Berkshire Hathawa1

Berkshire Hathaway Inc.
INTRODUCTION
Berkshire Hathaway, a US-based company, is considered to be one of the most successful
companies this country has ever produced because it has weathered and thrived, where many
companies have floundered and gone into extinction, during the Great Recession of 2008. The
survival and thriving of this company is no small feat; to the contrary, it is an attestation that
through a unique investment strategy, value will amass to the shareholders. And this is indeed
what has happened to Berkshire Hathaway’s stockholders with an overall gain of 801,5161
%(an
annualized gain of 222
%) on their investment vs. a 5,4303
% gain in the Standard & Poor (S&P)
500 index for the 1964-2009 period. Or if compared to a recent time frame, it produced a 764
%
gain vs. a -11.35
% loss in the S&P 500 for the 2000-20106
period. In more layman term’s, a
$10,0007
investment in Berkshire Hathaway’s stock would have grown to $30,000,0008
over that
45 year span. An equal amount invested in the S&P 500 index would have grown to
$500,0009
.That is a 3,000 vs. a mere 50 fold increase.
Another measure of its success is that it has the most expensive traded stock in the New York
Stock Exchange, at $123,20010
per share. In market capitalization, Berkshire Hathaway is
currently worth $20311
billion. It is in the Top 5, after ExxonMobil12
, Microsoft13
, Wal-Mart14
and
Apple15
. It has beaten almighty General Electric16
(GE), a once unimaginable deed. And to top it
off, Berkshire Hathaway is considered right now a much safer lending risk than the United States
government17
. For example, its debt yielded “.89% on March 18, 2010”18
or “3.5 basis points less
than Treasuries of similar maturity.”19
It has a superb credit perception, although it doesn’t have
a AAA rating. Based on these preceding statements, I believe it will soon have it.
1

BACKGROUND
Berkshire Hathaway, in its present state, is a giant company. But it did not start out that way.
Relative to its present day size, it was small. Berkshire Hathaway is the result of a merger
between Berkshire Fine Spinning Associates20
and Hathaway Mills21
that occurred in 1955.22
Berkshire Fine Spinning Associates was the result of a merger between itself and Valley Falls
Company23
that occurred in 1929.24
Hathaway Mills was founded by Horatio Hathaway25
in
1888.26
But Berkshire goes back even further in time, up to 180627
, when Oliver Chace28
founded
Berkshire Textile Mill.29
Both of these firms were involved in the cotton textile business in the
New England area of the US at the turn of the 20th
century30
. Around the 1960’s, Berkshire
Hathaway was a company that produced goods, for example, “one quarter of a billion yards of
material”31
that sold for $6032
million.Specifically, it produced curtains.33
It had tangible resources
of “seven plants”34
and 6,00035
employees and a “sizable amount of cash.”36
Berkshire Hathaway, as it stands today, is no longer a manufacturing company. It shed the
manufacturing skin and morphed into something different because it was beset by host of
problems that made it difficult to operate as such. For example, “inadequate gross margins”37
,
“marginal profits,”38
“cost variance”39
and “major capital investment”40
. Fabrics were “price-
sensitive”41
, and prone to “shortages”42
, And as an added sweetener, it did not make sense to
manufacture textile in the US due to the “cheap overseas labor.”43
This was a disadvantage
relative to other firms that had begun to outsource this type of work abroad. As proof, I have
looked at the labels of my clothing--where are they made from? Brazil, India, Vietnam, Thailand,
Taiwan, Costa Rica, Indonesia, Singapore, Egypt, Haiti-a United Nations type gathering. The
US? None. Faced with all of these problems, management decided to close the textile
manufacturing operations in 198544
.To a certain degree, management was duped by the supposed
2

success Berkshire Hathaway had when it was bought out in 196545
.Although management was
not able to fix the problems that beset the textile, Berkshire Hathaway, as a phoenix, learned
from the problems it faced and rose. To a larger extent, this experience was also used as a
springboard to chart a path of where not go. For example, it made clear that businesses with high
capital expenditures46
(CAPEX), high debt47
were not favored. Also, businesses that were
perceived as commodities48
, that had dishonest management49
that produced accounting profits”50
were not favored. It favored businesses that had “high return on invested capital”51
,”cash
profits52
, strong “business franchise”53
, good management”54
and good labor relations. It also
favored businesses that were in a “monopoly”55
/ “oligopoly”56
market.
Today, it is considered a conglomerate57
and a holding58
company. A conglomerate is “a
combination of two or more corporations engaged in entirely different businesses together into
one corporate structure, usually involving a parent company and several (or many)
subsidiaries”59
. Examples would be ITT60
, Gulf & Western61
, United Technologies62
, GE63
and the
former Beatrice64
. Conglomerates are created in order to make money through the realization of
“synergies”65
; that is the sum of the whole is greater than the sum of the parts or (2+2=5). But
achieving those “synergies” is very difficult to capture, for example consider Citigroup and the
financial supermarket created by Sandy Weill: it bombed. A holding company “is a company
that owns other companies' outstanding stock; it does not produces goods/services itself”66
.
PORTFOLIO
Berkshire Hathaway, being a conglomerate and holding company, has a diverse portfolio of
businesses under its control67
. For example, it is involved in the following sectors:
insurance/finance68
(Government Employees Insurance Company(GEICO),Applied
Underwriters, General Re, Kansas Bankers Surety Co., National Indemnity Co., United States
3

