yego.me
💡 Stop wasting time. Read Youtube instead of watch. Download Chrome Extension

Warren Buffett on How He Values the Class A Shares | 1996 Berkshire Hathaway Annual Meeting


3m read
·Oct 28, 2024

Shares, yeah, well, that's obviously a key question. As I've said, we try to give you the information, but I think people, to the extent they've made a mistake in the past in valuing Berkshire—and they have made this mistake over time, including many commentators, including some institutions—is to look at it as simply a breakup value of our businesses. I mean, you know, you could do the same thing with General Electric, magnificently run operation by Jack Welch.

But I don't think the way you should look at a business like General Electric is to think about what would happen if they sold each division today, paid the taxes, and then distributed the proceeds. That has tended to be the case with many people looking at Berkshire, looking at it on a static basis. That is not the way that Charlie and I have looked at it over time. It lends itself a little more to that kind of analysis because we have a lot of money in marketable securities, but we have a lot of money in other things, too.

The question of Berkshire and valuing the intrinsic value of any business, of course, is what is going to be the stream of cash over many years in the future. In fact, all of the years in the future discounted back at an appropriate interest rate. I've talked about that in the past in the annual report. Berkshire is a collection of businesses, some of which we own in their entirety, some of which we own part of, and some of those businesses have very interesting dynamics to them.

The value of our insurance business, for example, if you go back 26—what was it?—28 years or so since we, 29, I guess, since we bought it from Jack Ringwald. We paid 8.7 million, I believe—8.4, 8.7 million—for two companies that Jack controlled. If you had the foresight at that time to—and I didn't—but if you had the foresight of that time to see what that would develop out of that insurance business, you would have come to the conclusion that their value to us was going to be far, far greater than the value at which they were then carried on our balance sheet.

They were part of a business which had enormous potential, and that's been probably the most significant asset that's been developed at Berkshire. But right now, we have over seven—or right at seven billion—over 7 billion afloat that's been developed from our insurance business. We couldn't foresee that 25 or 30 years ago, but it would have been a big mistake to think in terms of the book value of that business being representative of its actual value to us over time if it was run right, and that situation probably prevails today.

So, Berkshire is a group of unbalanced, very fine businesses to which we hope to add. The intrinsic value will be affected by the job we do in allocating capital. It will be affected by the job our managers do in running their businesses. It'll be affected by some items that we don't foresee now and perhaps have no control over.

But it is not measured essentially by what we could sell each separate business for and pay the tax on. Now, we haven't run it that way. We've run it so that we get the use of a lot of capital at very low cost. Between deferred taxes and our insurance float, we have some 12 billion or so on the liability side that, as we think, will be a very low cost.

And that doesn't show as an asset, but it can be quite valuable. Charlie, you wanna—

Charlie: "No, I don't think I've got anything to add to that."

Yeah, I was all set to write it down too.

More Articles

View All
Squire, Edlyft, Promise: The Journey, Challenges, & Impact
My co-founder Dave and I didn’t have any history working in the barbershop industry or in tech for that matter. Both of us had been going to barber shops for years. I started going as a kid, around six or seven, with my dad. It was like 20 years later, an…
The Venus Project: mistakes that advocates make
So there’s been an exchange between Stefan Molyneux and Peter Joseph on YouTube lately, and I’ve been commenting on both videos and communicating with advocates of the Venus Project. In this video, I’ll try to correct some of the most important misconcept…
Constructing linear and exponential functions from graph | Algebra II | Khan Academy
The graphs of the linear function ( f(x) = mx + b ) and the exponential function ( g(x) = a \cdot r^x ) where ( r > 0 ) pass through the points ((-1, 9)) and ((1, 1)). So this very clearly is the linear function; it is a line right over here, and this …
Feedback in living systems | Growth and feedback in organisms | High school biology | Khan Academy
So last weekend, my family and I went out hiking in the desert. And as you can tell from these pictures I snapped along the way, it was a gorgeous hike. We made our way to this lake around a small canyon range and up and down this mountain trail. Now, al…
Mesh current steps 1 to 3
Now we’re going to discuss the second of two popular ways to analyze circuits, and this one is called the mesh current method. This is actually one of my favorites. There’s a fun spot in here where we make up currents flowing around in circles inside the …
Mary Devotion Around the World | Explorer
[Music] I was approached by National Geographic last year to photograph people’s relationship with Mary. I traveled all around the world to some of the most unexpected places to document this project. I have my own questions about my faith. I was raised C…