Warren E. Buffett and Berkshire Hathaway, Inc.

Finkle, Todd A.

INTRODUCTION

It was Thursday, November 20, 2008 and Warren E. Buffett, 77 years old, was about to bite into his favorite meal at his favorite restaurant, a New York strip steak at Gorat's Steakhouse in Omaha, Nebraska. As he chomped down on the steak, he gleefully sloshed down the food with a cool, refreshing cherry coke. Buffett, fondly called the "Oracle from Omaha", had accomplished what few people on earth had done. He built one of the most successful companies of all time with a market capitalization of over $227 billion. As Chairman and Chief Executive Officer of Berkshire Hathaway, Inc., he had become the richest man in the world with a net worth of over $62 billion. (1)

From his humble beginnings in Omaha, Nebraska, Buffett had built a dynasty over four decades by buying out-of-favor stocks and businesses whose management he deemed superior. (2)

If you were an investor in 1956 and gave Buffett $10,000 to invest, today it would be worth more than $500 million. (3) Exhibits 1-5 show Berkshire Hathaway's portfolio of businesses.

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Despite Buffett's personal and professional successes, his company was still faced with one of the toughest economic environments since World War II. The stock market was currently in a bear market. On November 20, 2008, Berkshire's stock price was down 48% from its high of $148,300 on December 6, 2007. This was surprising given that Berkshire Hathaway had advanced 17 out of the past 20 years and Buffett's stock had beaten the S&P 500 index on average 21% versus 10% since 1965. Exhibits 6-11 show the performance of Berkshire's stock price through the years.

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Buffett stated that even though the numbers do not state it, the U.S. is in a deep long-lasting recession. (4) The economy was dealing with a triple whammy; a drop off in consumer spending, the housing bust, and the subprime financial disaster (over leveraged firms, which eventually led to the collapse of Bear Stearns, the first Wall Street investment bank since the Great Depression). These crises, combined with higher gas and food prices, fewer jobs, and personal income not keeping pace with inflation, all had Buffett concerned. Despite this, Buffett was optimistic. In a recent interview he stated, "We may not be better in five months, but I know we will be better off in five years". (5)

Buffett typically excelled during downturns in the economy. His investment philosophy of value investing entailed buying undervalued assets when others were selling. Buffett used his entrepreneurial mindset and skills to seek out undervalued companies. Buffett wondered how Berkshire would handle this recession.

WARREN E. BUFFETT

Warren Buffett was one of three children born to Howard and Leila Buffett in the heart of the Midwest in Omaha, Nebraska in 1930 during the Great Depression. His family had roots in the United States dating back to the 1600's. Buffett's great grandfather started a grocery store in 1869 in downtown Omaha. Buffett and the future Vice Chairman of Berkshire Hathaway, Charlie Munger, would later go on to work in the grocery store.

Entrepreneurship flourished in the Buffett household. Not only did Buffett's father own his own stock brokerage called Buffett-Falk & Company, but he also sold diamonds on the side to hedge for inflation. (6) Buffett's youth was also influenced by his mother's family who owned their own print shop. But it was Buffett's great grandfather's grocery store that had a major impact on Buffett's future. He was paid $2.00 a day for 12 hours of work doing manual labor, which included sweeping floors and unloading trucks. It was here that Buffett decided that he did not want to do manual labor for the rest of his life.

This exposure to entrepreneurship from all of these family members rubbed off on Buffett at a young age. The first few cents Buffett earned came from selling chewing gum. And from the day he started selling, at age six, he showed an unyielding attitude toward his customers that revealed his later style. Buffett stated, "I remember a woman saying, I will take one stick of Juicy Fruit. I said, we do not break up packs of gum, I mean, I have got my principles." Making a sale was tempting, but not tempting enough. If he sold one stick to her, he would have four sticks left to sell, not worth the work or the risk. He made two cents profit per pack. (7)

After this venture, Buffett began purchasing six packs of coke from his grandfather's store for 25 cents and sold individual bottles for 5 cents. (8) He also began to learn about investments from his father's library and had a paper route.

For Buffett's 10th birthday, his father took him to New York. A scene from the stock exchange dining room captured his imagination. According to Buffett, "We had lunch with At Mol, a member of the stock exchange. After lunch, a guy came along with a tray that had all these different kinds of tobacco leaves on it. He made up a cigar for Mr. Mol, who picked out the leaves that he wanted. I thought: It does not get any better than this." Buffett had zero interest in smoking a cigar, but he saw what hiring a man for such a frivolous purpose implied. It meant that, even while most of the country was still mired in the Depression, the cigar man's employer, the stock exchange, was making a great deal of money. That day, a vision of his future was planted. He wanted money. Buffett stated, "It could make me independent. Then I could do what I wanted to do with my life. And the biggest thing I wanted to do was work for myself." (9)

At age 11, he purchased three shares of Cities Service for $38. He later sold it for $40, only to watch it increase in value to $200. (10) This was one of the first lessons that Buffett learned about patience in investing.

By age 13, Buffett filed his first tax form with the Internal Revenue Service (IRS). On the tax form he deducted his bicycle as a $35 expense. At age 14, he purchased 40 acres of land from his father for $1,200, which he rented out.

By the time Buffett was in junior high school his father moved the family to Washington D.C. because he was elected to Congress. While in Washington, Buffett continued his serial entrepreneurial endeavors. He started a pinball and peanut vending machine business called the Wilson-Coin-Operated Machine Company. At age 15, Buffett and a partner named Don Daly, purchased a pinball machine for $25 and placed it in a barber shop. They split the proceeds 50/50 with the owner. They were so successful that they purchased five more machines and eventually had sales of $200 a month. (11) Buffett also made $175 a month from his two paper routes. Additionally, he made money by going to golf courses and gathering lost golf balls, cleaning them, and then reselling them to golfers.

Another entrepreneurial venture in high school was with Don Daly, a high school friend. It involved purchasing a 1928 Rolls Royce for $350, fixing it up, and renting it out for $35 a day. (12) At age 16, Buffett graduated from high school 16th in his class of 350 at Woodrow Wilson High School. (13) After high school, Buffett sold the Wilson-Coin-Operated Machine Company for $1,200 and had savings of $6,000, which he used for college.

Buffett was not keen on going to college, but his father pushed him to attend the Wharton School of Business at the University of Pennsylvania. He spent two years there and complained that he was bored and more interested in the practical applications of the business world. So Buffett transferred to the University of Nebraska at Lincoln. He graduated with a Bachelor of Science degree from the University of Nebraska at Lincoln in 1950 at the age of 19 while working full-time.

Buffett then applied to the Harvard Business School, but was rejected because they thought he was too young. After reading the Intelligent Investor (1949) by Benjamin Graham, he decided that he wanted to study under Graham at Columbia Business School. He applied, was accepted, and studied under Graham and another famous investor, David Dodd, for one year. He earned a Master of Science degree and was one of Graham's prized students.

It was under Graham that Buffett learned his investment philosophy. He was exposed to Graham's two famous books, Security Analysis (1934) and The Intelligent Investor (1949). After graduation, Buffett told Graham that he would work for his firm for no pay. Unfortunately, Graham turned him down saying that he undervalued himself.

As a result, Buffett moved back to Omaha and worked as a stockbroker for his father's investment firm Buffett-Faulk and Company from 1951-1954. During this period, he was keeping in close contact with Graham and making investment recommendations to him.

Graham eventually hired Buffett at his firm called the Graham-Newman Corporation, from 1954-1956. At age 24, Buffet was making $12,000 a year at Graham's firm on Wall Street.

