Berkshire Annual Report

[clifp]

There is no piece of financial writing that I enjoy quite as much as Warren Buffet's annual letter to his shareholders.

Even if you don't own stock in the company, or even anything but index shares, it is well worth a read IMO.

http://www.berkshirehathaway.com/letters/2010ltr.pdf.

Every year I marvel that I am paying Warren a dime to manage $200K+ of my money. I'm positive this is the best deal in financial management in the world.

 

[Nords]

It's like sitting in the shade on a hot day with a good book and a cold beer, isn't it?

Oh, wait, that's exactly what I did.

Even for Buffett he sounded happy about this one. Particularly the part where the businesses are puking up over a billion dollars a month in cash flow to headquarters.

I also enjoyed Alice Schroeder's commentary:
Succession at Berkshire | Alice Schroeder: The Official Website
FT.com print article

It's the first time I've seen the phrase "Buffett discount". I wonder if he believes the feedback he's getting on stepping down or if he's just using his supreme self-confidence to do what's really still best for the company.

I still can't figure out whether the market is going to sell on the news, bid up the shares, or ignore the whole thing. We have a rebalancing decision coming up.

 

[Arnie]

The 2010ltr link will not load for me. Maybe later.

 

[REWahoo]

The link works fine for me. Interesting read.

 

[Nords]

The 2010ltr link will not load for me. Maybe later.

It's a busy weekend for this letter and it's been highly anticipated.

If the link is clicked then it works fine for me. If it's cut&pasted with that period at the end of the sentence then it generates an error.

 

[jayc]

Is the class-a = BRK-A. Class-b = BRKB.mx and then BRK-B is what. Are there more tickers? Always seemed to be very confusing.

The BRK-B @ $84.00 does not seem to participate in these returns.

 

[REWahoo]

The BRK-B @ $84.00 does not seem to participate in these returns.

How so? A comparison of BRK-A and BRK-B over the past three months:

 

[nvestysly]

BRKB is the B share

Is the class-a = BRK-A. Class-b = BRKB.mx and then BRK-B is what. Are there more tickers? Always seemed to be very confusing.

The BRK-B @ $84.00 does not seem to participate in these returns.

The .mx ticker seems to be something for Mexico. I don't know anything about that. BRKB, BRK-B (or something similar depending on where you look it up) are the symbols for the B share.

The B share does have the same growth as the A share. The B share is simply 1/1500 the value of the A share and comes with less voting rights. As an aside, the B share was originally 1/30 of the A share price but the BNSF purchase further divided the price of the B share by 50. Therefore, the current B share is 1/1500 the price of an A share.

Back to the OP, The shareholders letter is always an interesting read. The annual letter is one of the most transparent, clear, straightforward reports on the "state of investing." I wish other public companies followed Berkshire's lead.

 

[target2019]

From the letter, the purchase of BNSF appears to be a good one, considering the rising price of oil:

Both of us are enthusiastic about BNSF’s future because railroads have major cost and environmental advantages over trucking, their main competitor. Last year BNSF moved each ton of freight it carried a record 500 miles on a single gallon of diesel fuel. That’s three times more fuel-efficient than trucking is, which means our railroad owns an important advantage in operating costs. Concurrently, our country gains because of reduced greenhouse emissions and a much smaller need for imported oil. When traffic travels by rail, society benefits.

 

[cardude]

I thought this year's chairman's letter was very interesting, and I felt after reading it that WB did everything but come out and say "The market is undervaluing Berkshire!". Especially interesting was discussion of normalized earnings. Buffett now figures, with the addition of BNSF, that a normal year for Berkshire is about $17B in pretax profit. The idea of normalized earnings makes it easier to argue the case that Berkshire is siginificantlly undervalued right now.

$17B in operating earnings multiplied by a very conservative 10 multiple = $170B. Add in cash/stocks/bonds of $158B, subtract debt of $58B, and you get an "intrinsic value" of about $270B, or about 30% higher than the stock closed on Friday.

The question is, will Mr. Market realize Berkshire is undervalued this year, or just shrug the news off and instead mainly worry about the succession issue?

 

[jayc]

How so? :

During the time I own it.

 

[Arnie]

It's a busy weekend for this letter and it's been highly anticipated.

Right. Works fine now. Thanks.

 

[powerplay]

Really enjoyed reading the report. Makes me wish I owned some of the stock.

 

[clifp]

I thought this year's chairman's letter was very interesting, and I felt after reading it that WB did everything but come out and say "The market is undervaluing Berkshire!". Especially interesting was discussion of normalized earnings. Buffett now figures, with the addition of BNSF, that a normal year for Berkshire is about $17B in pretax profit. The idea of normalized earnings makes it easier to argue the case that Berkshire is siginificantlly undervalued right now.

$17B in operating earnings multiplied by a very conservative 10 multiple = $170B. Add in cash/stocks/bonds of $158B, subtract debt of $58B, and you get an "intrinsic value" of about $270B, or about 30% higher than the stock closed on Friday.

The question is, will Mr. Market realize Berkshire is undervalued this year, or just shrug the news off and instead mainly worry about the succession issue?

30% undervalued seems be the consensus among Berkshire watchers. Although over the last 8 or so years, there seems to be a pretty narrow range 10% undervalued to 40% undervalued.

I'm assuming that when Warren steps down (likely feet first) that new CEO will re examine the dividend policy. For the most part Buffett business are cash cows and throw off a gushers of cash. It took me a couple years to figure out that letting Warren reinvest the cash, rather than giving some it to me (and making me pay tax on the dividends) was much plan. Frankly, I am not sure the next CEO will want to be in the business of having make 10-20 billlion worth of acquisitions each year.

I believe there is a lot uncertainty of what will Berkshire without Buffett be like. I think much of the uncertainty is reflected in the stock price. I am guessing that a dividend paying Berkshire without Buffett will actually trade a bit higher than with him at the helm as crazy as that sounds.

 

[NW-Bound]

I have been buying some B shares in the last couple of years. I had intended to get rid of the MFs I still had left, and some stocks too, and to put more into BRK. But at this point, I have only 2 percent of my portfolio in that. I like to dinker around too much.

Looking back, I would have been doing far better to put all into BRK. Not since I have been working and accumulating which would be great, but if I did that since 2000, I would also have more. Instead, by fooling around on my own, I have not quite doubled my portfolio since 2000.

 

[skiman1]

The man is unique and Berkshire a great investment.

 

[nvestysly]

Annual Report Season

The last few weeks have been a bounty of annual reports. Sometimes it's difficult to read them all. Hmmm... maybe I have too many stocks and need to consolidate. Sounds like a good time to buy more BRKB.

The BKRB annual meeting is just a few weeks from now. Similar to the annual report... the annual meeting is one of the few opportunities in corporate America to hear what's on the mind of some of the smartest business men (Warren and Charlie) in the nation. I'm looking forward to six or so hours of Q&A with those guys.

Yes, the BRK annual meeting is a bit of a circus if you include all the events held throughout the weekend but the Q&A session is one-of-a-kind.