

NV Energy Betting the House on Data Centers

Benjamin Moore Strategic Collaborations

Guy Spier on CNBC

This Week in Berkshire History

Another quiet stretch in Berkshire’s history. Here’s another excerpt from the book (p.784):

That’s it for this week. Hit reply and let me know what you think. What have you been reading that’s worth sharing? Let me know in the comments.

Leave a comment

Stay Rational!

Adam

Order the 2nd Edition Now!

Prior SAM Posts

Disclosure: Long SAM.

At $176/share, Boston Beer shares are down 33% from their 52-week highs. With 10.47 million shares outstanding, the current share price implies a market cap of $1.84 billion.

SAM has $129 million of net cash (no LTD + operating leases), but there’s a big asterisk next to it.

Ardagh Litigation

The big negative news of the quarter was a $216 million pre-tax charge ($162 million after-tax at 25%) related to a contract dispute with Ardagh Metal Packaging. A jury awarded Ardagh $175.5 million for SAM’s failure to meet contractual minimum purchases of aluminum cans during the height of the hard seltzer boom. The $216 million figure includes $36.5 million of pre-judgement interest expense and $4 million of legal fees (in G&A).

SAM says it will appeal the verdict. With absolutely no real knowledge of the legal merits of the case, I think it seems likely that SAM will have to pay. With no debt, cash on hand, and a $150 million line of credit, if/when SAM pays, it shouldn’t cause operational issues.

Operational Highlights

Volume/Pricing

The key driver for a beverage company is volume. You can’t generate revenue or profit if you don’t sell beer.

• Q1 2026 volume of 1,561,000 barrels, a decline of 6.9% compared to the same quarter a year ago. Of note, this figure represents shipments. Depletions (distributor inventory) declined at a slower 4% rate.

• The company produced 95% of its volume in-house during the quarter.

• TTM volume was 7,025,000 barrels, a decline of 7.3% from a year ago.

• On the plus side, pricing (rev/barrel) increased 2.7% Q/Q and 2.8% on a TTM basis.

• At a recent industry conference, the company’s CFO noted that beer was around 18% of volume, putting SAM solidly in the beyond beer category. He also highlighted the company’s expertise in creating brands, putting it at an advantage over larger rivals who must pay premium multiples to acquire them.

• The company’s Sun Cruiser brand, which was launched in-house, is a bright spot offsetting some weakness in Twisted Tea and Truly.

Revenue

• Q1 2026: $433.9 million, down 4.7%

• TTM: $1,945 million, also down 4.7%

Costs and Expenses

• Gross margin came in at 49.3%, up 100 bps from a year ago.

• SAM posted a $190 million operating loss due to the $216 million litigation expense. It also reported a $2 million impairment of brewery assets.

• On the expense front, advertising, promotional, and selling expenses increased 200 bps to 32.3% as the company continues to invest in its brands ahead of summer.

• SG&A increased 150bps to 12.1%; 100bps to 11.1% excluding $4 million legal fees.

• Overall, the operating margin was negative due to the litigation expense. Ex. litigation, operating margin declined 240bps to 5.0%.

• TTM operating margin was 7.2% ex. litigation expense, down from 8.3% a year ago.

  ---

Capital Allocation

• As noted above, SAM has no LTD and only modest operating lease liabilities.

• From December 28, 2025 to April 24, 2026, the company repurchased 137,912 shares of its Class A stock for $31.2 million ($23.3 million in the quarter itself through March 28), implying a price of $226/share.

Valuation

• With 10.5 million shares outstanding at a current price of $175/share, SAM has a market cap of $1.84 billion.

• From this, we can deduct $129 million net cash. I’m also going to add $162 million as a best-guest estimate of the after-tax litigation cost.

• That leaves an enterprise value of about $1.87 billion, fully accounting for the litigation expense.

• Revenues are running at ~$2 billion a year. I think 15% operating margins are achievable, which would be $300 million in annual EBIT or $225 million after tax.

