ecco un'altro parere, poi mi fermo
Buffett says that lumpy earnings do not brother him, and it's a good
thing because Berkshire's Earnings are lumpier than a sack full of
cats. While this is not a problem for Buffett it clearly is one for
Mr. Market. This poor soul, obviously to busy to read Berkshires 10 Q,
has no clue, earnings are up or earnings are down but what does it
mean? All those lumps?
There can be the gain from the sale of investments of $5.07 billion in
the fourth quarter
Of 2005 and $167 million in the second quarter of this year. There are
catastrophic insurance losses that can be next to non-existent for a
year or two then jump to $3.5 billion in the last half of last year.
Anyway you can see what I mean, how do figure how fast Berkshire's
earnings are growing with all these lumps hiding the trend? The most
interesting thing about the 2006 second quarter report was that there
were practically no lumps. This is about as close to core earnings as
you are ever going to see on a Berkshire 10 Q. The story told by this
report is very interesting, and to try to find the underling trend I
will compare this years second quarter to the second quarter of 2001.
2006
It turns out that this is fairly easy because almost everything in
this quarter's earnings is recurring. We will use Pre-tax earnings
from the table on page 19 because of the detail provided in this table
and because what we are trying to measure here is the trend not value.
Pre-tax earnings from the table were $3.6 billion, the only lump that
I see is Investment gains and losses of $459 million. So we will
subtract that figure and say core pre-tax earnings for the quarter
were $3.143. This includes $131 billion (a full quarter) from
PacifiCorp, but of course does not include anything from third quarter
acquisitions ISCAR and Russell. Otherwise it is a fairly normal
quarter with underwriting profit down 70 million at GEICO and up $66
million at GenRe. Of the operating companies, Building products,
financial products, Shaw, flight services, and "other" were strong,
apparel was weak, while McLane, and retail were flat.
2001
For the second quarter of 2001 pre-tax was $1.267 billion, but there
were more lumps. First of all there was $648 in investment gain so we
have to remove that to get to core earnings. There were three loss
items that were not recurring so we will add these numbers back in. In
the insurance business there was $137 million write off for prior year
losses at GenRe, and $104 million loss for retroactive Insurance at
Berkshire RE. Also there was a $167 change for amortizing goodwill, so
$1267-$648 +(137+104+167) leaves us with core earnings for the second
quarter of 2001 of $1.027 billion.
So ignoring the lumps Berkshires quarterly pre-tax earnings has grown
from $1.027 billion to $3.143 in this five year period. The rate of
growth has been almost exactly 25% per year. Now as most people here
will have noticed the price of the stock seems to have lagged this
pace of earnings growth. On June 30, 2001 Berkshire was selling for
$69,200, and at $91,659 on June 30 of this year Mr. Market has bid the
price of our stock up by something less that 5.8% per year. We can, as
has been suggested here, take Mr. Market's word for it and accept
today's price as an adequate measure of the company's value. But 25%
earning growth for five years would seem to merit more respect.
It is not likely that Berkshire will be able to maintain that growth
for the next five years, but that does not mean that the company will
not grow faster that the broad market averages. In the five years
since June 30 2001 Buffett has spent a total of $14.9 billion in
acquiring 15 companies. With approx $ 41.6 in cash and $26.6 billion
bonds on hand today, it is not the lack of funds that will slow
growth. Notice also the cash is flowing into Omaha three times as fast
today as it was five years ago.
It is true that you would have made a lot more money in the last five
years if you had had your money in small cap value, but I doubt that
the rear-view mirror will be any more helpful today than it has been
in the past. So you will forgive me if I chose to ignore the market's
depressive phase.