It's true that if you mark the shares at market, buying a $30 share for $30 is a wash. The effect would only become evident in the accounting as the share price increased and the holding of BRK within BRK magnified the appreciation. If the shares were cancelled, shares would appreciate to NAV, period. But if BRK holds BRK, the effect is reflexive and NAV increases NAV.
What you are saying he artificially pushed up the price of his shares through buying and selling them with other entities he owned? Wouldn't that be considered insider dealing or fraud and also his fortune would be fake.
No. Sorry that my explanation was not clear. He essentially traded in his own shares, buying low and maybe even selling high, via the insurance company. Not fraud, simply using "Mr. Market" to his advantage. Henry Singleton who ran Teledyne did the same thing, except he bought and sold the shares like any normal company, and had to report the cancellation of the shares. So Buffett did have a big advantage in that respect, he never had to report the de facto "shrinkage" to minority shareholders.
No, if shares were canceled at a discount to NAV, the cancelled shares' claim of future earnings and hence the increased market value would flow through to the remaining shareholders, and would benefit the shareholders proportionately with respect to however much the discount to NAV at which the shares were bought back at. Thus, there is not much difference between who bought back the shares. The net effect is just the same.
Even accepting the OP's original assertion, the only way this works is if BK makes good money over long stretches of time. Which means it really doesn't answer the question it claims to be addressing.
BK buys when blood is running in the streets. BK buys solid companies that pay dividends. BK gets to know the companies intimately, hangs with the management and all that, and sells covered calls.
Let's assume that Berkshire issued rights to shareholders to buy at book. AIG did this about two years ago. The effect of course is that as the stock appreciates, the rights also appreciate. One magnifies the other. If Berkshire buys back shares and retires the shares, it also retires the option. If it buys the shares in the insurance co, it still owns the option. As the stock price appreciates, so does the option owned by the insurance co. So it's the same but different.
This could be pulled off without any operating company at all. So the actual corporate results are not in fact relevant, although good results don't hurt.
The biggest advantage Buffett has is he doesn't have to run his investment shop like a mutual fund. There is no idle cash sitting around dragging down performance, and no redemptions causing sales of stocks he'd rather not sell. If an opportunity shows up all he has to do is tap BRK for the cash. He is fully invested all the time. Put him in a Mutual Fund and his performance would be nowhere near what it is now. That being said, he has a very sound investing philosophy and he's an obviously talented investor.
So no proof on the initial claim. Any citation for the claim that he bought 5000 shares of Berkshire from his mom?