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Musings on Berkshire Hathaway November 14, 2013

Posted by shaferfinancial in Finance.
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At the quarter end Berkshire Hathaway was up 11% in book value year on year.
It continues to produce cash flow at an astounding rate.
Operating companies were generally up 5-10% in profits, year on year.
Insurance underwriting was down from the quarter before. [Buffett warned his stockholders that this would happen as hedge funds move into reinsurance and pricing deteriorates. Berkshire does not write business if the price is not adequate. This is a cyclical issue.]
Berkshire is poised for another major purchase with $40B in cash.

So basically, it is status quo for the company.

The stock price went down some but has stabilized at $172,000-$175,000 [B-$112-116]
I think with a P/E of less than 15 and a price/book of 1.36 I think it has some room to run.

I have found with my 15 years of ownership of this stock that when investors react to small issues is the time it is most undervalued. Investors reacted to the decreased underwriting profit. They acted like it was some kind of surprise when Buffett himself predicted it.

I think a reasonable assumption going forward is for slightly above 10% returns on book value for the next decade [with some dramatic ups and downs because of the mark to market issue].

When we have another recession Berkshire will again be in position to pick off some seriously undervalued assets and loan money to solid companies dealing with transient issues in exchange for outsized returns.

I have sold a small portion of my Berkshire Holdings at $117 to invest in other opportunities, but it still remains a core holding for me. There will be no changed for me in that.

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