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Berkshire Hathaway Asset Study

Winter 2011 Fin / Invest / Business Law Cluster

Kevin C. Kaufhold

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Description of Berkshire Hathaway

• Holding company owning insurance and other firms • 70 domestic and foreign insurance subsidiaries• Largest are GEICO, General Re, Swiss RE, WESCO• Also owns $ Billion + positions in Coca-Cola, Wells-Fargo, Zales

Jewelers, BN RR, utilities, many others

• $ 112.024 Billion market cap• $35 Billion in cash reserves (plus equity positions)• 2009 revenues were $112.493 Billion• 2009 earnings were $5.192 Billion• TTM EPS is $7,234 EPS

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Description of Berkshire Hathaway, continued

Ownership and management structure Publicly tradedCEO Warren Buffett; Charlie Munger active in WESCO16% institutional ownership.

Class A shares never split: $127,000 per share value

Class B shares developed in 1996 at 1 / 30 of Class A Class B split 2-2011 when BN was acquired 50:1 Class B is therefore now at 1 / 1500 of Class A ($80 / share)

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Impact from National Economy

VL macro growth 2% 2011

Consensus has been revised upward --- 2% to 3.5% 2011

P&C insurance industry is pro-cyclical

Slowness of economic recovery is a large factor in current industry and company pricing performance

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• Industry Considerations

• Slow macro recovery putting pressure on P&C insurance industry

• Firms reluctant to pay higher insurance premiums

• New insurance clients harder to develop

• Investment returns from portfolios also under pressure• Laddered bond positions expiring • New bonds having lower returns

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• Industry Considerations, continued

• S&P and VL have neutral outlook on industry• Excess underwriting capacity or supply• S&P estimates excess at $335 Billion• Net premiums may increase modestly 2 to 4% in 2011• But P&C storm and catastrophic damages 2009 decreased

• Going forward 3+ years, industry may expand with economy

• Many firms planning for eventual share repurchases

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• Company Considerations

• BRK holding up well in industry• Good investment returns• Better than expected profit from insurance operations• Poised to use cash to increase equity positions and acquisitions

• Safety ranking (VL) = 1 (highest)• Only other safety ranking of 1 in industry is Chubb

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Company Considerations, Continued

Premium growth last 9 years 5.39% (ind 5.00%)LT debt to capital 9 years 13.30% (ind up to 40%)ROE 9 years 8.00%Beta = 0.14 (ind is 0.38 to 1.49; Chubb at 0.47). PE range 13 to 21 in 2009

YTD share pricing 6.0% (ind 5.6%; 6.9% S&P)5 year share pricing 7.8% (ind 3.5%; 1.3% S&P)

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Company Portfolio

Focused portfolio of cash reserves or insurance “float”

Concentrated in insurance and consumer staples

Top 10 positions comprise 93.5% of BRK portfolio Top 4 positions 67%; KO, Wells Fargo, American Express, P&G BRK is now Wells Fargo biggest shareholder at $9.7 Billion

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Company Valuations

VL projects NT pricing consistent with capital markets

But, 3 to 5 year pricing at 5% to 11% annualized returns

Thomson Reuters LT growth forecast at 5.0%

Technical indicators neutral to negative (VL to Thomson)

But forecast revenue growth 18.4% 2010 to 22.0% 2011

Relative value is negative (Thomson)

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Company Valuation, continued

Biggest factor may be SuccessionSuccessors named, but likely Buffett will remain in charge

indefinitely Question as to growth post-Buffett

My recommendation ---- NT hold --- primarily based on relative value LT accumulation --- based on superior industry position

Current and future Management is inherently oriented toward shareholder interests

History heavily favors BRK’s superiority of pricing performance ---

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References

MSN Money, financial information and worksheets

S&P company and industry report, 2-19-2011; Significant events 2-7-2011 (Wesco)

San Francisco Business Times, 2-21-2011 article on Wells Fargo

Seeking Alpha commentary on company, 2-2011

Thomson Reuters company report, 2-18-2011.

Value-Line, 12-7-2010 company and industry reports

Yahoo Finance, financial information and worksheets, pricing graph