First of all, the pandemic, which, you know, was huge and we all lived through it and missed two in-person Berkshire meetings because of it. Um, you know, been hearing in Warren's voice during that 2020 annual meeting that, you know, him sitting on atop Berkshire Hathaway and and knowing deep financial history and, you know, I I could almost sense a a quiver in his voice that he didn't know which way this could go. And and I think in his mind he had many different possible paths than the one that actually transpired. And you know, we kind of forget that it could have gone any number of different ways, including a a worldwide depression. So that was you know, obviously new and and and big. You know, I think the the elephant that Berkshire bagged, to to use Buffett's term, was Berkshire itself. I mean, Mhm. 70 almost 72 billion in share repurchases between 2020 and 2024. So, you know, when you kind of just again, step back, you know, almost 12 billion for Alleghany, another 13 and a half for Pilot, 72 billion for share repurchases, purchasing the remaining 8% of Berkshire Hathaway Energy that they didn't own, you know, take a step back and not even that far back, just 5 years and it's like boom boom boom. There's a lot of work that that happened and it it really changes it does move the needle over time. But looking at it from any given point, you know, you have a market overall that's pretty expensive, as we just talked about. And then you have Berkshire shares that are trading at or or above intrinsic value. So Berkshire has had, you know, it's like a water balloon filling up. I mean, it's it's got the hose stuck in it, Mhm. the spigot's on and and cash is just flowing in, swelling this thing. We will have in relatively short order outlets for that cash. Mhm. You know, I mean, just imagine if if Apple hadn't run up in value the way it had, it might still be in the portfolio at 900 million shares. I think it's only that extreme valuation that caused Berkshire to take action. But as an operating business, you know, Buffett loves it. If it can be done by AI, hired, just click a button and you've got a Berkshire, then that advantage is going to negate itself. And so nobody's going to be able to do that. So so there's always going to be some sort of human required. >> >> Welcome to Talking Billions. We talk about big ideas, big inspirations, big topics. We take on the hardest topic of all, money. How to make it, save it, keep it. >> >> But our conversations lead us to an even bigger question, what it means to live a rich life beyond money. My guests share their practices, principles, and evergreen wisdom. 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My guest today is Adam Mead, a professional investor and CEO of Mead Capital Management, best known as the author of the 700-plus page The Complete Financial History of Berkshire Hathaway, one of the most detailed chronicles of Warren Buffett and Charlie Munger's conglomerate ever written. Adam has just released his second edition, adding 25,000 words to bring the story through Berkshire's sixth decade, the pandemic, the Apple position, the Japanese trading houses, and the right up to the leadership transition to Greg Abel. We'll dig into all of that. He's updated some of the parts valuation and what analytical edge even means in the era of AI. Adam, how are you? So nice to see you. >> Great to see you, Bogumil. It's great to be back. I think this is what, the second, at least second, probably third time, I think. Third time, third time. So for the audience, scroll back down and look up the other episodes with Adam. Cuz today we're digging into the new edition. By the way, congratulations. So exciting. >> Thank you. I have a copy and I have so many questions. I mean, a lot has happened since you wrote the first edition and you and I talked about it before. I'm so glad you sat down and you gave us the additional 25,000 words. What, just to start off, what did you feel you had to you had to include to make it complete? Since we spoke last time, I felt like there were things that happened that made you convinced that you have to include something. I mean, you have decades of history, you're adding one more decade. What what was it that you felt that has to belong in this book? >> You mentioned some of them, you know, and in some ways, you know, 2019 wasn't that long ago, especially considering Berkshire's long history. But on the other hand, a lot has happened. And you know, first of all, the pandemic, which, you know, was huge and we all lived through it and missed two in-person Berkshire meetings because of it. Um, you know, been hearing in Warren's voice during that 2020 annual meeting that, you know, him sitting on atop Berkshire Hathaway and and knowing deep financial history and, you know, I I could almost sense a a quiver in his voice that he didn't know which way this could go. And and I think in his mind he had many different possible paths than the one that actually transpired. And you know, we kind of forget that it could have gone any number of different ways, including a a worldwide depression. So that was obviously new and and big. And then a couple acquisitions, Alleghany, Pilot, you know, the the Japanese investments, Apple, you know, running up to 50% of the the portfolio and a huge huge part of Berkshire's value. Berkshire Hathaway Energy, you know, that's been such a stable and core part of Berkshire and you know, that kind of became called into question with some of the political uncertainty surrounding the wildfires. And then of course, up to, you know, Buffett's retirement, the transition to Greg Abel, and you know, of course in in 2023, uh losing Charlie Munger. So much happened in in that, you know, second part of Buffett's, you know, final decade that, you know, I I came home from that 2025 annual meeting, I said, I just have to I have to put a bookend uh on this thing. And Harriman House, you know, was was great, but they they told me, you know, you're going to break the printer. >> >> I I the the new book is about 850 pages, over 315,000 words. Um, it's it's definitely, you know, the the complete volume uh of of Berkshire's history. You know, when you put the word complete, it's a bit of a catch because I think it invites many more editions in the future if you're telling us, what else should we know? You know, you brought up that moment when Buffett in 2020 spoke to us. It was a remote event, we didn't go. And I remember sitting on the couch and watching and I don't know what I was looking for. I think it was such a I don't want to say dark, but uncertain time that I think I was looking for a bit of certainty. We all were, right? And and I was hoping to hear a voice of confidence, conviction. But his voice was very honest and as you said, he didn't know what's up, what's going to happen next. And we're not talking just about the business side, but also the insurance side, and I'm sure we'll come back to it throughout this conversation. He didn't know what either of the sides of the business will be facing in the coming years, and it could have gone a lot worse. Obviously, a terrible time, and a lot has happened, but it could have been a lot worse given the, you know, our human history with plagues and pandemics in the past. So, I understand where he was coming from, but I remember. So, 2020-2025, the pandemic, massive buybacks, the Apple position. And I'm curious, adding those pages, looking back at the last 5 years, and looking at the original first edition, what do you think has changed or confirmed your conclusions from the first edition, the additional couple of years? Berkshire, the the underlying philosophies, the strategies really don't change. It's a It's a value framework, businesses as stocks, stocks as businesses, long-term