Berkshire Hathaway Class B Message Board

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Non-Tech : Berkshire Hathaway Class B

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To: jhg_in_kc who wrote (933)	8/14/1999 11:25:00 AM
From: Michael & B.Anne	Read Replies (1) of 1652

down trend: this is a stock whose time has come and gone. It most certainly isn't a company whose time has come and gone - it is stronger today than last year and its potential is already being seen -- doesn't a 37% increase in revenues count for anything. But since we are fixated by earnings - what drove earnings down? 1) GenRe: reduced quarter contribution of around $100M is most assuredly transitory - either a) they experienced large unexpected catastrophes, or b) IMO they held insufficient reserves thus allowing them to report better earnings and buffett is changing that in either case, that $100 million shortfall/quarter is not a permanent condition. When/if it stops, add around $67 to each A share earnings. 2) Geico reduced contribution of $60M ($40 per A share) has three components a) increased competition leading to lower rates for all insurance companies (potentially very good for BRK) b) increases in large injury pay outs c) large marketing costs that have led to increasing base by 23% Let's call a) and c) counter balancing. Although surely 23% increase in base should allow for increased income moving forward. So when ever earned monies are returned to earnings A's will get an addition minimum of $40 per quarter. 3) the single most important entry on the report Purchase-accounting adjustments Q299 Q298 Q199 Q198 (186)...(25)...(335)..(51) Is an accounting mechanism and has nothing to do with earnings. That $186 did not get paid to anyone - the earnings of the company were not depleted in any way. This (increase of previous year) represents something around $100 per A share. So if we say A) and B) are not indicative of a permanent condition and C) is accounting - a more realistic measure of BRK earnings expectations might be around $600 per A share. OK .. so what 1) you are correct - the market will look at earnings per share only and articles will ensue relating the death of BRK. 2) perhaps BRK will not sell off - such a move will require either a) large volume - a more broad based selling (volume has been light to date). There are not that many individual short term speculators in BRK. In any case we will see over the next week - look at number of trades. b) another large seller(s) - to date most selling has been in lare B shares blocks which would indicate GRN to BRKB shares. Most (if not all) mutual fund holdings are pre 66 and are in A shares. IMO a major hit would require one of these to give up and sell. Also IMO BRK might be very attractive to institutional investors. These golden market times will not most likely continue forever and an argument can be made you will not get a better chance to buy into BRK for anytime in the foreseeable future. But if this is an incorrect view - look for high unit trades 3) Perhaps BRK will sell off - then I am in that painful position of holding on more sure that the company is undervalued a) BRK sells at less than 2 times book b) its' nearest equivalent competitor (AIG) sells for 4 times book c) if BRK is an insurance company - might not it be valued somewhat equally to other companies in its sector. Further, its revenues are improving. The charges against these increasing earnings are not permanent 4) I am not trying to sugar coat report - rather to state that it was not a disaster and does not show a company in peril ... in fact it shows promise. Finally, while sometime in the future we may look back at the GRN acquisition as the event that allowed BRK to make a strong move - to date it has been painful (in several dimensions) In sum, therefore (sigh) I will hold and wait.

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