There are quite a few different approaches to the "two column" valuation.Mr Buffett's is very clean and strict.There is no provision for underwriting profit or buy-low-sell-high profit on the equity portfolio.My own approach is to split the firm into those things that are markedto market regularly and have an obvious value, and everything else.The "everything else" couldn't exist by itself, but it isn't by itself, so that problem can be ignored.This includes the facts that float and current assets are needed, andthe fact that the "everything else" part has a whole lot of debt.Given that view you can value the two sides separately and just add them.The first one is easy: value all investments per share at market value.Apply a cyclical adjustment to that if you like, and if you like you can apply a smalldiscount for an extra level of dividend taxation and the perpetually high cash allocation.The second can be valued pretty simply based on some plausible multipleof the on-trend sustainable after-tax income on that, which of course does not include the dividend and interest income from the marked-to-market half, but could include a reasonable conservative estimate of cyclically adjusted underwriting profit.You might use .9 times investments per share plus 9 times pretax EPS on the rest,or .8 times investments per share plus 10 times pretax EPS on the rest.I haven't checked recently, but both of those would likely give figures in the $170k-180k range today.Knock off maybe $15k if you buy my notion that the broad US market ispretty overvalued these days, and that you conservatively assume that that issue applies equally to Berkshire's current equity portfolio.FWIWFor those who want to estimate the long run average pretax underwriting profit,the average cost of float since and including a horrible 1999-2001 forGen Re cleanup has been 0.57% of float, but 2003-2011 it was 3.48%.It's up to you to decide which is the sustainable level based on whether you think the Gen Re losses were just rare things that will happenover the long cycle of reinsurance or truly one-time things resultingfrom a badly reserved portfolio of already-written business that was purchased.0.57% of the current $71.1bn of float is $245/year pretax EPS.3.48% of the current $71.1bn of float is $1498/year pretax EPS.1% probably wouldn't be a crazy number to pencil in = $430 pretax EPS.I think Tilson assumes $1bn/year which would be about 1.4%.Jim
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