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|Subject: Re: Facts vs Fear||Date: 11/11/2001 11:51 PM|
|Author: woodstove||Number: 1036 of 1933|
Hi Zenvestor, Philip, Everyone,
My goodness! I've been away for the weekend, but before going had time to print out Berkshire's Q3 report, and was enjoyably reading thru it and doing calculations in spare moments the past couple of days. Then to return and find that anxiety has blown up, way way out of proportion!
I've got some reading to do, to catch up. I'll tell what my impression of Berkshire's situation is, though. The company is in excellent shape. I was really pleased with how well it has responded to circumstances in the economy (slowdown) and insurance business (mega catastrophe). All that should be done is being done, new information is being studied and incorporated into the business plans. Berkshire Hathaway employees are responding superbly. No shareholder could ask for more or deserve more.
Ok, a loss estimated at about $2.3 billion has occurred. The company generates about $5B/year free cash flow, so can cover that. Some policy coverage implications have been recognized. I'm glad they're recognized not being denied, and steps are being taken to deal with the exposures.
Does anyone in the insurance business seriously believe there will not be losses? In the supercat business, there will be occasional huge loss events. Stabilizing the financial impact of loss events is Berkshire's primary purpose; the company is a giant shock absorber, and is designed to take hits.
What is the impact of the WTC loss on Berkshire's value? About 2 pct. It is rounding error given inherent sloppiness of value estimation methods. Berkshire is roughly 1/1000-th of the American economy, and it is a part which is better than average in terms of management clarity and conduct, prudent financing, and commitment to staying the course.
I think the case might be made that, although Berkshire's present value has diminished a bit it's potential for future growth has not decreased. The value of having a steady partner is increased if others are faint hearted. Berkshire is one of the best if you are looking for a reinsurer or a purchaser for your family business who will honour its commitments.
It's late, but next weekend I'll try to share my thoughts on valuation using the new data from the Q3 report. Best to everyone,
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