With a rough back-of-the-envelope 9/30/2012 book value around $110,500, Berkshire is now trading at 1.23x book value and is at a four year high. Four years ago the P/B stood at 1.79.

Interestingly, today's P/B value is still below the median and average P/B since October 1, 2008 which is about 1.25.

If 1.25x book is the "new normal", we are at fair value with each dollar invested growing at a high single digit rate. If the typical 1.5x book since the turn of the century is normal, Berkshire is a cheap and safe 80 cent dollar growing at a high single digit trend rate.

If Book value grows at 9% over the next two years and we get a 1.5x valuation around 10/1/2014, that leads to a share price of $197K, or around 20% compounded from today's price. I'm not aware of too many investments with a similar risk/reward profile.

The main risk I see to this two year scenario is that a fiscal cliff induced 2013 recession would probably make 9% annualized growth in book value over the next two years difficult. Despite last night's debate, I still think the odds are in favor of an Obama victory with a GOP House followed by a gridlocked lame duck session and a major fiscal tightening in 2013. But that scenario is not going to hurt Berkshire in any unique way that won't affect most other large US companies.