Berkshire Hathaway
Where Have All the Bulls Gone?

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By gdefelice
March 23, 2001

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I have been reading everything, almost :), on this board since the morning after the Berkshire annual report was released and, other than Sandman's post, sentiment towards Berkshire and the market in general has shifted negatively.

My reaction to the chairmen's letter upon first reading was mild disappointment. Gone was the swagger of recent letters where visions of being the number one car insurer and largest reinsurer were no more. There was no enthusiasm given to the turnaround in insurance rates. The praises of State Farm were sung more loudly than once beloved GEICO. Again, while there was discussion of Berkshire's strong financial position, there was no bragging about "Fort Knox." There was no bragging at all, really. The tone of the report was, well, solemn.

Don't let Warren Buffet fool you -- he still believes that he can return you 15% a year for the next 20 - 25 years, maybe beyond. If he didn't he would have said as much.

So, if one holds that the last sentence is indeed true: Why the muted tone?

Answer: Stock market crash plus dotcom meltdown.

While Buffett did take the opportunity to "explain" what happened to the Bubble, he did it with some care. How so? Well, no one likes a person who brags while simultaneously explaining others' failures. Many, many people reading that report have gotten killed in tech stocks. While he was, in my opinion, letting them "have it" (in a nice way) for questioning him in the first place, he was not willing look like an a****** by touting Berkshire at the same time.

Many out there might find the above a bit silly. They might point me to the numbers and the sub-par returns -- showing me projections. They might tell me that insurance float has to be low cost and it hasn't been lately and therefore.... some projections about what this "new" cost might mean. They might tell me Buffett just isn't this sensitive. That my analysis is silly because it is emotion-based. Fooey. Buffett still thinks he can grow Berkshire at 15% a year. So do I. We all know it won't be a smooth and steady rise.

Berkshire Hathaway is in one of its best positions (adjusting for size) that it has been in a long time.

Could not Buffett very well have said the following in his annual letter, if he was an a******:

"Hello fellow shareholders. Aren't you glad you didn't sell your Berkshire shares in the market madness and buy Red Hat? This is great. The world is melting down around us and we are sitting here with more cash than a casino. I am licking my chops. I haven't seen things shaping up like this since the early '70's. Don't worry, it is only going to get better for us. While everyone has to sell and prices plummet we'll be working the phones at Berkshire Hathaway. You should see the list of companies I'm going to buy. We're going to be rich! Oops.

"While prices are still high, I can smell the blood. People are scared. We made two deals in two days last year simply because others couldn't find the money to get the deals done -- I got them 20% off. In the coming years I should be getting things for 50 - 70% off.

"Folks, it is a great time to be an owner of our company. Insurance, our primary business, is seeing rate increases that makes our customers cry and me smile like a baby. All we really need is one mega-catastrophe to wipe out half the re-insurance competition in one day. Oh, we'll show a "terrible" underwriting loss if that happens. But, after that, the HUGE rate increases will just warm my tummy. So, don't fret, go ahead, hope for that earthquake that pushes half of Japan into the sea. While we'll get hit, our exposure is always limited. I KNOW THAT MANY OF OUR COMPETITORS ARE NOT IN THE SAME POSITION. A big catastrophe will wipe them out -- some of the big guys. After that, the primary insurers still standing will get to know my smiling face and the routing number to Berkshire's bank better than they ever imagined.

"Smile folks, EVERYONE else is in trouble. If I could come back around one more time and I hadn't been so smart about understanding how people think and FEEL, about what happens when the market goes down, if I hadn't been able to contain my enthusiasm, they might just have called me 'Warren Buffett -- Gravedancer.'

"But, I have a reputation for being friendly. Make no mistake, however, I LOVE nothing more than watching the carnage that has begun and will continue to unfold in the coming months or even years. While all those around you groan about the horrible market and then finally stop talking about it all together, rest assured I will be doing more work than ever before -- in the times of market declines Berkshire adds intrinsic value faster (because we're able to buy dollars for the very lowest prices -- sometimes, 30 cents) and in larger chunks than in bull markets. That's why I'm sitting here with all this cash and collecting all this cash from our operating companies and our dividends.

"As I have said, I am perfectly willing to sacrifice short-term performance for long-term results. I think YOU should be too. I've proven that doing the opposite is nothing but foolish. I'll wait, and so should YOU. Because, just as I cannot tell you when the market will offer me great prices, you cannot tell when it will offer you great prices. You do know, however, that I thought the company was begin given away, A YEAR AGO, at $45,000 I was going to buy back stock even though I explained to you how little it would affect our performance, it was that low -- we've never bought back our own shares. I told you that we gained about 10% in intrinsic value last year, so know I think that Berkshire is being given away at $50,000. If you wait for a price much below that you may NEVER get the chance -- I'll be keeping it above that price.

"Good luck, you may want to get a little greedy and try to get the stock for nothing or you might decide, as I have, that you're willing to hold it, with all our beautiful cash, until the death parade arrives."

Very truly yours,

Warren E. Buffett
aka: The Undertaker