value creation, all of that. That didn't change. It's It's the world that changed, and Berkshire applied that framework to the current challenges. Interesting sort of, you know, living through the last 5 years compared to researching the the 50 five previous years. So much happens on the page. I mean, in in a relatively short 850-page book, you know, you you can breeze through years and decades of Berkshire's history, but when you live it, it's it's acute, and it feels intense, and um and then you step back, and even now, you know, stepping back and and writing about those more current years, I mean, the the pandemic was barely covered, I think, at all in in Warren's 2020 and in 2021 letters. So, you know, even even that, you know, relatively quickly after the the pandemic, it was it was fading. I mean, we had the the post-pandemic and boom and all of that. You know, the pandemic itself kind of faded pretty quickly. And you What's What's left again is those sort of big strategic uh changes and and decisions that rational capital allocation that Berkshire is is known for. But, you know, it just it was There's There's always these little nuances that are so interesting to think about, and we talked about, you know, you just mentioned the Buffett's uh uncertainty with with respect to the pandemic, and you know, it's it's interesting to think about those other avenues that could have happened. I mean, for example, Buffett bought stakes in the four largest airlines, and then sold them at the beginning of the pandemic, and was criticized for it. But, what others didn't fully appreciate, I think, at the time, or even maybe still, is that Berkshire, as their largest shareholder, would have potentially prevented those airlines from getting bailout funds and then surviving. So, it would have been Berkshire potentially on the hook, which, you know, it probably would not have ponied up that capital. So, a lot of things could have gone differently, and I think looking back, it is getting clearer that Berkshire and Buffett acted pretty pretty rationally, including a big slate of share repurchases that started at that time. So, lots, you know, again, living through it is so intense, and then you step back, and then you say, "Well, you know, comparing those two periods, Berkshire and is so much different, you know, between, you know, pick pick two points, even 5 years." What a unique experience for you, and I I want to highlight that because a lot of the decades you wrote about, you and I were not even around when those investments were made and then Buffett was making those decisions. But, to be there and actually listen, or be there in person at those meetings, or be there when the decisions are made, and looking at some of the same companies, and then writing about it, right? So, you you have the history, and now you have the living history, which I think this edition is just an invitation to many more editions. It's a whole different perspective when you were there, and you might have been also looking at Apple, or also looking at Alleghany, and making up your mind as Buffett was making those decisions. When I went for the first time in person 2023 uh since COVID, I had a chance to ask a question. Pete Fluke, a friend, inspired me to put down my name, and I was selected. If he's listening, he knows. Thank you, Louis. And I asked Buffett and Munger about their 100-year vision for the business, and I asked about it because I manage money for families with multi-generational wealth, and they think in terms of 100 years. And Buffett said what rhymes with what you just shared with us is that the business is built to last. It's not meant for one cycle or one decade. It's built in a way that will succeed and adapt to different environments. I'm looking at it just a trustworthy, you know, Volvo from back in the day. Cold day, bad day, the Volvo starts, and it drives. And And then I think that's how I think of Berkshire. It's a reliable vehicle that will get you places, no matter what's out there. And he built it with the fortress. We'll talk more about the cash. Adam, I want to ask you about the new cases you brought up, the Japanese trading houses, Alleghany, the Pilot story. I think we're all always trying to figure out what's the next Berkshire Buffett investment case, and then we see it life happening. How do those new cases added to your understanding of how Berkshire deploys capital compared to the past? Do they rhyme, or are they different? I mean, they are They're all something new in in the past. >> they're new. I I think I think rhyming, I think that's that's probably a very apt word to describe it. I mean, patient Patient capital allocation works, and that's, you know, sort of another thing is looking looking at today, cash over 30% of assets, stock market is pretty high, Berkshire just, you know, probably barely started scratching the surface of buying back shares again. You know, oh gosh, you know, where do we go from here? And 5 years from now, and 10 years from now, it will be clear that Berkshire was presented with opportunities. And, you know, so I think if you froze at any one point in time, I mean, it's really, you know, anybody who has modeled out Berkshire or looked at a spreadsheet, I mean, I have a a 200-tab spreadsheet on my companion website to the book, The Oracle's Classroom. You can look on the screen and and just look back, and I mean, you know, it wasn't that long ago that shareholders' equity was, you know, in the tens of billions of dollars. Now we're talking hundreds of billions of dollars. And so, just that that size, you know, but but it also begs the question of what is next? I mean, just retaining capital for so long, the compounding just creates the problems of scale. I mean, we think about Alleghany. I mean, there's a business with, you know, some very large insurers, reinsurers, um you know, the billion-dollar business, and Jazwares, the um you know, kids' toy business. They have a trailer business, funeral home business, you know, some other non-insurance businesses. Looking just at Alleghany, wow, that's that's a pretty sizable organization. Zoom out to when Berkshire Hathaway buys it for 11.6 billion, but that that was less than 2 and 1/2% of Berkshire's equity capital. Probably about 1/4 worth of cash generation. So, just the scale of Berkshire absorbing this, you know, on its own in its own right, a very large business with 1/4 worth of cash, you know, is just incredible. Pilot was acquired in three stages uh between 2017 and 2024. That was about 13 and 1/2 billion. So, probably about the same, you know, call it 2 and 1/2% of equity capital. These These numbers are just just huge anyway you want to put them. Only Only in relation to Berkshire's current size do they look small. But, you know, I think the the elephant that Berkshire bagged, to to use Buffett's term, was Berkshire itself. I mean, 70 almost 72 billion in share repurchases between 2020 and 2024. So, you know, when you kind of just, again, step back, almost 12 billion for Alleghany, another 13 and 1/2 for Pilot, 72 billion for share repurchases, purchasing the remaining 8% of Berkshire Hathaway Energy that they didn't own. You know, take a step back, and not even that far back, just 5 years, and it's like boom boom boom. There's a lot of work that that happened, and it really changes It does move the needle over time. But, looking at it from any given point, you know, it is questionable. Berkshire does have uh a number of arrows in its quiver. Uh again, Jap- the Japanese investment, I mean, who would have thought >> >> Berkshire would have would have invested in in Japanese trading houses, you know, financed the purchase price with 1% denominated yen, which insulates the the capital from uh foreign currency