Monday, February 27, 2012


1. Warren Buffett tries to convince investors that his shares should be priced on book value.  On page two of his annual report he actually compares the change of the S&P to the change in the book value of his stock.  Why doesn't he compare book value to book value at the very least. Usually in modern times if it's real book value it's either based upon liquidation value or earnings power.

2. I have never seen a more complicated annual report. For example, you have to go all the way to page 59 to find that Berkshire owns a company called McLane that accounts for almost 25% of Berkshire's total revenues but contributes 2% to total earnings.

3. Consequently its fair to say that instead of $144 billion dollars of reported revenues Berkshire's real important base is closer to $111 billion dollars.

4. Nearly 15% of total Berkshire revenues are generated by the Burlington Railroad which Warren Buffett had absolutely nothing to do with building or creating.

5. By the time you take off $33 billion dollars of revenues from McLane and $20 billion dollars from Burlington you are left with about $90 billion dollars of revenue that one can impute to Berkshire management.

6. Of that $90 billion dollars of revenue, $32 billion dollars are in something called "other" businesses that seems to consist of about 100 little businesses and are nothing more than a huge conglomerate, usually not rewarded a high price earnings ratio by investors.

7, By the time you subtract the low profit margin of McLane and a huge conglomerate of dozens and dozens of companies, you are left with a $59 billion dollar business.

8. Another subsidiary called Marmon does another $7 billion dollars of business, requires $10 billion dollars of identifiable assets and probably earns about $600 million for a 6% return on investable assets.

9. You go to Berkshire's consolidated statement of earnings and you cant even find a mention of McLane, the food wholesaler that earns next to nothing.  It seems to be included in insurance and other.  That seems awfully  misleading to me.

10. I'm not even sure if the annual report, on page 27, is clear enough on the average number of shares outstanding. Value Line and Morningstar seem to show close to 2.4 billion shares outstanding, average or not.

11. On page 101, there is a list of non-insurance businesses and their number of employees, a total of 270,000.  There is about 60 non-insurance businesses, 40,000 people work for the railroad which has next to nothing to do with Buffet.  Marmon and McLane employ another 30,000 people, you can go figure out for yourself what the future profitability of these businesses is worth.  About 40,000 people work for fruit of the Loom and from what I can tell that company that doesn't seem to be doing well.

12. Where can you find the record of these individual companies?  I certainly couldn't.

13. You have to go all the way to the 60's though the early 80's to find when Berkshire's performance through book value significantly exceeded the performance of the S&P.   Recent years show an entirely different picture.

14. As regards to his large common stock positions on page 16 of the annual report he shows a $19 billion dollar profit of which $12 billion is in Coca Cola which he has probably held for 40 years. It shows another $4 billion dollars profit in Procter & Gamble which leaves very little profit on the rest of the portfolio. Has Buffet's performance on his stock portfolio been even close to the S & P?

15. Mr. Buffet talks about buying back his own stock up for up to no more than 10% of book value.  Well, if that is true why would he pay substantially more than book value for other stocks and not his own?

16. The company shows  a shareholder equity of $169 billion dollars.  There is $50 billion dollars of goodwill a non-asset asset and $76 billion dollars in equity securities most of which are probably float from the insurance companies and are not really Berkshire assets in my opinion.

17. I guess as Berkshire Hathaway common stock weakened into the high $60's Mr. Buffet was forced to buy back his own shares.  This may have been done to take attention away from the fact that Berkshire's share price had not changed since 2006 and was reaching the point where investors would begin to look for the real story.  Do your own analysis.

Seems to me that the cult of Warren Buffett, upon closer examination, is way out of proportion to reality.

Why in the world Buffets opinion on gold has any bearing on Berkshire Hathaway is beyond me except that he may have wanted to point out that in recent years you would have made a heck of alot more money on gold than on Berkshire's common shares.

Thursday, February 23, 2012


Recently a company called Gilead made an acquisition.  It paid $10 billion dollars cash for a company called Pharmasset.  Pharmasset had no revenues but it had a potential biotech product of significance.  A few months after the acquisition, the efficacy of Pharmasset's product is called into serious question by negative data on the pending product.

Everyone who owned shares of  Pharmasset was able to sell to Gilead (who seems to have done pretty sloppy due diligence), including insiders. I wonder if $10 billion dollars doesn't mean much if it's not your money?  Who knew what?  Was this the ultimate insider sale?

It's kind of ironic to note, that on February 7th (before the announcement of disappointments in the drug trials) insiders at Gilead sold a substantial number of shares.  Was this the ultimate double-pronged insider sale jigsaw puzzle?

Wednesday, February 15, 2012


As President Obama ranted about not going to Las Vegas and flying on private planes, the jobs passed us right by.  Tens of thousand of jobs, from construction to everything else, were created in China building the world's most successful gambling hotels and resorts.  If you look deeply, you could create the case that Obama is really out to weaken the country's economic position.  Good jobs and lots of them, went away while our President who has never created one job used populist rhetoric to unite votes instead of creating jobs.  


For those of you that hang on to every word that Warren Buffet has to say, I hope you don't mind that I point out the following.  Berkshire Hathaway stock is selling at the same price that it did in 2007.

Mr. Buffett takes money that he earns in the insurance company and instead of reducing premiums, he takes the excess and invests it in mature companies like PG, JNJ, WPO, WFC, AXP, KO, KFT, etc.

He is a rich man but Berkshire Hathaway is nothing more than a conglomerate, period, end of subject.  Lots of hype, but no shareholder returns in many years.


Shepard Osherow. All Rights Reserved