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A couple of people here have estimated that P/B today is comparable to the P/B at the low in March, and that by implication so is P/IV. I've updated a couple of valuation models, and I also conclude that P/IV today is comparable to P/IV at the March low. I estimate that P/IV is about 0.75, plus or minus. A large contributor to P/IV is the value of the equity portfolio. Berkshire's stock price is up 12% from the March low, but the value of the equity portfolio, which represents 35% to 40% of IV, is up 39%. IV is up maybe 13% from the low.

2020 has been a year of wild swings in price and great uncertainty in business values. GDP fell an estimated 53% in Q2 alone. In such uncertain times it helps to zoom out and look at Berkshire's long term history. Many of us have valuation estimates that go back many years, from which we can make reasonable extrapolations to today, even if there is uncertainty in the fair value of the equity portfolio and the fair value of the operating companies. As I have described here before, the weighing machine model is ideal for this purpose. The logic of the model is compelling, and the calculations are simple and require no assumptions, other than, as Graham stated, "In the short term the market is a voting machine; in the long term it is a weighing machine." This implies that if one plots market capitalization against some variable upon which IV logically depends, such as sales, earnings or book value, then the trendline can serve as a reasonable estimate of IV. Sometimes the market cap is above the trendline, and sometimes it is below the trendline, but over the long term the market cap tracks the chosen metric. It is remarkable how well the market cap of companies like Johnson & Johnson and Walmart have tracked sales and earnings for over 50+ years, and how well the market cap of Berkshire Hathaway has tracked book value for over 50+ years. I hope that a few of you will compare this simple model to other valuation models and let me know what you think.

Good luck to all of us in our portfolios.

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