Over the next two years Buffett learned as much as possible from Graham. During those years, Buffett learned about arbitrage. In 1956, Graham retired and Buffett moved back to Omaha where he started his own investment partnership.

BUFFETT AND HIS PARTNERSHIPS

At age 26, Buffett made the decision that he wanted to be an entrepreneur again. Buffett knew that he was not a corporate man and envisioned working for himself. He had amassed savings of over $140,000 from his two years of working on Wall Street. Over the years, he had been approached by several family members for financial advice. As a result, he decided to create an investment partnership called Buffett Partnership, Limited.

According to Buffett, "I will run it like I run my own money. I will take part of the profits and losses but I will not tell you what I am doing". The partnership was created with Buffet as the general partner with seven limited partners. Buffett contributed only $100 and seven friends and family members contributed $105,000. His office was located in a three story Dutch colonial home that he purchased for $31,500 in 1957. The house was adjacent to a busy street and had a handball court inside. Buffett had no office and ran things from a tiny sitting-room off his bedroom with no secretary and no calculator. (14)

That summer Buffett garnered his first outside investor, Homer Dodge, a physics professor and president of Norwich University in Vermont. Dodge wanted to invest in the partnership because he heard of Buffett's talent from Benjamin Graham. Dodge drove 1,500 miles to give $120,000 of his family's savings to Buffett. In 1983, when Dodge died, his investment with Buffett was tens of millions of dollars. (15)

At age 27, Buffett had three partnerships. At 28, he had five partnerships. By the time Buffett was 30 years old he had seven partnerships worth over $7 million of which $1 million was his. In 1962 Buffett also began buying shares of a textile manufacturer named Berkshire Hathaway, Inc. located in New Bedford, Massachusetts.

In 1965, Buffett's Partnership received a check for $300,000 from one of the great businessmen of his times, Laurence Tisch, with a very simple note "include me in". Tisch described Buffett as one of the greatest investors of his generation. (16) By 1965, Buffett controlled Berkshire Hathaway, Inc. which had a stock price of $18.00. (17) In 1966, Buffett became chairman of the company.

In 1969, Buffett decided to liquidate his partnership. He transferred all of the assets from his partnership into shares of Berkshire Hathaway, Inc. and gave the partners their shares. Buffett was now going to use Berkshire as a holding company to purchase other companies and investments. At the end of its life of 13 years, the partnership was worth $100 million. The Partnership returned an average annual return of 30%. (18)

BERKSHIRE HATHAWAY, INC.

In 1970, Buffett was now the Chairman of Berkshire Hathaway, a public company. This was when he began to write his famous annual letter to shareholders. The annual shareholder letters would be his signature as he discussed the firm's strategies, entrepreneurial pursuits, investment decisions and philosophies, state of the industry and economy, and more importantly the mistakes the firm made. Shareholders were always excited about the letters as they used this literature as vital learning tools. To this day, shareholders and investors use Buffett's shareholder letters as learning tools about business and investments.

In the early years, Berkshire Hathaway, Inc. entered into the insurance industry acquiring such companies like Geico and National Indemnity Insurance Company. The main business activity for Berkshire was the property and casualty insurance conducted on both a direct and reinsurance basis. Buffett liked the insurance industry because it gave Berkshire free cash flow to invest in the advance of the payout of any claims.

From 1965 to 1985 the company purchased companies like See's Candies, The Washington Post, and Nebraska Furniture Mart. By 1985, the stock price of Berkshire had grown to $1,000 a share. In the 1990s the company began purchasing investments in Coca-Cola, Gillette, AnheuserBusch, ConocoPhillips, General Electric, Johnson & Johnson, Kraft Foods, Wal-Mart, etc. Unfortunately, things were not as good for Berkshire Hathaway, the textile manufacturer. The company was shut down in 1985 due to increased competition. However, Buffett continued to keep the name of the company, Berkshire Hathaway, Inc.

More recently, the company has been expanding internationally. In 2006, it purchased 80% of Iscar Metalworking Companies based out of Israel that does business in 60 different countries.

In 2008, Berkshire was a conglomerate holding company located in Omaha, Nebraska that owned companies and subsidiaries, engaged in a number of diverse business activities. The company had over 223,000 employees however its corporate headquarters in Omaha had only 12 employees and office space of 3,500 square feet. Berkshire's Vice-Chairman was Charlie Munger, a childhood friend who attended the same grade school as Buffett. The company owned over 70 companies and had shares in great companies like American Express, Wells-Fargo, Coca-Cola, Kraft, Burlington Northern Santa Fe, Dairy Queen International, Wal-Mart Stores, Inc., Procter & Gamble, Washington Post Company, Wells Fargo & Company, and other public companies.

Berkshire had two classes of stock; Class A, which was the highest priced stock listed on the New York Stock Exchange. The company also released a class B share. Berkshire's stocks never split as Buffett's investment philosophy was to reinvest the dividends. Berkshire's financial statements can be seen in Exhibits 12-15.

BUFFETT'S INVESTMENT PHILOSOPHY

Warren Buffett followed a value investment strategy similar to Benjamin Graham. His investment strategy consisted of discipline, patience, and value that consistently outperformed the market. Buffett's moves were mirrored by thousands of investors throughout the world. It was not uncommon to see double digit increases in stock prices of companies after Buffett's investments were made public. Berkshire acquired great businesses that traded at a discount to their intrinsic value and he held them for a long time.

Buffett stated, "We want businesses to be ones (a) that we can understand; (b) with favorable long-term prospects; (c) operated by honest and competent people; and (d) available at a very attractive price". (19) Buffett stated, "Success in investing does not correlate with I.Q. once you are above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing". (20) Buffett and Munger never hired any consultants to help them.

Buffett stated, "I do not want to buy into any business that I am sure of. It probably is not going to offer any credible returns. Why should something that is essentially a cinch offer you 40% a year? We do not have huge returns in mind, but what we do have in mind is never losing anything". (21)

Buffett followed the value investing methodology where one purchased stocks that are undervalued by the marketplace. The problem with this methodology is that there is no one best universal way to value a company. Valuing companies is different depending on the industry and stage of growth. Valuing companies was a competitive advantage that Buffett brought to Berkshire. He seemed to have the magical touch when valuing companies. It was not uncommon for Buffett to follow a company's management team and performance over a number of years before he would invest in a company.

At the 2008 Berkshire Hathaway Shareholder's Meeting, Buffett stated that business education was highly overvalued. He stated that he did not believe in the Efficient Market Hypothesis, which was taught at most business schools. Buffett stated that these schools have you taking all of these different classes, when all you really need to know to become a successful investor is two courses: (1) A course on how to value companies and (2) A course on human behavior in the markets.

VALUE INVESTING

According to Buffett, "The two most important essays ever written on investments were written by Benjamin Graham in his book, Intelligent Investor in Chapter 8 on the attitude towards stock market fluctuations and Chapter 20 on the margin of safety. I have no idea what the stock market is going to do. It is something that I never think about at all. But I am looking for the stock to go down so I can buy it on sale. I want the stocks to go down, way down so I can make better buys. (22)

Buffett only invested in businesses that he understood, and he always insisted on a margin of safety. The margin of safety was when an investor only purchased securities when the market price was significantly below its intrinsic value. In other words, when the market price was significantly below your estimation of the intrinsic value, the difference was the margin of safety. This difference allowed an investment to be made with minimal downside risk. (23)

Buffett combined Graham's investment philosophy with his own by answering the following issues related to a potential investment:

*** Is the business easy to understand and analyze? Buffett only liked businesses that he could understand. Buffett stated that if he was teaching a course on valuation, his final exam to the students would be to value an Internet company. If the student answered the question, he or she would receive an F.

