4 March 2024

2023 was a great year for Berkshire with $37 billion in operating earnings and another $8 in hidden earnings for a total of $45 billion and a PE ratio of 20 on the current market capitalization.

The thing is that historically the PE ratio was between 10 and 20, so now is at a higher end while even Buffett said in his letter that there is no chance for eye popping performance. Therefore, a great business with quality and business safety for sure, but you can't expect much from this level.

VIDEO ON BUFFETT's LETTER AND BRK's EARNINGS

VIDEO ON BRK's HIDDEN EARNINGS AND KEY RISK

8 Sept 2023 - Too expensive!! In good times BRK can make $40 billion of value per year! Market capitalisation is 800 billion, thus PE is 20. Yes, it is cheaper than the market, but the historical PE is between 10 and 20, so buying at 20 is simply risky!

VIDEO UPDATE (Even Warren tells you NOT TO BUY NOW)

2022 Q4 Earnings Update

Very simple:

BRK's earnings from operations over the last 12 months have been $31 billion, if I add $8 billion from the hidden earnings (BRK reports only the dividend that it gets from Apple, not the other earnings) I get to $39 billion. Q4 already shows a slowdown in earnings as at $6.7 billion it was the slowest quarter of the year.

Thus, I stick to my model where BRK's average value created for shareholders is $36 billion per year through cycles (recessions, insurance disasters etc.). With a market cap of $668 billion, the true PE ratio is around 18.55. BRK's historical PE ratio goes from 10 to 20, thus BRK is now trading on the expensive side - great business, but higher risk and lower expected reward ahead - likely around 5 to 7% per year long-term. Not bad, but not for me.

I'll keep watching and sooner or later the time will come to see BRK at a PE of 10 to average cycle earnings - that is the time to buy - it happens on average once every 12 years:-)