Sage of Sugar Land

Berkshire Serves Up Solid Results in a Difficult Economy

Compliments to Ravi Nagarjan for boiling down various aspects of Berkahire's activities and results into a realistic and easily understood form. His periodic assessment of Berkshire's performance and valuation have been a pleasure to read--it is a welcome departure from some others who try to "create headlines", but often display a total lack of understanding of what Berkshire's and Buffett's investing philosophy is all about--they cater to the crowd.

I have been an owner of BRK for almost 25 years, and a huge admirer of Buffett and Munger. I am also aware of the (many) mistakes Buffett has made and which he has so openly and graciously admitted.

Thank you, Ravi, for providing these analyses--they are especially useful for those who do not have the time to review the quarterly reports in detail.

Berkshire's Puts: Not Such a Great Idea

I don't know who this guy is, or what his reputation is. What is Cross Gamma Effect--seems like something from nuclear science. No wonder Buffett and Munger pay no attention to these esoteric and meaningless ideas.

Sure, looking back, the puts were not such a great idea. But even WORST case--all pertinent indexes down to ZERO--would reduce future book value of BRK by 15 to 20 percent. An unpleasant, but far from disastrous scenario. But then again, no one expects the indexes to go to ZERO.

Does this guy read the annual reports? Sure, BRK's EQUITY INVESTMENTS are highly correlated to the market. But in recent years the company's income from its operating businesses far outweigh the growth in equity investments. And the Operating businesses are doing just fine.

Focusing on the put option issue is like the guy who is unable to enjoy the Christmas lights because he is so distracted by the one string that is not lit.

Lessons from the Madoff Scandal: Deciding Which Funds Are Worth an Investment

So many words to convey so little useful information and a lot of misinformation.

Berkshire Hathaway is a Hedge Fund?--does the author have any clue about the company's business model and structure?

Buffett has made a rookie error?--Warren's sale of the long term index puts is nothing more than an insurance policy written with an adequate premium. Buffett has been in the insurance business for over 35 years and there is probably no one else who understands the business better than he does. To a rookie, everyone looks like as rookie.

Buffett's Biography: Is Goldman Sachs the New Salomon Brothers?

Some interesting thoughts, but overall the author seems to be out of touch on many key points.

Examples: The similarities between Salomon and GS--Warren never will, and will never need to, take on a role at GS that is similar to the one he did at Salomon. The only way Buffett will lose with the GS deal is if the company goes under--not impossible, but extremely unlikely. In the meantime he is collecting 10% interest, is assured return of capital (except if GS goes under), an is assured a 10% fee if the debt is repaid early. The warrants, if he gets to exercise it for a profit, is icing on the cake.

Another example: his 1999 call of a sideways market until 1916 was brilliant indeed. But remember the SP500 was in the 1300 to 1400 range then. In Nov 2008, with the SP500 around 750, the 1999 call if proven right, means a 1350 or so SP 500 in 1916--or an approximately 80% gain in 8 years. This is a annualized return of about 7 or 8%, plus a dividend of over 3% --for a cumulative return of around 10% for the next 8 years. Perhaps Mr. Cooper considers this inadequate. REMEMBER: Graham defined Investment as "an operation which, upon thorough analysis promises safety of capital and an adequate return"

Buffett's Biography: Is Goldman Sachs the New Salomon Brothers?

Sorry about the typos--obviously, I meant 2016 where I typed 1916.


On Dec 28 09:58 AM Sage of Sugar Land wrote:

> Some interesting thoughts, but overall the author seems to be out
> of touch on many key points.
>
> Examples: The similarities between Salomon and GS--Warren never
> will, and will never need to, take on a role at GS that is similar
> to the one he did at Salomon. The only way Buffett will lose with
> the GS deal is if the company goes under--not impossible, but extremely
> unlikely. In the meantime he is collecting 10% interest, is assured
> return of capital (except if GS goes under), an is assured a 10%
> fee if the debt is repaid early. The warrants, if he gets to exercise
> it for a profit, is icing on the cake.
>
> Another example: his 1999 call of a sideways market until 1916 was
> brilliant indeed. But remember the SP500 was in the 1300 to 1400
> range then. In Nov 2008, with the SP500 around 750, the 1999 call
> if proven right, means a 1350 or so SP 500 in 1916--or an approximately
> 80% gain in 8 years. This is a annualized return of about 7 or 8%,
> plus a dividend of over 3% --for a cumulative return of around 10%
> for the next 8 years. Perhaps Mr. Cooper considers this inadequate.
> REMEMBER: Graham defined Investment as "an operation which, upon
> thorough analysis promises safety of capital and an adequate return"

Why Chicago Bridge & Iron Is Cheap

You are probably right. CBI could see a nice bounce back over the next couple of years. But fundamentally I have concerns. Management has made a slate of acquisitions/mergers--... Howe-Baker, John Brown (UK), and most recently ABB Lummus. It is not easy in this industry to amalgamate the different "cultures" these newcomers bring, and the company is far from firing on all cylinders.

Add to this management short sight in trying to gain market share in the LNG Terminal business at the cost of margins--in fact, as we have seen, both UK projects have accumulated huge losses--both in money and in reputation, due to the large delays.

The balance sheet is anything but pristine. The Sep 08 report shows short term liabilities exceeding short term assets by over $850 million--larger than the company's current market cap.

There is probably money to be made--but this company is not for the cautious investor.