Nov 022013

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.

The entire article is available at:




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