Selling BRK/A below $151,650~ Or BRK/B below $101.10

January 21st, 2010 by Rich

Mr Buffett stated he has no counter-party risk because, like an insurance company, Berkshire received the premium to put to work in the Berkshire portfolio.

We have all seen insurance companies earnings and capital challenged by unexpected incorrectly priced event costs exceeding premiums and operating costs. AIG is but one example.

Perhaps this is part of why rating agencies reduced Berkshire Hathaway’s AAA credit rating and increased its cost of capital. Berkshire insurance premiums including Geico increased and Berkshire has left some insurance markets because of increased risks.

The Berkshire Buffett investment portfolio admittedly had a few bloopers like Moody’s, Irish Banks and COP Conoco Phillips. The Banks, COP and Berkshire sold or wrote down some of their investments in Bank mortgages, derivative contracts and in Lukoil, a Russian Petroleum firm.

In fact, Mr Buffett’s favorite holding, WFC Wells Fargo, is the largest mortgage originator, with 25% of the market. They cannot pass on all these risks to FHA, FNM, FRE and GNMA.

In fact, Berkshire took a -96% hit on earnings the 4th Quarter of 2008 because of mark-to-market write-downs on the derivative portfolio he said gave no concern to him or his investment partner Mr Munger.

Unlike Berkshire, banks have not marked all toxic assets to market. Market risks may increase with surprise declines.

In fact, the 66% rise in the market and favorable decline in naked put prices since March of 2009 may create a significant comparative rise for 2009 BRK book value and earnings.

Meanwhile, Mrs market looks ahead.

Will a prospective book value and retained earnings recovery continue over the coming two decades when Mr Buffett and Mr Munger have found their heavenly reward?

Mr Buffett made a market bet with naked puts. Despite his assurances, the risks rival the value of the Berkshire Investment Portfolio. Despite short-term increases in book value and earnings, Berkshire holdings laid off 25,000 employees to get there.

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This entry was posted on Thursday, January 21st, 2010 at 6:18 pm and is filed under Market Psychology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 Responses to “Selling BRK/A below $151,650~ Or BRK/B below $101.10”

  1. Brk.b On Twitter | Tech News Says:
    January 22nd, 2010 at 12:05 am

    [...] Jubilee Prosperity » Blog Archive » Selling BRK/A below $151650 …Selling BRK/A below $151650~ Or BRK/B below $101.10. We have a lot of respect for Warren Buffett, perhaps the most successful investor of all time, exemplified by his Berkshire Hathaway Holding Company. And today the bullish rumour is … Read more [...]

  2. Rich Says:
    January 26th, 2010 at 1:26 pm

    Aloha All
    We learned at least one person was unclear why we headlined
    selling BRK/A below 151,650 or BRK/B below 101.10 when recent
    prices were 109,995 and 73.43 respectively.
    The long-term trend is our friend.
    We like to buy on weakness in a primary uptrend or sell on strength in a primary downtrend.
    With all the excitement about the 30:1 and 50:1 net 1500:1 splits, the 50:1 motivated by taxes from the BRK acquisition of BNI and the BRK KFT acquisition of Cadbury, we wish to remind folks Mr Buffett seems to be going against core declared principles promoting free markets while supporting government bailouts and guarantees that riddle them with moral hazard, calling for higher taxes while seeking to buy tax credits, eschewing stock splits while completing a 1500:1 stock split, and declaring derivatives weapons of mass financial destruction while selling naked puts that reduced the credit rating and earnings of BRK.
    We think the clear long-term trend of BRK may be down, so caveat emptor…
    Regards*Rich

 

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