• Let’s assume it can only do 10%, resulting in EBIT of $200 million and $150 million after tax.

• That puts SAM’s valuation at between 12.5x (10% margin scenario) and 8.3x (15% margin scenario). Both look compelling.

More thoughts? Let me know in a private message or leave a comment.

Leave a comment

Stay Rational!

Adam

Pre-Order the 2nd Edition Now!

Amazon, Barnes & Noble, or directly from Harriman House, and at other major bookstores, for delivery in April 2026.

Praise for the 2nd Edition

I’m incredibly grateful for the people who took the time to review early drafts of the new material and provided feedback, as well as praise for both editions:

“If you want to understand how Warren Buffett built Berkshire Hathaway into one of the most valuable businesses in the world, you have to read this book. This is your opportunity to stand beside Picasso as he paints each brush stroke. A must read for all Buffett and Berkshire groupies.”

- Bill Ackman, Founder and CEO of Pershing Square

“I and my teammates at the Gabelli Organization have been tracking Warren’s success for some 50 years. Adam’s book captures the work and highlights the history of Berkshire and the hard and diligent work of Buffett and Munger, Jain and Abel, and Combs and Weschler.”

- Mario Gabelli, Chairman and CEO, Gabelli Funds

“Adam Mead’s discussion of the values and virtues which have shaped Berkshire Hathaway over 50 years is a must read for those investors in search of the forces that have delivered such investment value over time.” – Thomas A. Russo, Gardner Russo & Quinn LLC

“Few activities can be more rewarding for any value investor than studying the history and evolution of Warren Buffett and Berkshire Hathaway. Adam has done us a huge favor with his yeoman efforts in producing this treatise. Since it is chronologically ordered, it is an invaluable reference guide for all things Berkshire.” — Mohnish Pabrai

“Adam continues to deliver a resource very valuable to both Berkshire fans and the investor community as a whole, his depth of knowledge is clearly demonstrated here again. I thoroughly enjoyed this latest addition.” - Dan Calkins, Chairman & CEO, Benjamin Moore

“The question must be asked, ‘Why another Berkshire book?’ When you read this monumental effort by Adam Mead, the answer will be obvious. Read cover to cover, both the uninitiated to Berkshire and its most ardent followers will derive enormous utility and satisfaction from it. I learned so many new and important things about Berkshire and its history. It is my pleasure to encourage you to enjoy this gem.”

- Christopher P. Bloomstran

“Whatever Adam writes is always first-class - guaranteed.

-Andy Kilpatrick, Author, Of Permanent Value: The Story of Warren Buffett

In Case You Missed It:

Fact of the Week:

Banks still had $306B of unrealized securities losses at year-end 2025.
Even after recovering from the worst levels, FDIC-insured banks were still sitting on losses roughly equal to a full year of industry earnings.

The Week Greg Abel Invested $18.5 Billion

Greg Abel is off to the races.

Taylor Morrison

First, with Taylor Morrison, a homebuilder, for $8.5 billion. Taylor reported $8.1 billion in revenue in 2025. Berkshire’s Clayton Homes reported $12.9 billion. Together, Berkshire will have a $20 billion revenue homebuilder operating in both manufactured and site-built homes.

I’m interested in finding out how Greg will integrate this acquisition. Historically, Berkshire has let managers continue to operate as is. Greg seems inclined to usher in an era of internal consolidation (like this in rail; and this in jewelry). I wouldn’t be surprised to see Kevin Clayton named as chairman of the housing unit with TM president responsible for his unit.

Another aspect is the loan portfolio. Berkshire would have one of the top 75 largest banks in the US with its $27 billion loan portfolio. TM originates and sells its mortgages. Even with its borrowing capacity and excellent credit rating, Berkshire may not be able to compete against traditional banks or securities markets. Buffett has also noted how good a deal it is to the homeowner to have a 30 year mortgage and how equally bad it is for the lender.

