 Good day fellow investors. In July I made a video saying how Berkshire should outperform the SAP500 and since then Berkshire has outperformed the SAP500 and in this video I want to discuss Berkshire to see what will be the returns on investment we can expect there by analyzing its components and giving us the risk reward perspective on the company. And at the end I will tell you again if I still think that Berkshire will outperform the SAP500 in the long term. So Berkshire is up 21% since July 2017. The SAP500 is 13.1 plus 1% of the dividend 14%. So Berkshire has outperformed the SAP500 since then. Let's see if it will be the same case again. Quick overview of what we're going to discuss today. Berkshire's components, insurance, holdings and stock portfolio. So if we start with Berkshire's holdings you can see that it's all about net income distribution. Insurance then we have rail, utilities, manufacturing, finance and financial products and then the investment and the derivative gains and losses which are realized. On the unrealized gains Berkshire has a huge deferred tax bill on the balance sheet as taxes are lower that gives a benefit to net income because that deferred tax bill is much lower now if they realize and sell their position. So that's the benefit in this year but we can eliminate that because that's a one-off event. So from Berkshire's holdings the net income is 15 billion in 2017 which is very very good and I will put in everything in a table so that you can see how that evolved over the last 10 years which will give us an indication of how this could evolve in the next 10 years. So net income from railroad, utilities, manufacturing, finance is 14.6 billion in 2017 and you can see how it has been steadily growing over the last 10 years and from 2008 to 2009 it dropped about what 25% I have included here in the yellow the Burlington Santa Fe net income that wasn't yet part of Berkshire then. So if I assume something similar to happen over the next 10 years with one recession in 2020 and I put the same contraction in earnings and after recession growth in earnings as it has been the case in the last 10 years I get to total income from holdings to 30 billion by 2027. If I do the same with two recessions I get to 27 billion in income so this is what Berkshire is great businesses and you can expect growth even if there are two recessions in the next 10 years. 27 billion in income from its holdings after 10 years and this might even grow faster because if there is a recession Warren Buffett will deploy the 116 billion in cash he has which will increase net profits. So 27 billion if I put a valuation of 15 on that I get the value for Berkshire's holdings of 405 billion in 2027. Let's look at the stock portfolio. This total market value of Berkshire's investment was 107 billion at year end. So there are a lot of companies here American Express, Apple, Bank of America and Coca-Cola are the biggest holdings very well diversified we can say that this will perform like the market some valuations there are a little bit high those companies will probably do good over the long term they will give Buffett more dividends to redeploy elsewhere and Berkshire's earnings will grow. Let's be conservative and as we are at very stretched valuations let's estimate that this value in 2027 doesn't change. So now we are 170 billion 445 billion for the holdings value the cash of 116 billion and the 35 billion from dividends I get to a value in 2027 of 766 billion. The third thing we have to talk about is insurance but the key here with insurance is the float not so much the profits. The float is huge and has been just growing over the last especially seven years so Warren Buffett has a free float cash that he can use but because that's the cash Berkshire gets for the premiums but doesn't have yet to pay the cost of that insurance so they can use that money redeploy it accordingly and make profit on it. So the float is now 114 billion however insurance is also Berkshire's biggest risk because if nothing bad happens Berkshire makes money if something bad happens like we have seen for natural catastrophes in 2017 the hurricanes and the wildfires then Berkshire has to pay something. According to Buffett the cost of the natural catastrophes was 100 billion and Berkshire's part of it was 3% so they paid 3 billion to pay for the damages. Now Berkshire is a reinsurer and those costs might pile up as bigger if there is a bigger hit from the catastrophes Berkshire's costs might not just increase proportionally but exponentially so we can expect and Buffett says that it happens once in 50 years to see a four-time magnitude catastrophe as it was in 2017 we could really expect Berkshire to get hit at least once in the next 10 15 20 years so to be conservative I would include such an expectations in estimating future Berkshire earnings if we look at what Buffett has been saying 3 billion hit in 2017 if that quadruples he expects a 12 billion hit however the chances of that is about 2% so once in 50 years if that happens let's say that the total profits underwriting profits that total 28.3 billion pre-tax in the last 14 years would be wiped out so there is no real risk to Berkshire and to Berkshire's continuity but I wouldn't give a value to insurance the key with insurance is the float further digging deeper into that we can see that the risks are not according to Buffett above 10 billion but they could go above that because losses might aggregate in unanticipated ways so this is it Berkshire it will grow it will continue to grow it is perhaps one of the best risk reward investments there if market valuations get lower Berkshire's will get hit that's inevitable but if you look at the business okay I want to own this business I like what the guys are doing there then you can expect 766 billion which is a conservative measure if I take the current market valuation in 10 years Berkshire would be about 1 trillion which would give you a double in 10 years from the current position where the market capitalization is 505 billion this means that a return will be around 7. what 7.4 percent per year which is a very very good return compared to what the market offers so I still think Berkshire will outperform the SAP 500 there is always the risk if we see a market crash that Berkshire crashes to and if there is a negative insurance hit then it will crash even more so perhaps if you're really conservative you should wait for Berkshire to be such in a negative situation like it was the case in 2009 where the price was just 75 000 people forget about that now that they see this huge price so if the estimate is more conservative and Berkshire comes to 766 million it's still a 4% return which I still think will outperform the stock market in the next 10 years thank you for watching looking forward to your comments and I'll see you in the next video