Mar 022017

At Berkshire Hathaway’s closing price of $266,013 per class A share on March 1, 2017, its price to book value ratio equals 1.55 which approximates its 30 year average of 1.58.  Berkshire’s book value at year end 2016 was $172,108 per class A share.  (Berkshire’s class A shares rose $8,913 per share or 3.47% on March 1.)

Warren Buffett has stated that he would buy back shares at prices below 120% of book value, which currently would equal prices below $206,530 per class A share.

Berkshire’s intrinsic value continues to increase relative to its book value as the percentage of total assets represented by its common stock portfolio declines.  At year end 2016, Berkshire’s investment in equity securities ($120 billion) represented only 19% of its total assets ($620 billion).  By contrast, in Berkshire’s early years, its common stock portfolio represented the overwhelming majority of its assets.

 Posted by at 7:42 am

  One Response to “Berkshire Hathaway’s Price to Book Value Ratio is at 30 Year Average”

  1. Thank You. You have cogently captured the essence of many Chairman letters that omit comment on market price, but clearly telegraph a message of Chair- and Vice-Chair perceived intrinsic value vis-`a-vis book value. If Mr Buffett is willing to buy in shares at 1.2X book, then, always seeking “margin-of-safety” for BRK’s continuing shareholders, he would likely see intrinsic business value closing in on the neighborhood of 1.9X (low end) to a higher end that is likely above 2.0X (reflecting the sea-change into powerful operating subsidiaries over the past 18 years).

    Notably, for the first time in the annual letters, Mr Buffett also stated that BRK, while buying in shares at or below the stated threshhold, would have competing goals that would include “not over-influincing the market”. This is the first time that I am able to solidly conclude that, during a Mr Market-induced panicky selloff, adroit attention might allow the bold (or just well-informed) to purchase at 1.1X or below, even while BRK is otherwise making substantial repurchases.

    Wall Street is literally a slumbering bear … still generally perceiving BRK as it was in the early 1990s; and, if there were more astute people working in that noted group, they would latch-on to your keen point about percentage of equity holdings among total assets.

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