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No. of Recommendations: 12
What we don't see is it trading on a simple analysis of some combined
value of the insurance businesses and the non-insurance businesses.


From the "equal time for opposing viewpoints" department

We may be hesitant to admit that this isn't entirely true, but maybe Mr Market's view has some merit.

Price/book is a flawed metric, but it's the best single no-brainer metric for Berkshire.
Rate of increase of book value per share in the last 5 and 10 years is
beat by just under 1000 of the Russell 3000 companies.
(I get 975 for five year and 981 by 10 year)
These ~1000 that beat Berkshire's book/share growth rate aren't all
tiny firms that are getting their growth rates by having started from
a very low base, either: 275 of them have a market cap over $5bn.
(number 275 is Leucadia, as it turns out)
Thinking of it another way, percentage growth in book per share absent
dividends can be thought of as a pretty good proxy for ROE.
Berkshire's has been a decidedly humdrum single digit number in the last 1-10 years.

Now, one might argue that a firm with a large number of stock holdings
is going to have a hard time increasing book value per share when the
stock market is flat. True, but...it's still not a crazy metric.

On the simplest view using the simplest metric, it has been a long
time since Berkshire looked like an outperformer, so it doesn't get a premium.
If and when it has a couple of nice 20% blow-out years of growth in book value
per share (or value measured on other metrics), we might see higher valuation multiples.
Given the rate of change of non-investment earnings per share, it's
likely that that will happen not through growth in book per share
but rather in growth of good old fashioned EPS.
But not soon---EPS is lower than it was 5 years ago, and 3-year-
smoothed EPS is flat compared to 3-year-smoothed earnings 5 years ago.
Sure, that's only reported EPS, but that's what's visible.
If it isn't showing up in book and it isn't showing up in earnings,
Mr Market won't react and he might not be entirely irrational.

Jim
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