Archimedes was an Ancient Greek mathematician and physicist. He once said that — Give me a lever long enough and a fulcrum on which to place it, and I shall move the world. The claim of Archimedes is theoretically possible as levers can be used to exert a large force over a small distance at one end by exerting only a small force over a greater distance at the other. Click here to read the rest.

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Hey Jana.

While the entire post was amazing to read, your definition of fair price at the end is superb.

Simple definition , which I think is going to be with me for years to come.

Thoroughly enjoyed reading this post.

Hi Nitin,

Thanks. I learnt the definition of fair value from Buffett. Simple idea but really powerful. At some point we should work together to analyze an industry in India.

Regards,

Jana

Would absolutely love to.

Just name it.

Nitin,

In the next week or so I will send out my thoughts on this.

Regards,

Jana

Hey Jana

A fantastic and in depth read & insight into the workings of Berkshire Hathaway. I can just imagine the kind of hardwork, study and effort that would have gone into it for putting together something like this. Thanks for sharing with the rest of us.

I absolutely enjoy reading your blog posts and each time I learn something new.

Regards

Harjeev Singh Chadha

Thanks Harjeev for taking time to read the writeup.

Regards,

Jana

Hi Jana I have one query about the fair valuation that 7X earning is very conservative .But what about the investment is this 180 Billion Dollar itself is fairly valued or overvalued as this is based on market price .I think we should also consider that factor as well.

Giri,

Any multiple between 7 to 10 is reasonable. None of his top 5 positions appears overvalued. Also it is very hard to come up with a fair value for investments.

To avoid valuing investments some people recommend using float based valuation. There you need to come up growth rates of float.

Regards,

Jana

Insightful

Hello there Jana, great post about Berkshire Hathaway! I would like to thank you sincerely for the 200 pages guide you made on value investing. It is one of the best reading materials for me.

I would like some clarification on page 174 regarding the continuing value of Google beyond 2020 with the assumption it is going to grow its after tax profit at 1.3% in perpetuity. I couldn’t get $401.67 as stated in the table.

I tried using the gordon growth formula, taking $17.88 as FCF for 2020 and discount rate of 7.5%.

Gordon growth formula = (FCF x growth rate) / (discount rate – growth rate)

Therefore, ($17.88 x 1.013) / (1.075 – 1.013) = $292.13?

Is there something that I am missing here?

Hi Alan,

Thanks for the nice words.

I should have done a better job in breaking out the calculations. Here are the steps

(1) The value $401.67 is in billions and not per share value.

(2) To arrive at this value you need to use the 2020 after-tax profit of $35.75 billion and I have assumed that Google can grow this number at 1.3 percent forever without any additional capital expenditure.

(3) Applying Gordon growth formula on $35.75 billion we get ($35.75) / (0.075 – 0.013) => $576.61 billion which when discounted back will yield $401.67 billion. ($576.61 / (1.075)^5).

Regards,

Jana

Brilliant