Berkshire report out

I found the banking sector comment to be of interest:


The banking industry is back on its feet, and Wells Fargo is prospering. Its earnings are strong, its
assets solid and its capital at record levels. At Bank of America, some huge mistakes were made by prior
management. Brian Moynihan has made excellent progress in cleaning these up, though the completion of that
process will take a number of years. Concurrently, he is nurturing a huge and attractive underlying business that
will endure long after today’s problems are forgotten. Our warrants to buy 700 million Bank of America shares
will likely be of great value before they expire

A very nice report on the book share gains from a message board:

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Book value has grown by a compound annual growth rate of 10.1% from year end
2001 to year end 2011. The annual percentage changes in book value were:

2002, 10%
2003, 21%
2004, 10.5%
2005, 6.4%
2006, 18.4%
2007, 11%
2008, (9.6%)
2009, 19.8%
2010, 13%
2011, 4.1%

For a company of this size this is an incredible achievement. If they can do 8%
over the next decade they will be doing well.

The average share price has grown by a compound annual growth rate of 5.5% from
the 2001 average to the 2011 average. The annual percentage changes in average
share price were:

2002, 3%
2003, 5%
2004, 22%
2005, (4%)
2006, 18%
2007, 30%
2008, (15%)
2009, (13%)
2010, 16%
2011, 3%

The Price/Book ratio has gone down from 1.77 at the end of 2001 to 1.15 at the end of 2011 (that is using the average share price during the year). The Price/book ratio at Friday's close of $120,000 per share is 1.2. The annual Price/Book ratios during this period were:

2001, 1.77
2002, 1.65
2003, 1.44
2004, 1.58
2005, 1.43
2006, 1.42
2007, 1.66
2008, 1.57
2009, 1.14
2010, 1.17
2011, 1.15
Friday close , 1.20

Obviously, Berkshire is cheaper today than it was 10 years ago.

The changes in the annual average share price is up and down - ranging from -15% to +30%. The in year changes are even more volatile, for example in 2008 the share price swung by almost 100% between $74,100 and $147,000. A long term investor got 5.5% from Berkshire over the last ten years. Others experienced
very different results in both directions.

Looking to the next ten years, we can reasonably expect two things:

1. Book value will continue to grow but a lower rate. I would say no more than
8%.
2. The Price/Book ratio will go up and down, but will, on average, be
significantly higher than the current 1.2 at different points over the next ten
years. Even Buffett is publically saying Berkshire is undervalued. I would say
the past 10 year average of 1.45 is reasonable.

IF Book Value grows at 8% per year and the Price/Book ratio is 1.45 at the end
of 2021 the share price will be $313,313 which is a CAGR of 10.1% from Friday's
close.

Of course it would not be a smooth 10% and will probably look something more
like this:

2011, $120,000
2012, $140,000, 17%
2013, $135,000, (4%)
2014, $170,000, 26%
2015, $135,000, (21%)
2016, $182,000, 35%
2017, $190,000, 4%
2018, $240,000, 26%
2019 $238,000, (1%)
2020 $289,000 21%
2021 $313,513 8%
CAGR 10.1%

I first bought Berkshire in 2001, I was new to investing, paying full value and had unreasonable growth expectations. As a result I was disappointed with my investment in Berkshire. I finally sold out a year or two ago. I still have some in my children's `hold for ever accounts' and plan to start accumulating again starting Monday, so I am still interested.

I do think now is most definitely not the time to give up on Berkshire for the long term holders nor is it a 30% a year stock that some new investors may think. It may well be a 2012 30% stock though but that is speculation, albeit
intelligent speculation.