Alphabet / Google

Days later, Berkshire announced it would invest $10 billion in Google as part of an equity raise. By my math, this is a $4.2 trillion valuation for Google. Call me skeptical. This calls for some optimism, at the very least.

An angle I haven’t seen discussed is a deepened partnership between BRK Energy and Google for data center power agreements. NV Energy already has one in place from 2024. This may be Berkshire’s way to get a first crack at a mega energy deal with Google.

Two New Pilot Stores and 80 Remodels

FedEx Freight Spin-Off

FedEx Freight started trading as a stand-alone company on June 1 after splitting from FedEx. It’s the largest LTL carrier in the US.

Another Plug From Bill Ackman - Thanks, Bill!

This Week in Berkshire History

June 3, 1986: Fechheimer acquired.

That’s it for this week. Hit reply and let me know what you think. What have you been reading that’s worth sharing? Let me know in the comments.

Leave a comment

Stay Rational!

Adam

Order the 2nd Edition Now!

Imagine you find a company with $80 million in net operating profit after taxes (NOPAT), $50 million in cash, and $700 million in debt.

At a reasonable 10x multiple of NOPAT, the company is worth $800 million.

$800 million value less $650 million in net debt = $150 million of equity value.

To your great delight, the market value of equity is $75 million.

You’ve just found yourself a stock with a 50% margin of safety.

Not So Fast…

As you might expect from the title of this post, caution is warranted.

The setup above comes from Bruce Greenwald’s excellent book, Value Investing: From Graham to Buffett and Beyond, 2nd Edition.

As Greenwald notes on page 120, the margin of safety analysis above is incorrect.

The right way to think about the margin of safety is at the enterprise level.

Earnings power is tied to enterprise value, which includes debt. What happens if sustainable NOPAT is really 10% less, or $72 million? Now the enterprise value is $720 million, and the value of equity is $720 million - $650 million = $70 million.1

To our horror, we’re now stuck with a negative margin of safety (a margin of risk? peril?) of -7%. A 19% decline in enterprise value would wipe out equity entirely!

A Leveraged Enterprise

What’s laid out above isn’t a surprise. Debt increases risk. Most investors understand that.

Just as return on capital employed (or invested capital; pick your metric) cuts across financing choices, the enterprise value margin of safety similarly allows us to view margin of safety in its proper light.

Graham’s Coverage Ratio

In Security Analysis2, Ben Graham discusses a similar concept in coverage ratios. He notes how some analysts then (and I assume some do now) calculate the coverage of fixed charges for a preferred stock issue or junior bond after that of the more senior security, instead of together. To illustrate:

• Earnings before interest: $3,978,000

• Interest charges: $1,628,000

• Preferred dividends: $160,000

The coverage ratio for the interest charges on the debt is simple enough: $3,978,000 divided by $1,628,000 or 2.4 times.

But what about the preferred?

After paying interest, there’s $2,350,000 leftover, which covers the preferred 14.7 times.

Hold on a minute…

If the preferreds have coverage of nearly 15x compared to the bonds at just 2.4x, then the preferreds are safer, right? Yet they’re junior securities. How can that be the case?

The answer is that the analysis is incorrect.

The right way to calculate the preferred coverage is to add $160,000 to $1,628,000 or $1,788,000. That amount is covered 2.2 times by the $3,978,000 available for debt service.

Thus, by framing the problem appropriately, we arrive at a slightly lower (and therefore slightly riskier) 2.2x for the preferreds vs 2.4x for the senior debt.

Berkshire Provides Leverage to Heinz

A final example of this analysis at work comes from Berkshire. When Berkshire bought Heinz with 3G Capital, Buffett described his partners as desiring more leverage. By providing the debt (as well as preferred and equity), Berkshire gave 3G the leverage it wanted, and maintained a sensible leverage profile for itself higher in the capital structure.

Conclusion

The bottom line here is simple: beware of the negative effects of leverage, both in its raw form and in your calculations of margin of safety.

