BRK P/B is useful (less useful than in the past, but still) because it is an insurance company at it's core, because their stock market investments are marked at market prices and because they have done their accounting consistently the same way for a long time.
Otherwise, doing a SOP or an earning based evaluation is better, but P/B is a reasonable shorthand in BRK case that everyone can calculate without having to dig into the accounting at all.
With BRK, on can be reasonably sure that the intrinsic value correlates with book value for aforementioned reasons. BRK has goodwill on their balance sheet, but we know that WEB doesn't tend to overpay (although he does make mistakes), and this in combination with the organic growth of the industrial and insurance assets (Geico and others ) means that the intrinsic value has to be quite a bit higher than the stated book.
We can also see that BRK's book value has been rising over time (his published table in the annual reports shows this), as well as the earnings power. We can also see that buying BRK shares when the price was in the lower end of the P/B range was yielding good results (just look at 2012, 2008, 2000), so there really is no reason why this should not reoccur in the future as well. |
