Client Letter January 2006
Client Letter February 2006
Client Letter March 2006
Client Letter April 2006
Berkshire's Growth Rate "Total pretax Operating Income has grown from $329 million in 1987 to $7.5 Billion in 2005. The growth for the 19 year period works out to annual rate of 19% which is not bad for a company the size of Berkshire, but what is more interesting to me is that the rate for the last ten years is 24%. Better yet the growth rate for the last 5 years is also 24%."
Perfectly Obvious "We’re not saying that we do thinks better, but rather that this is us. We want people with a lifetime commitment to their business. To underscore the values that we have, everything we do is consistent with Berkshire’s culture. Everything they see hear, and read from the company should be consistent…Homes have cultures. Companies have cultures. Countries have Cultures at Berkshires people buy into it and see that it works. This kind of thing doesn’t require mentoring. Managers see consistency in how Charlie and I act."
Warren Buffett
Fat Pitch "With rates approaching low earth orbit and risk coverage down dramatically it would seem like this would be a market Buffett would love, it looks like a big high floater hung out over the center of the plate. Think junk bonds in 2001."
Berkshire's Second Quarter "Buffett says that lumpy earnings do not brother him, and it’s a good thing because Berkshire’s earnings are lumpier than a sack full of cats. While this is not a problem for Buffett it clearly is a problem for Mr. Market. This poor soul, obviously to busy to read Berkshire’s financial statements, has no clue, earnings are up or earnings are down but what does it mean? With all those lumps?"
Hurricane Synergy "This I suspect is part of what we will call Buffett's hurricane synergy, the idea that if Berkshire can buy enough companies in the building materials, construction, and a manufactured housing industries. Then, when its the insurance companies are paying insurance claims for catastrophic damage due to hurricanes and earthquakes, Berkshire as a company will just be transferring money from one pocket to another. "
Berkshire's Third Quarter 'Using this guess (let me emphasize the word guess) we arrive at a pre tax operating profit of $4.111 billion for the insurance and the non-insurance operating companies. Estimating a tax rate of 36% would deduct $1.5 billion and leave us with an after-tax operating profit of 2.6 billion of the third quarter compared to $2.05 billion in the Second quarter, $1.8 billion in the first quarter of 2006 and $100 million in the third quarter of last year."
Equitas "Also helping to push Berkshire’s stock north was the recent announcement of a $15 billion deal with Equitas a trust formed by Lloyds of London to handle their asbestos and environment liabilities. This is a huge deal that will provide $9 billion in new insurance float when the deal closes, and maybe as much as $7 billion more over the life of the contract. This float comes from asbestos claims that will eventually have to be paid. "
New Positions "In spite of our skepticism in relation to the overall market, we have recently been able to find a few interesting stocks. These are companies with strong earnings, and very solid balance sheets. These are stocks that will benefit from weakness in the dollar, either because they are basic materials stocks, or because they are companies that manufacture things in the United States. They are small companies with market capitalization that runs from $100 million (Core Molding) to $3.5 billion (Mechel OAO and Minas Buenaventura SA)"