More thoughts? Let me know in a private message or leave a comment.

Leave a comment

Stay Rational!

Adam

Pre-Order the 2nd Edition Now!

Amazon, Barnes & Noble, or directly from Harriman House, and at other major bookstores, for delivery in April 2026.

Praise for the 2nd Edition

I’m incredibly grateful for the people who took the time to review early drafts of the new material and provided feedback, as well as praise for both editions:

“If you want to understand how Warren Buffett built Berkshire Hathaway into one of the most valuable businesses in the world, you have to read this book. This is your opportunity to stand beside Picasso as he paints each brush stroke. A must read for all Buffett and Berkshire groupies.”

- Bill Ackman, Founder and CEO of Pershing Square

“I and my teammates at the Gabelli Organization have been tracking Warren’s success for some 50 years. Adam’s book captures the work and highlights the history of Berkshire and the hard and diligent work of Buffett and Munger, Jain and Abel, and Combs and Weschler.”

- Mario Gabelli, Chairman and CEO, Gabelli Funds

“Adam Mead’s discussion of the values and virtues which have shaped Berkshire Hathaway over 50 years is a must read for those investors in search of the forces that have delivered such investment value over time.” – Thomas A. Russo, Gardner Russo & Quinn LLC

“Few activities can be more rewarding for any value investor than studying the history and evolution of Warren Buffett and Berkshire Hathaway. Adam has done us a huge favor with his yeoman efforts in producing this treatise. Since it is chronologically ordered, it is an invaluable reference guide for all things Berkshire.” — Mohnish Pabrai

“Adam continues to deliver a resource very valuable to both Berkshire fans and the investor community as a whole, his depth of knowledge is clearly demonstrated here again. I thoroughly enjoyed this latest addition.” - Dan Calkins, Chairman & CEO, Benjamin Moore

“The question must be asked, ‘Why another Berkshire book?’ When you read this monumental effort by Adam Mead, the answer will be obvious. Read cover to cover, both the uninitiated to Berkshire and its most ardent followers will derive enormous utility and satisfaction from it. I learned so many new and important things about Berkshire and its history. It is my pleasure to encourage you to enjoy this gem.”

- Christopher P. Bloomstran

“Whatever Adam writes is always first-class - guaranteed.

-Andy Kilpatrick, Author, Of Permanent Value: The Story of Warren Buffett

In Case You Missed It: Russell Rebalancing

Fact of the Week: 4,336: The number of FDIC reporting banks at the end of 2025.

Michael Mauboussin Intern Reading List

A curated list of his reports.

Dairy Queen Incentivizing Growth

Forest River Navigating Tariffs and Shipments Expected to Rise

Walking and Thinking - What the Science Says

Seneca on Wasting Time

The Other GOAT

I’m guessing the overlap of this audience and those interested in dirtbikes is fairly small (please let me know!). I’m working my way through this interview with Ricky Carmichael, the undisputed GOAT of motocross, which has reignited an interest in the sport. I stopped racing about 20 years ago, and I still miss it. I was stoked to hear that RC is still involved in the sport, commentating on races. Equally impressive is his philosophic attitude toward life. Makes me admire the guy that much more. Anyway, I’ll be tuning into the first outdoor event this weekend at Fox Raceway. There’s nothing quite like the smell of race gas and the sound of the controlled explosion of a main event start!

This Week in Berkshire History

Nothing this week. Here’s another excerpt from my book: The economics vs. accounting of reinsurance float.

That’s it for this week. Hit reply and let me know what you think. What have you been reading that’s worth sharing? Let me know in the comments.

Leave a comment

Stay Rational!

Adam

Order the 2nd Edition Now!

Mark Your Calendars

Every year, the FTSE Russell announces its annual (now biannual) reconstitution or rebalancing, which takes place in stages from May to June.

Each index has its range, with the Russell 2000 being more commonly known.

