OK, Bash Buffett -- but Buy His Stock

Count it up: Over the last two years, shutting down the derivatives book cost Berkshire Hathaway and its shareholders $404 million in charges that went straight to the bottom line. It's not possible at this point to know what disposing of the last 741 contracts will cost the company. Investors, however, should be glad that they are within sight of the end of these charges.

Major Utility Acquisition

But there's one more development that may turn out to be even more important. In 2005, Berkshire Hathaway made the kind of big acquisition that investors have been clamoring for since, well, since the General Re deal in 1998. Berkshire Hathaway, through its 81% ownership of MidAmerican Energy Holdings, moved to acquire PacifiCorp, a utility with 1.6 million customers in six western states. (You can still own preferred stock in the company; it trades as Pacificorp.)

The deal, which closed on March 21, puts Berkshire Hathaway in the forefront of a consolidation of the electric utility grid at a time when the national grid is looking for a huge inflow of capital to increase capacity and reliability. (The repeal of the Public Utility Holding Company Act on Aug. 8, 2005, marked the end of a major barrier to this consolidation.)

In the utility sector, Berkshire Hathaway has found the kind of large-scale investment opportunity that a company with a $49 billion float requires.

So, add it up for 2006:

Higher premiums and lower risk.

The coming end of charges from shutting down the derivatives book at General Re.

And a major investment opportunity in the utility sector.

Those are all important positive changes for Berkshire Hathaway as the stock heads deeper into 2006.

And these three changes -- not the state of Buffett's prowess as a stock picker -- are why I continue to hold the stock and just increased my target price on the B shares to $3,440 by September 2006.