*** Is the company in an industry with good economics, i.e., not an industry competing on price? Does the company have a consumer monopoly within their industry (e.g., Gillette, Coke, Dairy Queen, etc.)? Coca-Cola and Gillette have what Buffett calls a moat, where the resources necessary to overcome the brands are enormous.

*** How old is the company? Buffett liked to look at a 10 year track record of financial statements. He also liked to compare the company with other firms within their industry.

*** Buffett preferred firms that did not require a great deal of capital. The business should not have high maintenance cost of operations, high capital expenditure or investment cash outflow. This was not the same as investing to expand capacity. For example, in 1972, Berkshire bought See's Candies, who had a $4 million pre-tax profit for $25 million. Buffett stated that Berkshire never hired a consultant; their idea was to go out and buy a box of candy and see if they like it. Buffett purchased the company with the idea that Berkshire could raise the prices of the candy without investing a great deal in capital. That formula worked. Today the company has a net profit of $60 million a year.

*** Does the company have a high Return on Equity (ROE)? Buffett preferred 15%, but was willing to go lower depending on the economic conditions.

*** Was the company's debt-to-equity ratio low enough for the company to pay its debt obligations? Can it repay debt in years when earnings are lower than average?

*** Does the company have a quality, ethical management team that had passion? For example, in 1983 Buffett purchased the Nebraska Furniture Mart. At the time it was the largest furniture store in the U.S. Buffett purchased the company from the founder, Rose Blumkin (also called Mrs. B), with a handshake and $55 million. Blumkin came to the U.S. from Russia in 1917 with $66 and no knowledge of English. She learned English from her five year old daughter and in 1937 she started her store in the basement of her husband's pawn shop in Omaha. After the acquisition, Blumkin had enough money to retire, but she continued to work because of the passion she had for her business. Blumkin's motto was to be honest and sell cheap.

*** Is the company free to adjust prices for inflation and still maintain profitability?

*** Will the value added by retaining earnings lead to an increase in the stock market value of the company?

*** Did the company have consistent strong free cash flow to maintain its current operations? Did the company retain earnings for growth and what is management's track record on those investments? (24 25)

* Is the stock undervalued by at least 25%? Is the intrinsic value of the company 25% less than the market value of the company?

Buffett stated that he would talk to CEOs in an industry and ask them, if you wanted to invest in one company in your industry who would it be and why? This methodology allowed him to learn about the leaders in each industry.

There was no magical test to determine the value of a company, but Buffett appeared to have a good handle on the various tactics he used to help him value companies.

BUFFETT'S KEYS TO SUCCESS

Buffett has been described by many as a genius, brilliant with numbers, photographic memory, honest, loyal, frugal, smart, rich, etc. Peter Buffett, Buffett's youngest of three, stated that his dad had the most integrity and was the most honest man that he had ever met.

Buffett was not an ostentatious man. He lived in the same house in Omaha that he purchased in 1957 for $31,500 and drove a Lincoln Town Car with license plates that said THRIFTY. A few years ago he auctioned off the car on e-Bay. Buffett stated, "My suits are old, my wallet's old, my car's old and I've lived in the same house since 1957, so I hang on to things". (26)

In a recent talk to University of Florida students Buffett stated, "There is no difference between you and me: We all go to McDonald's ... better yet Dairy Queen, we all live in cool houses in the summer and warm houses in the winter. Our lives are not that different. You will get decent medical care if something happens to you and so will I. The only difference is that I travel around on this little plane and that is the only difference. If you leave this aside, what can I do that you cannot do? I get to work in a job that I love and I think you are out of your mind for taking jobs you do not love. Take a job that if you were independent wealthy you would do. If you think you are going to be a lot happier with 2x instead of x, you are probably making a big mistake. Find something you like, you will get in trouble if you think that making 10x or 20x will make you happy because then you will do things you should not do like cut corners. Do something you enjoy and be associated with people you like. If I could make $100 million dollars with some guy that made my stomach churn I would say no. It is like marrying for money, which if you are already rich, is crazy". (27)

Buffett did not believe in high CEO pay. He consistently spoke out about the abuses of management in relation to pay and stock options. Since 1980, Buffett made $100,000 a year, which he stated was more than enough to live on. He never cashed in a share of Berkshire stock for personal use. Exhibit 16 showed some of Buffett's more famous quotes.

Forever a student, Warren Buffett stated that if you want to become a successful investor you need to read all of the time. In 1965 he wrote, "We derive no comfort because important people, vocal people, or great numbers of people agree with us. Nor do we derive comfort if they do not. A public opinion poll is no substitute for thought. When you find a situation you understand, where the facts are ascertainable and clear, then act, whether the action is conventional or unconventional and regardless of whether others agree or disagree. When you are dead sure of something and are armed with all the facts, then everyone else's advice is only confusing and time-consuming". (28)

Buffett stated that we like to buy businesses at reasonable prices. He also stated that the secret to making money was to avoid making mistakes and bet big, but seldom. Buffett kept his investments secret until the publication of the Berkshire Hathaway's Annual Report or until he was required by the Securities and Exchange Commission to disclose his transactions.

A Wall Street money manager with First Manhattan Co. in New York reported to his wife after a lunch with Buffett "I think I just met the smartest investor in the country". Phil Carret, an investor, called Buffett "the smartest man in the U.S." Sequoia Fund's Bill Ruane dubbed Buffett "the smartest guy in the country". Former GE CEO Jack Welch called Buffett "the smartest guy in any room". Executive Jet CEO Rich Santulli said, "There is not a person in the world that is smarter than Warren Buffett" (29)

Exhibit 16: Warren Buffet Quotes

* "Shares are not mere pieces of paper. They represent part
ownership of a business. So, when contemplating an investment,
think like a prospective owner."

* "All there is to investing is picking good stocks at good times
and staying with them as long as they remain good companies."

* "Look at market fluctuations as your friend rather than your
enemy. Profit from folly rather than participate in it."

* "If, when making a stock investment, you're not considering
holding it at least ten years, don't waste more than ten minutes
considering it."

* "A public-opinion poll is no substitute for thought."

* "Of the billionaires I have known, money just brings out the
basic traits in them. If they were jerks before they had money,
they are simply jerks with a billion dollars."

* "It takes 20 years to build a reputation and five minutes to ruin
it. If you think about that, you'll do things differently."

* "I always knew I was going to be rich. I don't think I ever
doubted it for a minute."

* "What good is money? It buys time and flexibility to do what you
want (work how you want).

But, it doesn't really make a huge difference in other things."

* "It's better to hang out with people better than you. Pick out
associates whose behavior is better than yours and you'll drift in
that direction."

* "The business schools reward difficult complex behavior more than
simple behavior, but simple behavior is more effective."

* "Our favorite holding period is forever."

* "Price is what you pay. Value is what you get."

* "Risk comes from not knowing what you're doing."

* "There seems to be some perverse human characteristic that likes
to make easy things difficult."

* "Time is the friend of the wonderful company, the enemy of the
mediocre."

* "We enjoy the process far more than the proceeds."

* "We simply attempt to be fearful when others are greedy and to be
greedy only when others are fearful."

* "When a management with a reputation for brilliance tackles a
business with a reputation for bad economics, it is the reputation
of the business that remains intact." "Why not invest your assets
in the companies you really like? As Mae West said, "Too much of a
good thing can be wonderful."

* "You only have to do a very few things right in your life so long
as you don't do too many things wrong." "Your premium brand had
better be delivering something special, or it's not going to get
the business."

