BERKSHIRE HATHAWAY INC

BERKSHIRE HATHAWAY INC (BRK-B) — Investment Memo

🐂 The Bull Case (Warren's voice)

• The Float is a Sovereign-Grade Endowment: Our insurance engine is unmatched. Holding $333 billion in statutory surplus means we are paid to hold other people’s money. While competitors face liquidity pressure, we invest this zero-cost capital into cash-producing operating assets.
• Non-Correlated Industrial Power: When the stock market panics, our wholly owned operating subsidiaries—from BNSF Railway to Berkshire Hathaway Energy (BHE) and Precision Castparts (PCC)—continue to generate billions in cash. BHE’s cumulative renewable investments reached $38.0B in 2025, proving we can deploy capital at scale into regulated, essential infrastructure.
• The Ultimate Backstop Premium: Sophisticated insureds do not buy the cheapest policy during a crisis; they buy from the counterparty least likely to fail. Our AA+ and A++ ratings guarantee premium pricing power when the reinsurance market hardens.
• Flawless Operational Agility: Our decentralized managers react instantly to localized realities without seeking permission from a bloated headquarters. GEICO proved this by reversing its inflationary slide to deliver $6.8B in pre-tax underwriting earnings in 2025 through rapid, disciplined rate adjustments.

🐻 The Bear Case (Charlie inverts)

• The Progressive Telematics Trap: Auto insurance is no longer a scale game; it is an algorithmic pricing game. If Progressive (PGR) continues to leverage superior telematics data to price risk, GEICO will be left underwriting the dangerous drivers that Progressive rejects. If our float engine loses its underwriting profitability, our primary compounding fuel turns toxic.
• The Tragedy of Scale: With a sluggish 10-year revenue CAGR of 5.8%, we have become a slow-moving utility. Compounding a $100 billion portfolio is easy; compounding a $426.3B conglomerate requires us to purchase "elephants" that simply do not exist at sensible valuations. We are structurally condemned to underperform our historical track record.
• Systemic Reinsurance Tail Risk: A multi-layered global catastrophe—such as a coordinated cyber-warfare shutdown of the power grid alongside a major coastal hurricane—could trigger unprecedented liability payouts. In such a scenario, our statutory surplus would act as a sponge, draining the capital we need to deploy when the market bottom-fishes.

💰 Valuation & Margin of Safety

Our DCF model values Berkshire Hathaway at $426.3B total, which translates to $451,917.59 per Class A share, or $301.28 per Class B share (reflecting the 1:1500 conversion ratio).

• Intrinsic Value Estimate: $451,917.59 per Class A share / $301.28 per Class B (BRK-B) share.
• 25% Margin of Safety Entry: $338,938.19 Class A / $225.96 Class B.
• 50% Margin of Safety Entry: $225,958.80 Class A / $150.64 Class B (the ultimate screaming buy).
• Current Assessment: Expensive. With Class B shares trading significantly above our intrinsic value estimate, the market is pricing in a premium for our massive cash pile and fortress balance sheet. While we sleep well knowing we carry zero debt, we refuse to pay a premium for a conglomerate growing revenue at a modest 5.8% clip.

Verdict: WATCH

Berkshire Hathaway remains the safest financial fortress on earth, but at current market prices, the margin of safety has completely evaporated. We must exercise the discipline to sit on our hands and wait for a systemic liquidity panic to drive the stock back down toward our intrinsic value of $301.28 per Class B share. Until the market presents us with fat pitches or a major discount to book value, we will let our cash pile build.