The Easy Guide to Berkshire Hathaway's Expected Returns


Berkshire Hathaway can be hard to value. It's a conglomeration of 55 separate wholly owned subsidiaries and dozens of stock, bond, and derivative investments. The guy steering the ship -- Warren Buffett -- happens to be as mortal as he is talented, making his value tough to calculate.

But here's what we know. Berkshire's future returns will equal its growth in book value per share -- plus or minus the change in its valuation multiple. That's just the mathematical certainty of it.

Berkshire's A-shares currently trade at $177,225 per share (B-shares trade for 1/1,500th that amount). I put together a matrix with different assumptions of book value growth and price-to-book value levels to show where shares may be 10 years from now. Choose your own adventure:

My best guess is that Berkshire will compound book value at around 7% annually, and command a price-to-book value of between 1.2 and 1.5 going forward. That would roughly double share prices over the next decade.

There's nothing fancy about this table, but these matrices help me keep my expectations in check. For a more detailed analysis on Berkshire, check out the Motley Fool's premium report on the company, written by Inside Value advisor Joe Magyer. Just click here.

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Fool contributor Morgan Housel owns shares of Berkshire. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published