effects. And there's probably going to be opportunities for partnerships with some of those entities in the future. So, just kind of incredible when you step back. And But, it is Berkshire is a big big company at this You bring up the Japanese trading houses. It's a fascinating case study of longevity. And a good friend that you might know, Eric Markowitz, researching a lot of companies out there in the world that have lasted for many decades and centuries. And Buffett has always been looking for the durable cash flows, which is harder to imagine these days with so much change and innovation. But, if a company has been around for some of them, you know, 400 years, you would imagine that they'll be around for the coming 100 years, at least. But, he's looking for that durable cash flow stream somewhere out there, and it's fascinating to see how he keeps on finding them. You and I in the previous episodes talked about how the fact that you know, Berkshire Hathaway even before Buffett, this was the capital from the whaling fortunes of the Northeast that founded the initial the initial textile mills and you see this flow of capital through history and I can imagine that you and I sit down 10 years from now, the top three holdings for Berkshire may be very different than they are today and just because of the you know, growth and expansion and maybe new acquisitions, but it's something to think about. It's not the same businesses. You know, it feels like Buffett holds that he does own them for a long period of time, but they go through their cycles. Coca-Cola made a huge um contribution in the '90s, less so since. You know, Apple made a huge contribution in the last 5-10 years. I don't know how the future looks like, but you see how they all play a role and you need something else, something new. If somebody's reading the new chapters, Adam, what are some of the fresh lessons that they will come across that they wouldn't have found if there are such in the previous edition? >> You know, you could almost say that the the new chapters are Buffett's Buffett's final years. I mean, they they they they are or they were and I think, you know, you read the headlines or you listen to the headlines and the news pundits over time and Berkshire's just sitting on all this cash and those big items that I just described, you know, which certainly was not a comprehensive list. Buffett didn't just sit on his his cash and and wait out his retirement. Real progress happened at Berkshire over that time. I I I think the other thing is finally answering that question of succession. This methodical succession. Made a little bit of a hint of it in the first edition where in 2018 Greg and Ajit were named as as vice chairman of non-insurance and insurance operations respectively. But, you know, that that that new edition, you know, chronicles Charlie Munger's slip, I think in 2021, that Greg will keep the culture, you know, all the way up through Greg actually managing these investments. You know, he he made some material improvements to those those non-insurance businesses that showed up in the financials and think that that should give readers, observers, shareholders some assurance that Greg really is the real deal and you know, we certainly heard that from Buffett himself in the interviews that that happened after he announced his retirement. incredible role to to play stepping in and I'm thinking of also Tim Cook who about this time as we're recording had decided to become an executive chairman at Apple. You see those transitions from the founder because I would see Buffett, although he didn't really technically start Berkshire Hathaway, but he made Berkshire Hathaway into what it is today. That moment of transition is a bit unnerving for a long-term shareholder, but also maybe exciting that it can take this incredible Volvo on a whole new new journey. So, I I find it really intriguing where this company's going and now Tim Cook, I think if the number's correct, took the value of Apple I think 20 times up from where it was when he took over. So, when we fought and I remember being in the room with people who told me there are no trillion-dollar companies and I think Apple was in hundreds of billions at the time, 400, I don't remember, but I was told that there are no trillion-dollar companies and that was the argument against Apple. Well, guess what? We have a handful of those today and it looks like Tim Cook took Apple to a whole different level of you know, success and performance. So, whoever in the room tried to convince me at the time >> >> that, you know, trillion-dollar companies don't exist, we're talking about one just now. So, >> Yeah, well, that's I was just I was just reading um uh the Fairfax Way. I don't know if you've read that. I've put it on my list. Yeah. Yeah. >> admittedly not by any means an expert on on Fairfax. You know, reading that book and reading the history of Fairfax, Fairfax has gone global much much more quickly. I mean, Berkshire has its overseas investments. We mentioned the Japanese and equities. Um they've owned IMC, which is based in Israel, uh since I think 2000 2005, 2008, mid-2000s. So, they they have a few. They have a Germany German uh motorcycle supplier there that Louis but it's really Berkshire has really stayed to the US and and some degree Canada. The world is its playground and I really think that, you know, that could be the next chapter. I mean, there's there's huge opportunity outside of the US. So, Berkshire may be it is quite large in those those trillions, but I think the world still has something to offer it. We may see that in act two under Greg Abel. Companies that have played such a big role in the success of Berkshire and I'm thinking of the large public we traded, you know, Coca-Cola, Apple that we brought up in this conversation. They are very global companies already, right? So, it's fascinating how Berkshire already has participated in the global success of a lot of companies and I'm very intrigued by what you say is that Berkshire could go out as they've done before and buy entirely, you know, foreign companies, which is a whole new avenue for them to expand their operations as Fairfax did. I want to ask you about the sum of the parts. In the second edition, you come up with a believe a trillion-dollar intrinsic value. Can you walk us through? I know it's a lot of pieces, but as much as you can share in a minute or two or a few minutes. Cash, equities, all the different pieces, energy, railroads, insurance. How do you come up with a trillion dollars? >> Sure. So, I I think sum of the parts is is the way to go about doing it and Berkshire is complex, but not necessarily complicated. I think if you break it down into those parts, they certainly interrelate, but it's understandable. And even though Berkshire is one of the best when it comes to counting, still very important to understand the accounting and you know, cash right up right right up front is a case in point. So, if you add up all of Berkshire's cash, it's about 373 billion. Berkshire is so active in the Treasury market that it often has on its balance sheet under liabilities section a payable for for US Treasuries. The end of 2025, that was a very small 167 million, but last year that was about 13 billion. So, sometimes the pundits will go out and they'll just look at the cash on the asset side of the balance sheet. They they forget to deduct that that payable. So, just something to be cautious of when you're going about valuing Berkshire because that number can be very big and that's just a function of end of quarter purchase of cash that hasn't yet made it out the door, but it's it's on the balance sheet because they they contracted for it. So, even cash is, you know, just be careful. I think about all