Friday, February 27, 2009

Berkshire Results Likely To Be Worst Ever

Fox Pitt analyst Gary Ransom says to be very wary when Berkshire posts earnings tomorrow, warning results may be the worst since Buffett took over the company in 1965. As a result of equity losses and writedowns on derivative bets, the Oracle of Omaha's book value per share, or intrinsic value may have dropped by 8.5%, which will be only the second time this metric has declined under Buffett's command, the only previous time being 6.1% in 2001. The biggest threat and concern to shareholders is the $35.5 billion of European Options Buffett has written which expire in 2019, and could be a latent time bomb assuming the market doesn't stage an impressive pick up before then.

Buffett's take on the ever critical in his view intrinsic value:

"Intrinsic value is an estimate rather than a precise figure,” Buffett, 78, wrote in the manual on Berkshire’s Web site. “We give you Berkshire’s book-value figures because they today serve as a rough, albeit significantly understated, tracking measure for Berkshire’s intrinsic value. In other words, the percentage change in book value in any given year is likely to be reasonably close to that year’s change in intrinsic value."
As Berkshire's share price has slipped 44% in the past 12 months, matching the drop of the S&P, it is likely that the usual hordes of shiny happy people which invade Omaha every year for Warren's annual shareholder meeting, will be much less shiny and happy on May 2 this year.

In the meantime, Buffett has been migrating away from equities, investing in preferred and bond investments in companies such as Goldman, Tiffany's and Harley Davidson; at last check none of these were performing very well, especially the latter two, whose stock was trading near all time lows. Sphere: Related Content
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Anonymous said...

"intrinsic value may have dropped by 8.5%...Berkshire's share price has slipped 44%"

uses zero leverage with his $65bn and $35bn fixed portfolios. the option matures in 11 years. amazing that buffett is being lumped in with 32x leveraged companies that have zero/negative book value.

'nuf said

chrispycrunch said...

My thoughts exactly.