Berkshire Hathaway Deep Dive
The Abel era begins.
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Prior posts on BRK
Disclosures: Long BRK
Sum-of-the-Parts Valuation
Berkshire is best valued using a sum-of-the-parts method. This approach hits the sweet spot between too much detail (you could just read the 154-page annual report for yourself) and the roughly right (but lacking) shorthand methods, such as applying a price-to-book multiple, or even Buffett’s own two-column method (see the 1995 Chairman’s letter), which adds per share investments to a multiple of per share operating earnings.
Berkshire is, of course, more than the sum of its parts, but that can be left as a qualitative factor. Berkshire’s stability demands less of a margin of safety, and the many reasons why it’s worth more together can be thought of as a margin of safety. It’s there, but you can’t put a precise figure on it. And that’s OK — welcome to the messy world of valuation.
Let’s dig in, considering Berkshire’s sources of value from its cash/treasuries, fixed maturity (bond) investments, marketable equity securities, its railroad, utilities, manufacturing and service businesses, and insurance. We’ll also adjust for debt at the holding company level and for a possible adjustment to BNSF’s valuation.
Cash
Simple, right? Not so fast.
Adding up ALL cash we get $373.1 billion. This is AFTER deducting $167 million payable for the purchase of US Treasuries. The figure is tiny now but amounted to almost $13 billion last year.
For valuation purposes, I use $368.99 billion, which excludes cash in the rail/utilities businesses. The rail sends its excess cash to Omaha ($4.4 billion last year) and needs what’s left, as do the utilities, which are continually investing in replacement and growth capex.
I consider all but about $50 billion real dry powder. That figure isn’t pulled from a hat. Rather, it’s the approximate amount of claims paid annually in the insurance business (see p. K-87). (One might argue the case that this should also be deducted from the value, as it’s permanently locked up.)
Fixed Maturity Investments
Berkshire keeps its maturities short and credit good, so this isn’t an area to spend much time (it’s also tiny in the grand scheme of things).
Equity Investments
I generally assume the equity portfolio is valued fairly unless an extreme case jumps out in one of the larger holdings. In recent years, that’s meant shaving something off for Apple’s apparent overvaluation.
I adjust Apple’s value to 20x earnings, add cash and marketable securities, and deduct debt.
I also deduct the deferred tax liability, which is adjusted to account for any valuation adjustments.
Berkshire was again a net seller of stocks in 2025.
Greg Abel gave us a great snapshot of the Japanese equities portfolio, which is included above. Berkshire has funded these investments with $14.1 billion of Yen denominated debt at a mouthwatering 1.2% interest rate.
Equity Method Investments
Ownership between 20% and 50% requires equity method accounting, where the investee (BRK) must report a single line for its share of earnings and equity on its income statement and balance sheet, respectively.
