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I would like to know how people value holding companies. I guess the most famous one is Berkshire ($BRK.A - $BRK.B). And others exist.

These holdings usually have a lot of exposure to realestate, PE or nonliquid assets. In other words, not everything they own is publicly listed. However, the share prices of these holdings do make big moves.

I wonder how people look at holdings and how they decide to invest in them. The holding discusses their investment strategy in annual reports. However, the holding invests in companies that have no legal obligation to share their strategy with the public. Therefore, I feel like I need to blindly trust these managers to make good investments. Similarly, because as a shareholder you do not have a lot of information about the deals how do you evaluate the decisions? You base yourself on $-growth, dividend increases and compare to peer holdings?

Most important to me, how do you know if you are paying a good price or not.

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    Berkshire actually has more value in the companies that it owns outright than it does in the stock it owns. – zeta-band Dec 28 '18 at 20:10
  • Lots of these holdings do, so how can you assess the fair value of these holdings? – YellowEagle Dec 31 '18 at 9:52
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A famous energy trading company created partnerships that it valued itself. Revenue could be a gain in the value of the partnerships. Then when the credit rating companies downgraded the company, the company couldn't do anything further and went bankrupt.

Companies building fiber-optic telecommunications networks, generated revenue with capacity swaps with other companies. The revenue was non-cash.

So evaluate a difficult company by comparing in-coming cash-flow to revenue. Of course comparing earnings to revenue is profit-margin. And comparing earnings to stock price is the price-to-earnings ratio.

Also evaluate a profitable company by looking at the debt-to-equity ratio. Some companies have massive historical debt while other companies generate regular profit with regularly borrowed money.

Evaluate a development-stage company by the amount of cash that it has and hopefully no debt.

  • The main point of the post is to identify non-cash revenue. – S Spring Dec 30 '18 at 20:42

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