Berkshire Hathaway Looks Undervalued Based On Its Subsidiaries And Investments

| About: Berkshire Hathaway (BRK.A)

This pie and its slices are rough approximations ($ in billions).


This Berkshire Hathaway (NYSE:BRK.A) pie valuation chart is based on the Berkshire Hathaway article by Christopher Owens. However, I added value on the insurance side. I think the company is undervalued - my total is higher than the current market cap.

When I went to my first Berkshire Hathaway meeting in 2010, it was a positive experience but there were subsidiaries in the exhibit hall that caused some concern. It was hard to know how to value some of the smaller subsidiaries along with the company as a whole. Some of the smaller subsidiaries are in businesses where it is difficult to make money. The company lumps many subsidiaries into the "Manufacturing, Service and Retailing Operations" bucket and the "Finance" bucket in financial reports. In our pie chart, these subsidiaries are in the "Other Businesses" slice and the "Finance" slice and these slices are small compared to the pie as a whole. Seeing things in this context alleviates concerns regarding some of the weaker subsidiaries. In addition, the "Other Businesses" slice has some very profitable "buy commodities - sell brands" companies like See's Candies. The "Finance" slice has companies that will be coming back with the housing market. The 2011 letter to shareholders talks about some of these weaker subsidiaries in the Manufacturing, Service and Retailing Operations section:

A few [of the subsidiaries], however, have very poor returns, a result of some serious mistakes I made in my job of capital allocation. These errors came about because I misjudged either the competitive strength of the business being purchased or the future economics of the industry in which it operated. I try to look out ten or twenty years when making an acquisition, but sometimes my eyesight has been poor. Charlie's has been better; he voted no more than "present" on several of my errant purchases.

Berkshire's newer shareholders may be puzzled over our decision to hold on to my mistakes. After all, their earnings can never be consequential to Berkshire's valuation, and problem companies require more managerial time than winners. Any management consultant or Wall Street advisor would look at our laggards and say "dump them."

That won't happen. For 29 years, we have regularly laid out Berkshire's economic principles in these reports (pages 93-98) and Number 11 describes our general reluctance to sell poor performers (which, in most cases, lag because of industry factors rather than managerial shortcomings). Our approach is far from Darwinian, and many of you may disapprove of it. I can understand your position. However, we have made - and continue to make - a commitment to the sellers of businesses we buy that we will retain those businesses through thick and thin. So far, the dollar cost of that commitment has not been substantial and may well be offset by the goodwill it builds among prospective sellers looking for the right permanent home for their treasured business and loyal associates. These owners know that what they get with us can't be delivered by others and that our commitments will be good for many decades to come.

This explanation makes sense. Mr. Buffett won't automatically sell weak subsidiaries - that could limit the pool of future sellers. Another valuation concern I had was capital allocation. Mr. Buffett's Burlington Northern acquisition shows that he is still doing very well despite his age. This acquisition looks better with each passing quarter. Still, sooner or later someone else will be making capital allocation decisions for the company. I don't see Todd Combs nor Ted Weschler selling the five largest non-insurance companies (BNSF, Iscar, Lubrizol, Marmon Group and MidAmerican Energy) anytime soon. Nor do I see them selling any part of the big four stocks (KO, WFC, IBM and AXP) in the near future. This means we're talking about less than half the pie when we look at Mr. Buffett's successor. I think the company as a whole will continue to do well even if capital allocation mistakes are made in the future. It looks like the market has already priced in the fact that Mr. Buffett will not be running things forever. Again, our pie chart shows that capital allocation decisions won't be as critical as people think in the future and weaker subsidiaries are not major factors. Breaking things down, we see the pie chart has a value higher than today's market cap, so I believe the company is undervalued. In fact, this pie chart still has a higher value than current market cap even if we take out the "Finance" slice completely along with half the "Other Businesses" slice.

