Berkshire Hathaway

Berkshire Hathaway is a conglomerate run by one of the world's richest men, Warren Buffett. He is the chairman, CEO, and largest shareholder. Over the last 44 years the per-share book value of Berkshire Hathaway has compounded at over 20% per year, meaning that anyone investing $1000 in 1965 would now be worth over $3.5m.

I hold Berkshire Hathaway because I believe its shares are undervalued. I value Berkshire as the sum of two parts:

• An insurance business which generates billions of dollars of cash for Berkshire to invest on shareholders' behalf ("float"). I value the insurance business as the book value of the investments it holds. In doing so I am ignoring the fact that the float is a substantial liability which must eventually be repaid - because by that time I expect even more float to have been generated, thereby continuing to fund the buying of shares, bonds and gilts indefinitely. My valuation may be valid when the insurance business is a going concern, but if it were ever to be wound up, it would realise substantially less value than I am placing upon it.
• A diverse collection of businesses involved in energy, finance, railroads, manufacturing, services and retail. I value these at 10 times their pre-tax earnings, equivalent to a P/E ratio (which is post-tax) of about 15.

Berkshire Hathaway is my largest shareholding. I have bought shares in two tranches: March 2010 at $47.70 (£33.69) and January 2010 at $67.32 (£41.56).