Best investment adviser Richard Losch's blog

Berkshire Hathaway’s Look-through Earnings 2010

Attached is a table of Berkshire Hathaway’s look-through earnings for 2010. The total was $1,680 per “A” share for 2010 that is up from $1,130 in 2009, or about 49%. Net after tax for 2010 was $7,928 per share so if we add in the look-through portion it would add to $9,607 and a PE of 11.8 as June 6.

St. Joe Company Inc

From his recent comments and action, it appears the Berkowitz is more interested in the potential for development around the new Panama City Airport than in the resort property (This may in part explain the recent changes to the board of directors). In addition Berkowitz has indicated that he will use St. Joe Company as a vehicle for purchasing assets that can not be purchased directly by Fairhomne Fund. I take this to mean such things as income producing real estate other leveraged income producing assets and perhaps even derivatives.

Successful Investment Management

Most investors take comfort from calm, steadily rising markets; roiling markets can drive investor panic. But these conventional reactions are inverted. When all feels calm and prices surge, the markets may feel safe; but, in fact, they are dangerous because few investors are focusing on risk. When one feels in the pit of one's stomach the fear that a companies plunging market prices, risk-taking becomes considerably less risky, because risk is often priced into an asset's lower market valuation. Investment success requires standing apart from the frenzy – the short-term, relative performance game played by most investors. Seth Klarman.

A Look Into Latin America

Latin America. Going forward, it is our view that selective stock picking will have an increasingly important role for managers who want to allocate in Latin America. In other words, we do not believe the region’s stock market indexes will perform as well in the next ten years as they did in the last ten.

The Mother of all Quarters

While all of the above numbers have question marks attached, some things would appear obvious. 2010 will be a strong year for Berkshire Hathaway, and it could be a record year. Previously, the best year was 2007, with $13.2 billion net. Berkshire Hathaway has a good chance of a 60% gain over last year’s earnings.

2010 Investment year results

For the year 2010 the average annual return for Losch Investment Management Company taxable accounts was a little less than 22%. An average of the non-taxable accounts was up 30%. These results compare to the S&P was up 16%, and the average hedge fund that was up 10% according to the "Wall Street Journal". The Journal also pointed out that the average managed mutual fund was up by 19% in 2010. Which makes us wonder why “Sophisticated Investors” are so eager to pay the obscene fees charged by hedge funds?

Fault Lines

Instead of marching out the usual suspects of greedy bankers and Wall Street Traders, Professor Rajan looks beyond these miscreants and finds a lot of political maneuvering – some well-intentioned and some just foolish.

US Market 2010

Here is an interesting chart that compares the value of the US market 2010 to that of emerging markets as measured by PE ratios. It shows that the US market has been getting cheaper since 2002, and that the emerging markets now have about the same PE as our market. There are some who will say that this is justified because of the emerging market countries’ greater growth potential. This argument ignores the higher relative risk inherent in emerging markets and the current hyping of their equities by the financial media, both of which are symptomatic of bubble behavior.

Berkshire Hathaway’s Third Quarter 2010

The biggest question mark in this estimate is probably in the area of investment gains. In the second quarter, investment gains were $383 million. In the first quarter, Berkshire Hathaway’s gains amounted to $1.318 billion, so I, as investment manager, guess my estimate should read $4.2 to $4.3 billion plus or minus a billion. In any event, the comparison to the last quarter and last year will look pretty good — plus 120% from this year’s second quarter or plus 27% from last year’s third quarter for Berkshire Hathaway.

The Stock Market 2010

There are two elements that govern the stock market price of any common stock or other security at any given time. One is mathematical (earnings, revenues, assets and liabilities) the other is emotional (greed, fear, etc.). The relative importance of either of these components varies. The emotional component of security prices is always present, but seldom as strongly felt as it is currently.


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