Liability Insurance Group, Central States Indemnity Co., Wesco Financial Corp., Berkshire
Hathaway Assurance), food/beverage69
(Dairy Queen, The Pampered Chef, See’s Candies),
clothing70
(Fruit of the Loom, Fechheimer Brothers Co., Garan Children Clothing, H.H Brown
Shoe Group, Justin Brands), furniture71
(CORT Business Services, Jordan’s Furniture, Larson-
Juhl, Nebraska Furniture Mart, RC Wiley Home Fursnishings, Star Furniture),
materials/construction72
(Acme Brick Co., Benjamin Moore & Co., Clayton Homes, ISCAR
Metalworking, Johns Manville, MiTek, Shaw Industries), media73
(The Buffalo News, Business
Wire),logistics74
(XTRA Co., McLane Co.), luxury75
(Ben Bridge Jewelers, Borsheim’s Fine
Jewelry, Helzberg Diamonds), utilities76
(Mid American Energy Holdings Co.),
services77
(NetJets, NetJets Europe, FlightService), capital goods78
(CTB Inc.),
railroads79
(Burlington Northern Santa Fe), other80
(Blue Chip Stamps).
Berkshire Hathaway’s investments in common and preferred stock include, for example:
Common: Walt-Mart Stores81
(1%), Johnson and Johnson82
(1%), Sanofi-Aventis83
(.14%),
Conoco Phillips84
(2.5%), Procter & Gamble85
(3.1), Torchmark86
(3.41%), U.S. Bancorp(3.6%)87
,
Kraft Foods88
(9.37%), The Coca Cola Co.89
(8.68%), Wells Fargo90
(6.18%), Carmax91
(3.59%),
American Express92
(12.72%), M&T Bank93
(5.68%), The Washington Post94
(18.38%),
Moody’s95
(13%), Comdisco96
(38.18%), among others. This common stock portfolio was worth
$5597
billion on 4/15/10, but its cost is $3598
billion or an unrealized gain of $20 billion, which
comes as a 57% gain on the original investment. Preferred: Dow Chemical99
, GE100
, Goldman
Sachs101
, Swiss Re102
, Wrigley103
, cost of: $21 billion.
HIGHLIGHTS
Among the additional highlights this company has that distinguish it from its peers is the fact
that it finished 2009 with the following: Total Assets: $297104
billion composed of Cash:
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$31105
billion, Investments: $128106
, which is composed itself of the following: Bonds:
$38107
billion, Common and Preferred Stock: $57108
billion, and other: $33109
billion. Accounts
Receivables: $29110
billion , Inventories: $6111
billion, Property, Plant and Equipment
(PP&E):47112
billion, Goodwill:$34113
billion and other:$25114
billion. In addition, it has Retained
Earnings: $86115
billion, Berkshire Hathaway shareholders’ equity: $136116
billion, Total
Revenues: $113117
billion, Net Earnings: $8118
billion, Cash Flow: +$5119
billion, Total Debt:
$62120
billion, Total employees: 257,113121
or a 4,185% increase from 1965.
From a ratio analysis framework, Berkshire Hathaway is very liquid because its current ratio is
2.75 times, which is excellent. Its profit margin on sales: 7.16%, its basic earning power: 4.5%,
its return on assets: 2.7%, its return on equity: 6%, its debt to equity is .28%, which is excellent,
its price/earnings ratio: 23.49 times, and its Z-score is 1.28, which is lukewarm, neither hot nor
cold. The company has been skewed to deliver high generation of cash. This positioning of the
portfolio has served the company well because we are living through an era where people,
companies, governments, even countries are cash strapped, for example Greece. So Berkshire
Hathaway management was prescient enough, more than a generation ago, to set such strategy.
And as an added bonus, although it has debt, it is within management control. So, it is not
surprising that its credit perception is viewed as sterling by the market, because it can very
comfortably meet its obligations and not depend on a bailout from the Federal government.
WARREN BUFFETT
Every conceivable success of Berkshire Hathaway that can possibly be appreciated is due to
the amazing achievements of Warren Buffett. If this great country has produced seminal minds,
like Thomas Alva Edison, Henry Ford, John Pierpont Morgan, Bill Gates and Steve Jobs, I
would not be surprised if Warren Buffett gets included in the pantheon of such men. I believe
5

