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"He who walks with The Fools grows Foolish." In this spirit, we have constructed this link to facilitate your search for Berkshire information and understanding in order to make your time on the BERKSHIRE HATHAWAY message board as pertinent as possible. We hope this FAQ will give participants to this board a glimpse into one of the greatest investment vehicles of all time-Berkshire Hathaway.


I. Questions

Question 1: What is the difference between A shares and B shares of Berkshire Hathaway?


Berkshire Hathaway Inc. has two classes of common stock designated Class A and Class B. A share of Class B common stock has the rights of 1/30th of a share of Class A common stock with these exceptions: First, a Class B share has 1/200th of the voting rights of a Class A share (rather than 1/30th of the vote). Second, the Class B shares are not eligible to participate in the Berkshire Hathaway Inc. shareholder designated contributions program. Press HERE for a description of the program. Additionally, each share of a Class A common stock is convertible at any time, at the holder's option, into 30 shares of Class B common stock. This conversion privilege does not extend in the opposite direction. That is, holders of Class B shares are not able to convert them into Class A shares. Both Class A & B shareholders are entitled to attend the Berkshire Hathaway Annual Meeting which is held the first Monday In May.

Question 2: Is Berkshire Hathaway a mutual fund?


No. Berkshire Hathaway, Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities. The most important of these is the property and casualty insurance business conducted on both a direct and reinsurance basis through a number of subsidiaries. Included in this group of subsidiaries is GEICO Corporation, the seventh largest auto insurer in the United States.

(Source: 1997 Berkshire Hathaway Annual Report, inside
front cover)

Question 3: Will Berkshire Hathaway ever pay a dividend?


We feel noble intentions should be checked periodically against results. We test the wisdom of retaining earnings by assessing whether retention, over time, delivers shareholders at least $1 of market value for each $1 retained. To date, this test has been met. We will continue to apply it on a five-year rolling basis. As our net worth grows, it is more difficult to use retained earnings wisely.

(Source: January 1999 Berkshire Hathaway Inc. AN OWNER'S MANUAL)

Charlie Munger: "When we can't deliver more than a dollar of market value per dollar retained, we will start distributing the money to the shareholders instead of retaining it."

Warren Buffett: "We might distribute more than 100% of the earnings."

(Source: Cardozo Law Review Vol. 19, 1997, p 775)

Question 4: What does the term "Intrinsic Value" mean and why won't Mr. Buffett give us his estimate?


Part 1

Warren Buffett: "It is the discounted value of the cash that can be taken out of a business during its remaining lifetime."

Part 2

Warren Buffett: "Intrinsic value is an estimate rather than a precise figure, and it is additionally an estimate that must be changed if interest rates move or forecasts of future cash flows are revised. Two people looking at the same set of facts, moreover--and this would apply even to Charlie and me--will almost inevitably come up with at least slightly different intrinsic value figures. That is one reason we never give you our estimates of intrinsic value. What our annual reports do supply, though, are the facts that we ourselves use to calculate this value"

(Source:1997 Berkshire Hathaway Annual Report,"Owner's Manual",p.68)

Question 5: What is float?


Warren Buffett: "To begin with, float is money we hold but don't own. In an insurance operation, float arises because premiums are received before losses are paid, an interval that sometimes extends over many years. During that time, the insurer invests the money. Typically, this pleasant activity carries with it a downside: The premiums that an insurer takes in usually do not cover the losses and expenses it eventually must pay. That leaves it running an "underwriting loss," which is the cost of float. An insurance business has value if its cost of float over time is less than the cost the company would otherwise incur to obtain funds. But the business is a lemon if its cost of float is higher than market rates for money. "

"We have calculated our adding net loss reserves, loss adjustment reserves, funds held under reinsurance assumed and unearned premium reserves, and then subtracting agents' balances, prepaid acquisition costs, prepaid taxes and deferred charges applicable to assumed reinsurance."

(Source: 1997 Berkshire Hathaway Annual Report, pp 6-7.)

6. Thoughts on issuing common stock.


We will issue common stock only when we receive as much in business value as we give. This rule applies to all forms of issuance not only mergers or public stock offerings, but stock-for-debt swaps, stock options, and convertible securities as well. We will not sell small portions of your company and that is what the issuance of shares amounts to on a basis inconsistent with the value of the entire enterprise.

