Describe the Asset Allocation Mix? What changes have there been in recent years and why? .
***information obtained from Form 10-Q (3/31/03).
Cash & Equivilents 12.00%.
Investments .
Fixed Income 26.03%.
Equities 20.39%.
Other Investments 2.80%.
Insurance Premiums Rec. 4.57%.
Reinsurance recoverables on losses (unpaid) 1.96%.
Trade & other Rec. 3.45%.
Inventories 2.28%.
Property, plant & Equip. 4.07%.
Goodwill of Acquired businesses 16.59%.
Deferred Charges 2.58%.
Other Assets 3.30%.
The most significant changes that have been made have been the decrease allocation towards common stocks. The reason behind this is that he sees limited opportunities for undervalued positions. However, he is very comfortable with his current equity holdings. Buffet thinks that the "Great Bubble" highs have still yet recovered to what he calls the hangover stage that we are currently witnessing. Also notable would be Buffet's large cash positions, which are undoubtedly positioned on the sideline for common stocks once an opportunity arises in Buffet's eye. .
What are the biggest risks of holding this stock?.
In my opinion the two biggest risks are the credit derivative and reinsurance among insurance companies. Munger & Buffet foresee a significant blow up in the derivative market in the next 5-10 years. They believe that risks have been transferred to a concentrated group of institutions and he mentions that companies should be concerned with whom they do business. Similar to the LTCM blow up, he feels that derivatives are will lead to another LTCM blow up, that is why he has begun to eliminate Berkshire exposure in the Gen Re business line. The other big risk is having reinsurance recoverables, they are dangerous assets to have on your books. .
How should performance be benchmarked? .
Buffet has been using the S&P 500 index as a benchmark since he began running Berkshire Hathaway since 1964.
Warren Buffett, the CEO of Berkshire Hathaway and one of the world's wealthiest people utilizes a hands-off management style. Although this style often leads to low productivity levels, in Warren Buffetts case, who is considered one of the most successful investors of all time, Laissez- Faire has proven to be effective (Stern 2006). ...
