BERKSHIRE MATH IN MAKING AN intrinsic value calculation, Berkshire uses the long-term (30-year) U.S. Treasury rate as the discount rate. This is not a typical approach, and many people do not fully understand why Berkshire uses this rate. Buffett explained: We use the risk-free rate merely to equate one item to another. In other words, we’re looking for whatever is the most attractive. In order to estimate the present value of anything, we’re going to use a number. And, obviously, we can always buy government bonds. Therefore, that becomes the yardstick rate … to simply compare all kinds of
...more
