What is behind Buffett’s abandonment of book value to measure Berkshire Hathaway’s performance? | More


He also expects Berkshire to be a big buyout of its own shares in the future. With each of these transactions, he said, Berkshire’s intrinsic value per share would rise. But the company’s book value per share would actually decrease.

“This combination causes the book value dashboard to become increasingly disconnected from economic reality,” Buffett wrote.

The stock market will continue to be an irrational and capricious creature, Buffett wrote. But nonetheless, over time, the Berkshire share price will prove to be the best measure of the company’s performance.

For those who have known about Buffett’s book value defense for decades, his statement was heartbreaking.

Yet most Buffett watchers seem to largely ignore this. They too tend to agree that it no longer makes sense to just follow the book. They agree that many Berkshire holdings are worth many times their book value.

“The book value of a bank makes sense,” said Paul Lountzis, Pennsylvania investment advisor and longtime Buffett fan. “The book value of a pharmaceutical company doesn’t mean anything. All value is intangible.

“It’s okay,” said James Shanahan, analyst who tracks Berkshire for Edward Jones in St. Louis. “When he told us to look at book value, we were doing it in addition to intrinsic value.”


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