This summary valuation by Mr. Owens is key:

Aggregate Valuation:


Operating Businesses: $133 billion/ $54 per Class B Share


After-Tax Liquidation Value of Investment Portfolio: $123 billion/ $50 per class B share


Excess Cash: $31 billion/ $12.50 per Class B Share


Insurance Underwriting/Float Liability: $0


Holding Company Liabilities: $24 billion / $9.50 per Class B Share


Aggregate Value: $263 billion / $107 per Class B Share

He breaks down the 133b in operating businesses into the following:

58b BNSF

20b MidAmerican

10b Lubrizol

8.5b Marmon

30b Other Manufacturing, Service & Retail

6.8b Finance

He breaks down the 24b in holding company liabilities as follows:

Holding company debt:

Berkshire has $13.4 billion in holding company debt at an average rate of 3.1%. $8 billion of this amount was issued in conjunction with their purchase of BNSF.

Credit Default and Equity Index Options:

Berkshire recognizes a liability of $10.5 billion in connection with credit default and equity index options.

Our pie chart can't have negative pieces, so we need to figure out what to do with this 24b in holding company liabilities.

The liability of 10.5 billion in connection with credit default and equity index options lowers the value of our investment portfolio by 10.5b. Thus we're showing 112.5b as net investments instead of the 123b mentioned in the article.

The 13.4b in holding company debt is a little different. Let's take a look at this on the 2012 Q3 10-Q:

As you can see, this is under "Insurance and other" but it talks about issuing notes in connection with the BNSF acquisition. We don't want to deduct this from the BNSF piece of the pie - BNSF isn't any less valuable just because notes were issued when paying for it. We'll take this 13.4b out of the cash piece of the pie.

Let's spell out these and other adjustments.

Eliminating Negative Slices

1. We've reduced the Investments slice from 123b to 112.5b because of the 10.5b liability in connection with credit default and equity index options.

2. The Cash slice has been reduced from 31b to 17.6b because of the 13.4b holding company debt.

At this point, our pie still has the same total as the article by Mr. Owens but some pieces are smaller because they absorbed negative pieces. We are both at 263b for the total valuation.

Splitting Pieces Into Smaller Slices

3. We've reduced the Other Businesses slice from 30b to 25b and shown Iscar as its own slice at 5b.

4. KO, WFC, IBM, AXP, and Todd and Ted have been added at 15.2b, 14.7b, 14b, 8.6b and 3.5b respectively and this 56b total been deducted from the Investments slice lowering it from 112.5b to 56.5b. Now it makes sense to rename the Investments slice to Other Investments.

At this point, there are 6 new slices of pie, so some of the existing slices are smaller. We still have the same total of 263b.

Insurance Adjustment

5. A 10b insurance slice has been added. We will go into details when talking about the slices individually.

This means our total is now 273b instead of the 263b in the article from Mr. Owens.

Pie and Slice Data

Here again are the slices:

58b BNSF

20b MidAmerican

10b Lubrizol

8.5b Marmon

5b Iscar

25b Other Businesses

6.8b Finance

10b Insurance

15.2b KO

14.6b WFC

14b IBM

8.6b AXP

3.5b Todd and Ted

56.5b Other Investments

17.6b Cash


273b Total

Let's go through them individually.

58b BNSF

It doesn't matter that Warren Buffett paid less than 58b for Burlington Northern when he completed its acquisition on February 12, 2010. All that matters is what it is worth now. Union Pacific (NYSE:UNP) has a market cap of around 61b and there are many similarities between the two companies.

20b MidAmerican

The 2011 letter has a nice breakdown of MidAmerican earnings:

The 2011 annual report has more information:

10b Lubrizol

Using existing cash balances, BRK.A acquired all the outstanding shares of Lubrizol in September of 2011 for 8.7b.

8.5b Marmon

The 2011 annual report has key information on Marmon:

Through Marmon, we operate approximately 140 manufacturing and service businesses that operate independently within eleven diverse business sectors. Revenues in 2011 were $6.9 billion, an increase of approximately 16% over 2010. An estimated 25% of the aggregate revenue increase was attributed to increased copper prices affecting the Building Wire and Flow Products sectors, where copper cost increases are passed on to customers with little or no additional margin. Ten of the eleven business sectors produced comparative revenue increases. The only sector reporting a comparative revenue decrease was the Retail Store Fixtures sector, where its largest customer significantly reduced its purchases.