* "Wide diversification is only required when investors do not
understand what they are doing."

* "I don't look to jump over 7-foot bars: I look around for 1-foot
bars that I can step over."

* "If past history was all there was to the game, the richest
people would be librarians."

Source: Warren Buffett Quotes.
http://www.brainyquote.com/quotes/
authors/w7warren_buffett.html.

Accessed December 3, 2008.

Buffett disliked schedules, meetings, company rituals, and managing people. His office was in a simple building called Kiewit Plaza for over 30 years.

Buffett had an incredible high level of integrity (e.g., he mouthed no threats and never participated in hostile takeovers). Buffett considered character the most important ingredient of a hire, but he also wanted someone who was intelligent with a high level of energy. Other characteristics he admired were generosity; people that gave credit to other people even if they did the work, people that had strong leadership capabilities, and people that were not greedy. Buffett also believed in the philosophy that if you admire someone, you should behave like them.

Buffett was also a debt adverse person and had a strong dislike for being in debt. Buffett had two rules that he considered rich seekers must learn: Rule no 1: never lose money. Rule no 2: never forget rule no 1. (30)

One of the keys to Buffett and Berkshire's success was the interest free leverage from the insurance premiums the company received. For example, Geico customers would pay their premiums and then Berkshire was free to use the money for other investments, such as the acquisition of successful companies like See's Candies or Nebraska Furniture Mart. Of course, Geico would have to pay claims, but until then, they were free to use the cash on other investments.

BUFFETT AND CHARITY

What made Buffett especially happy was giving most of his fortune to the Bill & Melinda Gates Foundation and four other philanthropies. (31) More than 99% of the monetary proceeds and 100% of the human proceeds of his life were to be returned to society. Buffett stated, "I want my trustees to swing for the fence on a few projects that do not have natural funding constituencies, but that are important to society. I tell them that if they start giving half a million to this hospital and a million to that college, I will come back and haunt them". (32)

Buffett also stated that his children would not inherit a significant proportion of his wealth and that his great fortune would not be transferred from one generation to the next. Buffett stated, "I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing. I do not have a problem with guilt about money. The way I see it is that my money represents an enormous number of claim checks on society. It is like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And the GNP would go up. But the utility of the product would be zilch, and I would be keeping those 10,000 people from doing AIDS research, or teaching, or nursing. I do not do that though. I do not use very many of those claim checks. There is nothing material I want very much. And I am going to give virtually all of those claim checks to charity when my wife and I die". (33)

Buffett always felt best when he was giving and helping others. Buffett's value system was a major reason why he was so successful. Every year for the past several years Buffett invited approximately 15 universities and colleges from all over the world to his corporate headquarters. He shared his thoughts on business and more importantly his lessons on how to live your life. Buffett donated one class A share to each school to cover their expenses.

Buffett also auctioned off a lunch with himself every year on eBay. He gave the proceeds to Glide Foundation, a non-profit organization in San Francisco that helped the homeless and poor. This past year a Chinese investment fund manager won the bidding at $2.1 million.

Buffett stated that he was the luckiest person in the world because he loved what he did for a living and was surrounded by people that loved him. When he was recently asked in an interview about the key to happiness, Buffett made no mention of money or any materialistic things, but mentioned the importance of surrounding yourself with people that love you.

Buffett's value system stressed the importance of being honest and forthright; something his father had taught him. His honesty was legendary. Buffett always stated that it was better to make less profit if it meant doing it honestly rather than questionably. As a result, it was not uncommon for leading investors and media to contact Buffett first to get his opinion on critical issues. People knew that when Buffett spoke, they got an honest, intelligent, and forthright answer.

ECONOMIC ENVIRONMENT

In late 2008, the U.S. economy was muddled with a drop off in consumer spending, the housing bust, and the subprime financial disaster. At the heart of the economic mess was one of the biggest financial disasters in the history of the U.S., the housing bust and the subprime mortgage collapse. The U.S. was in the worst housing correction since the Great Depression. By 2009, the average net worth of households headed by homeowners age 45 to 54 will be almost 25% less than it was in 2004. (34)

The factor that led up to the housing bust that began in 2006 was the U.S. recession from 20012003. To stimulate the economy, the former Chairman of the Federal Reserve, Alan Greenspan, dropped the Federal funds rate to 1%, making it easier for people to borrow money at a very cheap rate. The lowering of interest rates, compounded with little regulations, and greed within the financial industry, created a housing boom.

New innovations along with low interest rates allowed consumers easy access to funding to purchase real estate. Buyers were allowed to purchase real estate with no money down without lenders checking employment records or their ability to pay their debt obligations. The easy access to capital created a housing boom. Some areas of the country (e.g., California, Florida, Arizona, Nevada, etc.) saw their housing values increase in double digits for several years.

This level of growth was not sustainable and eventually led to the collapse of the housing industry. People borrowed money to purchase houses with adjustable rate mortgages (ARMs) with the hope that the values of real estate would continue to go up. Unfortunately, that gamble came to an end in 2006 when prices started to fall and people could not refinance their ARMs due to falling home values.

According to the latest S&P/Case-Schiller Index, the most respected U.S. housing index indicator, the average U.S. home price dropped 21% from its peak in the second quarter 2006 to September 2008. On a year-to-year basis, the average home in the U.S. dropped 16.6% from September 2007 to September 2008. Some areas of the country have been hit especially hard. Phoenix, Las Vegas, Miami, Los Angeles and San Francisco saw their average home prices decline 39%, 38%, 36%, 33%, and 33% from their highs in mid 2006 and were still dropping.

The collapse in housing values cost U.S. homeowners $4 trillion in lost equity. Many analysts have estimated that home values could drop another 10-20% before the crisis is over. Some analysts also state that just because the housing crisis bottoms, does not necessarily mean that price appreciation will come back any time soon.

According to Bill Gross, CEO of Pimco Investments, "The housing market is going down because quite simply, they went up too much and were financed with excessive debt. The housing bubble was well inflated by low interest rates, easy, and in some cases fraudulent credit, a lack of federal and state regulation, and a gullible public who read the history books for the past half century and knew full well that home prices never, ever go down. Not much of an enigma there. No riddle to be solved it would seem. It was simply a fairy tale too good to be true. Yet housing, unlike other asset classes, carries with it an aura more like a bad dream than a fairy tale. That is because it is the most levered asset class and the one held by more "investor" citizens than any other. U.S. homes are market valued at over 20 trillion dollars with nearly half of the value supported by mortgage finance of one sort or another.

