QQQ - Buffett's Berkshire Hathaway: Taking A Close Look At Fair Value
2024-02-12 09:00:00 ET
Summary
- Estimating fair value for Berkshire Hathaway has historically been relatively straightforward, with book value as a reasonable starting point.
- However, there was a period in 1998 when the market significantly overvalued Berkshire at 200% of book value, causing Buffett to discourage investors from buying at that price.
- Overall, valuing Berkshire Hathaway requires careful attention to detail and consideration of various factors. It is not unreasonably priced today despite selling at 1.65 times book value.
Few companies require as much thought as Berkshire Hathaway ( BRK.A )( BRK.B ) when it comes to estimating fair value. For most of its history it wasn't too difficult. Until recently one could take simple book value as a reasonable proxy as CEO Warren Buffett did for most of Berkshire's history. When it comes to book value there was just one period when the market placed a valuation on Berkshire that was seriously out of whack. For three years starting in the middle of 1998 Berkshire sold at around 200% of book value. This was so far out of line that Buffett himself discouraged investors from buying Berkshire at that price. It didn't take long for his advice to prove prophetic as Berkshire's price was cut in half by March 2001 bottoming on the same day that the NASDAQ 100 ( QQQ ) topped out. The chart below shows the precipitous decline of Berkshire from 200% of book value while the NASDAQ 100 made its final run to the top in March 2001: