Berkshire requires a 25–50% discount to intrinsic value before buying.
Buffett Quality Checklist
✗ROE >15% consistently (≥7 of last 10 years)
✓Free cash flow positive (≥8 of last 10 years)
✓Conservative leverage — Debt/Equity below 1
✓Revenue growing at CAGR >5%
✗EPS growing at CAGR >5%
10-Year Financial History — SEC EDGAR 10-K Filings
Year▲
Revenue▲
Net Income▲
FCF▲
Owner Earnings▲
ROE▲
Net Margin▲
LT Debt▲
Cash▲
2016
$54.4B
$614.0M
$1.4B
$475.0M
5.7%
1.1%
$3.8B
$3.9B
2017
$53.8B
$2.4B
$3.5B
$2.3B
24.9%
4.6%
$4.8B
$4.0B
2018
$56.9B
$1.7B
$1.6B
$1.5B
16.6%
3.0%
$4.4B
$2.3B
2019
$64.9B
$2.7B
$4.5B
$2.5B
22.5%
4.2%
$5.0B
$4.1B
2020
$77.2B
$3.4B
$4.7B
$2.9B
24.5%
4.4%
$6.1B
$4.7B
2021
$83.1B
$2.9B
$920.0M
$2.2B
18.2%
3.5%
$10.5B
$3.4B
2022
$92.9B
$2.8B
$3.5B
$2.4B
18.3%
3.0%
$9.0B
$5.1B
2023
$106.4B
$2.5B
$3.0B
$2.3B
15.3%
2.3%
$10.2B
$4.7B
2024
$117.8B
$1.2B
$2.4B
$1.5B
7.4%
1.0%
$11.1B
$2.2B
2025
$129.7B
$1.2B
$375.0M
$1.3B
6.7%
0.9%
$12.4B
$4.2B
Warren & Charlie
Buffett / Munger — quality, moat & valuation
HUMANA INC (HUM) — Investment Memo
🐂 The Bull Case (Warren's voice)
The Demographic Juggernaut: We aren't betting on management; we are betting on the calendar. 10,000 Baby Boomers turn 65 every day. The demand for Medicare Advantage (MA) is mathematically guaranteed to grow.
The Float Potential: Like our early days with GEICO, HUM collects premiums upfront and pays claims later. If they can maintain a disciplined underwriting edge, the float is a powerful engine for compounding.
The Vertical Integration Dream: If CenterWell actually works, HUM ceases to be a mere insurance company and becomes a healthcare provider. Controlling the delivery of care is the only way to permanently lower the Medical Loss Ratio (MLR).
Attractive Entry: This becomes a Berkshire-style play only if the market treats it as a "dying" business while the demographic tailwind remains intact. We buy when the fear of regulatory change outweighs the reality of an aging population.
🐻 The Bear Case (Charlie inverts)
“Show me where I’ll die and I won’t go there.”
The Stroke of a Pen: The "moat" is a government contract. If CMS (Centers for Medicare & Medicaid Services) decides to tighten reimbursement rates or change the risk-adjustment formula, the profit margin vanishes overnight. We are not investing in a business; we are investing in a political whim.
The Vertical Integration Trap: Management is trying to build a hospital system while running an insurance company. They are trading a scalable, low-asset model for a capital-intensive, high-overhead model. They've scaled revenue by $75B only to see Net Income get cut in half. That isn't growth; it's diseconomies of scale.
The Cash Leak: Net Income of $1.2B vs. FCF of $0.4B is a flashing red light. When the accounting profit is 3x the actual cash hitting the bank, the "earnings" are a fantasy maintained by accruals.
Most Likely Death Scenario: A "pincer movement" occurring over the next 3–5 years: CMS cuts payment rates from the top, while medical cost inflation and debt service ($12.4B total debt) squeeze from the bottom.
💰 Valuation & Margin of Safety
The DCF suggests the market is pricing in a growth story that the cash flow simply does not support.
Intrinsic value estimate: $144.85 per share
25% margin of safety entry: $108.64(Conservative)
50% margin of safety entry: $72.43(Buffett's ideal)
Current Status: Expensive. The market is valuing the revenue growth ($129.7B) while ignoring the collapse in operating leverage and cash conversion.
Verdict: PASS
The business is exhibiting the classic symptoms of empire-building: growing the top line while eroding the bottom line and depleting cash. The "moat" is merely a regulatory permission slip that the government can revoke or diminish at will. We do not pay a premium for a business that requires a miracle from the CMS to justify its valuation.
Research Notes· Money Model · Moat · Financials · Management
Data sourced from SEC EDGAR XBRL filings (10-K only). For educational purposes — not investment advice.