Pre-tax earnings in 2011 were $992 million, an increase of approximately 22% over 2010. Pre-tax earnings as a percent of revenues was 14.3% in 2011 as compared to 13.6% in 2010. Pre-tax earnings to revenues percentages were negatively impacted by the increases in copper prices in both 2011 and 2010. Ten of the eleven sectors produced increased pre-tax earnings in 2011 compared to 2010. The Retail Store Fixtures sector reported lower pre-tax earnings consistent with the revenue decline. The improvements in revenues and pre-tax earnings generally reflected continued recoveries in many of Marmon's end markets, increased product innovation and Marmon's ongoing effort to control overhead costs.

5b Iscar

The 2011 letter to shareholders says the following:

Our major businesses did well last year. In fact, each of our five largest non-insurance companies - BNSF, Iscar, Lubrizol, Marmon Group and MidAmerican Energy - delivered record operating earnings.

As noted, the article by Mr. Owens had dollar amounts for all five of these major businesses except Iscar. All five of the largest non-insurance companies deserve their own slices of pie, so we're making one for Iscar.

The 2010 letter to shareholders says the following about Iscar:

At Iscar, profits were up 159% in 2010, and we may well surpass pre-recession levels in 2011. Sales are improving throughout the world, particularly in Asia.

The fact that Iscar's profits were up 159% in 2010 and then they had record operating earnings on top of that in 2011 shows that it is doing well.

The 2006 10-K tells us that Berkshire bought 4/5ths of Iscar in a transaction that valued 5/5ths at 5b. In other words, they paid 4b:

On July 5, 2006, Berkshire acquired 80% of the Iscar Metalworking Companies ("IMC") for cash in a transaction that valued IMC at $5 billion.

The increased earnings mentioned in the 2010 and 2011 letters along with inflation make me think this slice can be valued at 5b.

McClane is a clue that gives Iscar a floor. Unlike Iscar, McClane is not one of the five largest non-insurance companies. The 2011 10-K tells us that McClane had earnings of 344m, 369m and 370m in 2009, 2010 and 2011 respectively.

25b Other Businesses

There are many nice companies in this group. Here is some information on McLane from the 2011 letter to shareholders:

McLane, our huge distribution company that is run by Grady Rosier, added important new customers in 2011 and set a pre-tax earnings record of $370 million. Since its purchase in 2003 for $1.5 billion, the company has had pre-tax earnings of $2.4 billion and also increased its LIFO reserve by $230 million because the prices of the retail products it distributes (candy, gum, cigarettes, etc.) have risen. Grady runs a logistical machine second to none. You can look for bolt-ons at McLane, particularly in our new wine-and-spirits distribution business.

The 2011 annual report shows some of our slices lumped together. Marmon is separated as its own line, but our Lubrizol and Iscar slices roll into the "Other manufacturing" figure below:

This is what the 2011 annual report says about Other manufacturing (Again, keep in mind that we have Lubrizol and Iscar as their own slices):

Our other manufacturing businesses include several manufacturers of building products (Acme Building Brands, Benjamin Moore, Johns Manville, Shaw and MiTek) and apparel (led by Fruit of the Loom which includes the Russell athletic apparel and sporting goods business and the Vanity Fair Brands women's intimate apparel business). Also included in this group are Forest River, a leading manufacturer of leisure vehicles, IMC Metalworking Companies ("Iscar"), an industry leader in the metal cutting tools business with operations worldwide and CTB, a manufacturer of equipment and systems for the livestock and agricultural industries. Other manufacturing businesses also include The Lubrizol Corporation ("Lubrizol"), a specialty chemical manufacturer, beginning as of September 16, 2011. In 2011, our other manufacturing businesses generally experienced increased levels of business and improved operating results, although the rates of improvement have been uneven. Other manufacturing revenues increased $3.5 billion (20%) in 2011 to $21.2 billion compared with 2010. In 2011, Lubrizol accounted for approximately $1.7 billion of the increase. Otherwise, revenues of our other manufacturing group increased 10%. Iscar and CTB in particular experienced strong demand for their products.

