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Subject:  GenRe and the S&P500 index Date:  12/21/1998  5:15 PM
Author:  TMFRalegh Number:  726 of 5673

Intrinsic value as Buffett or many good value-oriented people define it is "the net present value of all the cash that can be taken out of a business over its lifetime." And that's from here until the end of time. That's why Mr. Buffett uses "look-through" earnings in assessing the intrinsic value of Berkshire, in my opinion. The inclusion or dis-inclusion of Berkshire in the S&P 500 doesn't effect the vital moving parts in that definition. Therefore, it can't effect the company's intrinsic value. It can effect the market in the short-term. As Ben Graham said "In the short term, the market is a voting machine, in the long term, it's a weighing machine."

This is particularly pertinent to the situation with Berkshire's non-inclusion and GenRe's dis-inclusion in the S&P right now. In the short-term, it will effect the price, through perceptions and through the actual selling of GenRe by index funds and closet-indexers (the money managers that mirror big chunks of the index to keep up with the benchmark again