bringing the indent back from antarctica.
todd, are you tired of the squishy sound yet? the one that you get from banging your head against the wall while conversing with people that have more keyboard than brains.
sometimes you can't talk sense to people who do no due diligience.
there are only a few things that you can say about berkshire earnings and or valuation. a few of which are true.
1. BRK stock is worth exactly what somebody else will pay for it. no more. no less.
2. unless and until berkshire sells the various equity positions they have staked out, price changes in those equities only impact book value. that includes the GE and GS warrants.
3. until we know just what was bought or sold in the last quarter, we have no idea whatsoever what that impact might be.
4. BRK reports so late in the next quarter, that the information and or guesses are largely useless.
for all we know, warren laid off some of his index puts on some sucker in april and started dumping KO and JNJ in order to buy Bob's Shipping(NYSE:BS). wait and see. believe or don't.
<<My point is BRK shares are overvalued.>>
My point is that you're wrong. BRKB is worth closer to $86 and smarter people than me think it's worth closer to $95.
<<You don't get the dividends and you have alot more risk via derivatives than just owning the KO or PG etc etc>>
1995, Fortune Magazine, (P&G derivatives):
"P&G is doggedly claiming, nonetheless, that in late 1993 and early 1994 it was cheated by Bankers into buying two swaps having "huge, concealed risks." One of P&G's complaints is that it was the prisoner of "a secret, proprietary, complex, multivariable pricing model" that Bankers would not share and whose inscrutability stood in the way of P&G figuring out how to mitigate its losses. Certainly P&G did not marvelously mitigate. Its derivatives loss, announced last April, was $157 million before taxes. Essentially, that was the present value of super-high payments that the company, by the terms of its two swaps, was obligated to make to Bankers Trust over the next several years.
P&G, however, has not yet paid a penny on the swaps, and in its lawsuit is asking that they be rescinded. It wants a jury trial, a mind-bending fact considering the complexities of this case--hardly the stuff for Court TV. Bankers, meanwhile, has denied wrongdoing of any kind and has countersued, asking that P&G be forced to hand over all it owes."
<<My parroting is what Buffet has said.>>
So you think.....
1) Warren warned about derivatives in 2002 then suddenly got amnesia and entered derivatives several years later?
2) Warren knew what he wrote in 2002 but decided to do "risky" derivatives anyway because he was tired of making money and wanted to start losing it.
Are you seriously believing one of the two circumstances above transpired? Only the financial press is that stupid.
Warren personally wrote the derivatives for BRK and he has used them to try and take advantage of mispricings. He won't get them all right but he'll probably get most of them right, just like his investing odds.
Warren may be human but he's better at this game than you are.
My point is BRK shares are overvalued. You don't get the dividends and you have alot more risk via derivatives than just owning the KO or PG etc etc
My parroting is what Buffet has said. Actually AIG sold cds on mortgages. Buffett has sold them on MUNI & high yield debt...don't get so high and mighty.... he's human.
<<Warren is brilliant...he's not buying his shares today.>>
He's never bought back shares....EVER. Back in 2000, he offered to buyback shares but didn't.
<<Its not about total loss its about double talking calling them as weapons of mass destruction and then putting them in the portfolio.>>
Again, you DON'T UNDERSTAND so you're just parroting back what others have said or you have come to the wrong conclusion on your own. Warren has said derivatives are "financial weapons of mass destruction" in the 2002 annual report, true. But he has also clarified saying that derivatives are like uranium, in the wrong hands they are dangerous, in the right hands they are helpful. He had to clarify this because people like you can't distinguish between derivatives Warren is doing and derivatives AIG did. Since you don't understand you paint all of them with the same broad brush.
You don't understand and yet you have confidence in not understanding.
I know how this ends...
Warren is brilliant...he's not buying his shares today.
Retail investors are being sucked in.
The derivative premium you quote is the premium.. $63 billion is the risk he's already posted losses and will likely again for last quarters train wreck. Its not about total loss its about double talking calling them as weapons of mass destruction and then putting them in the portfolio. (at the wrong time based on 2005 values so yes they are underwater) if you had level 3 options in your account you too could sell naked puts. Only difference is the long dates and settlment at maturity.
It's clear that you don't understand based on what you post.
You don't understand that Warren gets $8.1 billion upfront with the derivatives. What is the future value of $8.1 billion @ 10% annually?
You don't understand the renaissance that rails are going through so the purchase appears "expensive" to you. You don't understand that BNI will deliver good returns for decades to come. You don't understand how big MidAmerican has become and it's very similar in nature to rails.
You don't understand how to value BRK because you keep resorting to P/E, an oversimplified and overutilized tool that doesn't tell you what BRK is worth. It makes you think BRK is expensive, when it's still selling below what it's worth. You're comparing P/Es of other companies to BRK when it's not an apples-to-apples comparison whatsoever but you don't understand why.
You think you're smart but you're responses are more telling and highlight your lack of understanding of BRK and its value. Warren understands all of these facets and much more and yet you're sitting across the table from him, betting against him.....
I'm enjoying it all because I've seen it before....and I know how it ends.
1. derivatives are broad market bets. thats the point....if broad markets drop they take charges...losses.
2. $44 billion is what they paid.
3. yes they own great companies but you are paying a huge premium via 19 x eps vs. 11 -14 for many companies they own...and you don't get the dividends.. selling you on that idea makes them smart not you.
4. this has become a broad market bet...future eps are tied to the economy. Not that of an all star stock picker like it was 20 years ago.