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How to Value Berkshire Hathaway

We believe our discounted cash flow approach best captures the company's complexity.

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Valuing Berkshire Hathaway (BRK.A)/(BRK.B) is an arduous task. The company is a decentralized conglomerate, with operations spanning several different market sectors and a multitude of industries. It is also far less transparent than it should be when reporting results for some parts of its business. Even so, we continue to use a sum-of-the-parts methodology, valuing four segments of the company--the insurance operations, BNSF, Berkshire Hathaway Energy, and the manufacturing, service, and retail operations--where we can make a reasonable effort to strip out their individual operating metrics and utilize a discounted cash flow valuation methodology to value each part separately before combining them to arrive at our fair value estimate for the company as a whole.

Other methods can be used to value the company, and most of them are easier to tabulate than our own. However, they also have limitations owing to their oversimplification, a lack of intuitive justification, and/or a lack of applicability to peer companies. We believe that understanding the benefits and shortfalls of each can provide valuable insight into the ways some investors approach Berkshire’s valuation. While there are limitations to our own process--which requires time and prudence--we believe that using a sum-of-the-parts methodology to value Berkshire provides a more robust and reliable valuation than the other methods.

Greggory Warren does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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