“1. Portfolio Concentrated in US Dollars

Berkshire has a portfolio of 41 stocks. The total portfolio value is $48,025,404,085 as of May 15, 2009, according to CNBC. The top 6 holdings: TheCoca-Cola Company (KO)”

Ironic given that 75% of KO’s business is outside the U.S, as is 56% of P&G’s, over 30% of Kraft’s and AXP’s. And you draw the line at a very conveniant location enabling you to ignore holdings that have businesses almost entirely outside the U.S.

“2. Troubled Derivative Bets

Berkshire is big into the derivatives market, which made more complexity to the already black-box-like conglomerate’s balance sheet. .. Berkshire’s paper loss in derivatives would wipe out 2 years operating earnings.”

Do you understand what “paper loss” even means? You certainly don’t understand what derivatives are, one hint, stock options are derivatives. The vast majority of Berkshires derivatives are easily understandable, they are just long dated stock options. And the idea that BRK has much risk here is silly, they’ve already taken in $5B in premiums, and the “paper loss” is going to shrink substantially in the next report, because if you haven’t noticed, markets are up. And BRK has 10-20 years before it owes a dime on the equity options, so it’s pretty unlikely the stock market won’t be higher in that period. Esp. if as you say, you expect a deflated U.S dollar and inflation.

“3. Buy What You Know

..

I never understand insurance companies’ financial statements.” This is a key point, if you can’t read pretty simple financial statements you shouldn’t be buying any individual stock.

“Out of Berkshire’s total $260 billion assets, only $48 billion is in equity. In other words, majority continue earnings are still need to come from operational business.”

And your point is? That BRK has great operational businesses

“5. Downgrade By Moody’s”

Berkshire has little, and requires little, debt. So what’s your point? That BRK was downgraded from the highest possible rating, to the next highest possible rating and is still one of the highest rated companies in the world?

“6. No Dividend

Berkshire [b]invests it’s earnings for you, like someone should do for this author[/b].

“7. “Warren Buffett Premium”

The average Price/Book for Property & Casualty Insurance company is 1.05, while Berkshire’s is 1.35. ”

I thought you didn’t want to compare apples to oranges? Isn’t a minority of BRK in insurance?

“If anything happens Buffett, the stock might drop 30% instantly. Even something happens to Charlie Munger…”

And your point? Berskhire is a tremendous value, and if it falls after Buffett’s death it will still be a tremendous value. GEICO, See’s, Coke, etc will continue to churn out profits and increase BRK’s net work, and it will rebound. And the new CEO may even institute stock buybacks and dividends if it doesn’t.

You cherry picked a bunch of misleading facts, and don’t understand berkshire or investing at all. you shouldn’t buy ETF’s, you should buy a Vanguard Target Retirement fund and stay away from making financial decisions, because you simply aren’t equipped to analyse them in the depth necessary for good decisions.

I’ll agree that points 1 and 7 have a bit of merit, but not to a great extent. The other points are like Brett said “stupid”.

One thing you mention that I’d be worried about is how Berkshire’s business is so dependent upon Buffett and Buffett is pushing 80 years old. Should he die then the situation at Berkshire is completely unknown. He tells people his replacement will be a worthy replacement but there is just no replacing Buffett. Nobody in the history of world has the track record he has attained. George Soros, Philip Fisher, Ben Graham – these people were great but none of them personally amassed 40 billion dollars (or more) using their skills. Plus I believe a large reason Berkshire is able to retain such talented people running their subsidiaries is directly tied to Buffett’s personality. People like to work with him, and that is one of the perks of running See’s Candy or Geico. Once Buffett is gone might some of these “talents” he raves about in his annual report decide to jump ship? It’s possible, and that would effect results at Berkshire, but basically it’s a huge unknown.

But back to your article being stupid. “No dividend.” Are you serious? Buffett has repeatedly stated why Berkshire doesn’t pay out dividends, and it’s simply because he can add more value to the company retaining earnings than by paying out earnings to the shareholders. That is what he does – he is a capital allocator and he is the best there ever has been in the history of the world. By retaining the earnings and putting them back in the business he turns every dollar he retains into more than 1 dollar in market capitalization in Berkshire’s stock. I think that fact is evident by the stock price – at $90000/share (at the peak it was 147k/share) I think it is fairly obvious that Buffett is doing exactly what he says he’s doing (adding more value than the stock holder would had he just paid out the money).

“Buy what you know” – Again, you can’t be serious. While this is a great philosophy (and one that Buffett speaks of regularly), anyone who reads Buffett’s shareholder report regularly can get a good idea of how the insurance business works and what to look for when deciding whether an insurance business is run well or not. In every single report he goes into detail explaining the caveats of the business and in particular the gritty details of the super-cat business that is now Berkshire’s bread and butter. Berkshire’s great competitive advantage in insurance (and particularly the super-cat business) is their balance sheet which allows them to write a contract that could set them up for a loss of 6 billion (or more) on a single event. They do not write policy for volume, but instead write solely to attain an underwriting profit. They will only sign insurance contracts if they think the price is right, and that represents a huge contrast from insurance companies whose sole purpose is to expand market share at no regard for cost or proper underwriting. There main guy on the matter, Ajit Jain, has a consistent history of writing policies that adhere to strict underwriting principles and so far Berkshire has come out ahead (over the years) in this business despite atrocities like Katrina and the 2004 Asian tsunami, etc. Should he leave Berkshire, then again who knows how profitable this business will be in the future, but for now it is pretty obvious that Berkshire is the leader in insurance with Geico, B-H Reinsurance, and General Re (which is now turning up handsome profits after losing so much money when he first bought it).

In regard to derivatives, the information you put in this article is old information. Buffett has since completely restructured those derivatives bets. Now stocks only need to rebound 15% over the next decade for Berkshire to come out from underwater on the bets (according to the NY Post). That is a highly likely scenario.

The main potential problem with Berkshire in the future (in my opinion) is its sheer size. It already has a market cap of 140 billion and a book value of 109 billion – a company this size will find natural impediments to capital growth in the future. Buffett in his reports states that he is aiming to increase the intrinsic value of the company by 15% each year – but even that will prove to be hard in the coming decade because even if he did some how manage to grow Berkshire by such a percentage over the next decade book value of the company would likely have to increase from 109 billion to 440 billion in 10 years – it’s an astronomical number (in today’s dollars). It’s impossible to say whether it can happen or not (given a long bull market anything could happen), but the fact of the matter is that the larger the company gets the harder it becomes for these large percentage gains to continue.