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Berkshire Hathaway after 2nd Quarter September 13, 2010

Posted by shaferfinancial in Finance, Uncategorized.
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People who don’t look closely at Berkshire Hathaway are always confused about it.  This last quarter is an example.  For the quarter book value declined 3% to $86,661.  Net income declined from $3.1B to $1.97B from the year before.  So Berkshire had a bad quarter right???  Well, no, exactly the opposite.  Operating profits increased to $3.074B compared to $1.78B.  In fact, this was the second highest operating profits in its history.  And this result with the economy just emerging from a recession.  So, in fact, it was an excellent quarter.

But what about the loss in book value and net income decline????  Well, about 45% of the company is ownership of equities and derivatives.   These are marked to market each quarter.  The end of the 2nd quarter also coincided with the bottom for the stock indexes this year.  For example, the S & P 500 index was 1030 at the end of the quarter [currently 1123].  Wells Fargo was $25.60 [currently $26.42] and Coca Cola was $50.12 [currently $58.06].  The end of the quarter only gives you a snapshot of the value of the equities and the derivatives at that moment.  It tells you nothing about the true value of these investments.  What it does do for Berkshire is make its value extremely variable for the short term [less than 5 years].

If the overall stock market continues its rise for the rest of the month, then the value of Berkshire will sky rocket [assuming the operating income continues to look good] for the end of the 3rd quarter.

To evaluate take a look at the operating profits first.  Take a look at this:  [thanks to The Rational Walk for this chart.]

Does this look like a company that is doing poorly or one that is roaring out of a recession?

End of quarter price for the Bs was $79.69 a drop of 2% over the quarter before.  Current price is $83.00 up 26% year to date.

I will be holding on to my shares for a long time and adding on during the quarter.

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Comments»

1. BawldGuy - September 13, 2010

And that, dear readers, is what real analysis looks like. It goes far beyond the surface of 2 + 2 = 4. That’s not to mean it should ever equal any other number. It means that sometimes, that’s not even the ‘equation’ driving the analysis.

Absolutely stellar, David.


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