The 2011 annual report explains the "Other service" group:

Our other service businesses include NetJets, the world's leading provider of fractional ownership programs for general aviation aircraft and FlightSafety, a provider of high technology training to operators of aircraft. Among the other businesses included in this group are: TTI, a leading electronic components distributor; Business Wire, a leading distributor of corporate news, multimedia and regulatory filings; Pampered Chef, a direct seller of high quality kitchen tools; Dairy Queen, which licenses and services a system of over 6,100 stores that offer prepared dairy treats and food; Buffalo News, a publisher of a daily and Sunday newspaper; and businesses that provide management and other services to insurance companies. At the end of 2011, we acquired the Omaha World-Herald Company, a publisher of daily and weekly newpapers [sic] in Nebraska and Iowa.

Per the 2011 annual report, there are 8 companies in the retailing section of this bucket:

Our retailing operations consist of four home furnishings businesses (Nebraska Furniture Mart, R.C. Willey, Star Furniture and Jordan's), three jewelry businesses (Borsheims, Helzberg and Ben Bridge) and See's Candies. Revenues of these businesses were $3.1 billion in 2011, an increase of $140 million over 2010. Pre-tax earnings were $239 million, an increase of $42 million over 2010. Each of our retailing businesses generated comparatively higher revenues and pre-tax earnings.

6.8b Finance

The 2011 annual report has some finance figures:

10b Insurance

It was the float from insurance over the years that paid for many of the outstanding investments we see today in the pie chart.

I believe we need a separate Insurance slice to account for consistent underwriting profits along with GEICO's hidden goodwill.

Per the 2011 annual report, the average underwriting profit is just under 2b (17/9 = 1.89) over the last 9 years:

As noted in the first section of this report, we have now operated at an underwriting profit for nine consecutive years, our gain for the period having totaled $17 billion.

These consistent underwriting profits are valuable, let's look at them compared to other earnings in the 2011 annual report:

Looking at the last 3 years, GEICO averaged 781m in annual underwriting profit.

The 2011 Allstate (NYSE:ALL) 10-K shows that GEICO is comparable to ALL and Progressive (NYSE:PGR) in terms of private passenger auto insurance market share:

The 2004 letter to shareholders has some nice history on how the top three auto insurance companies started:

In 1922, State Farm was formed by George Mecherle, a farmer from Merna, Illinois, who aimed to take advantage of the pricing umbrella maintained by the high-cost giants of the industry. State Farm employed a "captive" agency force, a system keeping its acquisition costs lower than those incurred by the bureau insurers (whose "independent" agents successfully played off one company against another). With its low-cost structure, State Farm eventually captured about 25% of the personal lines (auto and homeowners) business, far outdistancing its once-mighty competitors. Allstate, formed in 1931, put a similar distribution system into place and soon became the runner-up in personal lines to State Farm. Capitalism had worked its magic, and these low-cost operations looked unstoppable.

But a man named Leo Goodwin had an idea for an even more efficient auto insurer and, with a skimpy $200,000, started GEICO in 1936. Goodwin's plan was to eliminate the agent entirely and to deal instead directly with the auto owner. Why, he asked himself, should there be any unnecessary and expensive links in the distribution mechanism when the product, auto insurance, was both mandatory and costly. Purchasers of business insurance, he reasoned, might well require professional advice, but most consumers knew what they needed in an auto policy. That was a powerful insight.

It is true that GEICO's model of low costs that allow low prices has worked well over the years. The fact that they don't have big agent expenses helps with their profit margins. Warren Buffett wrote about this back in 1951 in his "The Security I Like Best" article which was reprinted in the 2004 letter to shareholders:

The company has no agents or branch offices.

As a result, policyholders receive standard auto insurance policies

at premium discounts running as high as 30% off manual rates.


Probably the biggest attraction of GEICO is the profit margin

advantage it enjoys. The ratio of underwriting profit to premiums earned in 1949 was 27.5% for GEICO as compared to 6.7% for the 135 stock casualty and surety companies summarized by Best's.

GEICO has hidden value in goodwill that does not show up on the balance sheet. The 2011 letter to shareholder explains.

Charlie and I believe the true economic value of our insurance goodwill - what we would pay to purchase float of similar quality - to be far in excess of its historic carrying value. The value of our float is one reason - a huge reason - why we believe Berkshire's intrinsic business value substantially exceeds book value.