At first blush that appears to be reasonably levered, but at the margin, homes purchased in 2004 and beyond are now at risk of turning upside down--negative equity--and there are some 25 million or so of those. The "upsidedownness" in many cases results in foreclosures, or outright abandonment and most certainly serves as an example of what not to do for millions of twenty-somethings or new citizens choosing between homeownership and renting. PIMCO estimates a total of 5 trillion dollars of mortgage loans are in risky asset categories and that nearly 1 trillion dollars of cumulative losses will finally mark the gravestone of this housing bubble. The problem with writing off 1 trillion dollars from the finance industry's cumulative balance sheet is that if not matched by capital raising, it necessitates a sale of assets, a reduction in lending or both that in turn begins to affect economic growth, creating what Mohamed El-Erian fears as a "negative feedback loop". (35)

"I worry a lot about what's happening in housing," Martin Feldstein, Professor of Economics at Harvard University and President Emeritus of the National Bureau of Economic Research. Feldstein stated, "The number of negative-equity homes is exploding. Housing prices will continue to go down, driven by the large oversupply of houses and the increasing number of foreclosures". (36)

In an interview on August 22, 2008 on CNBC Buffett was quoted, "The economy continues to be in a recession, by my definition, and will continue to be for at least several more months. The ripples of the credit crunch are continuing to cause problems in financial businesses and the economy. We found out that Wall Street has been kind of a nudist beach. You always find out who has been swimming naked when the tide goes out. We found out that Wall Street has been kind of a nudist beach. I am confident the country will be doing better five years from now, but the economy could be worse five months from now. The economy is in a recession because most Americans are not doing as well today as before. The technical definition of a recession most economists use is two consecutive quarters of negative growth in the country's gross domestic product. The current economic struggles in the U.S. create investment opportunities, and my phone is ringing more lately than it was three months ago. However, many of those calls have come from desperate people and did not represent good investment opportunities" (Funk, 2008). (37)

BUFFETT'S NEXT MOVE

As Buffett finished his Buster Bar at Dairy Queen his second wife, Astrid Menks, (Buffett's first wife, Susie, passed away in 2004) asked him a few questions, "Warren, Berkshire Hathaway's stock price is down 48% this year and you keep telling me that we are in a recession. I am very concerned about the economy. I have never seen it this bad before. What are you going to do next, Warren? Buffett thought to himself, this was the worst economic period of his investment career. He pondered about what his next moves should be.

ACKNOWLEDGMENT

The author would like to acknowledge the research assistance of Mr. Tran Trung Hieu.

REFERENCES

Graham, Benjamin (1934). Security Analysis. Harper & Brothers, New York, NY.

Graham, Benjamin (1949). The Intelligent Investor. Harper & Brothers, New York, NY.

Todd A. Finkle, Gonzaga University

ENDNOTES

(1) "The World's Billionaires." Forbes. March 5, 2008. Available at http://www.forbes.com/2008/03/05/ richestbillionaires-people-billionaires08-cx_lk_0305intro.html.

(2) Hamilton, J. (2008). Buffett's Berkshire Discloses Stake in NRG Energy. Bloomberg.com, Available at http://www.bloomberg.com/apps/news? pid=newsarchive&sid=ambd9iWGLjGA

(3) Kilpatrick, A. (2008). Of Permanent Value: The Story of Warren Buffett/2008. Andy Kilpatrick Publishing Empire. Birmingham, Alabama. Page 13.

(4) Buffett: Economy in a recession will be worse than feared. USA Today.com, April 4, 2008. Available at http://www.usatoday.com/money/economy/ 2008-04-28-buffett-recession_N.htm

(5) Crippen, A. (2008). Three Hours with Warren Buffett. Transcript/Video Parts One-Six Live From Omaha. Available at http://www.cnbc.com/id/19206666/?sky=GGL|CAMP029CNBC_CoreTerms+ Blogs_Dec+2007|ADGP028CNBC_CoreTerms_warrenbuffett| KWRD014warren+buffett&^source=SI_28965575_999685666_1

(6) Ibid. Kilpatrick, 2008. Page 38.

(7) Schroeder, A. (2008). How Warren Buffett Made His First Dime. Available at: http://www.parade.com/hottopics/0809/ how-warren-buffett-made-his-first-dime.

(8) Miles, R. (2004). Warren Buffett Wealth: Principle and Practical Methods used by the World's Greatest Investor. Page 25.

(9) Schroeder, A (2008). The Snowball: Warren Buffett and the Business of Life.

(10) Ibid. Kilpatrick, 2008. Page 62.

(11) Steele, J. (1999). Warren Buffett: Master of the Market. Page 28.

(12) Vick, T. (2000). How to Pick Stocks like Warren Buffett. Page 10.

(13) Ibid. Steele, 1999. Page 29.

(14) Ibid. Kilpatrick, 2008. Page 88.

(15) Ibid. Kilpatrick, 2008. Page 89.

(16) Mazzocco, D. (1999). Networks of Power: Corporate TV's Threat to Democracy. Page 94.

(17) Fridson, M. (1999). How to Be a Billionaire. Page 179.

(18) Ibid. Kilpatrick, 2008. Page 16.

(19) Gurufocus.com. "GuruFocus Tracks the Stock Picks of Gurus," accessed August 4, 2008 http://www.gurufocus.com/ListGuru.php? GuruName=Warren+Buffett

(20) Buffett, W. (2008). Chairman's 1997 Annual Letter to Shareholders. Available at http://www.berkshirehathaway.com/letters/ letters.html. Accessed August 25, 2008.

(21) Warren Buffett MBA Talk. Presentation at the University of Florida. September 4, 2006. http://video.google.com/videoplay? docid=-6231308980849895261 Accessed August 29, 2008.

(22) Warren Buffett MBA Talk. Presentation at the University of Florida. September 4, 2006. http://video.google.com/videoplay? docid=-6231308980849895261 Accessed August 29, 2008.

(23) Margin of Safety. Available at http://www.investopedia.com/terms/m/marginofsafety.asp. Accessed September 1, 2008.

(24) Warren Buffett's Investment Philosophy. Available at http://www.investmentu.com/IUEL/2008/February/warrenbuffett.html. Accessed August 28, 2008.

(25) Buffett, M. and Clark, D. (2001). The Buffettology Workbook: Value Investing the Warren Buffet Way. Simon and Schuster, NY, NY.

(26) Ibid. Kilpatrick, 2008. Page 16.

(27) Warren Buffett MBA Talk. Presentation at the University of Florida. September 4, 2006. http://video.google.com/videoplay? docid=-6231308980849895261 Accessed August 29, 2008.

(28) Cunningham, Lawrence (2001). The Essays of Warren Buffett: Lessons for Corporate America. (Essays by Warren Buffet; Selected, Arranged, and Introduced by Lawrence Cunningham).

(29) Ibid. Kilpatrick, 2008. Page 23.

(30) Warren Buffett: Rule No. 1--Never Lose Money. Available at http://www.zimbio.com/Self+Improvement/articles/125/ Warren+Buffett+Rule+No+1+Never+Lose+Money Accessed August 24, 2008.

(31) Buffett to Give Bulk of His Fortune to Gates Charity. New York Times.com. June 26, 2006. Available at http://www.nytimes.com/2006/06/ 26/business/26buffett.html. Accessed August 8, 2008.

(32) Ibid. Kilpatrick, 2008. Page 26.

(33) Ibid. Kilpatrick, 2008. Pages 1775-1783.

(34) How the Housing Crisis Hurts Your Retirement. Money Magazine. September 2, 2008. http://money.cnn.com/2008/08/29/ real_estate/housing_retirement.moneymag/ index.htm?postversion=2008090207 Accessed September 1, 2008.

(35) Gross, B. (August, 2008). Investment Outlook by Bill Gross. Pimco Investment. Available at http://www.pimco.com/LeftNav/Featured+Market+Commentary/ IO/2008/Investment+Outlook+Bill+Gross+Mooooooo+ August+2008.htm. Accessed August 7, 2008

(36) Gross, B. (August, 2008). Investment Outlook by Bill Gross. Pimco Investment. Available at http://www.pimco.com/LeftNav/Featured+Market+Commentary/ IO/2008/Investment+Outlook+Bill+Gross+Mooooooo+August+ 2008.htm. Accessed August 7, 2008

(37) Funk, J. (2008). Buffett: Recession Will Continue for at Least Several More Months. Available at http://www.huffingtonpost.com/2008/08/22/ buffett-recession-will-co_n_120754.html. Accessed August 22, 2008.

