Book Value vs Intrinsic Value Explained

Book value (per-share accounting value) increasingly understates Berkshire's intrinsic value as accounting rules only write down impaired assets, never revaluing winners upward.

What It Means for Investors

The Accounting Disconnect

How the Disconnect Occurred

Early Berkshire (1960s-1970s):

Most assets in marketable securities
Securities marked to market = book ≈ intrinsic value

Modern Berkshire (1990s-2020s):

Most assets in operating businesses
Acquired at premiums to book
Accounting rules only impair, never appreciate

"The accounting rules that apply to controlled companies are materially different from those used in valuing marketable securities."

Why Book Value Understates Value

The Impairment Problem

Account rules say:

Write down assets when impaired
Never write up assets that have appreciated

Result: Successful businesses appear at cost on balance sheet forever.

See's Candy Example

See's Candy acquired 1972 for $25 million:

Earned $2B+ since then
Still carried at ~$25M on books
True value: $20B+

"Many of these [businesses] are worth far more than their cost-based carrying value. But that amount is never revalued upward no matter how mu

Key Takeaway