that Warren Buffett could be the new John Pierpont Morgan of our time. I believe this because
he single handedly became savior of financial institutions that were in dire need of help. As an
example, he lent Goldman Sachs $5122
billion during the financial crisis of 2008 as a vote of
confidence123
. Mr. Buffett, has become, through his stock investments in Berkshire Hathaway,
the second richest person in the United States. According to Forbes.com, it is estimated that Mr.
Buffett’s net worth is $47124
billion. Mr. Buffett is known as the “oracle of Omaha”; people seek
his financial wisdom in order to forge a secure future, as we live in these perilous times. For
example, he was recently quoted as saying,”This is the tapeworm that is eating American
competitiveness”125
in regards to the high cost of national medical care. Also, according to a
recent poll, conducted by the Harris Interactive, “everybody loves Warren Buffett.”126
He is loved
by everybody because he is perceived to be humble.127
As proof to this, according to the New
York Times’ Executive Pay report of 4/4/10, Warren Buffet’s total compensation for 2009 was
$175,000128
. Out of a group made up of 200129
Chief Executive Officers (CEO) Pay, he has the
fourth lowest compensation130
. But he has the highest CEO’s “accumulated wealth” at
$39,649,863,166131
.To show his humility in a different manner, he has decided to donate the bulk
of his personal fortune to the Bill and Melinda Gates Foundation. Currently this foundation has
77,313,900132
shares of Berkshire Hathaway BRK-A stock. The Bill and Melinda Gates
Foundation is involved in a worldwide fight to eradicate poverty133
, improve health134
,
education135
, development136
and libraries137
creation in Third World Countries138
.
UNIQUE INVESTMENT STRATEGY
As mentioned in the introduction, Mr. Buffett learned and followed a unique investment
strategy that has enabled him to be what he is today. True, as wind to his sail he had the United
States’ industrial might, so he just sailed on. The unique investment strategy, as applied by Mr.
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Buffett consists of several tenets. For example, one of the tenets is that it goes against Modern
Porfolio Theory139
(MPT). MPT, as developed by Markowitz140
, Sharpe141
, Fama142
, et al, laid the
foundations for an abstraction of economic phenomena where people (which are the main
economic agents) have been removed from such phenomena. Complexity set in as the new norm.
Instead of people, economic phenomena are described in terms of covariance143
, beta144
, random
walks145
, Brownian motion146
, differential equations147
, molecules148
All of these concepts have
been described in advanced mathematical theory, to explain the interplay of risk and reward an
investor faces. I can not read an economic or finance journal because I am not a physicist.
Physics and economics got married and had a Frankenstein. All of these modern concepts make
you go wow but if the “proof is in the pudding”, MPT should have been taken with a “grain of
salt” by the theorists who believed and disseminated these ideas. The majority of these
advancements were practiced by Wall Street, with the goal to make a fortune in the stock market.
Being that this new paradigm of abstraction set in, Wall Street financiers believed that by
knowing that a stock price movement resembled a molecule movement149
, they micro analyzed
the stock behavior, like where it was going to be in an infinitesimal second to capture a gain.
And if this were not enough, a stock investment was not viewed as such; it was in reality
speculation. Speculation made them believe that money is free and plenty which it is not.
Mr. Buffett, based on his educational upbringing, is the polar opposite of the above mentioned
strategies. For example, he does not speculate; he invests. Early on in his career he was taught to
differentiate between those two. An investment “is one which, upon thorough analysis,
promises safety of principal and a satisfactory return.150
” This definition of an investment is
the cornerstone of the edifice that Mr. Buffett was able to build and expand. He is now
harvesting what he planted with dedication and passion a half-century ago.
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ANALYSIS
Throughout his investing life, before Mr. Buffett commits any money to an investment,
whether stock, bond or any asset type, he investigates and studies that company or entity. In
doing so, he has become what is called a “value investor151
”. A value investor is an investor that
commits an amount of money to an investment that is “discount to intrinsic value152
”. Intrinsic
value “is the value of a company (or its stock) determined through fundamental analysis without
reference to its market value.153
Also it is “the value of an asset that, in the mind of a particular
investor, is justified by the facts.”154
This definition states that if one wants to acquire an asset,
one should sum up all of the cash flows the investment is purported to make and then discount or
divide all of the future cash flows by a rate to arrive at the present value of those same cash
flows155
. Then, “the investment shown by the discounted-flows-of-cash- calculation to be the
cheapest is the one that that the investor should purchase”.156
”A value investor, as practiced by
Mr. Buffett, tries to find and invest in companies that are considered bargains157
by the
methodology just described. For example, if an asset’s intrinsic value is $40158
but its trading at
$20159
, one should consider it as an investment. One should not accept the market price as the
true prices of an asset; instead, one should accept the intrinsic price as the true price of the asset.
As with everything in life, this sounds easy to do, but hard to do. It is akin to finding a “needle in
a haystack.” Mr. Buffet’s genius touch was that when he discovered a stock for his investments,
his interpretation160
of the intrinsic value of a stock-finding was his alone. His intrinsic values
that he calculated are unknown, like a trade secret.
Tied to all these notions of intrinsic value is the study of fundamental analysis, which is the
“process of determining the value of a company by analyzing and interpreting key factors for the
economy, the industry, and the company.”161
In fundamental analysis, one studies and analyzes
8

