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Kass: Buffett Has Still Got It

This blog post originally appeared on RealMoney Silver on March 1 at 8:01 a.m. EST.

"Come by rail."

-- Warren Buffett, annual letter to Berkshire Hathaway shareholders (Feb. 29, 2010)
In an obvious reference to Berkshire Hathaway's (BRK.A - Get Report) / (BRK.B - Get Report) recent acquisition of Burlington Northern (BNI), the Oracle of Omaha concludes his annual letter to Berkshire Hathaway shareholders with a postscript that implores them to attend the May 1, 2010 Woodstock for Capitalists by rail.

This year's letter is again full of common sense and humor, and in a reversal from 2008, it was a year of excellent results.

Most noteworthy is that Buffett spends little time discussing the state of the U.S. economy, although he wrote that "within a year or so, residential housing problems should be largely behind us."

The company's gain in net worth last year totaled $21.8 billion, or about double what Berkshire lost in 2008. Per-share book value rose by 19.8% vs. a 25% gain for the S&P 500.

Remarkably, over the past 45 years of Buffett's leadership, book value has grown from $19 a share to $84,487 a share, for a compounded rate of 20.3%.

There will never be another Warren Buffett, and I always qualify my Berkshire Hathaway observations, especially when there is some questioning of strategy involved, by saying that I literally worship the Oracle's body of work, his unprecedented investment success in compounding Berkshire's book value and his wealth!

Nevertheless, concerned about Berkshire's large financial exposure and his derivative market bets (shorting puts on the S&P and other indices), I shorted Berkshire's shares back in early 2008 at around $140,000 a share and shortly thereafter discussed the rationale for my view in a Barron's interview. I eventually covered the short at around $110,000 in late 2008. I covered too early as it was on its way to approximately $70,000 a share into the teeth of the financial crisis in first quarter 2009.

Currently, it is my view that Berkshire's shares are fairly priced. Back in November 2009, I expressed that an interaction of several factors will lead investors to valuing Berkshire Hathaway more like a closed-end fund (which typically sells at a discount to its net asset value) and less like the premium and prized possession that it has been over the past 40-plus years.
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