Berkshire Hathaway Is Expensive...

Here are my main points from the report:

Equity - $629B, float - $174B, class A shares equivalent - 1.438B (this is on Sep 30, I did not account for a transaction with minority BH Energy shareholders that happened in October and mentioned in 10-Q but it is not material).

The book value per class B share is ~$292, and the sum of float (F) and equity (B) per class B share is - $372.

My SA readers know that I buy BRK when it trades below the sum of equity and float. I explained and published about it many times. (Please see here and also my yesterday’s post on Fairfax Financial). It happens rarely, about once in 2-3 years with the last time in 2020.

There is a fascinating story about this method that I published on SA and will repeat here for those who are not subscribed to SA.

Until 2022, I hadn’t encountered anyone else using this method to value BRK. Late that year, however, a reader sent me a Reddit link describing a valuation approach very similar to mine.

David Sanford "Sandy" Gottesman, a respected American businessman and investor, founded First Manhattan Company (FMC) and was known for his close friendship with Warren Buffett. Allegedly, he was also the second-largest personal shareholder of Berkshire Hathaway, even surpassing Charlie Munger in holdings.

FMC provides investment management services to high-net-worth individuals and other clients, with significant BRK positions in its portfolios. According to the now-deleted Reddit post, FMC (and probably Gottesman himself) would buy Berkshire shares when they traded below a valuation threshold based on book value, float, and half the deferred taxes on stock holdings. This formula remained confidential until shortly before Gottesman's passing in 2022.

Gottesman met Buffett in 1963 and likely devised this valuation method long before I did (I understand his rationale but have chosen a more conservative variation starting from the late nineties). Given that Gottesman spoke with Buffett almost daily and frequently visited him in Omaha, it’s possible Buffett was aware of the formula—and he may or may not have approved it.

Currently, BRK is trading at $451, with a P/(B+F) ratio of around 1.21. On September 30, it was at $460, with the ratio slightly higher at 1.24. (I sold a fraction of my BRK shares at the end of August at $463.) The 1.24 ratio—or even 1.21—is the highest in my spreadsheet, which goes back to 2003 (I record values at the end of each quarter). This doesn’t seem like a good time to add to your BRK position!

If you prefer to use a P/B signal, it tells the same thing.

Secondly, I also track the ratio of public stocks in Buffett’s portfolio to BRK’s market value. It stands at 27% - the lowest in my spreadsheet. Buffett is not optimistic about the stock market.