Thanks to my assistant, ChatGPT, for charting the size of the largest and smallest companies in each of the last 17 years.

Choosing My Ponds

I chose to fish in the Russell 3000 deletions and the Russell Microcap additions, reasoning that there would be some fallen angels from the 3000 and some tiny but perhaps investable companies in the microcap index.

Compared to prior years, my roughly two hours of initial sleuthing yielded little fruit.

ARKO Petroleum (ARKO)

Funny enough, this Microcap addition crossed my desk two weeks ago while working with a private investment coaching client.

ARKO is a convenience store/fuel station roll-up with retail stores, wholesale fuel distribution, and a lock card fueling business. The company’s strategy has centered on buying cheaper assets/chains, keeping the good ones, and converting the remainder into customers of its wholesale business. It often executes sale-leaseback transactions to keep capital investment low.

There’s definitely some hair to work through: The company just spun off its wholesale business - sort of. It sold a noncontrolling 25% stake to outside shareholders. The other oddity is that both companies share the same CEO.

Community Bancorp (CMTV)

I think I’m late to the party on this one.

CMTV is a small, $1.2bn assets bank in Derby, Vermont. It’s February 2026, move from the OTC to Nasdaq boosted its visibility, leading to a jump in the share price from the mid teens to the high 30s.

With a market cap of $216 million, it now trades at 1.84x Q1 2026 book value of $117 million. Valuation looks more reasonable at ~13x 2025 net income of $17 million.

The loan book looks fairly typical for a bank this size, though the municipal lending category stands out.

While this one might have gotten away, it could be worth keeping an eye on if the price recedes from its post-listing highs.

First Northern Community Bancorp (FNRN)

FNRN is a $1.9 billion asset community bank located in the Sacramento, California area. It currently trades at 1.3x book value for a market cap of $283 million. It seems fairly valued at current prices, having earned $21 million in 2025 and $20 million the year before.

Again, fairly typical loan composition, heavy in CRE.

Sharps Technology (STSS) (Or how to screw up a company)

I include this more as an “are you kidding me” place to vent.

Sharps had a nice little business collecting used syringes and the like. Then, in 2025, it raised $400 million to light on fire…I mean invest in digital assets aka cryptocurrency.

Oh, but it gets better.

Today, the company announced it was changing its name to SkyAI to become the “leading Agentic Finance Platform for the Global South” (whatever that means).

I’m not joking when I say the board members and managers of this company should be publicly shamed for following fads like they’re adolescents.

Other than that, I have no opinion.

More thoughts? Let me know in a private message or leave a comment.

Leave a comment

Stay Rational!

Adam

Pre-Order the 2nd Edition Now!

Amazon, Barnes & Noble, or directly from Harriman House, and at other major bookstores, for delivery in April 2026.

Praise for the 2nd Edition

I’m incredibly grateful for the people who took the time to review early drafts of the new material and provided feedback, as well as praise for both editions:

“If you want to understand how Warren Buffett built Berkshire Hathaway into one of the most valuable businesses in the world, you have to read this book. This is your opportunity to stand beside Picasso as he paints each brush stroke. A must read for all Buffett and Berkshire groupies.”

- Bill Ackman, Founder and CEO of Pershing Square

“I and my teammates at the Gabelli Organization have been tracking Warren’s success for some 50 years. Adam’s book captures the work and highlights the history of Berkshire and the hard and diligent work of Buffett and Munger, Jain and Abel, and Combs and Weschler.”