The 2010 letter goes into more detail about the hidden value of GEICO's goodwill:

Let me quantify Tony's achievement. When, in 1996, we bought the 50% of GEICO we didn't already own, it cost us about $2.3 billion. That price implied a value of $4.6 billion for 100%. GEICO then had tangible net worth of $1.9 billion.

The excess over tangible net worth of the implied value - $2.7 billion - was what we estimated GEICO's "goodwill" to be worth at that time. That goodwill represented the economic value of the policyholders who were then doing business with GEICO. In 1995, those customers had paid the company $2.8 billion in premiums. Consequently, we were valuing GEICO's customers at about 97% (2.7/2.8) of what they were annually paying the company. By industry standards, that was a very high price. But GEICO was no ordinary insurer: Because of the company's low costs, its policyholders were consistently profitable and unusually loyal.

Today, premium volume is $14.3 billion and growing. Yet we carry the goodwill of GEICO on our books at only $1.4 billion, an amount that will remain unchanged no matter how much the value of GEICO increases. (Under accounting rules, you write down the carrying value of goodwill if its economic value decreases, but leave it unchanged if economic value increases.) Using the 97%-of-premium-volume yardstick we applied to our 1996 purchase, the real value today of GEICO's economic goodwill is about $14 billion. And this value is likely to be much higher ten and twenty years from now. GEICO - off to a strong start in 2011 - is the gift that keeps giving.

This is a big deal. The 2010 balance sheet only has 1.4b for GEICO goodwill because of accounting rules. Mr. Buffett is pointing out that with the 97%-of-premium-volume yardstick, the real value of GEICO's 2010 economic goodwill is about 14b. That means the 2010 numbers understated GEICO goodwill by 12.6b.

The amount of float generated by BH Reinsurance and General Re is incredible. Here is a table from the 2011 letter showing underwriting profit and year-end float for the last 2 years:

This statement from the 2011 letter in one of the many examples of the praise Mr. Buffett has for Ajit:

From a standing start in 1985, Ajit has created an insurance business with float of $34 billion and significant underwriting profits, a feat that no CEO of any other insurer has come close to matching. By these accomplishments, he has added a great many billions of dollars to the value of Berkshire. Charlie would gladly trade me for a second Ajit. Alas, there is none.

There is probably hidden value in BH Reinsurance and General Re, but that is beyond the scope of this article.

The 2011 annual report talks about how it defies common sense to deduct float in full as a liability. It also talks about the true economic value of insurance goodwill being higher than the reported value:

As noted in the first section of this report, we have now operated at an underwriting profit for nine consecutive years, our gain for the period having totaled $17 billion. I believe it likely that we will continue to underwrite profitably in most - though certainly not all - future years. If we accomplish that, our float will be better than cost-free. We will profit just as we would if some party deposited $70.6 billion with us, paid us a fee for holding its money and then let us invest its funds for our own benefit.

So how does this attractive float affect intrinsic value calculations? Our float is deducted in full as a liability in calculating Berkshire's book value, just as if we had to pay it out tomorrow and were unable to replenish it. But that's an incorrect way to view float, which should instead be viewed as a revolving fund. If float is both costless and long-enduring, the true value of this liability is far lower than the accounting liability.

Partially offsetting this overstated liability is $15.5 billion of "goodwill" attributable to our insurance companies that is included in book value as an asset. In effect, this goodwill represents the price we paid for the float-generating capabilities of our insurance operations. The cost of the goodwill, however, has no bearing on its true value. If an insurance business produces large and sustained underwriting losses, any goodwill asset attributable to it should be deemed valueless, whatever its original cost.

Fortunately, that's not the case at Berkshire. Charlie and I believe the true economic value of our insurance goodwill - what we would pay to purchase float of similar quality - to be far in excess of its historic carrying value. The value of our float is one reason - a huge reason - why we believe Berkshire's intrinsic business value substantially exceeds book value.

The italics are important:

1. "in full" - Our float is deducted in full as a liability in calculating Berkshire's book value...