Exhibit : List of Companies that Warren Buffett owned as of 9/30/2008

No                     Company

1     Acme Brick Company
2     Applied Underwriters
3     Ben Bridge Jeweler
4     Benjamin Moore & Co.
5     Berkshire Hathaway Group
6     Berkshire Hathaway Homestates Companies
7     BoatU.S.
8     Borsheims Fine Jewelry
9     Buffalo NEWS, Buffalo NY
10    Business Wire
11    Central States Indemnity Company
12    Clayton Homes
13    CORT Business Services
14    CTB Inc.
15    Fechheimer Brothers Company
16    FlightSafety
17    Forest River
18    Fruit of the Loom[R]
19    Garan Incorporated
20    ateway Underwriters Agency
21    GEICO Auto Insurance
22    General Re
23    Helzberg Diamonds
24    H.H. Brown Shoe Group
25    HomeServices of America, a subsidiary of
26    MidAmerican Energy Holdings Company
27    International Dairy Queen, Inc.
28    Iscar Metalworking Companies
29    Johns Manville
30    Jordan's Furniture
31    Justin Brands
32    Larson-Juhl
33    Marmon Holdings, Inc.
34    McLane Company
35    Medical Protective
36    MidAmerican Energy Holdings Company
37    MiTek Inc.
38    National Indemnity Company
39    Nebraska Furniture Mart
40    NetJets[R]
41    The Pampered Chef[R]
42    Precision Steel Warehouse, Inc.
43    RC Willey Home Furnishings
44    Scott Fetzer Companies
45    See's Candies
46    Shaw Industries
47    Star Furniture
48    TTI, Inc.
49    United States Liability Insurance Group
50    Wesco Financial Corporation
51    XTRA Corporation

Source: Links to Berkshire Hathaway Subsidiaries:
http://www.berkshirehathaway.com/subs/sublinks.html,
Accessed December 3, 2008

Exhibit 2--List of other companies that Warren Buffett has a stock
position in and the amount of stock and its current value 9/30/2008

No     Ticker                  Company

1       WFC      Wells Fargo & Company
2        KO      Coca-Cola Company
3       AXP      American Express Company
4       KFT      Kraft Foods Inc.
5        PG      The Procter & Gamble Company
6       COP      ConocoPhillips
7       USB      U.S. Bancorp
8       BNI      Burlington Northern Santa Fe Corp.
9       JNJ      Johnson & Johnson
10      MCO      Moody's Corp.
11      WMT      Wal-Mart Stores Inc.
12      KMX      CarMax Inc.
13      USG      USG Corp.
14      BUD      Anheuser-Busch Companies Inc.
15     CMCSK     Comcast Corp. Special
16      UNP      Union Pacific Corp.
17       GE      General Electric Company.
18      NKE      NIKE Inc.
19      MTB      M&T Bank Corp.
20      LOW      Lowe's Companies Inc.
21      UNH      United Heal Group Inc.
22      WSC      Wesco Financial Corp
23       IR      Ingersoll-Rand Company Ltd.
24      COST     Costco Wholesale Corp.
25      NRG      NRG Energy Inc.
26      BAC      Bank of America Corp.
27      WLP      WellPoint Inc.
28      SNY      SanofiAventis
29       HD      The Home Depot Inc.
30      GCI      Gannett Co. Inc.
31      IRM      Iron Mountain Inc.
32      STI      SunTrust Bank Inc.
33      ETN      Eaton Corp.
34      TMK      Torchmark Corp.
35      WBC      WABCO Holding Inc.
36      NSC      Norfolk Southern Corp.
37      WPO      The Washington Post Company
38    CDCO.OB    Comdisco Holding Co. Inc.
39      GSK      GlaxoSmithKline Plc.
40      UPS      United Parcel Services Inc

No     Ticker                Industry                   Shares

1       WFC      Banks                               290,407,668
2        KO      Food & Beverage                     200,000,000
3       AXP      Financial Services                  151,610,700
4       KFT      Food & Beverage                     138,272,500
5        PG      Personal & Household Goods          105,847,000
6       COP      Oil & Gas Producers                  83,955,800
7       USB      Banks                                72,937,126
8       BNI      Industrial Goods & Services          63,785,418
9       JNJ      Pharmaceuticals & Biotechnology      61,754,448
10      MCO      Industrial Goods & Services          48,000,000
11      WMT      Retail                               19,944,300
12      KMX      Retail                               18,444,100
13      USG      Construction & Materials             17,072,192
14      BUD      Food & Beverage                      13,845,000
15     CMCSK     Media                                12,000,000
16      UNP      Industrial Goods & Services           8,906,000
17       GE      Industrial Goods & Services           7,777,900
18      NKE      Personal & Household Goods            7,641,000
19      MTB      Banks                                 6,715,060
20      LOW      Retail                                6,500,000
21      UNH      Health Care Equipment & Services      6,379,900
22      WSC      Insurance                             5,703,087
23       IR      Industrial Goods & Services           5,636,600
24      COST     Retail                                5,254,000
25      NRG      Electricity                           5,000,000
26      BAC      Banks                                 5,000,000
27      WLP      Health Care Equipment & Services      4,777,300
28      SNY      Pharmaceuticals & Biotechnology       3,903,933
29       HD      Retail                                3,700,000
30      GCI      Media                                 3,447,600
31      IRM      Industrial Goods & Services           3,372,200
32      STI      Banks                                 3,204,600
33      ETN      Industrial Goods & Services           2,908,700
34      TMK      Insurance                             2,823,879
35      WBC      Automobiles & Parts                   2,700,000
36      NSC      Industrial Goods & Services           1,933,000
37      WPO      Media                                 1,727,765
38    CDCO.OB    Industrial Goods & Services           1,538,377
39      GSK      Pharmaceuticals & Biotechnology       1,510,500
40      UPS      Industrial Goods & Services           1,429,200

                    Value            %
No     Ticker      ($1,000)      Weighting

1       WFC       10,899,000         15.59%
2        KO       10,576,000         15.13%
3       AXP        5,371,570          7.69%
4       KFT        4,528,420          6.48%
5        PG        7,376,480         10.55%
6       COP        6,149,760          8.80%
7       USB        2,627,190          3.76%
8       BNI        5,895,690          8.44%
9       JNJ        4,278,350          6.12%
10      MCO        1,632,000          2.34%
11      WMT        1,194,460          1.71%
12      KMX          258,217          0.37%
13      USG          437,048          0.63%
14      BUD          898,264          1.29%
15     CMCSK         236,640          0.34%
16      UNP          633,751          0.91%
17       GE          198,336          0.28%
18      NKE          511,183          0.73%
19      MTB          599,319          0.86%
20      LOW          153,985          0.22%
21      UNH          161,986          0.23%
22      WSC        2,036,000          2.91%
23       IR          175,674          0.25%
24      COST         341,142          0.49%
25      NRG          123,750          0.18%
26      BAC          175,000          0.25%
27      WLP          223,424          0.32%
28      SNY          128,323          0.18%
29       HD           95,793          0.14%
30      GCI           58,299          0.08%
31      IRM           82,315          0.12%
32      STI          144,175          0.21%
33      ETN          163,411          0.23%
34      TMK          168,869          0.24%
35      WBC           95,958          0.14%
36      NSC          127,984          0.18%
37      WPO          961,951          1.38%
38    CDCO.OB         14,630          0.02%
39      GSK           65,646          0.09%
40      UPS           89,882          0.13%

Source: Gurufocus.com:
http://www.gurufocus.com/holdings.php?GuruName=Warren+Buffett

Exhibit 6: Comparison of the Performance of Berkshire's stock versus
the S&P 500: 1965-2007

