Equity markets are at highs, especially in the US, underpinned by strong corporate earnings and enthusiasm for AI. Yet beneath the placid surface, stock volatility relative to the broader market is unusually high, bond yields have climbed on inflation and US federal deficit concerns, and unease is brewing over returns on the substantial investment needed to develop AI. It is precisely in environments such as this that investors seek out hedges.

One traditional haven — government bonds — is not straightforward, given large public debt. Gold is an option, and so is cash, though selling assets to hide in cash is notoriously difficult and often called a "mug's game". History teaches that "time in" the market typically triumphs over "timing the market" for most investors. So what asset can provide some exposure to the compounding power of global economic growth while not appearing expensive?

From where I sit, Berkshire Hathaway — the financial citadel built by Warren Buffett and the late Charlie Munger — is one such hedge. Berkshire has underperformed the S&P 500 by more than 20 per cent over the past two to three years, largely because management has amassed a cash pile of about $365bn, roughly a third of its market capitalisation. Recent second-quarter results, however, showed profits up 20 per cent, with operating margins in non-insurance operations rising two percentage points.

Stripping out the market value of publicly listed equities and surplus cash, Berkshire's residual private assets trade on a prospective P/E of about 14 times, versus 20 times for the S&P 500. On my calculations, the group trades at 1.4 times book value, with private assets at roughly two times book versus more than 5.5 times for the broader market. Closer alignment to sum-of-the-parts value could imply 10 to 20 per cent upside.