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Client Letter January 2007
2006 Results "For 2006 our average account was up 16.9%, this was almost exactly 3% better than the Wilshire 5000 index, an acceptable but not great result. Considering that we spent the year with a very low risk profile (massively overweight Berkshire Hathaway, and 20% to 30% in cash most of the time) 16.9% looks even better."
Client Letter February 2007
Steel Dynamics "Steel Dynamics reported their fourth quarter and annual earnings on January 23. Income for 2006 was $397 million or $3.77 a share, so at $38 dollars a share the company is selling at 10 times 2006 earnings. This compares to net income of $220 million or $2.17 a share in 2005. In the six years since 2000 the company has increased its earnings from $54 million to today's $397 million which is a somewhat startling rate of increase (for a steel company) in earnings of 39% per year."
Client Letter March 2007
Berkshire Hathaway's Annual Report Berkshire’s 2006 earnings were spectacular. For the year net earnings were $11 billion or $7,144 per share. This was up 29% from last years $5,538 per share. It was up from $4,753 per share in 2004 and $2,795 per share in 2002 for a 4 year annual growth rate of per share earnings of 26.4%.
Client Letter April 2007
Berkshire's First Quarter I think it likely that 1st quarter earnings at Berkshire will again offer a positive surprise. Emboldened buy lucky guesses last year and being too stupid to quit while ahead, I will attempt the impossible (predict Berkshire’s first quarter)
Client Letter May 2007
Weak Dollar The dollar, as measured by the FED’s Major Currency Index closed yesterday at 78.99 this is the lowest close in the history of the index, which dates back to 1972. There had been support on the charts around 80 that had lasted for 20 years. In 1991 the index bottomed at 82.52, in 1995 at 79.21 (which was the all time low until yesterday. The most recent test of this level was in 2005 when the index bottomed at 79.27.
Client Letter June 2007
Stability is Unstable As Hyman Minsky an economist popular in the 1970s postulated, "stability is unstable" this economic paradox exists, Minsky explained because long periods of stability lure investors, bankers, and businessmen into taking on progressively more risk. While our economic system is good at correcting past mistakes it is even better at inventing new engines of instability.
Client Letter July 2007
Leveraged Buyouts "How curious that so many in the
financial community should remain blissfully oblivious to live
grenades scattered around the high-yield playing field. Amid all
the asset bubbles that we've seen in recent years -- emerging
markets in 1997, Internet and telecoms stocks in 2000, perhaps
emerging markets or commercial real estate again today -- the
current inflated pricing of high-yield loans will eventually earn
quite an imposing tombstone in the graveyard of other great past
manias."
Client Letter August 2007
Berkshire as a Hedge Fund The
main reason we have such a large position in Berkshire is for
protection in a down market so at least for the moment our hedge is
working. One big advantage of using Berkshire is that it can also
outperform when the market is going up, as it did in 2006.
Client Letter September
2007
Three Tables Presented here
are three tables comparing the value of Berkshire Hathaway with some
of Buffett’s recent purchases. Also, included for the sake of
comparisons are some of the stocks of Berkshire’s long term
holdings.
Client Letter October 2007
Berkshire's Third Quarter In the Second Quarter
Berkshire’s after tax net was $3.1 billion, so the Petro sales may
well push Third Quarter bottom line to over $4.5 billion. This
compares to last years $2.77 billion for the quarter, so the quarter
to quarter comparison may exceed plus 60%.
Client Letter November 2007
Greenspan on Inflation In
a world of paper currencies were a countries money supply is always
a political issue, the politicians always want easy money. Greenspan
notes that in his 17 years at the head of the FED he did not receive
one phone call from a President or congressman requesting that he
raise interest rates. Whereas there was constant pressure from
politicians of all shapes and sizes to lower rates.
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Client
Letter December 2007
Omaha Cash Flow In addition to the
cash they will receive from investment gains in 2007, Berkshire will see
a big cash infusion from a jump in the float of its insurance businesses
because of the Equitas transaction. Add the $6.9 billion from Equitas to
an after tax profit in the area of $14 billion, and Berkshire’s cash
flow in 2007 will be in the black by something like $21 billion.
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