moi201605_brkThe Berkshire Hathaway Annual General Meeting is just around the corner, and we are pleased to present a new issue of The Manual of Ideas as somewhat of a “companion” to this quintessential event for value investors worldwide. Inside, we analyze selected Berkshire holdings and feature insights into Buffett and Munger’s holding company by fellow members of the global value investing community.

Larry Cunningham shares his thoughts on Buffett’s “second legacy”, describing an evolution from pure value investing to “trust managing”, a governance model that has created tremendous value for Berkshire and that others are increasingly seeking to emulate. According to Larry, “If the most important three words in investing are margin of safety, the three in governance are margin of trust.”

John Huber shares his thoughts on the investment merits of Berkshire Hathaway. He states succinctly why Berkshire’s insurance float has tremendous value even as it shows up on the liability side of the balance sheet. John also delves into the valuation and makes a compelling case why Berkshire has low downside while retaining material upside, perhaps as much as 50% over the next three years.

Jeremy Miller shares insights from his new book, Warren Buffett’s Ground Rules, in an exclusive interview with MOI’s Shai Dardashti. Jeremy went deep into Buffett’s per-Berkshire letters to partners and attempted to reconstruct Buffett’s thinking, process, and actions in cases including Dempster, Sanborn Map, American Express, and Disney. Jeremy also tracks Buffett’s evolution from deep value to quality.

Ravi Nagarajan assesses Berkshire’s prospects of compounding capital over the next decade and concludes that the allocation task facing Buffett and his successors is becoming increasingly daunting. Ravi concludes that Berkshire may need to increase the stated repurchase threshold in order to return more cash to shareholders in a tax-efficient way (from the perspective of continuing shareholders). States Ravi, “Whether an increase in the repurchase limit is something under consideration is perhaps one of the most important questions facing Berkshire shareholders today and a topic worthy of discussion at the upcoming annual meeting.”

Whitney Tilson provides an update of his investment thesis on Berkshire and concludes that the shares offer an attractive risk-reward tradeoff. Whitney shares his analysis of the fair value of the equity and reveals: “I now peg intrinsic value at $283,000 [per] A share (equal to 1.82x book), based on $159,794 of investments per share plus 10x $12,304, the pre-tax earnings of the operating businesses.”

Also inside, we bring you an exclusive interview with Sean Stannard-Stockton who describes his approach to Buffett-style investing in high-quality businesses within a mutual fund and separate account structure, i.e., in the absence of permanent capital. Stannard-Stockton’s lucid philosophy and case examples may resonate with your own views and experiences.

As always, we also analyze selected investment ideas, in this case holdings of Berkshire Hathaway.

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Table of Contents

EDITORIAL COMMENTARY 3

INSIGHTS INTO BERKSHIRE HATHAWAY BY FELLOW MEMBERS OF THE GLOBAL VALUE INVESTING COMMUNITY 7
LARRY CUNNINGHAM: FROM VALUE INVESTING TO TRUST MANAGING 7
JOHN HUBER: BERKSHIRE HATHAWAY IS SAFE AND CHEAP 8
JEREMY MILLER: WARREN BUFFETT’S “GROUND RULES” 10
RAVI NAGARAJAN: BERKSHIRE HATHAWAY IN 2026 13
WHITNEY TILSON: UPDATED INVESTMENT THESIS AND VALUATION 16

PROFILING SELECTED HOLDINGS OF BERKSHIRE HATHAWAY 18
AXALTA COATING (NYSE: AXTA) – BRK, CARLYLE, DECCAN, FRANKLIN, GSAM, IVORY 18
DEERE & CO. (NYSE: DE) – BRK, CAP WORLD, CASCADE, FRANKLIN, PRIMECAP, T ROWE 22
GENERAL MOTORS (NYSE: GM) – APPALOOSA, AQUAMARINE, BRK, GREENLIGHT, PABRAI 26
GRAHAM HOLDINGS (NYSE: GHC) – AQR, BRK, CAP RE, DFA, GIOVINE, SOUTHEASTERN 30
IBM (NYSE: IBM) – BRK, ESL, FAIRFAX, GEODE, MAGELLAN, OLDFIELD, TWEEDY 34
KINDER MORGAN (NYSE: KMI) – APPALOOSA, BRK, CAP RE, HIGHSTAR, PENNANT 38
LEE ENTERPRISES (NYSE: LEE) – BRIDGEWAY, BRK, FRANKLIN, SILVER POINT, WINGSPAN 42
MEDIA GENERAL (NYSE: MEG) – ARIEL, BRK, HM, STANDARD GENERAL, STARBOARD 46
MOODY’S (NYSE: MCO) – AKRE, ALTAROCK, BLOOMBERGSEN, BRK, CAP RE, FIERA 50
NOW INC. (NYSE: DNOW) – ARLINGTON VALUE, BRK, CLEARBRIDGE, FAIRHOLME, HARRIS 54
PHILLIPS 66 (NYSE: PSX) – BARROW, BRK, DFA, FIDELITY, ROBECO, WELLINGTON 58
PROCTER & GAMBLE (NYSE: PG) – BRK, CAP WORLD, FIDELITY, GEODE, YACKTMAN 62
SUNCOR ENERGY (CANADA: SU, NYSE: SU) – BRK, CAP RE, PAULSON, WELLINGTON 66
U.S. BANCORP (NYSE: USB) – BRK, CAP RE, FIDELITY, MFS, PACIFICA, SQ ADVISORS 70
USG (NYSE: USG) – BRK, GREENHAVEN, HARRIS, LONDON CO, SASCO, SHAPIRO 74
VERISIGN (NASDAQ: VRSN) – ARONSON, BRK, CAP WORLD, MAKAIRA, RENTECH, T ROWE 78
VERIZON COMMUNICATIONS (NYSE: VZ) – BARROW, BRK, CAP WORLD, GOODHAVEN 82
VISA (NYSE: V) – ALKEON, ALTAROCK, BRK, CANTILLON, LONE PINE, WEDGEWOOD 86
WALMART (NYSE: WMT) – ALPINE, BRK, COURAGE, DODGE & COX, GATES FOUNDATION 90

SEAN STANNARD-STOCKTON ON BUFFETT-STYLE INVESTING IN A MUTUAL FUND AND SEPARATE ACCOUNT CONTEXT 94

TEN ESSENTIAL SCREENS FOR VALUE INVESTORS 98
“MAGIC FORMULA,” BASED ON TRAILING OPERATING INCOME 98
“MAGIC FORMULA,” BASED ON THIS YEAR’S EPS ESTIMATES 99
“MAGIC FORMULA,” BASED ON NEXT YEAR’S EPS ESTIMATES 100
CONTRARIAN: BIGGEST YTD LOSERS (DELEVERAGED & PROFITABLE) 101
CONTRARIAN: CHEAP FREE CASH FLOW GUSHERS 102
VALUE WITH CATALYST: CHEAP REPURCHASERS OF STOCK 103
PROFITABLE DIVIDEND PAYORS WITH DECENT BALANCE SHEETS 104
DEEP VALUE: LOTS OF REVENUE, LOW ENTERPRISE VALUE 105
DEEP VALUE: NEGLECTED GROSS PROFITEERS 106
ACTIVIST TARGETS: POTENTIAL SALES, LIQUIDATIONS OR RECAPS 107

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