except say 50 billion of that might be considered dry powder. Now, 50 billion doesn't come from anywhere. It's it's the number that is the annual outflows of actual payments made to insurance claimants. Mhm. So, if you dig deep into the the 10-K, you'll find a table that's losses and loss expenses and it goes through reserve development and as well as how much cash actually went out the door. So, it's about about 50 billion. So, Berkshire has conceivably 320 billion that it could make an acquisition or or do something with tomorrow. Couple relatively small items. Fixed maturity investments, you know, about 18 billion. I just take those at face value. Again, digging into the the footnotes, those fixed maturity investments, most are triple A rated. Most are very short durations. You don't have any kind of credit risk. Tiny when it comes to Berkshire's value, but just something I look at. Then we get to the equity portfolio and here you start to get into assumptions that other analysts may do things differently. You might think differently. The way I approach it is take the the headline figure and then look into the portfolio and say, "Okay, is anything demonstrably overvalued?" Again, using using extremes. Large percent of the portfolio, large valuation adjustment. Here I adjust for Apple. Mhm. You could go line by line. You could take the the top five and make valuation adjustments. Historically, at least over the last couple of years, Apple has been sort of a big one that I've made an adjustment for. So, I'll knock off you can get my my valuation here. So, I I've knocked off about 25 billion from the Apple holding. So, then what I do is I take take the unrealized gains on the equity securities plus or minus the valuation adjustment that I made. And then you have a deferred tax liability. That's a very real liability that should be deducted. So, net after all those adjustments, you come to about 200 And again, when you're looking at the portfolio, there's some nuances to be cautious of. If you pull Berkshire's 13F, those are only US securities. So, all of the Japanese equities and some of the other holdings are not included in that. So, you really have to be careful. CNBC does a great job in their portfolio tracker keeping up up to date with with everything that's in the portfolio. But, if you just use the year-end balance sheet or or the quarter-end balance sheet and make some of the adjustments that I've described above, you know, that that will work. Equity method investments are interests in which Berkshire owns between 20 and 50%. Below 20%, it's it's just a marketable security. Above 50% requires um >> >> uh it would be consolidated into into Berkshire look. So, these are instead of the values flowing through to Berkshire, they're marked at carrying value and then they're adjusted based on earnings and then any dividends that are paid. Those principally Occidental and Kraft Heinz. Uh, there are a couple other little ones that are in there as well, but those two, you know, I'll I'll take that fair value versus the carrying value because we do have We do have known quoted prices for those. So, a couple years ago, uh, last year in fact and then the year before, Berkshire took some write-downs to those which right-size the carrying value to the fair value, but if you just use the fair value, it's going to be more of a current snapshot. Let me get into some of the big operating businesses. So, BNSF, the railroad. Here I'll I'll keep it very simple. I tend to use a trailing four-quarter after-tax earnings and then capitalize that at at 15 a 15 times. I would I would encourage listeners, watchers to go out and read Chris Bloomstran's analysis. Chris tends to be I mean, I would I would say he's a better analyst than I am. Watched Berkshire for longer than I have. He comes up with a value that's higher. This is just where my logic and intuition bring me. So, when I do that, capitalize about 5 and 1/2 billion of after-tax earnings at 15 times, you come out to about 82 billion. After I'm I'm done with all my Berkshire adding up all those, I say the rail's probably worth closer to 90 billion. I think Chris has it much higher, but you can justify a bump to current after-tax earnings because the rail is under-earning compared to its potential. Um, there's a couple different factors sort of at work here. One is depreciation is running under replacement. So, when you're actually looking at the income statement, you look at BNSF's capex, it runs about 125% of depreciation. So, that's probably maintenance capex at this point just because some of those assets are so they've been on the books for so long. BNSF also has some cash tax or deferred taxes that make the the cash taxes lower, increasing um, cash earnings, but then that depreciation differential also will take it down. So, that's kind of a wash, but I think when you look at the rail overall compared to say Union Pacific, it's it's definitely under-earning. So, between 80 and 90 billion for for Then if you look look at the railroad or sorry, the the energy business. Here again, you know, I tend to be under where where Chris puts it, but I think it's probably worth 70 billion, you know, conservatively. And it's interesting we have we do have a couple of data points from Buffett. So, in 2022 2020 Greg Abel sold his 1% stake of Berkshire Hathaway Energy Yeah. to Berkshire for an implied valuation of 90 billion. Less than 2 years later, Berkshire's buying the the remaining 8% that it doesn't own from the Scott family at an implied valuation of about 50 billion. This huge drop in implied value. Of course, there is the the political uncertainties related to the the wildfire liabilities which are which are ongoing. So, Berkshire Hathaway Energy has taken a hit to earnings for those accrued maybe about 2 and 1/2 billion worth of li- wildfire liabilities, but I will add back those to get sort of a normalized earnings for for Berkshire Hathaway Energy. I'll also add back cash tax savings just like I do with BNSF because >> >> Berkshire Hathaway Energy also has deferred taxes have a negative negative tax rate because of the tax credits that they have which, looking forward, may may change based on the political environment, but I think it probably can earn 4 billion plus another all of you know, 5 to to 700 million in in cash tax savings. So, that that brings me to a valuation of about 70 billion. I think I'm I think I'm in the ballpark when it comes to to that asset. Then we then we look at the manufacturing, service, and retail businesses. Huge operation. I mean, these these include a number of entities that would themselves be Fortune 500 companies. I mean, just just massive. Marmon itself has 100 operating businesses of its own. Just absolutely huge. So, again, I'll take a very simple 15 times multiple of the net earnings of the MSR businesses. In my analysis, my deep dive which I've I've made free, so if anybody wants to look at it, it's available. I've tried to reconstruct the history of some of the subsidiaries. Berkshire has You can get to the value of the businesses as a whole and I feel pretty confident that you can get to the that value. Just as an analyst, I want to look deeper and and you're missing some of the data points for Precision Castparts and Marmon and so forth, but you can kind of get an idea of what what they're doing over time by by digging in. These are businesses that some of them have some growth potential. Some of them are very good businesses. Think See's See's Candies, Clayton Homes. And Clayton Homes itself is almost a mini bank within Berkshire with about 30 billion of mortgage assets funded by borrowings from the parent company. So, you know, you're getting all of these businesses rolled up in there. Mhm. So, that on my 15 times