Can You Calculate Berkshire's Beta?

Like many others, I've followed the recent stock price movements of Berkshire Hathaway (BRK.A) with amazement.  What's surprised me the most is the magnitude of Berkshire's decline relative to that of the market as a whole.  This could represent a correction--Berkshire was overvalued relative to the market and is less so now.

Or it could mean that the market now believes that Berkshire has a much higher beta than it used to.  That is, for a given decline in the market, Berkshire can now be expected to decline even more.

Which begs the question--can you calculate Berkshire's beta?  I don't mean historical beta, which you can calculate with regression analysis.  I mean its "real-time" beta based on the current components of its portfolio, including operating businesses, securities holdings, cash and fixed income investments, and derivative positions.

For a given percentage decline in the equity value of Corporate America:

1)  The value of Berkshire's still-large cash hoard does not decrease at all.  To the extent it's in treasuries it may even increase. 

2)  The value of Berkshire's operating subsidiaries probably declines as well.  By how much, it's hard to say.  I would argue that Berkshire's businesses are, in aggregate, better businesses than Corporate America as a whole, and their equity is less levered.  On the other hand, the operating businesses may be overweighted towards higher beta sectors like construction. 

3)  The value of Berkshire's public equities portfolio declines, and because it's weighted towards financials like American Express (AXP), Wells Fargo (WFC), Goldman (GS), and GE (GE), probably has a higher beta than the market as a whole.

4)  The value of Berkshire's derivative book declines.  By how much I'm not sure, as my option math is not up to par.  According to the news stories I'm reading, this is the biggest factor in Berkshire's recent declines.

What's the net result? 

Disclosure:  Long Berkshire Hathaway

Comments

[happysoul77777:]

The stock is volatile, because the stock market has a structural problem.
There is still unlimited naked short selling during the two-day window period, becsause sellers have three days to deliver borrowed shares.
The removal of the uptick rule increases the volatility to the down side.
There is also an unlimited naked short selling via the use of puts options, ETFs, futures, short calls, swaps. Now, the credit default swap links equities with bonds. It is deadly!

The market is rigged to the down side!

2008 Nov 21 09:39 AM

[DonSuper:]

happysoul is right, but you have to add the manipulation of shorts through the use of the CDS market...

2008 Nov 21 10:59 AM

[User 303490:]

Can someone explain to me how Beta calculations are any indicator as to the actual value of a company? Why would actions of those outside the company have any affect on the company itself? You can't predict the future, but you can look back and see one thing that is constant. People do irrational things which allows the rational people to make great investments.

2008 Nov 21 11:46 AM

[NateCarrFan:]

If you want to calculate anything concerning the markets at this point, your only hope is Chaos Theory.

2008 Nov 21 01:54 PM

[jimmy46:]

Beta is a worthless concept,
it's computed by multiplying volatility times correlation with the market.

Who knows how much each component contributes?

Volatility itself is difficult to determine, the black scholes formula for valuing options includes IMPLIED VOLATILITY.

In other words, it's the x factor that's left when every thing else is multiplied out.

black & scholes imply that volatility isn't easy to determine.

Feb 17 02:03 AM