Berkshire Hathaway reported an increase of 8 percent in its third quarter operating earnings as compared to the corresponding quarter last year. Its net income increased by 29 percent as a result of sales and redemptions of investments and derivative gains. Its non-insurance businesses, led by Burlington Northern Railroad and Mid-American Energy, increased their operating income by 12 percent. However, its insurance (underwriting and investment income) operating earnings declined by 8 percent primarily due to an increase in the frequency and severity of claims at Geico and losses at General Re. Berkshire’s cash and cash equivalents totaled $42 billion on September 30. Warren Buffett, Ted Weschler, and Todd Combs invested an additional $3 billion in equity securities during the third quarter.
Berkshire’s book value (Class A equivalent shares) was $126,766 on September 30. At Berkshire’s closing price of $173,122 on November 1, it is currently trading at 1.4 times book value, which is below its average price to book value ratio of 1.6 from 1985-2012. Warren Buffett has previously announced that he would buy back shares at prices below 1.2 times book value. Buffett believes that Berkshire’s book value is a good, but understated, proxy for its intrinsic value.
I am quoted in an Omaha World-Herald article on this topic:
“There were no major hurricanes or natural disasters,” said David Kass, a Berkshire shareholder and University of Maryland finance professor, “but pricing can be very competitive in the insurance industry.”
“Buffett, shareholder Kass said, likes to keep about $20 billion on hand at all times.”
“He certainly has room for another large acquisition in the range of $15 billion,” Kass said.
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