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Strategies & Market Trends : Buffettology
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To: Michael Burry who wrote (1427)5/17/1999 2:19:00 PM
From: Freedom Fighter  Read Replies (1) of 4690
 
Mike,

I haven't finished crunching the numbers yet, but the lower 1st quarter earnings by BRKA/B are not indicative of the still outstanding operating performance of the company. Value investors should look past the surface numbers.

A substantial portion of the decline is related to a drop in realized capital gains. This should always be excluded from the analysis due to the wide swings.

There is an increase in the amortization of goodwill related to the General Re merger which does not affect cash earnings and free cash flow.

General Re's somewhat disappointing results reflect a non-recurring large loss at a subsidiary that I believe is in Europe. This will not repeat in the second quarter and can be viewed as a one time charge. It's no fun to have an unexpected loss like this, but it does not reflect accounting games or an event likely to be repeated soon.

The weaker underwriting results at Geico reflect both temporarily weak industry conditions and very aggressive marketing by Geico. Long term this is to BRKA's advantage as customers gained almost always renew and float generating ability is enhanced.

It's not in buy territory yet, but the drop in stock price reflects an error on the part of investors in their interpretation of the results. They were excellent and are value improving.

Wayne Crimi - Value Investor Workshop
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