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Berkshire Buffett Is UnStoppable



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Nov 28 2006
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It seems the Oracle Of Omaha is invincible – whacking all his critics one by one over the time. When Warren refused to expose a single cent in any of the technology stock or company during the dot-com boom, he was ridiculed and called all sort of names. History has shown he was right after all.

How does this stock managed to achieve this remarkable feat? By not splitting the shares of course. Does this scenario ring a bell to you on another technology stock which is the forte of search engine? Yes, that stock is Google (Nasdaq : GOOG) which hit the $ 500 per-share figure days ago. So, by now you know why Google doesn’t have any intention in splitting the share. 

 
Under Warren guidance, Berkshire Hathaway has been appreciating at the rate of 11% annually for the last 10 years. It was assumed with this rate of acceleration, Berkshire Hathaway A-Share will likely reach the $ 200,000 mark by 2013 (another 7 years).
 
The main revenues which contributed to Berkshire coffers are:
  • earnings from insurance
  • earnings from investing the huge amount of insurance’s cash profit
  • earnings from non-insurance arm

Warren’s Berkshire Hathaway’s lifeblood of earnings can be seen in the insurance sector. For example:

  • in 2004 the pre-tax profit was $ 387 million.
  • in 2005 when the Katrina made the headline, the insurance business turned 360 degrees to record a loss of $ 897 million.
  • in 2006, the earlier loss made the same 360 degrees change for a $ 2.5 billion profit

That’s the risk or excitement in insurance business, either you’ll make it big or sunk big time. Nevertheless it’s a known fact that the biggest problem with Berkshire which kept Warren’s head spinning is the huge war-chest it has. Though with numerous multi-billion acquisition, Berkshire still has $ 42 billion in cash and cash-equivalents for its’ shopping spree. It’s simply too difficult to find more good companies to buy and apply the same growth rate on the billion notes.

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While most stocks declare 2-for-1 or 3-for-1 splits whenever the boards think the share is getting unaffordable for investors, Warren doesn’t believe in stock splits (equivalent to bonus-issue in Malaysia Bursa Stocks Exchange – KLSE) simply because expensive stock discourages buying by short-term traders. Berkshire Hathaway New known as the B-Shares (BRK.B) is the alternative to A-Shares but with about 1/30 of the A-Share price (without voting rights though).

Warren’s baby, Berkshire Hathaway (BRK.A) hit the $ 100,000 per-share mark days ago – the highest share price ever recorded. The A-Shares are up more than 5,500 times since 1965 when Warren Buffett bought over the textile company.



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