Chris Bloomstran: The Intrinsic Value And Earnings Power Of Berkshire Is…

Johnny HopkinsChris BloomstranLeave a Comment

Here’s a great interview with Chris Bloomstran of Semper Augustus talking to the folks at the Gabelli Funds Omaha (Virtual) Research Conference. During the interview Chris discussed his estimates of value and earnings power for Berkshire Hathaway. Here’s an excerpt from the interview:

Bloomstran: We have another method which reconciles really the earning power of the business against some big moving parts and accounting adjustments to the published GAAP financials that we make and we think over the years we’ve kind of learned that there’s been some hidden value inside the published numbers.

I think the lay investor that pulls out the Q today, or reads the annual report, if you simply start with the consolidated financial statements to try to get a sense of the profitability of the business you wouldn’t have a clue. There are just too many nuances to the way the accounting works in the business that distort the underlying profitability.

So all of these methods that we use are really in an attempt to reconcile against each other to try to determine what we think is the core raw earning power on a normalized basis. So with an effort to smooth out a lot of the volatility that comes with stock prices bouncing around from quarter to quarter or underwriting profitability bouncing around.

So if you said to me Chris at year end what do you think Berkshire’s worth I’d give you a number. I think the business is worth… it was somewhere north of seven hundred and thirty, seven hundred forty billion dollars.

Today we may be shaving our assessment of the value based on what we think could be a much longer duration of this economic downturn. But in a normal world outside of this crisis I wouldn’t give you much of a different number.

We think the business earns ten on equity durably. We think it’s earned that on for the last twenty years and so I’ve got a method that essentially says Berkshire’s core earning power today is somewhere around forty billion dollars, and on that, on book value that’s today mark to market. Given Friday’s close in the stocks, probably three hundred ninety billion dollars. It’s a business that earns about ten on equity. To me you’ve got to smooth and you’ve got to normalize to get a proper assessment of value.

You can watch the entire interview here:

(Source: YouTube)

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