Berkshire Hathaway (BRK-B)

By both methods, the value today (DCF $712 · Multiples $601) exceeds the market price ($518).

Today — fairly valued: at $518 trades ~13.9% below its value discounted to today (~$601); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($749) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$372.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($518) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-9.9%/year) than we project (5.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$17.8 bn of owner earnings in year 5 (vs ~$38.3 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Valor libro × P/B (dos columnas). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Rolling grid: the base-year level is real shareholders' equity (book value of US$747.9 billion as of Jun 30, 2026). Berkshire does not fit a revenue×margin model —it is a holding company/insurer— so the metric being capitalized is book value and the multiple is the justified P/B (~1.47×), which is equivalent to a sum of the parts in two columns: the investment portfolio (~$700bn: equities at market + cash/Treasury bills) + the operating businesses (BNSF, energy, manufacturing, underwriting) on P/E over their ex-investment earnings (~$30bn). GAAP net income ($67bn) is mark-to-market noise on the portfolio → it is not used. Book value compounds ~8%/year retaining all earnings (no dividend since 1967). The operating income shown (~$44.5bn) is ex-investment gains. No SBC (salaries in cash). Watch: the Buffett→Abel succession (does the premium hold?) and the deployment of the record $397bn cash pile. Year 0 is re-anchored to the quarter ended 30 June 2026. The automatic growth check compared the year-over-year increase in consolidated revenue under EDGAR's generic tag (+3.9%) against the model's year-1 growth rate (8%), but that tag measures a different concept from the one the model capitalizes: this model's «revenue» row represents shareholders' equity attributable to shareholders, not operating revenue, because Berkshire Hathaway is valued on book value multiplied by a price/book multiple (as the note already explains), not on operating revenue multiplied by a margin. The correct comparison is the growth of shareholders' equity itself: from US$667.99 billion at 30 June 2025 to US$747.91 billion at 30 June 2026 (XBRL figure, attributable to shareholders, excluding the non-controlling interest), 11.96% year over year — above, not below, the 8% modeled. The path is not deteriorating. That twelve-month growth is not extrapolated without adjustment either, because it includes the same non-operating component that motivates the second observation: trailing-twelve-month accounting net income (US$85.77 billion) contains unrealized gains on the investment portfolio, recognized in earnings under the accounting standard in force even though nothing has been sold, far above after-tax operating income (approximately US$17.5 billion). Those same unrealized gains are what swell shareholders' equity from one quarter to the next, so the observed 11.96% is inflated by the same portfolio valuation noise that the note already excludes from the operating analysis. The 8% annual growth rate is kept as the normalized one (full retention of earnings, no dividend since 1967), and only the level is re-anchored: year 0 goes from US$727.2 billion (31 March 2026) to US$747.9 billion (30 June 2026), preserving the same shape of the path in all three scenarios. Year-0 capex is updated to the real trailing-twelve-month figure (US$22.42 billion, previously US$21 billion). The operating income margin, the operating cash flow margin and year-0 depreciation and amortization are left unchanged: the data available for this update measure those concepts against consolidated revenue and are not compatible with the model's shareholders' equity base; updating them requires reading the operating income reconciliation the company publishes in its earnings release, and it is left pending a later review. On accounting net income: the trailing-twelve-month figure rises from US$72.5 to US$85.77 billion. It is a real figure for the period, but it is still not used for the valuation —which runs on book value and operating income, not on accounting income— because more than two thirds of that amount is unrealized gains on the listed equity portfolio.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $749 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $518, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $749 in 5 years and a required return of 4.5% annually, the maximum to pay today is $601. Against the current market price ($518), the margin of safety is 13.9% (trades below the maximum → there is margin) and the total return at that price would be 7.7% annually.

• Sum of the parts (two columns). Valued on (1) the investment portfolio at market (~$700bn) + (2) the operating businesses on P/E over earnings ex-investments (~$30bn) — without double-counting the investment income.
• The GAAP P/E is of no use. Net income is distorted by mark-to-market; the reference multiple is book value (P/B), today ~1×, within the historical range 1.3-1.8×.
• The DCF converges. The DCF (operating earnings ex-investments + the portfolio as surplus, at the risk-free rate) converges with the sum of the parts in the region of intrinsic value.
• Margin of safety at the end. At ~$518 the base return (~+8%) sits close to but below the required average return (10%): a modest discount to intrinsic value, with downside protection, but without a large margin.
• The buyback signal. The behavior itself (zero buyback in 2025 at intrinsic value, a touch in 2026 below it) indicates that management sees the stock just below intrinsic value — a useful anchor.
• Sensitivity — succession and cash. Value is sensitive to Abel sustaining the discipline (the premium) and to deploying the cash: if the premium erodes or the cash goes undeployed, the return compresses.

• ✕ ROIC exceeds the cost of capital (~10%)
• ✕ High incremental ROIC (compounding)
• ✓ CFROIC backs up the ROIC (97%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Strong, predictable cash flow. Enormously so: negative-cost float + $397bn of cash/T-bills + diversified operating cash flow. Cash generation is a structural strength.
• Return on capital. Around the 10% bar at the equity level, depressed by the cash drag; the operating businesses earn above it. Historically it compounds at the opportunity cost.
• Creates economic value. Yes — by retaining all earnings and reinvesting them at returns above the cost of capital, Berkshire compounded value for decades; the test of the Abel era is to sustain it.
• The net income trap. GAAP net income is distorted by mark-to-market on the portfolio (±$30bn of noise); Berkshire itself calls it 'generally meaningless' — valued on operating earnings.
• The float as a superpower. The ~$176bn of negative-cost float is perpetual, free funding that Berkshire invests for its own account — the structural source of the compounding, not a debt to subtract.
• No SBC distortions. There is no stock-based compensation (cash salaries) → zero SBC dilution; the share count only falls through buybacks. Clean accounting except for the mark-to-market.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Berkshire earns three ways: insurance underwriting (premiums − claims, which generates ~$176bn of negative-cost float), the investment income on that float and its own capital (~$700bn of stocks + cash/T-bills), and the operating businesses (BNSF, BHE, manufacturing). Intrinsic value is tracked by equity (book value), which compounds ~8-10%/year by retaining all earnings. The record $397bn of cash is optionality: the ability to deploy in a recession.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal, growth. Operating earnings grew from $37bn to $47bn in two years (real, from the operating businesses); equity compounds ~8-10% by retaining earnings.
• Where the engine comes from. Manufacturing/services/retail (~31%) + investment income (~28%) + BNSF and BHE (steady growth). Diversified, with no single dominant engine.
• Driven by reinvestment. Growth comes from retaining all earnings and reinvesting them (businesses, portfolio, acquisitions) at returns above the opportunity cost — Buffett's compounding.
• Deceleration from size. The law of large numbers tempers growth: with >$1.2 trillion in assets, compounding at historical rates is ever harder.
• Reinvestment runway. Wide in dollars ($397bn of cash to deploy) but limited by the size of the opportunities: moving the needle demands enormous acquisitions that are scarce.
• The cash drag. $397bn yielding ~3.7% while it waits for opportunities dilutes the aggregate return — valuable optionality, but a drag if it is not deployed.

• Relevant in 10 years / recurrence. Yes — insurance, rail, energy, and consumer are structural businesses with recurring demand; diversification makes them resilient to the cycle.
• Market share / cost. The insurer with the strongest balance sheet (an underwriting and deployment advantage); BNSF in a duopoly, BHE with a regulated base. Real cost and structural advantages.
• Pricing power. Varies by business: BHE (regulated) and the consumer brands have pricing power; insurance is more competitive, but Berkshire underwrites with discipline, not for volume.
• Operating leverage. Modest and diversified; earnings compound through reinvestment of the float and retained capital, not through the operating leverage of a single line.
• Capital cycle / competition. The fortress balance sheet is counter-cyclical: Berkshire deploys when capital is scarce and prices fall — the record $397bn of cash is that optionality.
• Behavior in a recession. Very resilient: diversification, the float, and liquidity cushion it; historically Berkshire comes out of crises stronger (buys cheap).