multiple gets me to about 205 billion for that that huge collection of businesses. Then we come to insurance and this probably should be put first because Berkshire is an insurer first and foremost. And here, you know, you can you can certainly value the insurance business on its own including the investments because most of the investments and a lot of the cash are held in the insurance business. By looking at those investments and the cash separately, we got to be careful we don't overcount the insurance. So, when I talk about valuing the insurance, I'm really talking about valuing the capitalized I'm capitalizing the operating profit, the underwriting profit that's coming from the insurance business. Now, I think it's appropriate to normalize this over time. So, in 2025, I mean, Berkshire had a combined company-wide combined ratio of of sub-90 which is just unheard of. I mean, it's just they were they were printing money. GEICO was making a ton of ton of money. Reinsurance was doing phenomenal with very low very low cat losses. So, and there are times when it under-earns, but I think over time it can earn about 4% on its premiums. Again, look at Chris Bloomstran. He thinks they can do about 5%. I'm saying 4%. You know, who's right? Probably Chris, but I try to be a little bit conservative. Um, I also think over time, Buffett has talked about this, too. There's a a chance that float will decline. And just structurally, it won't be very quick, but if and when float declines, that's going to be a drag on cash. So, you know, I think if you know, maybe maybe they can earn that 5% margin, but if float starts to shrink by 1% per year, okay, now we've got a little bit of a problem. So, I think 4% is probably probably more appropriate. Then I capitalize that at the at 12 times pre-tax earnings which comes out to 15 times after-tax earnings at at a 20% So, that gives me about 42 and 1/2 billion for insurance I underwriting, the value of insurance underwriting capitalized. Then from there, you just deduct debt that's on the holding company balance sheet. It's about 22 and 1/2 billion and that gets me to little over 1 trillion in intrinsic value. And then there again, if if you bump BNSF up to 90 billion, you're looking at about, you know, a billion sorry, trillion uh, 25 billion. So, a little over a trillion, uh, which is about 475 dollars B share. Somebody actually asked me in one of my comment, they said, you know, why why is Greg Abel buying back shares you know, if if Berkshire's not undervalued and you know, I think I think I'm in the ballpark, pretty conservative. I mean, there are a number of things in there that, you know, Berkshire has optionality and its cash. Insurance probably will do pretty well. Some of the businesses are inflation resistant so forth. So, I think very conservatively, a trillion dollars. And so, you know, Greg may be at 1.1 trillion, but I would be willing to bet that when we see the first quarter 10-Q Berkshire will not have been buying hand over fist. I I think you'll probably see just a few billion of of repurchases. So, that's that's my sum of the parts and I would just caution that it's as Buffett said on another occasion, it's it's a movie, not a picture. It's always changing, the work even if you don't change your ownership in Berkshire, the the work is ongoing because it's such such a complex beast and things are changing and particularly with energy business, the wildfires and all that. I mean, there's there's a lot to keep up on, but if anything is certain and and stable, I mean, I think Berkshire comes pretty close to being it. Is there a conglomerate or succession discount that's happening at this point in time for Berkshire? I don't think so. I don't think there's anything really structurally I mean, I do think I do think it is so large and complex that it may not be as rationally valued or is is understood by as many, but Berkshire is a buyer of its own stock. Then you have long-time shareholders and observers, fund managers that are managing capital that will keep the price at a a relatively rational point. But you know, I think when it comes down to it, value is is ultimately determined by the cash that's going to be generated by an asset over time and you know, Berkshire will generate a certain amount of cash and well, it may take dividend or the value to to go up beyond that 1.5 times book value, but the cash will still be there. So it may be valued more on a, you know, bond equivalent, whereas today it's doesn't pay a dividend. So there's there's no there's there's no cash flow there. So that would be a whole different shareholder base that I'm not sure is an improvement over the current. I mean, it benefits continuing continuing shareholders, excuse me, to to have that discount persist. I mean, if Berkshire has 350 billion of cash and it needs something to do with it, you know, it'd be great to be able to put it out the door in share repurchases as as a more efficient way of returning capital to shareholders. >> And I'm I'm not a big fan of the you know, benchmarks and following the S&P 500. I understand that some people use, you know, passive index funds. I think they play a role in a certain context and they belong in some portfolios. But now and then, you know, comparing what I do or what Berkshire is doing, comparing it to the S&P 500, it looks like Berkshire has really done not so well over the last 12 months. I mean, we're talking here, you know, coming up on the Omaha meeting late April. Berkshire is down 7% over the last 12 months. The S&P is up 35 percent or so. That's not that important, but if you zoom out 5 years, it looks like Berkshire is giving up all the outperformance it gained over the last 5 years in the recent, you know, year or so. What's happening? You know, I probably shouldn't pay attention to it, but I have to ask. What's going on? Is the S&P 500 going 500 going nuts or is Berkshire missing something? I know it happened in the past. I'm just intrigued. What are your thoughts on that phenomenon? >> Yeah, I would say it's it's more the latter. It's more It's more of the S&P going nuts. Yeah. I mean, when you look at the the last 12 months, I mean, I I I think when Buffett announced his retirement, Berkshire was probably slightly overvalued. And so you just had the sort of natural correction that happened. You know, pundits are going to assign meaning to changes because that's their job. Some of them may be accurate, some some may not, but so I I I think you do have quite a quite a disparity between Berkshire Berkshire is never going to do well compared to the S&P during big up years. Mhm. It's had just sort of a big up decade. Mhm. So I don't think that outperformance that exists, you know, from 1965 to last year is is going to be repeated. But Berkshire will probably do a a small margin over time. But I mean, when you look at the assets that Berkshire has compared to what's in the S&P, I mean, you know, net net cash, I'm talking about not even low debt. I mean, even just net cash for an entity that has utility like little literal utilities in in its its energy business and then the railroad, I mean, it's just far better capitalized compared to sort of the S&P 500 as one aggregate. I think it's just that comparison. Yeah. I think it's just relative, but in an absolute sense, I mean, Berkshire is just a phenomenal asset. >> And the S&P 500 is going through this peculiar period of very high concentration among very few stocks representing a big chunk of the the index, which wasn't the case for most of its history. So people that think they have a diversified fund or diversified index should look again. Again, I think passive index investing belongs somewhere, but it's worth looking at what you actually own. And no endorsement of either. But