Summary
- Berkshire should report a solid Q1, driven by steady performance in its operating businesses.
- Book value has recovered meaningfully from Q4, primarily driven by Apple and Bank of America and continued operating earnings.
- While investors should focus on Berkshire Hathaway's operating earnings as the main driver of performance going forward, book value is still meaningful.
In my last article on Berkshire Hathaway (BRK.A) (BRK.B), I stated that I believed the Berkshire operating businesses will be the biggest driver of any over/underperformance in the coming years. In the recent Berkshire Annual Report, Buffett emphasized this exact point in his reasoning to downplay the importance of book value going forward
Berkshire has gradually morphed from a company whose assets are concentrated in marketable stocks into one whose major value resides in operating businesses. Charlie and I expect that reshaping to continue in an irregular manner.
For years, Buffett emphasized book value for valuation because of the accounting treatment in Berkshire's equity holdings, where only the dividends "counted" in Berkshire's earnings. Now, as more of Berkshire's earnings are driven by its operating businesses, Buffett wants to shift back towards more traditional valuation metrics.