the financial statements of the targeted company and one should not take at face value the
numbers and facts management has decided to put in the statements. Instead, one has to study if
management has thrown you a “curveball162
”. Mr. Buffett was also trained to look for a margin
of safety163
in his investments dealings. After all money does not grow on trees, it does not fall
from the sky and one certainly can not find it out in the streets. Margin of safety means the
difference between a “stock price and the company’s underlying value.”164
As stated above, if the
intrinsic value of a company is $40 but it’s trading at $20, the difference165
, $20, is your margin
of safety.If the company suffers, one suffers less because one has bought a bargain stock.
SIMPLE
Another tenet by which Mr. Buffett differs is the fact that while academia and Wall Street
perceive reality as made up of complex systems, Mr. Buffett loves simple166
systems. Simple
systems like businesses based on cash167
. It is as though he is stuck in 1950 and the intervening
60 years have not occurred; he may seem a bit dinosaur-like, but, again in light of the recent
disasters, he may not be off-mark. To a larger extent, it is as if the whole notion of modern
society, filled with its modern gadgets (airplanes, cars, rails, and computers) is nonsense,
destined to fail. Destined to fail because being that they require high CAPEX investments, there
is so much money available at a given moment to invest in them168
. Mr. Buffett’s investments, on
the contrary are primarily low CAPEX investments. For example, consider the investments he
has made in the direct sales approach, as exemplified by GEICO and the Pampered Chef.
PEOPLE
Another tenet by which Mr. Buffet’s differs is the fact he views people as the main players of
economic phenomena. It is the interaction between them, an economic exchange, which matters.
When he invests his money, he buys through stocks, businesses169
, not stocks. Thus, in his
9

invested business he cares tremendously about management, and its ability to deliver the results
he has instructed them to do. For example he admired Tom Murphy170
of Cap Cities, admires Ajit
Jain171
of National Indemnity, he cares about labor relations172
. As an exception to this belief, The
Fruit of the Loom was involved in a sweatshop173
controversy in its Honduras factory. But
overall, there are no major news that disrupts this belief. He cares about not creating
unemployment. For example, he is quoted as saying “I won’t close down a business of sub-
normal profitability merely to add a fraction of a point to our corporate returns174
”in regards to
the troubles the textile Berkshire Hathaway faced during the 1970s. He is not an Al “The
Chainsaw” Dunlap175
type, renowned for his ruthless176
methods of unemployment creation.
SYNERGY
As previously stated, Berkshire Hathaway is a conglomerate and of the successful type,
because although they are diverse businesses, they all play to Mr. Buffet’s rhythm. How could it
be that he has found this elixir to conduct his businesses? I believe that the answer to this is that
since he is a passive investor177
coupled with the fact he is not a fearful manager, his subordinates
coalesce to his interests. Human beings, renowned for the realization of their self-interest, will
cooperate with whom they believe are on their side. Knowing that they have a partner178
, Mr.
Buffet’s subordinates cooperate to meet his goals. Although Mr. Buffet is a capitalist, where he
cares about the optimal allocation of resources, he is also an anti capitalist, because he has to
meet the needs of others, at the expense of his capitalistic drives. Today, this is seldomly done.
He is more like an Edwards Deming-type of a manager.
A proof to the success of his conglomerate, is the tremendous amount attributed to Goodwill.
As example to this proof, Berkshire Hathaway has renowned brand names179
under its belt like,
GEICO, Fruit of the Loom, Benjamin Moore. It is also part owner of the Coca Cola secret180
10