- Mario Gabelli, Chairman and CEO, Gabelli Funds

“Adam Mead’s discussion of the values and virtues which have shaped Berkshire Hathaway over 50 years is a must read for those investors in search of the forces that have delivered such investment value over time.” – Thomas A. Russo, Gardner Russo & Quinn LLC

“Few activities can be more rewarding for any value investor than studying the history and evolution of Warren Buffett and Berkshire Hathaway. Adam has done us a huge favor with his yeoman efforts in producing this treatise. Since it is chronologically ordered, it is an invaluable reference guide for all things Berkshire.” — Mohnish Pabrai

“Adam continues to deliver a resource very valuable to both Berkshire fans and the investor community as a whole, his depth of knowledge is clearly demonstrated here again. I thoroughly enjoyed this latest addition.” - Dan Calkins, Chairman & CEO, Benjamin Moore

“The question must be asked, ‘Why another Berkshire book?’ When you read this monumental effort by Adam Mead, the answer will be obvious. Read cover to cover, both the uninitiated to Berkshire and its most ardent followers will derive enormous utility and satisfaction from it. I learned so many new and important things about Berkshire and its history. It is my pleasure to encourage you to enjoy this gem.”

- Christopher P. Bloomstran

“Whatever Adam writes is always first-class - guaranteed.

-Andy Kilpatrick, Author, Of Permanent Value: The Story of Warren Buffett

“With this project, Adam has done a wonderful job extending the Berkshire Classroom by providing a comprehensive analysis of the rich corporate history and unique entrepreneurial leadership.” — Mac Sykes, Gabelli Funds

“Adam Mead’s The Complete Financial History of Berkshire Hathaway is the definitive history of Berkshire. While there have been countless books written about Warren Buffett’s investment approach, none have so meticulously documented Berkshire’s capital allocation decisions from the very beginning. The depth of research is staggering, transforming the complex and sometimes chaotic story of how a small textile mill became a financial conglomerate into a clear, year-by-year narrative of every significant investment and acquisition. In this updated edition, Adam carries the narrative through Berkshire’s sixth decade and the methodically planned leadership transition to Greg Abel. For students of business history, this is an indispensable resource.”

-Patrick Gaughen, President and Chief Operating Officer, Hingham Institution for Savings

“The definitive story of Berkshire Hathaway—how Buffett and Munger turned a failing textile mill into one of history’s greatest wealth-creating enterprises, with timeless lessons in business, investing, and leadership.”

-Vitaliy Katsenelson, CEO of IMA, Author of Soul in the Game

“Berkshire Hathaway is a company with few, if any, parallels in business history. Under the leadership of Warren Buffett, it was transformed from a New England textile mill that would ultimately be shuttered to a sprawling conglomerate with a market valuation of more than $1 trillion. With this updated edition of “The Complete Financial History of Berkshire Hathaway”, Adam provides a thorough review of the key decisions that created the modern Berkshire Hathaway, an outcome inextricably tied to the investment and business wisdom of Warren Buffett and his business partner, Charlie Munger. In a few hundred pages, Adam adeptly runs through six decades of Berkshire’s history. For Buffett and Munger fans who want to truly understand how Berkshire was created, this book is a must read.”

- Alex Morris, Founder of TSOH Investment Research and the Author of Buffett & Munger Unscripted

“A meticulous chronicle of Berkshire Hathaway’s remarkable final act under Buffett’s leadership. Mead’s granular analysis of Buffett’s capital allocation decisions—from the $78 billion in share repurchases to the masterful Apple investment—provides unmatched insight into how the world’s most successful conglomerate navigated unprecedented scale and succession challenges.”

-Tobias Carlisle, Portfolio Manager, Acquirers Funds®

“This exceptional history of Berkshire Hathaway will appeal to history buffs, finance enthusiasts, and investing professionals alike. Mead combines rigorous research with remarkably clear storytelling, tracing the company’s ascent from a struggling textile mill to one of the world’s most admired conglomerates. The book is impressively detailed yet fully accessible—equally valuable for students learning the foundations of investing and for seasoned professionals looking to deepen their understanding of Berkshire’s evolution.”

-Gillian Zoe Segal

“With his ability to make complex things seem simple, Warren Buffett made the difficult work of building Berkshire Hathaway look easy. With this excellent history, Adam Mead takes us behind the scenes to see the details of how that work happened and was so successful. For anyone interested in Berkshire Hathaway, or the development of American capitalism, this is essential reading.”