2. "far" - the true value of this liability is far lower than the accounting liability.

3. "no" - The cost of the goodwill, however, has no bearing on its true value.

4. "we" and "of similar quality" - what we would pay to purchase float of similar quality - to be far in excess of its historic carrying value.

I think Mr. Owens was factoring all this in when he said the following:

For valuation purposes, the author assumes that Berkshire's insurance operations underwrite on a break-even basis and operate in perpetuity. Therefore, the value of the insurance operations and the float liability net to zero. The author believes this is a conservative approach as Berkshire has maintained underwriting profitability throughout most of its history.

Given the consistent underwriting profits and hidden value of GEICO's goodwill, this separate insurance slice could be very high in value. Still, there is a reason why Mr. Owens didn't have it in his excellent article. We'll limit this slice to 10b as we don't want to go crazy veering from his numbers. Mr. Buffett likely sees the common sense float liability higher than our figure of 0, but then again he probably places a higher economic value on what he would pay for float of similar quality.

15.2b KO

This is from the 2012 Q3 13F:

COCA COLA CO COM 191216100 30,344 800,000 Shared-Defined 4 800,000 - -

COCA COLA CO COM 191216100 3,045,142 80,283,200 Shared-Defined 4, 5 80,283,200 - -

COCA COLA CO COM 191216100 69,184 1,824,000 Shared-Defined 4, 6 1,824,000 - -

COCA COLA CO COM 191216100 546,617 14,411,200 Shared-Defined 4, 8, 11 14,411,200 - -

COCA COLA CO COM 191216100 693,300 18,278,400 Shared-Defined 4, 10 18,278,400 - -

COCA COLA CO COM 191216100 10,616,273 279,891,200 Shared-Defined 4, 11 279,891,200 - -

COCA COLA CO COM 191216100 134,727 3,552,000 Shared-Defined 4, 12 3,552,000 - -

COCA COLA CO COM 191216100 36,413 960,000 Shared-Defined 4, 13 960,000 -

It totals 15,172,000 worth of KO stock.

14.6b WFC

This is from the 2012 Q3 13F

WELLS FARGO & CO NEW COM 949746101 359,112 10,400,000 Shared-Defined 4 10,400,000 - -

WELLS FARGO & CO NEW COM 949746101 552,480 16,000,000 Shared-Defined 1, 2, 4, 11 16,000,000 - -

WELLS FARGO & CO NEW COM 949746101 183,130 5,303,500 Shared-Defined 2, 4, 11 5,303,500 - -

WELLS FARGO & CO NEW COM 949746101 235,248 6,812,857 Shared-Defined 3, 4, 5 6,812,857 - -

WELLS FARGO & CO NEW COM 949746101 2,277,720 65,963,496 Shared-Defined 4, 5 65,963,496 - -

WELLS FARGO & CO NEW COM 949746101 28,315 820,000 Shared-Defined 4, 6 820,000 - -

WELLS FARGO & CO NEW COM 949746101 58,701 1,700,000 Shared-Defined 4, 7 1,700,000 - -

WELLS FARGO & CO NEW COM 949746101 1,245,469 36,069,200 Shared-Defined 4, 8, 11 36,069,200 - -

WELLS FARGO & CO NEW COM 949746101 354,520 10,267,000 Shared-Defined 4, 5, 9 10,267,000 - -

WELLS FARGO & CO NEW COM 949746101 1,736,972 50,303,270 Shared-Defined 4, 10 50,303,270 - -

WELLS FARGO & CO NEW COM 949746101 7,338,057 212,512,502 Shared-Defined 4, 11 212,512,502 - -

WELLS FARGO & CO NEW COM 949746101 96,270 2,788,000 Shared-Defined 4, 12 2,788,000 - -

WELLS FARGO & CO NEW COM 949746101 55,584 1,609,720 Shared-Defined 4, 13 1,609,720 - -

WELLS FARGO & CO NEW COM 949746101 69,060 2,000,000 Shared-Defined 4, 14 2,000,000 - -

It totals 14,590,638 worth of WFC stock.