it's always curious to see how they disconnect and how they act together, Berkshire and the S&P 500 at different points in time and who is catching up and falling behind and when. And I'm I want to ask you about the cash, but I want to ask in a different way that most people are asking. And I talked to Chris Bloomstran this week about Berkshire and the cash and and I asked Robert Hagstrom at some point, but I want to take it in a different direction today. Now I on this show I've talked to over 200 people that are in the investment profession one way or the other. A lot of them are managing money, they have funds or they're investment advisors. And I realized that there is a whole range of people who believe in having zero cash at all times. And there's a group of people who always have 5 or 10%. And I'm also met a hand handful that have 30% of cash at pretty much all times. Okay. And so when I'm looking at Berkshire, you know, everybody's looking at that cash pile thinking, when is it going to be deployed? When is it going to be deployed? Is it a structural permanent choice at this point to have an elevated cash position and we just should let it go? Maybe ask Let me ask this question this way. I don't I don't think so. Again, I think if you fast forward 5 years, certainly 10 years, cash will will probably be materially lower. Mhm. You just have this confluence of events where Berkshire is so cash generative to begin with. Then you have the Apple stock sale generating a a huge amount of realized gains over probably over well over 100 100 billion, 105 billion or so. And so you have a market overall that's pretty expensive as we just talked about. And then you have Berkshire shares that are trading at or or above intrinsic value. So Berkshire has had, you know, it's like a water balloon filling up. I mean, it's it's got the hose stuck in it. Mhm. >> The spigot's on and cash is just flowing in swelling this thing. We will have in relatively short order outlets for that cash. Mhm. You know, I mean, just imagine if if Apple hadn't run up in value the way it had, it might still be in the portfolio at 900 million shares. I think it's only that extreme valuation that caused Berkshire to take action. But as an operating business, Buffett loves it. You know, say say Apple was only half of its price, I think I think it might still be a bigger position in the portfolio. So you wouldn't have had that cash influx from that. I mean, look at Coca-Cola. It hasn't changed. Berkshire never sold it. So Apple could have ended up like that. But again, I mean, the 2020 to 2024, 75 billion went out the door in in share repurchases. And so that that will happen again at some point. I don't know when, but some of it's structural. I mean, again, you're going to have a growing insurance business that requires cash payments and Berkshire has to have cash on hand, which if you read the the 10-K, it's stated at 30 billion. It was 20 billion. It's stated at 30 billion. I would suspect within the next couple of years that number would get ticked up to about 50 billion. Again, tied to the annual cash that's going out the door with insurance payouts. So some of it's structural. I think some of it's just a result of capital allocation levers not being available at the present. I can see how there will be opportunities to deploy that cash and I would imagine that any bigger break in the market will invite a lot more purchases. I'm curious to see it. When I'm listening to you and thinking about your book, thinking about those decades, and many people brought it up. I think Monish Pabrai talked about it at some point how very few companies played a role in creating that kind of value at Berkshire. And I'm sure it rhymes in to some extent with Bessembinder's study of companies over 100 years, how it's a handful of companies that created the value. In some way it rhymes with the Coffee Can portfolio of Chris Mayer's 100 baggers in some way, too. But I'm thinking if you and I had a clean clean slate and we could sit down with Greg Abel. Let's forget taxes for a the commitment to own some of those smaller businesses forever because they were bought from families. If you wanted to recreate Berkshire for the future with what it has going for it, wouldn't you want to have a much leaner situation than a conglomerate? I mean, it took us 15 minutes to go in a very, you know, zoomed out way through all the pieces to have a handful of recognizable big chunk investments, kind of a, you know, at the end of the day a concentrated portfolio because that's what it is, and focus on these instead of having if you add the subsidiaries of subsidiaries, I mean, we're talking probably about that 1,000 entities, I don't know, right? But if you had no taxes, no promise to hold forever, wouldn't you see a portfolio of maybe 10 holdings and a lot more cognitive space to have three, four, five more and forget checking in on the thousandth smaller operation out there? I'm not I'm not sure where you would go from there. I mean, say say you did clean house, you know, that way and you you, you know, flipped the switch and cashed out some of those entities and it didn't set aside the fact that these commitments to families and selling selling owners mean that it's the reputation that Berkshire earns to get that next acquisition, right? >> Yeah. Setting all that aside, you're still going to have that question of what to do with the capital, right? I mean, it would still be what what do you do with it? Do you grow? Do you find another business? I mean, it's I think it's a it's a it's an interesting thought exercise because there are businesses that probably could and should be sold, but you know, then when you kind of think about it from just a present value standpoint, you know, a lot of those businesses had the cash extracted from them since their purchase decades ago. And so, you know, I'm I'm not so sure that having some of those laggards around is such a bad thing. I mean, I think from a purely textbook, you know, investment banker, let's realize the last dollar of value, sure, but I don't know. I you know, I I don't know if if the world could work that way, right? I mean, Let me Let me rephrase the question. Yeah. I see where we're going with that. If you had a clean slate trillion-dollar company right now and it's uninvested capital the same way you are onboarding, you know, a $10 million client today, all cash, and you could have a clean slate to do whatever you want. I have a feeling that you wouldn't recreate a thousand holdings. You would probably recreate a much more concentrated portfolio. I think that's where I was going with it. Yeah, I I I think I think That's what you do. >> But it's it's fascinating what you mentioned because we're looking at the statements and the and the numbers and the dollars, but there's this incredible brand equity, trust equity, culture equity, however, you want to describe it that Berkshire has built up and stripping away those holdings, you're not just realizing the $10 billion $1 billion sale, you're also undermining what Berkshire has represented in the business world. And I think it's such a fascinating moment where the sum of the parts doesn't only capture the financial side, but doesn't capture everything else qualitatively that we talked about. The people will take Greg Abels' phone call because of what Berkshire has represented over the 850 pages of your book. And I think that's something that cannot be lost and an investment banker would just maybe ignore it for the immediate benefit of selling those businesses. I think that's, you know, summing it all up. Adam, I want to ask you a big picture you know, question resuming out again. Looking at the success and trying to deconstruct it, you know, you have excess return in