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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Haim R. Branisteanu who wrote (65481)	12/29/2000 7:36:33 PM
From: Benkea	Read Replies (1) \| Respond to of 99985

Haim, don't be silly. Half of BRK's earnings (AT LEAST) are hidden. Unlike the rest of the clowns managing major companies, Buffett likes to SAVE tax money (guess that comes as a result of owning 40% of the company, taking a mere $100k salary, and receiving no options!). We've had long discussions on BRK around here and they are probably considered off topic so I won't go into great detail here. However, you can send me a private message if you want to discuss the silliness of the "sports a P/E of 47 for a mutual fund" statement. PS. The "mutual fund" receives over 70% of its revenues from its wholly owned insurance operations, and employs over 50k full-time employees throughout the dozens of wholly owned subs - both insurance and non-insurance.

To: Haim R. Branisteanu who wrote (65481)	12/30/2000 3:51:07 AM
From: Moominoid	Respond to of 99985

Three things about Berkshire which cause such a high P/E: 1. Unrealized capital gains aren't counted in earnings and the earnings of partly owned companies aren't included in Berkshire's earnings. In 1999 Berkshire's share of earnings of its biggest 7 holdings was $707M. 2. Amortization of goodwill on acquired businesses is significant: $477M in 1999. 3. 1999 earnings were particularly poor - big insurance losses up 209% with premium up 161%. Comparing various measures for 1997-1999: Net Earnings Comprehensive Income EBITDA 1997 1.542B 7.955B 2.994B 1998 2.830B 3.142B 4.507B 1999 1.557B 0.270B 3.020B Book Value 31Dec96: 23.427B Book Value 31Dec97: 31.455B Book Value 31Dec98: 57.403B Book Value 31Dec99: 57.761B The big jump in book value between 97-98 was due to the acquisition of General Re. I don't know what the correct valuation for Berkshire should be but clearly just looking at the latest reported earnings isn't so informative. If we were to assume that the loss to premimum ratio last year was 70% as in the previous 2 years add in those 707M of investees earnings and adjust tax accordingly I get hypothetical earnings of 3.773B. So with the curent market cap of $106B the P/E would be 28. That's without adding back in any amortization and there are some more earnings of holdings that aren't reported in the annual report. Berkshire is an insurance based conglomerate. Hardly a mutual fund. David