My Berkshire Thesis (2026)

My analysis on berkshire was largely completed before we had Berkshire's 2025 full year results and annual report. Now we have them.

Here's what changed:

The headline looks ugly. GAAP net income fell to $67 billion from $89 billion. Operating earnings dipped to $44.5 billion from $47.4 billion. The stock dropped 5% on the news. But if you've been reading this thesis, you know GAAP net income is noise.

Let's look at the groves.

2025 was delicious ONLY if you understand Berkshire

Grove 1 got stronger. BNSF earned $5.48 billion, up 8.8% year over year. Operating margin improved to 34.5% from 32.0%.

Abel noted in his first shareholder letter that each percentage point of margin improvement generates roughly $230 million of incremental cash flow.

Manufacturing, service, and retailing profits grew 4.4%, with strength in Precision Castparts, Marmon, and NetJets. BHE was up slightly.

All three segments beat my conservative growth assumptions. I'd revise Grove 1 upward to roughly $500-510 billion.

Grove 2 (public stock portfolio) ended the year at $297.8 billion, up from $271.6 billion despite continued net selling.

The top five holdings still account for nearly two-thirds of the portfolio. A new $4.3 billion Alphabet position showed up in Q3.

Post-tax, I'd revise Grove 2 to roughly $270 billion.

Grove 3 got more interesting (5-15% ownership in private businesses). Berkshire completed the $9.7 billion OxyChem acquisition from Occidental and picked up Bell Laboratories.

Exactly the kind of durable, boring businesses they love.

Grove 4 settled at $373.3 billion, up from $321 billion.

The fortress got bigger. Parent-level investment income alone hit $3.6 billion. Still the elephant gun.

Grove 5's float grew to $176 billion, up $5 billion. Combined ratio was 87.1%, well below the 20-year average of 92.2%. Insurance underwriting profits did decline 20%, mostly from competitive pressures and rising claim costs at GEICO. Abel flagged that Berkshire will write less P&C business when pricing is bad. That's the discipline that makes the float valuable. They walk away from underpriced risk.

Updated valuation: sum-of-the-groves comes to roughly $1.15-1.2 trillion before margin of safety. That's up from my prior $1.1 trillion. With a 15% margin of safety, call it $1.0-1.02 trillion. The thesis got stronger.