14b IBM

This is from the 2012 Q3 13F:

INTERNATIONAL BUSINESS MACHS COM 459200101 17,525 84,480 Shared-Defined 4 84,480 - -

INTERNATIONAL BUSINESS MACHS COM 459200101 98,497 474,800 Shared-Defined 4, 8, 11 474,800 - -

INTERNATIONAL BUSINESS MACHS COM 459200101 13,890,565 66,958,616 Shared-Defined 4, 11 66,958,616 - -

It totals 14,006,587 worth of IBM stock.

8.6b AXP

This is from the 2012 Q3 13F:

AMERICAN EXPRESS CO COM 025816109 110,999 1,952,142 Shared-Defined 4 1,952,142 - -

AMERICAN EXPRESS CO COM 025816109 979,436 17,225,400 Shared-Defined 4, 5 17,225,400 - -

AMERICAN EXPRESS CO COM 025816109 47,753 839,832 Shared-Defined 4, 7 839,832 - -

AMERICAN EXPRESS CO COM 025816109 110,485 1,943,100 Shared-Defined 4, 8, 11 1,943,100 - -

AMERICAN EXPRESS CO COM 025816109 454,575 7,994,634 Shared-Defined 4, 10 7,994,634 - -

AMERICAN EXPRESS CO COM 025816109 6,837,749 120,255,879 Shared-Defined 4, 11 120,255,879 - -

AMERICAN EXPRESS CO COM 025816109 79,588 1,399,713 Shared-Defined 4, 13 1,399,713 -

It totals 8,620,585 worth of AXP stock.

3.5b Todd and Ted

This is from the BRK.A 2011 letter to shareholders:

Todd Combs built a $1.75 billion portfolio (at cost) last year, and Ted Weschler will soon create one of similar size.

DTV is a sizable part of this slice. DVA is becoming a big part of Ted Weschler's portfolio.

56.5b Other Investments

The 2012 Q3 13F totals 75,326.633b, so the 56b in the slices we've shown for KO, WFC, IBM, AXP, and Todd and Ted take up a large percentage of the 13F. Still, there are other sizable positions like COP, MCO, PSX, PG, USB and WMT.

The 2011 letter shows investments whose market value was more than 1b at year-end. The far right column was market value at the time the letter was written. In addition to the positions in the screen shot, the letter has ConocoPhillips at 2.121b as well as positions that have their own slices in our pie like AXP, IBM, KO and WFC. This is dated, for example more than 95% of the Johnson & Johnson position has been sold:

The 2011 annual report has "Other investments" that fall into this pie slice:

Don't forget that we're backing 10.5b out of this slice because of the liability in connection with credit default and equity index options.

17.6b Cash

The 2012 Q3 balance sheet shows the following cash and cash equivalents assets:

41,820b Insurance and Other

4,119b Railroads, Utilities and Energy

1,837b Finance and Financial Products


47,776b Total

As Mr. Owens said, the year-end balances should be about 51b but BRK.A must keep about 20b for working capital.

As noted above, we can't have negative slices of pie, so we took another 13.4 out of this slice because of holding company liabilities. This brings the cash total down to 17.6b.


It would be nice if the BRK.A 10-K would give us more information on subsidiaries. For example, it would be fantastic to see the net earnings of the top 20 subsidiaries. At the very least, it would be helpful to get a more detailed breakdown of the "Other manufacturing" earnings which were 2.397b in 2011.

We actually have the data to break up the Other Investment piece into smaller slices. I wish the same could be said for the Other Businesses piece.

It will be interesting to see how the pie changes when the 2012 numbers come out.

Getting the pie slices exactly correct is beyond the scope of this article - they are rough approximations. My goal here was to create a visual that lets me picture rough estimates of what positions look like relative to each other and the company as a whole. There are a lot of educated guesses and gray areas, especially when it comes to accounting rules vs. common sense, Mr. Market vs. Mr. Buffett, insurance, other businesses, holding company liabilities, timing issues and many other factors. Our pie chart has a higher total than current market cap, so I believe the company is undervalued at this time.

Disclosure: I am long BRK.A, BRK.B, KO, WFC, IBM, PGR, UNP, COP, MCO, PG, WMT, PSX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Any material in this article should not be relied on as a formal investment recommendation.

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