syrup formula. It also has easy access181
to capital markets and outstanding credit182
perception,
which has lead to favorable183
financial arrangements.
STARS
Although Berkshire Hathaway is renowned as a successful conglomerate involved in different
industries, its insurance184
and reinsurance185
business could be considered the most important
jewels it has. They are extremely important because they provide Berkshire Hathaway with cash
to finance its investments expansion186
. This cash is provided through the so called float.187
Float
is the term used to denote the premiums received upfront and paid later as claims.188
In Berkshire
Hathaway case, this amounted to $62189
billion, it earned $28190
billion in insurance premiums
but the net underwriting profit for the whole insurance group was $1,559191
million all for 2009.
Government Employees Insurance Company (GEICO)
GEICO is a wholly owned subsidiary (since 1996192
) of Berkshire Hathaway involved in the
insurance193
and reinsurance194
business-casualty195
and property.196
Specifically, it insures auto197
,
motorcycle198
, homeowners199
, renters200
, condo201
, umbrella202
, ID theft203
, commercial auto204
,
recreational vehicle (RV)205
, all terrain vehicle (ATV)206
, boat207
, flood208
, overseas209
, life210
, and
mobile home.211
GEICO is extremely important to Berkshire Hathaway because it is the most
profitable insurance company out of the insurance group. For example, in 2009, it earned $649212
million. To Berkshire Hathaway, the success of GEICO is the fruition of its long-term strategy of
a business that has excellent management; it is a “shared monopoly” (it is the number three213
provider of auto insurance) and low-cost provider since its sales are direct. Its commercials, tout
that one can save money. As proof, in our household, we have switched from a competitor to
GEICO and have saved approximately 50% on our SUV premiums. Once again, this help is a
gift because in a cash-strapped era, every bit of help counts. A threat that GEICO may encounter
11

in the near future is continued people driving without insurance due to high unemployment214
and
online competition from Progressive.com.
Berkshire Hathaway biggest revenues producer is attributed to the manufacturing sector. This
sector produced 63215
billion in sales for 2009, although with a 5% decrease from the previous
year. Its 2009 net income for this sector was $1,113 million or a 51% decrease from the previous
year. This is due to the effect of the 2008 Great Recession. This sector manufactures goods that
belong to the “old” economy, as opposed to the “new” economy comprised of computers,
personal digital assistants (PDA), etc. It produces/sells ice creams216
, candies217
, underwear218
,
shoes219
, furniture220
, bricks221
, paints222
, carpets223
, jewelry224
, razor blades225
, soda226
, and gum.227
I can not believe that with these products Mr. Buffet has eaten everyone’s breakfast!
Shaw Industries
Shaw Industries is a wholly owned subsidiary (since 2000228
) of Berkshire Hathaway that is
involved in the carpet business. It is considered to be the largest producer of carpet in the United
States, with $5229
billion in sales. Specifically, it produced tufted230
broadloom carpet. Again,
Shaw Industries was bought by Berkshire Hathaway because it is considered a monopoly, is a
low-cost producer, and has excellent management. Although it may sound far-fetched, I believe
that Shaw Industries is the reincarnation of the classical, broadloom Berkshire Hathaway.
Gillette
Although now owned by Procter & Gamble, Gillette is a superbly successful company that
produces disposable razor blades used by men. Millions upon millions men throughout the world
shave in the morning to not look unkempt. It is a necessity well met by the razor blade. Berkshire
Hathaway stake in Gillette is its P&G investment. Gillette is considered to be in a duopoly
12