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $700 bn
• ✓Interest coverage (EBIT / interest)10.6x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 97% of ROIC
• !Value creation (ROIC − 10% bar)+0pp
• ✕Malinvestment test (capex vs incremental ROIC)Investment mode 1.6x with incremental ROIC < cost of capital
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 0.0% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Fortress balance sheet. $397bn of cash/T-bills, modest debt, negative-cost float, enormous statutory capital. It is the strongest balance sheet of any insurer — zero solvency risk.
• Record liquidity. $397bn in Treasury bills with a 'safety over yield' policy and a $30bn buyback floor: very ample liquidity as a margin of safety and optionality.
• Catastrophe risk. It tolerates up to ~$15bn of loss from a single event; the claims reserves ($151.8bn) and liability reinsurance are the insurance risks, managed with discipline.
• Portfolio concentration. Five names = ~65% of the stocks (Apple ~22%): a sharp fall in a large position would hit equity and the statutory surplus.
• Cash generation. Operating cash flow (~$46bn) + the float + the portfolio's yields generate cash in a diversified and predictable way; solvency is unassailable.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Capital allocation. Berkshire's hallmark: retains everything, reinvests at returns above the cost of capital, buys back only below intrinsic value. The test is whether Abel sustains the discipline.
• Alignment / skin in the game. Buffett ~13.7% economic / ~30% of the vote (declining through donations). Abel/Jain with no SBC, cash salary. Extraordinary founder alignment, in transition.
• Capital return. No dividend (since 1967); buyback only below intrinsic value (zero in 2025, $235M in Q1-26). Cash accumulates while it waits for opportunities — discipline, not passivity.
• Succession / continuity. The Buffett→Abel transition (Jan-1-2026) is the central question: Abel ruled out breaking up Berkshire and emphasized continuity, but the market discounts risk to the valuation premium.

• GAAP net income is distorted by mark-to-market on the ~$288bn portfolio (unrealized gains flow through the income statement), which makes the reported P/E useless and muddies the value reading.
• The Buffett-to-Abel transition raises fear that the historical valuation premium erodes, pressuring the multiple below its recent range (1.6-1.8×) toward ~1.46×.
• The record $397bn of cash yields only ~3.7% while it waits for opportunities — the market penalizes that return drag, though it is optionality to deploy in a downturn.
• Size (>$1.2 trillion in assets) makes it hard to compound at historical rates — the law of large numbers tempers growth expectations.

The discount is one of perception (succession, cash drag, accounting noise), not of deterioration: the operating businesses are growing, the float is negative-cost, and the balance sheet is a fortress. It trades at a modest discount to its two-column intrinsic value; it is not a deep bargain, but it is a resilient compounder at a reasonable price.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +2%/year (+13% total): the margin of safety protects the downside. The bull (+11%/year, +65% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Succession (post-Buffett). The transition to Abel (Jan-1-2026) is the central risk: if the capital-allocation discipline or the culture erode, the historical valuation premium compresses.
• Cash drag. $397bn yielding ~3.7% while it waits for opportunities dilutes the return; if Abel fails to find attractive deployments, compounding stalls.
• Size / law of large numbers. With >$1.2 trillion in assets, compounding at historical rates is ever harder — the opportunities that move the needle are scarce.
• Portfolio concentration. Apple ~22% and five names ~65% of the stocks: the volatility of a large position passes through to equity and the insurance surplus.
• Accounting volatility. GAAP net income swings with the mark-to-market (±$30bn); it is noise, not deterioration, but it can scare off anyone who looks at the headline instead of operating earnings.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC barely matches the 10% bar (the market's opportunity cost), no excess return.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 5% at a multiple/growth of 0.3 → cheap for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 13% (EBIT/EV) + ROIC 10% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -10% vs our 5%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +2%/yr, bull-scenario ceiling +11%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: cost advantage, efficient scale, intangibles, switching costs → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -10%, within what we project (5%) — the story squares with the numbers.