two because of superior information, superior judgment, superior structure. How would How does this mix look like over the last six decades of Berkshire? What has really played the biggest role? And maybe it has changed from the early days to the later decades, but information, judgment, structure, what really added the biggest value in your mind in this operation? I would deemphasize the information part of it. I think Berkshire has been a product of continual learning. Munger talking about Buffett being a learning machine and patience. And then just that learning, that thinking, implementing a structure that makes sense. I think Berkshire Berkshire doesn't get enough credit for its liability management. We talked about the assets, we talked about all these great buys, but it has it has hit some home runs on the liability side. I mean, float being the prime example, but then just look across you know, things like um the Japanese investment funding it with low-cost yen, borrowing at the holding company level, putting another uh putting a percent on it and then handing it to like a Clayton Homes to finance its mini bank of 30 billion of mortgages. I mean, these these kinds of things that I I don't think get enough credit, but just kind of separating the financing side from the asset side and looking at them and and how can they be structured in the most intelligent way. So, it's really just looking at every situation that's come across Warren's desk or, you know, the the the desk in Omaha and saying, "How do we How do we best play this hand?" Mhm. So, the continued learning, which in today's AI world is you know, is not I think there's there's a temptation to just throw it at the computer, but that that judgment you know, the thing that you didn't think about, you know, that that there there is a place for human judgment. And computers might give you an instant answer, but those synapses in your head don't grow overnight and it takes thought over time and thinking about lots of different businesses. I mean, that and that's another great advantage about Berkshire is just all these breadth the breadth of businesses that Greg gets to see every day when he goes to work. I mean, that's that's a whole different set of reps, if you will, than a manager just operating in any one particular industry. So, that conglomerate benefit extends further than just just some of the the direct financial or monetary. It's the structure. It's the never-ending learning experience and a unique, you know, Buffett lifetime experience and Charlie, of course, as well. And I'm curious how Greg takes it. You brought up AI and I have to ask you and I get questions from the audience now and then, a lot of them from younger individuals. I'm in my 40s, I think we're close in age and but there are people that write to me they're in their 20s and they have one question, you know, does this kind of investing still work, which is a fair question. And the second one is, you know, how does it work in a world of AI where there's the human only judgment that you brought up and then there's the human plus AI analysis and judgment. And it's undeniable that it's happening and it's empowering us in some way. I think it's creating new blind spots in some way, too. But that's something that I'm seeing more. But I'm curious how how would you sit down and talk to somebody in their 20s who has this lofty dream of creating their own, you know, Berkshire-like experience either for their own family money or maybe professionally as an investor. How do they navigate it, you know, human judgment, AI judgment, can I be an ever Buffett? Well, if I think if it can be done by AI, I don't just click a button and you've got a Berkshire, then that advantage is going to negate itself. And so, nobody's going to be able to do that. So, so there's always going to be some sort of human required. And I I don't know. I I've I've really only scratched the surface, but I I am I am implementing and using ChatGPT and then more recently Claude, which is Have you Have you played around with Claude? I mean, it is unbelievable. >> I've played with all of them and I'm I have to tell you and I'm I'm trying to, you know, approach it from different angles and I think of I've been investing professionally for over 20 years, but I remember my first few years and when I realized what I was doing was really almost manual labor. I had a computer, but it was manual labor where I would take the filings, which I still do, read through them and summarize some points and find points through a certain, you know, mental framework that continued to develop and show it to the portfolio manager. And then I would also take obviously the the numbers and put them in a spreadsheet and I would know where the numbers came from. I would look at the footnotes. I would know why something looks off, but I was the AI for the portfolio manager. And then when the portfolio manager was called to speak with Barron's, they would call me and say, "Hey, he wants to bring up the stock you were working on." So, I would write a note. They would look make them look very competent and prepared to take the call from Barron's or Wall Street Journal. So, I feel like I and all my colleagues of my age at the time, we were somebody else's AI. We were not as fast. We were making mistakes, so is AI. So, now it's kind of flipped because I feel like I could potentially have this imaginary group of analysts doing at least the read-through or the at least initial work on a lot more ideas, peers, comps before I pull the trigger. Anyways, I feel like it feels like, "Wow, this is a new phenomenon." It is and it's not because if you were the larger firm with the resources at some point, if you're in your 40s today, you were somebody's AI. I don't know. I want to throw it out there just to add another layer to the conversation. Yeah, I think it's I mean, you've probably experienced this where you're you're working with AI and you say, "That doesn't quite look right." And the question is, how do you get that judgment starting from scratch without doing that slog work of pulling the numbers from the 10-K and putting them into a spreadsheet and seeing if they balance and trying to figure out changes and looking at the footnotes. I think it's I just don't know what it would be like if you didn't do that. You didn't have that experience to do it. I mean, I I even worry about myself, you know, am I going to get lazy to create this excellent prompt, this excellent skill for for Claude and I can just press a button and it it gives me what I need, but >> >> you know, I I do think there's a net benefit to having a computer AI cuz you can just do so much more. Have you um Have you had Guy Spier on your >> Yes. Yes. We talked We talked about AI. He's really deep into it. And He's still doing some great work. He's doing great work. I think we're all trying to figure out how we can interact with it. Where do I end, where does AI begin? I want to bring up something from a whole different angles. Kind of like close it out. I'm curious about your thoughts. I was listening to Rory Sutherland on Knowledge Project, his interview, and he points out something about the human experience. He talks about his mother, as far as I remember, that she would be a better buyer of used cars because she's a good judge of human character. So, she sees who is the seller of the car and she knows like this person treated this car very well. She knows nothing about the engine, the brakes, and everything else, but this is a trustworthy former owner of this car that I would want to transact with. By the way, he points out in that interview that when you buy a house, the broker, the real estate broker, avoids the two parties. They don't want them to meet because you want to