industry, against Schick. For Berkshire Hathaway, the P&G investment has been successful
because as of 4/16/10, it has returned an 11% gain, although not spectacular.
The Coca Cola Co.
Although Berkshire Hathaway owns an 8.68% stake in it, The Coca Cola Co. produces a
tremendously successful product, a soft drink called Coca Cola. Throughout the world, “1.6
billions serving are served each day.”231
It has a tremendous successful brand name; it’s
considered to be in a monopoly at best, at worst a duopoly, against Pepsi Co. For Berkshire
Hathaway, the Coca Cola investment has been successful because as of 4/16/10, it has returned a
747% gain. A threat to the Coca Cola investment is the realization that people know that they
have to consume healthy drinks as opposed to sugary drinks-Coke, due to the obesity epidemic.
Fruit of the Loom
Fruit of the Loom, is a wholly owned subsidiary (since 2002232
) of Berkshire Hathaway that is
involved in the underwear business. Specifically, it produces the B.V.D. brand. The B.V.D.
brand is renowned in many parts of the world due to its men and boys quality products, which
include briefs233
, woven boxers234
, boxers briefs235
, T-Shirts236237
, V-Necks238
, and A-Necks.239
The Pampered Chef
The Pampered Chef is a wholly owned subsidiary (since 2002240
) of Berkshire Hathaway that
is involved in the kitchen utensil business. Specifically, it produces kitchen utensils that appeal to
women and men that have a bent for the culinary arts. These products include pans241
(sauce,
sauté, skillet), pots242
, accessories243
(meat tenderizer, brushes, trays), cutlery 244
(knifes).Its mode
of sales is direct, similar to GEICO, in that people meet in a social event.245
Its only competitor is
Tupperware246
, the giant of this duopoly industry. This company is a hit because people have
started to eat-in rather that eat-out due to the recession, thus the need for kitchen utensils.
13

MidAmerican Energy Holdings
MidAmerican Energy Holdings is involved in the “regulated utilities” business, primarily
electricity247
, gas248
, and wind249
-. It serves approximately 6.2250
million customers in the United
States (US) and United Kingdom (UK). Its portfolio includes MidAmerican Energy Company251
,
Pacific Corp252
, CE Electric UK253
, Cal Energy Generation254
, Kern Gas River255
, Northern
Natural Gas Company256
, which was formerly a major division of Enron257
, the disgraced
company and Constellation Energy.258
It earned $1,157259
million for 2009.
Burlington Northern and Santa Fe Railway (BNSF)
Burlington Northern and Santa Fe Railway is the largest purchase that Berkshire Hathaway
has accomplished in its history. It spent $26.5260
billion to acquire the portion it did not owe. This
BNSF purchase represents for Mr. Buffett a departure from his preaching that simple systems
and low CAPEX investments should be considered when buying a business. BNSF is complex
because its railroad track has a length of 32,166 miles; it has 6,700261
locomotives and 220,000262
freight cars. BNSF, through its freight system, delivers cars263
, clothing264
, and coal.265
It is a high
CAPEX investment given all the machinery that needs to have in order to do its transportation
job. It is considered a duopoly in the Western US against the Union Pacific Railroad.266
And its
intermodal267
freight system is designed to be a reduced-cost268
provider.
MISTAKES
Due to the tremendous success Berkshire Hathaway has had as a company, and to a larger
extent, Mr. Buffet, it is easy to generalize that he may not be an ordinary human, gifted with an
Einsteinian-type intelligence. But at the end of the day, he is a human being, with all the good
and bad attributes that go with it. Therefore, it is not surprising that he has made mistakes as an
investor. For example, his investment in Goldman Sachs, is being questioned as a good one.
14

Yesterday, Goldman Sachs was charged by the Securities and Exchange Commission (SEC) with
civil fraud as is relates to subprime deals. Mr. Buffett’s called Goldman Sachs an “exceptional
institution.269
Due to this recent scandal, I questioned Mr Buffet’s wisdom as it relates to this
case. Also, as additional examples of mistakes by Mr Buffet, they include: a lost of $433270
million in Dexter Shoes, a lost of $268.5271
million or 70% of the original investment in USAir, a
lost of $20272
million in Pier 1 stock, a lost of $50273
million in a credit card campaign aimed at
GEICO customers. His losses are not big in relation to today’s losses .For example, from
American International Group (AIG) and its $110274
billion combined loss for 2009 and 2010.
INNOVATION
The innovation that I believe Berkshire Hathaway has shown us, given its tremendous success
is the fact that it has brought a cash-based company to the forefront. This fact may have been
taken for granted due to the fact that credit-based companies that abound in today’s economy are
considered superior. This may sound awkward given the fact that we live in the early part of the
21st
century, where credit should and must be the paradigm to follow. It must be the paradigm to
follow because we live in an age that prides itself as credit-based. Also, it has shown us that
capitalism has a limit. I do not want to sound or be viewed as otherwise, but given its success
vis-à-vis other failures, it makes me ponder as to how much value progress has supposedly given
us. Without a doubt it has given us lots of progress, and I am thrilled to have been a witness to it.
With his success he has shown us that given that resources are limited, a fact taught in all
Economics 101 courses, we should and must be considerate in the realization of our economic
goals. After the very basic needs of every human are met, that is food and shelter, efforts that
humans call progress are to a certain degree a waste of resources. Cash takes its paramount
importance because it is designed to facilitate the meeting of those basic needs. And this is from
15