(Source: January 1999 Berkshire Hathaway Inc. AN OWNER'S MANUAL)

Question 7: What is Supercat Insurance?


Warren Buffett: "In this operation [super-cat insurance], we sell policies that insurance and reinsurance companies purchase in order to limit their losses when mega-catastrophes strike. Berkshire is the preferred market for sophisticated buyers: When the 'big one' hits, the financial strength of super-cat writers will be tested, and Berkshire has no peer in this respect."

(Source: 1997 Berkshire Hathaway Annual Report, p. 8)

Question 8: When do you sell a stock?


Buffett: The best thing to do is buy a stock that you don't ever want to sell. That's what we're trying to do. And that's true when we buy an entire business. We bought all of GEICO, we bought all of See's Candies, Buffalo News. We're not buying those to resell. What we're trying to do is buy a business we'll be happy with if we own it for the rest of our lives, and we expect to with those. We would sell if we needed money for other things. We may sell if we believe the valuations in different markets are somewhat out of whack. But that can be a mistake. The real thing to do with a great business is just hang on for dear life.

Munger: The sales that do happen--the ideal way--is when you've found something you like immensely better.

Question 9: What are "look-through earnings"?


The look-through numbers include Berkshire's own reported operating earnings, excluding capital gains and purchase-accounting adjustments plus Berkshire's share of the undistributed earnings of our major investees - amounts that are not included in Berkshire's figures under conventional accounting. From these undistributed earnings of our investees we subtract the tax we would have owed had the earnings been paid to us as dividends. We also exclude capital gains, purchase-accounting adjustments and extraordinary charges or credits from the investee numbers.

Question 10: What would happen to Berkshire stock if Warren Buffett and Charlie Munger were not able to manage it?


On my death, Berkshire's ownership picture will change but not in a disruptive way: First, only about 1% of my stock will have to be sold to take care of bequests and taxes; second, the balance of my stock will go to my wife, Susan, if she survives me, or to a family foundation if she doesn't. In either event, Berkshire will possess a controlling shareholder guided by the same philosophy and objectives that now set our course.

At that juncture, the Buffett family will not be involved in managing the business, only in picking and overseeing the managers who do. Just who those managers will be, of course, depends on the date of my death. But I can anticipate what the management structure will be: Essentially my job will be split into two parts, with one executive becoming responsible for investments and another for operations. If the acquisition of new businesses is in prospect, the two will cooperate in making the decisions needed. Both executives will report to a board of directors who will be responsive to the controlling shareholder, whose interests will in turn be aligned with yours.

Were we to need the management structure I have just described on an immediate basis, my family and a few key individuals know who I would pick to fill both posts. Both currently work for Berkshire and are people in whom I have total confidence.

I will continue to keep my family posted on the succession issue. Since Berkshire stock will make up virtually my entire estate and will account for a similar portion of the assets of either my wife or the foundation for a considerable period after my death, you can be sure that I have thought through the succession question carefully. You can be equally sure that the principles we have employed to date in running Berkshire will continue to guide the managers who succeed me.

Lest we end on a morbid note, I also want to assure you that I have never felt better. I love running Berkshire, and if enjoying life promotes longevity, Methuselah's record is in jeopardy.

(Source: January 1999 Berkshire Hathaway Inc. AN OWNER'S MANUAL)

Question 11: When is the annual meeting?


The Annual Meeting is held the first Monday In May.

Question 12: Why doesn't Warren Buffett split Berkshire?

(article by Jim Chuong The Toronto Investment Club)

Question 13: What price should I pay for the stock?


You must answer that question for yourself based upon the information presented in the annual report and using your best judgment.

Berkshire Sites
1. An Owner's Manual-A Message from Warren E. Buffett,
Chairman and CEO

2. Berkshire Hathaway's shareholder letters

Other great Berkshire Sites

1. The Toronto Investment Club - Jim Chuong

2. Value Investing by Rich Rockwood

II. Berkshire Hathaway Financial Data

III. Recommended Books

IV. Noteworthy Subjects on Berkshire Hathaway's Message Board


The Official Berkshire Hathaway Message Board FAQ
Last Updated: 02/12/99
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