Suman Chatterjee's  Instablog

Suman Chatterjee
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Financial analyst-writer for the last 5 years. Writes for a number of financial publications including The Street, Motley Fool and Seeking Alpha. Completed his Bachelors in Business Administration (Finance) with GPA 3.0, currently pursuing Chartered Accountancy from ICAI, India. Specializes in... More
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  • Let's Put Some Trust On The Oracle of Ohama 0 comments
    Nov 7, 2011 11:10 AM | about stocks: BRK.A, BRK.B, WRB, CNA, XL, TRH, ALL, ACGL
    In November 2009, Mr. Buffett focused on the US transportation system and bought the Burlington Northern Santa Fe Corporation (BNSF) for $100 per share in cash and stock. Recorded at $44 billion including the outstanding BNSF debt of $10 billion, it was the most expensive acquisition in the Berkshire Hathaway history.
    In April 2010, one of the established subsidiaries of Berkshire Hathaway, McLane Company, went to grab a share of the alcohol industry, and completes the acquisition of the Kahn Ventures, Inc.
    In February this year, Warren Buffett had his eye on the Wesco Financial Corporation and entered into a definitive agreement to buy the rest 19.9% of the Wesco's common stock, in exchange of the Berkshire Hathaway Class B common stock.
    Things have been active at the Buffett end. And I am not surprised at all. When things go down everywhere else, they seem to move upward in the Berkshire Hathaway charts. Remember the famous quote by Warren Buffett - “Buy when everyone sells; sell when everyone buys”. What a quote to live by!
    But is the star company doing good? Let's give the third quarter report a quick glance. Here are a few highlights that might want your attention.
    Amount of insurance premiums earned amounted to $7.6 billion, down from $9.1 billion year-ago quarter. Even if this is because of the low US consumer spending power, what about the rest of the world? Is Mr. Buffett even focusing on the performance on the acquired companies?
    Although the railroad, energy and utilities sector has improved over the last year's quarter, even the financial sector has suffered, as it seems from the decline in the interest, dividend and investment income which went down to $384 million third quarter, down from $395 million year-ago quarter. Should I blame it on the economy?
    Why only this quarter? Let's give the 2010 annual report a look.
    Although QOQ this year has not been impressive, the net insurance premiums earned showed continued increase since the last 3 years. That leaves no doubt that Mr. Buffett does know what he is doing.
    But the interest, dividend and investment income has gone down to $5.2 billion in 2010, compared to $5.5 billion in 2009. Should we blame it on the economy? Perhaps, we should.
    The best thing that I can say, the company is in good, experienced hands, and there's nothing to worry. One thing to note, the company's PE ratio is around 16.35x, compared to 31.52x of XL Group, 36.03x of Transatlantic Holdings and 39.71x of Allstate Corp. Moreover, its return on average assets is much better than its other rivals, W. R. Berkley Corp, can Financial and Arch Capital Group.
    To sum it up, don't just go by the stats. Always remember to compare it with the industry standards, and then you will know the genius of Warren Buffett.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Stocks: BRK.A, BRK.B, WRB, CNA, XL, TRH, ALL, ACGL
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