Years            In per-share book   In S&P 500 with      Relative
                     value of           dividends      results (1)-(2)
                   Berkshire (1)      included (2)

1965                   23.8               10.0              13.8
1966                   20.3              (11.7)             32.0
1967                   11.0               30.9             (19.9)
1968                   19.0               11.0               8.0
1969                   16.2               (8.4)             24.6
1970                   12.0                3.9               8.1
1971                   16.4               14.6               1.8
1972                   21.7               18.9               2.8
1973                    4.7              (14.8)             19.5
1974                    5.5              (26.4)             31.9
1975                   21.9               37.2             (15.3)
1976                   59.3               23.6              35.7
1977                   31.9               (7.4)             39.3
1978                   24.0                6.4              17.6
1979                   35.7               18.2              17.5
1980                   19.3               32.3             (13.0)
1981                   31.4               (5.0)             36.4
1982                   40.0               21.4              18.6
1983                   32.3               22.4               9.9
1984                   13.6                6.1               7.5
1985                   48.2               31.6              16.6
1986                   26.1               18.6               7.5
1987                   19.5                5.1              14.4
1988                   20.1               16.6               3.5
1989                   44.4               31.7              12.7
1990                    7.4               (3.1)             10.5
1991                   39.6               30.5               9.1
1992                   20.3                7.6              12.7
1993                   14.3               10.1               4.2
1994                   13.9                1.3              12.6
1995                   43.1               37.6               5.5
1996                   31.8               23.0               8.8
1997                   34.1               33.4               0.7
1998                   48.3               28.6              19.7
1999                    0.5               21.0             (20.5)
2000                    6.5               (9.1)             15.6
2001                   (6.2)             (11.9)              5.7
2002                   10.0              (21.1)             31.1
2003                   21.0               28.7              (7.7)
2004                   10.5               10.9              (0.4)
2005                    6.4                4.9               1.5
2006                   18.4               15.8               2.6
2007                   11.0                5.5               5.5
Compounded              211                103
  Annual Gain
  --1965-2007
Overall               400,863             6,840
  Gain--
  1964-2007

Source: Berkshire Hathaway's 2007 Annual Report:
http://www.Berkshirehathaway.com/letters/
2007ltr.pdf Accessed June 30, 2008.

Exhibit 10: Compounded Annual Gain of Berkshire's Stock from 1969-2007

Compounded Annual Gain--1965-2007

Berkshire               21.1
S&P 500                 10.3
Relative Comparison     10.8

Note: Table made from bar graph.

Exhibit 11: Overall Gain Berkshire's Stock versus the S&P 500 Index
1965-2007

Overall Gain--1964-2007

Berkshire    400,863
S&P 500        6,840

Note: Table made from bar graph.

Exhibit 12: Berkshire Hathaway Balance Sheet 2004-2008 (2nd qtr)

                                           2008 Q2     2007      2006

Assets
Cash and Short Term Investments            31,159    44,329    43,743
Total Receivables, Net                          0         0         0
Prepaid Expenses                                0         0         0
Property/Plant/Equipment, Total--Net       43,708    36,190    33,342
Goodwill, Net                              33,524    32,862    32,238
Intangibles, Net                                0         0         0
Long Term Investments                      109,408   106,570   89,845
Insurance Receivables                      30,008    13,157    12,881
Note Receivable--Long Term                      0    12,359    11,498
Other Long Term Assets, Total               3,739     3,987     1,964
Other Assets, Total                        26,246    23,706    22,926
Total Assets                               277,792   273,160  248,437
Liabilities and Shareholders' Equity
Accounts Payable                                0         0         0
Payable/Accrued                            21,236    19,646    19,890
Accrued Expenses                                0         0         0
Policy Liabilities                         72,844    70,575    62,208
Notes Payable/Short Term Debt                   0         0         0
Current Port. of LT Debt/Capital Leases         0         0         0
Other Current Liabilities, Total           16,821    18,825    19,170
Total Long Term Debt                       36,235    33,826    32,605
Deferred Income Tax                             0         0         0
Minority Interest                           4,230     2,668     2,262
Other Liabilities, Total                    8,432     6,887     3,883
Total Liabilities                          159,798   152,427  140,018
Redeemable Preferred Stock                      0         0         0
Preferred Stock--Non Redeemable, Net            0         0         0
Common Stock                                    8         8         8
Additional Paid-In Capital                 27,132    26,952    26,522
Retained Earnings (Accumulated Deficit)    75,973    72,153    58,912
Other Equity, Total                        14,881    21,620    22,977
Total Equity                              117,994   120,733   108,419
Total Liabilities & Shareholders' Equity  277,792   273,160   248,437
Total Common Shares Outstanding              1.55      1.55      1.54
Total Preferred Shares Outstanding              0         0         0

                                           (in million dollars)

                                              2005       2004

Assets
Cash and Short Term Investments             44,660     43,427
Total Receivables, Net                           0          0
Prepaid Expenses                                 0          0
Property/Plant/Equipment, Total--Net         7,500      6,516
Goodwill, Net                               23,644     23,012
Intangibles, Net                                 0          0
Long Term Investments                       83,505     79,569
Insurance Receivables                       12,397     11,291
Note Receivable--Long Term                  11,087      9,175
Other Long Term Assets, Total                2,875      4,376
Other Assets, Total                         12,657     11,508
Total Assets                               198,325    188,874
Liabilities and Shareholders' Equity
Accounts Payable                                 0          0
Payable/Accrued                              8,699      7,500
Accrued Expenses                                 0          0
Policy Liabilities                          62,371     64,384
Notes Payable/Short Term Debt                    0          0
Current Port. of LT Debt/Capital Leases          0          0
Other Current Liabilities, Total            12,252     12,247
Total Long Term Debt                        14,451      8,837
Deferred Income Tax                              0          0
Minority Interest                              816        758
Other Liabilities, Total                     8,252      9,248
Total Liabilities                          106,841    102,974
Redeemable Preferred Stock                       0          0
Preferred Stock--Non Redeemable, Net             0          0
Common Stock                                     8          8
Additional Paid-In Capital                  26,399     26,268
Retained Earnings (Accumulated Deficit)     47,717     39,189
Other Equity, Total                         17,360     20,435
Total Equity                                91,484     85,900
Total Liabilities & Shareholders' Equity   198,325    188,874
Total Common Shares Outstanding               1.54       1.54
Total Preferred Shares Outstanding               0          0

Source:

http://moneycentral.msn.com/investor/invsub/results/
statemnt.aspx?Symbol=US:BRK.A&lstStatement=Balance&stmtView=Ann.
Accessed December 3, 2008.