- Bryan Lawrence, Founder, Oakcliff Capital

“There is simply no book that details the economic lore of Berkshire Hathaway better. A true exposé that every intelligent investor should read.”

- Gwen Hofmeyr, Founder, Maiden Financial

“The most comprehensive book on Berkshire Hathaway that has ever been written. It belongs on the shelf of every business enthusiast!”

-Andrew Wagner, Author of the Economics of Online Gaming and Founder & Chief Investment Officer of Wagner Road Capital Management

“Adam’s accounting of the Financial History of Berkshire is like candy for Finance and Business Junkies alike. It’s a must read if you’re interested in studying the greats.”

- Carter Johnson, Managing Partner, Singleton Valuations

“I thought nothing else of value could be written about Warren Buffett. I was wrong. Adam’s detailed chronology of Berkshire’s evolution reveals the successes and failures of Warren in a unique and digestible way. A worthwhile read for every Buffett scholar, amateur and professional alike.” — Drew Estes, Banyan Capital

“Mead has done the Berkshire faithful an incredible service by stitching together the narrative and numbers so tightly, you can see the compounding in action—updated and genuinely useful.”

-Jacob Taylor, CEO of Baserate

“Adam Mead’s work reminds us that true value is found not just in numbers, but in the lasting quality where few care to linger. By doing exceptional due diligence his book clones the lessons of Warren and Charlie.”

-Jeff Gilbert

Adam Mead’s updated “Complete Financial History of Berkshire Hathaway” is a book like no other—chronicling six decades of evolution while reminding us that Berkshire, though Buffett’s masterpiece, remains subject to constant change—an indispensable addition to any serious investor’s bookshelf.

-Bogumil Baranowski, Founder of Blue Infinitas Capital, Author of “Money, Life, Family”, Host of Talking Billions Podcast

In Case You Missed It: Thoughts on Growth

Fact of the Week: Americans traveled 3.3 trillion miles in 2025

Copart Resumes Buybacks In Force

Copart reported Q3 results and disclosed that it bought back $1.6 billion or almost 4% of the company in the span of two quarters.

GEICO is hiring again after years of cuts under Todd Combs

BNSF Reveals America 250 Locomotives

Berkshire’s 13F

Greg Abel is wasting no time putting his touches on the portfolio. Not surprisingly, we saw the exit of many of Todd Comb’s positions. The big surprises were the additional Alphabet shares and a new position in Delta Airlines. For whatever reason, air seems to be Berkshire’s Achilles heel. Is the third time the charm?

Electric Vehicles in the US

CleanTechnica’s Substack

EV Marketing Failure in USA and Honda's Crisis

I just saw the following headline from the Wall Street Journal: “Honda’s Never Faced a Crisis Like This—and a Comeback Won’t Be Easy.” The subheading is as follows: “The Japanese automaker reported a $2.7 billion loss amid EV whiplash in the U.S., its biggest market…

Read more

2 months ago · 27 likes · 13 comments · CleanTechnica

Built to Rent Housing

Construction Physics

The Rise of Build-to-Rent Housing

A major shift in the housing market in the last several years is the rapidly increasing popularity of “build-to-rent” homes — single-family homes that are built specifically for the purpose of being rented out. According to the National Association of Homebuilders…

Read more

2 months ago · 113 likes · 17 comments · Brian Potter

This week in Berkshire History

May 23, 2003: Berkshire acquires McLane from Walmart for $1.5 billion.

McLane is an interesting case study and proof that it’s not return on sales (margin) but return on capital that matters. McLane, at the time Berkshire bought it, earned 1% on sales but turned its capital many times over. As a result, Berkshire earned a going-in return of over 15% on its purchase price.

That’s it for this week. Hit reply and let me know what you think. What have you been reading that’s worth sharing? Let me know in the comments.

Leave a comment

Stay Rational!

Adam

Order the 2nd Edition Now!