so how contracts are guaranteed if no collateral? Just by Buffets word? What if Buffet dies or Berkshire goes bankrupt? If no collateral basically it's ponzi scheme
Since Berkshire Hathaway is credit-worthy, it negotiated almost all of its contracts so that it does not have to post collateral if the mark-to-market goes against it. Since it has a strong balance sheet and is "good for it" when the time comes, it is a completely legitimate transaction. If you look at the numbers, Berkshire Hathaway has more than enough liquidity and instruments to pay off all of its derivatives if the worst case scenario happened (all stock indexes go to zero and all the credits defaulted). http://www.berkshirehathaway.com/letters/2008ltr.pdf All businesses are getting hurt, but it is relative. With a balance sheet like that, you have a lot of negotiating power. Moreover, Buffett monitors the obligations himself, so he won't bite off more than he can chew.
Are Berkshire' holdings companies still making profits in spite of a recession? Yes they are. Soon or late its stock will go up.
Thanks and a bit ironic. I am new to ET. Great name, but not what I had hoped. I decided to give it a last shot today, but this is my last post. I don't have that much spare time, so in future I'll be posting comments on Seeking Alpha. Best Wishes
It's not a matter of whether they are still making profits. It's how much profit, if any, they will be making *in the future*. With the state of the economy, all positively correlated businesses will feel the pinch. Only businesses carving out a new lucrative niche (e.g. the next google), or businesses that thrive in hard times (e.g. liquidators or global macro traders) will do better.
I started to get suspicious of Warren when people started paying six figure sums to lunch with him and earnings calls resembled the carnival-like atmosphere of year 2000 tech company earnings calls. The back of the stock is broken and it will surely fall at least 50% more from this point. Warren got himself in deep this time around. Oh look, the market is on a tear and Berkshire is down yet another 2%. I hate to see what happens when we really get slammed with selling.
I tried to analyze the result but not on a yearly basis. Buffett invests for the long term, so results should be analyze accordingly. I took 5 and 10 year blocks to calculate the average compounded rate for a block to see how things went block by block instead of year by year. I took the figures from Berkshire as they where published by themselves and putted them in block A. Then i made 10 year periods in block B and calculated the compounded rate for each 10 year period. In block C i did the same but for 5 year periods. From 1999 on things went wrong: in the 10 year block the compounded rate went from 28.96% to 6.44%, so down 77.76%. in the 5 year block the compounded rate went from 33.70% to 5.97%, and 6.91% so down roughly 80%. In 5 and 10 year blocks you filter out the noise and get a much better view on the results because Buffett is a LT investor. The fact that for 10 years now things go wrong, proofs that there are at least doubts that Berkshire will stay at a compounded rate of 20.30%. He will have to improve his performance to over 400% of the average performance of the last 10 years.
Think about year 2000 stocks like Yahoo and Microsoft. Impossible, everyone uses Yahoo, everyone uses Microsoft. No chance for a downturn! Buffet got in over his head with these explosive derivative trades and bought into downtrending companies that got cut in half.