Exhibit 13: Berkshire Hathaway Income Statement 2004-2008 (2nd qtr)

                                                  (in million dollars)

                                                  2008 Q2       2007

Total Premiums Earned                               6,231     31,783
Net Investment Income                                 246      5,598
Realized Gains (Losses)                                 0          0
Other Revenue, Total                               23,616     80,864
Total Revenue                                      30,093    118,245
Losses, Benefits, and Adjustments, Total            5,671     28,409
Amortization Of Policy Acquisition Costs                0          0
Gross Profit                                       24,422     89,836
Selling/General/Administrative Expenses, Total      2,049      7,098
Depreciation/Amortization                               0          0
Interest Expense (Income), Net Operating              493      1,910
Unusual Expense (Income)                                0          0
Other Operating Expenses, Total                    17,409     60,667
Operating Income                                    4,471     20,161
Interest Income (Expense), Net Non-Operating            0          0
Gain (Loss) on Sale of Assets                           0          0
Other, Net                                              0          0
Income Before Tax                                   4,471     20,161
Income Tax--Total                                   1,443      6,594
Income After Tax                                    3,028     13,567
Minority Interest                                    -148       -354
Equity In Affiliates                                    0          0
U.S. GAAP Adjustment                                    0          0
Net Income Before Extra. Items                      2,880     13,213
Total Extraordinary Items                               0          0
Net Income                                          2,880     13,213

                                                  (in million dollars)

                                                     2006       2005

Total Premiums Earned                              23,964     21,997
Net Investment Income                               1,811      6,196
Realized Gains (Losses)                                 0          0
Other Revenue, Total                               72,764     53,470
Total Revenue                                      98,539     81,663
Losses, Benefits, and Adjustments, Total           20,126     21,944
Amortization Of Policy Acquisition Costs                0          0
Gross Profit                                       78,413     59,719
Selling/General/Administrative Expenses, Total      5,932      5,328
Depreciation/Amortization                               0          0
Interest Expense (Income), Net Operating            1,724        723
Unusual Expense (Income)                                0          0
Other Operating Expenses, Total                    53,979     41,400
Operating Income                                   16,778     12,268
Interest Income (Expense), Net Non-Operating            0        523
Gain (Loss) on Sale of Assets                           0          0
Other, Net                                              0          0
Income Before Tax                                  16,778     12,791
Income Tax--Total                                   5,505      4,159
Income After Tax                                   11,273      8,632
Minority Interest                                    -258       -104
Equity In Affiliates                                    0          0
U.S. GAAP Adjustment                                    0          0
Net Income Before Extra. Items                     11,015      8,528
Total Extraordinary Items                               0          0
Net Income                                         11,015      8,528

                                                 (in million
                                                   dollars)

                                                     2004

Total Premiums Earned                              21,085
Net Investment Income                               1,636
Realized Gains (Losses)                                 0
Other Revenue, Total                               51,661
Total Revenue                                      74,382
Losses, Benefits, and Adjustments, Total           19,534
Amortization Of Policy Acquisition Costs                0
Gross Profit                                       54,848
Selling/General/Administrative Expenses, Total      4,989
Depreciation/Amortization                               0
Interest Expense (Income), Net Operating              721
Unusual Expense (Income)                                0
Other Operating Expenses, Total                    38,439
Operating Income                                   10,699
Interest Income (Expense), Net Non-Operating          237
Gain (Loss) on Sale of Assets                           0
Other, Net                                              0
Income Before Tax                                  10,936
Income Tax--Total                                   3,569
Income After Tax                                    7,367
Minority Interest                                     -59
Equity In Affiliates                                    0
U.S. GAAP Adjustment                                    0
Net Income Before Extra. Items                      7,308
Total Extraordinary Items                               0
Net Income                                          7,308

Source: http://moneycentral.msn.com/investor/invsub/results/
statemnt.aspx?Symbol=US%3aBRK.A. Accessed December 3, 2008.

Exhibit 14: Berkshire Hathaway Cash Flow 2004-2008 (2nd qtr)

                                            (in million dollars)

                                        2008 Q2       2007       2006

Net Income/Starting Line                      0      13213      11015
Depreciation/Depletion                        0       2407       2066
Amortization                                  0          0          0
Non-Cash Items                                0        354        258
Changes in Working Capital                 4991      -3424      -3144
Cash from Operating Activities             4991      12550      10195
Capital Expenditures                      -2538      -5373      -4571
Other Investing Cash Flow Items, Total   -16886      -8055      -9506
Cash from Investing Activities           -19424     -13428     -14077
Financing Cash Flow Items                   -31        387         84
Total Cash Dividends Paid                     0          0          0
Issuance (Retirement) of Stock, Net           0          0          0
Issuance (Retirement) of Debt, Net         1287        979       2406
Cash from Financing Activities             1256       1366       2490
Foreign Exchange Effects                      7         98        117
Net Change in Cash                       -13.17        586      -1275
Net Cash--Beginning Balance               44329      43743      45018
Net Cash--Ending Balance                  31159      44329      43743
Cash Taxes Paid                            2921       5895       4959

                                         (in million dollars)

                                            2005       2004

Net Income/Starting Line                    8528       7308
Depreciation/Depletion                       982        941
Amortization                                   0          0
Non-Cash Items                               104          0
Changes in Working Capital                  -168       -938
Cash from Operating Activities              9446       7311
Capital Expenditures                       -2195      -1278
Other Investing Cash Flow Items, Total    -11646       1593
Cash from Investing Activities            -13841        315
Financing Cash Flow Items                    188        166
Total Cash Dividends Paid                      0          0
Issuance (Retirement) of Stock, Net            0          0
Issuance (Retirement) of Debt, Net          5563       -322
Cash from Financing Activities              5751       -156
Foreign Exchange Effects                    -123          0
Net Change in Cash                          1233       7470
Net Cash--Beginning Balance                43427      35957
Net Cash--Ending Balance                   44660      43427
Cash Taxes Paid                             2695       2674

Source:http://moneycentral.msn.com/investor/invsub/results/
statemnt.aspx?Symbol=US:BRK.A&lstStatement=CashFlow&stmtView=Ann.
Accessed December 3, 2008

Exhibit 15a: Berkshire Hathaway Income Statement & Balance Sheet 10
Year Summaries 12/98-12/07

Income Statement--10 Year Summary (in Millions)

         Sales      EBIT      Depreciation    Total Net Income

12/07      0.0    20,161.0         2,407.0            13,213.0
12/06      0.0    16,778.0         2,066.0            11,015.0
12/05      0.0    12,791.0           982.0             8,528.0
12/04      0.0    10,936.0           941.0             7,308.0
12/03      0.0    12,020.0           829.0             8,151.0
12/02      0.0     6,359.0           679.0             4,286.0
12/01      0.0     1,438.0         1,517.0               795.0
12/00      0.0     5,587.0         1,712.0             3,328.0
12/99      0.0     2,450.0         1,165.0             1,557.0
12/98      0.0     4,314.0           376.0             2,830.0

            EPS      Tax Rate (%)

12/07    8,547.95          32.71
12/06     7,144.2          32.81
12/05    5,538.45          32.52
12/04    4,752.49          32.64
12/03    5,308.68          31.66
12/02     2,795.3          32.38
12/01      520.55          41.03
12/00    2,185.26          36.12
12/99    1,024.54          34.78
12/98    2,261.54          33.77

Exhibit 15b: Berkshire Hathaway Income Statement & Balance Sheet 10
Year Summaries 12/98-12/07 Balance Sheet--10 Year Summary (in
Millions)

                                                            Shares
         Current Assets     Current      Long Term Debt   Outstanding
                          Liabilities

12/07        273,160.0      152,427.0         33,826.0        1.5 Mil
12/06        248,437.0      140,018.0         32,605.0        1.5 Mil
12/05        198,325.0      106,841.0         14,451.0        1.5 Mil
12/04        188,874.0      102,974.0          8,837.0        1.5 Mil
12/03        180,559.0      102,963.0          9,119.0        1.5 Mil
12/02        169,544.0      105,507.0          9,288.0        1.5 Mil
12/01        162,752.0      104,802.0         12,504.0        1.5 Mil
12/00        135,792.0       74,068.0          2,663.0        1.5 Mil
12/99        131,416.0       73,655.0          2,465.0        1.5 Mil
12/98        122,237.0       64,834.0          2,385.0        1.5 Mil

Source:

http://moneycentral.msn.com/investor/invsub/results/
statemnt.aspx?Symbol=US:BRK.A&lstStatement=10YearSummary&
stmtView=Ann. Accessed December 3, 2008.