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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: re3 who wrote (75753)	2/12/2000 5:38:00 PM
From: Freedom Fighter	Read Replies (2) \| Respond to of 132070

Ike, I haven't crunched the numbers as of the last quarter but this is approximately what's happening. There's about 27,000 per share of tangible equity. That equity is mostly made up of insurance capital that is split between bonds and stocks almost evenly right now. There's about a 6,000 per share deferred tax liability related to capital gains on the equity portfolio. That's money that is still working towards generating profits for the company but is recorded as a liability. So even though it's recorded as a liability it really is an asset. Warren will not be selling and paying the taxes. Let's call it worth 3000. The insurance operations generate what is called float. Float is money that the insurance company holds while it is paying out claims. It invests this money while holding it and earns a profit. That's how insurance companies make money. They invest their own capital and the float. Most insurance companies lose money on the insurance itself. Berskhire Hathaway probably has the greatest collection of insurance companies in the world. Not only do they make money on the float and their own capital, but over the long haul they make a significant amount of money on the insurance. This gives them enormous value. It's a number that's hard to quantify, but I can throw of some information. General Re typically sold at around 2 times tangible book when it was public. Geico typically sold at 2.5-3 times book when it was public and Warren paid more than that in cash when he took it private. The Super Cat business is also a great one and I would guess that it too is similarly valuable. There is about 16,000 per share of float right now. The kicker here is that if an insurance operation makes its money on investing float and capital, the skill of the investor in charge is a key to how the company does. BRK has Warren, Charlie Munger, and Lou Simpson running the money. That's like having Ruth, Cobb, and Gerhig. It's an intangible value but it is emormous. There are other people in the organization that are less well known that Warren has expressed complete confidence in too. (younger) Berkshire also owns a large stable of 100% owned subsidiaries. They cover flight services, candy, furniture, Dairy Queen, finance businesses, shoes, jewelry and many others. It's an incredible stable of extremely high return on equity businesses that grow without the addition of much capital. I've seen valuations on the group ranging from 5,000 per share to 8,000 per share. I do not dispute that valuation. As a group they also have very little of that 27,000 allocated to them. All told I have seen valuations ranging from 60,000 per share to 96,000 per share. My own estimate is closer to the lower end but I give no value at all to the investment team. All I know is that it is an enormous plus that is difficult to quantify. Now if you ask me where the stock is going next I have no clue. That's not what I do. I think Geico is crushing the competition right now and will continue to do so. I think General Re will recover from its cyclically weak year and flourish under BRK's banner. I think flight services is on its way to becoming a killer company. I think super cat will continue to grow and I think the equity portfolio will outperform the S&P500 over the next decade. I think Warren will continue to get and find deals that others can't. I think if we have a bear market and values are created that anywhere from 15-20 billion dollars of the bond portfolio will be shifted into equities where it will generate enormous wealth over time. I could go on.... Wayne