the most successful investor ever, as in the portfolio manager type, who has a Master Degree in
Economics from Columbia University, and not from an underground lunatic from a far land.
CONCLUSION
In conclusion, I have been excited to be exposed and learn the traits that led to the success of
Mr. Buffett and his company, Berkshire Hathaway. Although it is well known that he is a super
capitalist, he has shown that to be such, he had to synthesize and transcend his economical and
financial knowledge in order to show us that to survive and thrive, we have to be more than what
we already are. This sounds off track, sounds philosophical. It is that I am completely taken
aback by the fact that Mr. Buffett, in his economical reasoning, ponders about what Karl Marx275
would say to one of his decision. I have never ever, ever, read that a capitalist relies on Marx in
order to reach a decision he/she is about to make. I certainly do not want to label him as a
Marxist; but if he is relying (albeit briefly) on the archenemy of capitalists, what do we do?
As a Queens college student, having majored in Accounting, we have been drilled to accept
accruals and the profits based on such a system as the truth. Bu here comes Mr. Buffett, the
second richest person in the USA and says it does not matter. Am I wasting my time or have I
been misled in any form? How much truth is there in accruals anyway if at the end of the day
what really matters is cash and its ability to solve the problems that it was intended to solve.
How could this be reconciled? The counter intuitive mind of Mr. Buffett is just too much for us
earthlings to understand. Given all the gloom that surrounds us today, it certainly has been a ray
of light and hope to know that when people follow their own beliefs, convictions, dreams, and
passion, success is the outcome that awaits them. And lastly, we cannot accept the status quo and
become cattle, but must show our will and ingenuity to solve the challenges life has put in us.
16

1
Berkshire Hathaway’s 2009 Annual Report, pg.4
2
3
4
Berkshire Hathaway, Wikipedia article
5
6
7
Janet Lowe, Warren Buffett Speaks: Wit and Wisdom from the World’s Greatest Investor, pg. 113
8
9
10
Yahoo Finance, 3/12/10
11
12
13
14
15
16
17
18
Obama pays more than Buffett as US risks AAA rating, Daniel Kruger and Bryan Keogh, Bloomberg 3/22/10
19
Obama pays more than Buffett as US risks AAA rating, Daniel Kruger and Bryan Keogh, Bloomberg 3/22/10
20
21
22
Berkshire Fine Spinning Associates, Wikipedia article
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24
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Hathaway Mills, Wikipedia article
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Hathaway Mills, Wikipedia article
27
John Kostrzewa, “Rich and richer: Berkshire, Buffett and R.I.'s Chace family” The Providence Journal, May 2006
28
John Kostrzewa ,“Rich and richer: Berkshire, Buffett and R.I.’s Chace family” The Providence Journal, May 2006
29
John Kostrzewa: “Rich and richer: Berkshire, Buffett and R.I.'s Chace family” The Providence Journal, May 2006
30
Berkshire Fine Spinning Associates, wikipedia article
31
32
33
John Train, The Midas Touch, pg.185
34
35
36
37
38
39
40
41
42
43
Garment District, Manhattan Wikipedia article,
44
45
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John Train, The Midas Touch, pg. 37
47
48
49
50
51
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54
55
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Conglomerate, Wikipedia article
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61
62
63

64
Donald P. Kelly, Master of Leveraged Buyouts, Dies at 88, Natasha Singer, New York Times, 3/26/10.
65
66
Holding company, Wikipedia article
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75% or more in ownership stake of targeted company.
68
List of Asset owned by Berkshire Hathaway, Wikipedia article
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70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
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92
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94
95
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BuffettBuys.com-3/26/10
98
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Berkshire Hathaway’s 2009 Annual Report, pg. 24
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115
116
117
118
119
120
121
122

