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We have always had an affinity for the Berkshire Hathaway companies and Warren Buffett’s leadership with the conglomerate.
We continue to see value in the shares today.
One dynamic that has unfolded in the last several years has been the burgeoning investment in Apple, the global technology services business.
Ironically, Mr. Buffett has been criticized for his old school investing style which typically does not favor technology firms.
Yet today, the Apple stake is worth $96 billion vs. $460 billion for the total market capitalization of the Omaha Company.
In February of this year, Warren stated “It’s probably the best business I know in the world. And that is a bigger commitment than we have in any of our other businesses except insurance and the railroad. I don’t think of Apple as a stock. I think of it as our third business.”
The Berkshire portfolio team first starting buying shares in 2016 and now own 250 million shares for an average cost of about $140 per share vs. the current price of close to $400.
Going back to 30,000 feet.
We look at Berkshire Hathaway’s value using a sum of the parts approach based on the Oracle’s feedback in the annual letters. We apply relative multiples to each of the major business segments including rail, energy, manufacturing and servicing/retail. For insurance, we capitalize the underwriting segment and add net cash and investments after tax.
Using this approach results in an intrinsic value of approximately $400,000 per A share in 2021, representing compelling value at the current price. Additionally, excluding the Apple stake, the shares still trade at a 20% discount to those assumptions.
Taken another way, one could view a share of Berkshire Hathaway as enabling an investor to participate in the in intrinsic value growth of Apple for free.