make a human judgment who is selling the house, which I think teaches us something. I bring it up because every year in Omaha, I run into people that have held Berkshire for sometimes longer than I have been alive, but at least half of my lifetime. And when I ask them, as you can imagine, why, they don't give me some of the parts. They don't give me the analysis and the you know superior model and structure and judgment and they don't explain to me why having a float is beneficial. They say these were two folks that we understood more or less what they're trying to do. We trusted them and we we signed up for it. And it's just like Rory's mother buying a used car from somebody they would trust. And I feel like you exclude all of AI here. You exclude all of the what you're talking about, all of what I you know going through footnotes, all that work and you make a judgment. At the end of the day you have two shareholders of Berkshire just as a case study, right? Two of us held let's say Berkshire for 25 years. One of us has been you know researching it but felt thoroughly and knows all about it. And the other one has held it like the couples that I meet in Omaha because they trusted and I'm I'm simplifying it but basically because they trusted Buffett and Charlie. And the outcome is the same like the gain at the end of the 25 years is the same. Everything is the same but they how we got there is different. And I want to emphasize it because I think AI will not take away that human experience. Listen Adam, I trust you. You know AI will not replace it and I think in business and Charlie told us that a million times, you know, trust is such a powerful force and they used to operate with one page, you know, legal documents when they're buying some of those businesses. Now I can barely sign up for any service that doesn't have a 500-page, you know, agreement with it. Imagine that, right? So I do believe AI is helping us but I strongly believe that that human element that Rory talks about his mother used car it's with us and it's not going away. I don't I don't know how to say it really any better. >> >> I I mean just but but what a benefit it is to have to upload a whole set of documents and just to be able to Yes. you know, I mean just imagine some of those queries that you got as an analyst. Oh hey, remind me about that footnote that was I don't remember maybe it was about 5 years ago where you're set off on a 2-hour quest looking through financials when you get that answer in a minute. So you know, I think it's it's going to be just a continuation of that modern-day problem Mhm. having information you know, versus signal or you know, the noise versus signal and just being able to filter out what is important and and Buffett does that masterfully. You look back through the history and you know, just pointing to couple of key variables that really move the needle and you know, a human can still do that and and you can be that much better by making AI your friend. As I'm listening to you know, I I realize you could have a scientific paper explaining something and you could have kind of a grandma's knowledge doing the same and there are studies that show that how what grandma's told us what to do, you know, 200 years ago and what we actually do it's the same. Mhm. But grandma's kind of knew >> >> and now we have all those papers and Nobel Prize winners that told us grandma was right. And I kind of have this feeling with AI sometimes like if you feel that Berkshire is a good investment, no endorsement here, it makes sense based on whatever mental model you're using, good for you. And if you need all the AI to convince you, that's your choice. It's it's kind of will coexist how much convincing you need and how much it takes. But I don't think AI is absolutely necessary to to make, you know, still smart investment decisions. I think it's very empowering. I think it's allows me to zoom out, to zoom in. It allows me to do a lot of things but at the end of the day it's do I have the conviction like those couples I meet in Omaha to put my money or my client's money at risk for a decade or 5 years or 2 years, whatever. What does it take for me to have that conviction through the thin and thin and everything else that's happening in between? And maybe if AI is any help on that front, that's great. I'm not entirely convinced just yet but that's No, I think I think you hit on it. It's the conviction. I mean if you haven't done the work, your conviction that that staying power, you know, you think about roots going into something Yeah. it's going to be very shallow where you know, if you've really done the work, I mean there's there's always the risk of confirmation bias but you know, I think if you've done the right work, you'll be better off for it than I mean it's just more fun too. At the end of the day just learning about businesses and all this. I mean if you can just click a button, what's the point? Is is my job just an interface between oh sorry, Claude can't download this file. Let me go grab it and put it in. Like is that what we've become? Right. Right. You know, I I I want to be an analyst. I'll mention one last thing because I find the topic fascinating. You know, I when I had interns back in the day, they would bring news to me and they would say look, you know, this is bad news because the stock is down and I would say it has to have a context like if you are a buyer of the stock and the stock is down because it missed earnings based on one little number that everybody's paying attention to and you want to become a long-term shareholder the fact that the stock is down is actually good news to you. And I'll mention one more thing, you know, I've been in meetings where very competent people would go in, listen to the same CEO tell the same story and people would walk out buying the stock, selling the stock and doing nothing about the stock. I think the amount of information, the amount of AI participating in it at the end of the day is somebody will pull the trigger and buy, sell or not depending on accumulated experience, knowledge, frameworks, conversion and all that. You can't remove the human from it and if you do, I think some funky things can happen. We yet to see. But you need a human and you and I have clients and I work with people a lot and I took calls from people in some really, you know, tricky times like March of 2020 even now with the Iran conflict. I had to talk to some people and and talk them through what's going on. We need a human being to walk us through this experience. An algorithm that says, you know, buy this, sell that, I think will not be convincing enough for somebody that has, you know, a family inheritance or family fortune or a lifetime of savings at stake. And I'll end it on that. What a fascinating conversation. 25,000 more words, 150 pages and so much more wisdom and we're still watching this open-ended as you said more of a movie than a picture and I'm looking forward to all the new additions. Thank you so much for today. What a joy to see you. Yeah, this has been a lot of fun. Before you go, just a quick reminder. If you want to check out Fiscal AI and see how it can upgrade your research process, subscribe using the link in the show notes to get a free 2-week trial plus 15% off. You were listening to Talking Billions. We talk about big ideas, big inspirations, big topics. We take on the hardest subject of all, money. But our conversations lead us to an even bigger question, what it means to live a rich life beyond money. If you enjoyed the show, please take a moment and follow, subscribe, rate and share with friends and family. We rely on word of mouth to promote the show. One click for you means the world to us. Thank you. Until next time, your host Bogumil Baranowski. >>