123
CNBC Warren Buffett Watch, 9/23/08
124
Forbes.com, 3/10/10
125
Paul Tharp “Buffett is half full”, New York Post, February 2010
126
New York Post, 5 April 2010, “Public Gives Buffett highest grades”
127
New York Post, 5 April 2010, “Public Gives Buffett highest grades
128
Devin Leonard, “Executive Pay” New York Times, 4 April 2010
129
Devin Leonard, “Executive Pay” New York Times, 4 April 2010 y”
130
131
132
Berkshire Hathaway, Yahoo Finance
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Bill and Melinda Gates Foundation website
134
135
136
137
138
139
Vahan Janjigian “Even Buffett isn’t perfect”, pg. 209
140
Peter Rubenstein, Capital Ideas: the Improbable Origins of Modern Wall Street (2005), pg.54
141
142
143
144
145
146
147
148
149
150
Robert G. Hagstrom, “The Warren Buffett Way: Investment Strategies of the World’s Greatest Investor”, pg. 29
151
Vahan Janjigian,”Even Buffett isn’t perfect”, pg. 43
152
Robert G. Hagstrom, “The Warren Buffett Way: Investment Strategies of the World’s Greatest Investor”, pg.96
153
K.R.Subramanyam and J. John Wild, Financial Statement Analysis, pg. 9
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F. Eugene Brigham and Joel F. Houston, Fundamentals of Financial Management, 1996, pg. 280
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F. Eugene Brigham and Joel F. Houston, Fundamentals of Financial Management, 1996, pg188
156
Robert G. Hagstrom, “The Warren Buffett Way: Investment Strategies of the World’s Greatest Investor“ pg.96
157
Robert G. Hagstrom, “The Warren Buffett Way: Investment Strategies of the World’s Greatest Investor “pg.2
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John Reese and Todd Glassman, The Market Gurus,2005pg. 36
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John Reese and Todd Glassman, The Market Gurus,2005pg. 36
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F. Eugene Brigham and Joel F. Houston, Fundamentals of Financial Management pg. 296
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, K.R.Subramanyam and J. John Wild, Financial Statement Analysis pg. 9
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John Reese and Todd Glassman The Market Gurus, pg. 36
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John Reese and Todd Glassman The Market Gurus , pg. 36
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John Reese and Todd Glassman The Market Gurus, pg. 36
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Robert G. Hagstrom, “The Warren Buffett Way: Investment Strategies of the World’s Greatest Investor, pg.77
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John. Train, The Midas Touch, pg. 33
168
John. Train, The Midas Touch, pg. 37
169
Vahan Janjigian, Even Buffett isn’t perfect, pg. 92
170
171
172
Robert G. Hagstrom, The Warren Buffett Way :Investment Strategies of the World’s Greatest Investor, pg. 42
173
Fruit of the Loom, Wikipedia website
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Robert G. Hagstrom ,The Warren Buffett Way: Investment Strategies of the World’s Greatest Investor, pg.5
175
Albert J. Dunlap, Wikipedia website
176
Albert J. Dunlap Wikipedia website
177
Passive Investment, Wikipedia website
178
179
D.Kieso, J.Weygandt, and T.Warfield Intermediate Accounting, pg. 607
180
181
182
183
D.Kieso, J.Weygandt, and T.Warfield Intermediate Accounting, pg.607
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Berkshire Hathaway’s 2009 Annual Report, introduction
185

186
187
188
189
190
191
192
193
194
195
196
197
GEICO website
198
GEICO website
199
GEICO website
200
GEICO website
201
GEICO website
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GEICO website
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GEICO website
204
GEICO website
205 GEICO website
205
206 GEICO website
206
207 GEICO website
207
208
GEICO website
209
GEICO website
210
GEICO website
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GEICO website
212
213
214
215
216
217
218
219
Berkshire Hathaway’s 2009 Annual Report ,pg. 11
220
221
222
223
224
225
Through his P&G stock investment
226
Through his Coca Cola stock investment
227
Through his Wrigley stock investment
228
Shaw Industries, Wikipedia website
229
Shaw Industries, Wikipedia website
230
Berkshire Hathaway’s 2009 Annual Report, introduction.
231
The Coca-Cola Company, Wikipedia website
232
Fruit of the Loom, Wikipedia website
233
BVD website
234
BVD website
235
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BVD website
238
BVD website
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BVD website
240
The Pampered Chef, Wikipedia website
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The Pampered Chef website
242
243
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245
The Pampered Chef, Wikipedia website
246
Tupperware website
247

248
249
250
251
MidAmerican Energy Holdings Company, Wikipedia website
252
253
254
255
256
257
Enron, Wikipedia website
258
259
260
Jonathan Stempel , ”Buffett defends using stock in Burlington takeover”, Finanz nachrichten.de 2/28/10
261
BNSF website
262
BNSF website
263
BNSF website
264
BNSF website
265
BNSF website
266
BNSF Wikipedia website
267
Intermodal Freight Transport, Wikipedia website
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Intermodal Freight Transport, Wikipedia website
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270
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275
“Karl Marx would disagree with my second” which is the follow up to what he had said previously “I also feel it
inappropriate for even an exceptionally profitable company to fund an operation once it appears to have unending losses
in prospect”. Hagstrom Robert G. Hagstrom, The Warren Buffett Way: Investment Strategies of the World’s Greatest
Investor, pgs. 5 and 6

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