Berkshire Hathaway Inc., with a stock portfolio valued at more than $60 billion, may report its best quarter in at least two years using the metric preferred by the firm’s billionaire chairman, Warren Buffett.About $11 billion in gains in Berkshire’s stocks and a recovery of derivative bets tied to equity markets caused book value, a measure of assets minus liabilities, to reverse after two quarters of declines, according to analysts and investors including Glenn Tongue at T2 Partners LLC. Berkshire is set to report second-quarter results tomorrow.
“It’s going to be a blockbuster,” said Tongue, whose New York-based firm’s largest holding is Berkshire shares. “It may well be the greatest dollar gain in book value in any quarter in the history of the company. Warren Buffett showed extraordinary discipline in the first quarter when all others were losing their heads.”
Buffett, one of the world’s most celebrated stock pickers, this year confessed to investing mistakes that hurt returns over the prior 12 months. Berkshire’s book value per share, the measure highlighted by Buffett in the first sentence of his annual letter to shareholders, has declined in four of the past five quarters, and 2008 marked only the second time since Buffett took over in 1965 that it dropped for a full year.
In his “owner’s manual” for Berkshire shareholders, Buffett says he considers the figure to be an objective substitute for the best measure of the Omaha, Nebraska-based firm’s success: a metric he calls intrinsic value.
Intrinsic Value
“Intrinsic value is an estimate rather than a precise figure,” Buffett wrote in the manual on Berkshire’s Web site. “The percentage change in book value in any given year is likely to be reasonably close to that year’s change in intrinsic value.”>>>MORE
A couple comments by yours truly at MarketBeat:
In response to their July 24 post "Warren Buffett Says His Concern about Inflation “On the Rise”':
9:34 am July 24, 2009
Climateer wrote:
And June 19's"Gartman: ‘Warren Buffett Is an Idiot’"
- 10:47 am June 19, 2009
Climateer wrote:Mr. Gartman is a lightweight.
As donzoab points out, free cash flow is key. It allows you to play in the big leagues.
That and being able to cut opportunistic deals with a single phone call to Charlie or Sokol.
When Gartman takes Goldman as deep as Warren did, 10% money and warrents! (in the money $1.1 Bil.) I’ll pay attention to his comments on BRK.
Mr. Buffet’s much maligned derivatives play, writing index puts, is at heart a bet on inflation.
The various indices won’t be adjusted for inflation and while not inflation hedges, have enough correlation to inflation that even though the holders may see losses in real, inflation adjusted terms, in nominal terms they may be higher and Warren wins.
The other component of the inflation bet is that BRK got the premium up front, with Warren free to deploy as he pleases.
(no collateral was required of Berkshire)
What’s that Gartman guy up to?