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By Brett Horn | 04-28-2010 12:00 PM

Berkshire's Advantage Eroding?

The public policy response to the financial crisis may have muted Berkshire's long-term return potential, says Morningstar senior analyst Bill Bergman.

Brett Horn: Hi. I'm Brett Horn, associate director of equity research here at Morningstar. We've got Berkshire Hathaway's annual meeting coming up this weekend. I asked Bill Bergman, our analyst who covers Berkshire for us, to come in and talk about a few topics. Thanks for joining me.

Bill Bergman: Nice to be here.

Horn: Another topic I want to talk about is, if there's a theme here, it's what a difference a year makes. A year ago Berkshire was in full flower in demonstration of its strengths. There were opportunities abound. They were kind of the last man standing at the point. And there were plenty of opportunities for them to put some capital into play at very favorable terms.

Obviously, to a large extent, things have healed somewhat or at least the market thinks they've healed. The market's come up quite strongly over the last year. Do you think this kind of changes the game for them in the near term?

Bergman: It does change the game for them in the near term and the long term, I think. You said a year ago and this year, I know, just reacting to you. Last year was an exciting event. You had 35,000 people or so attending during one of the most intense and trying periods in U.S. financial market history.

This year it looks like attendance is only going higher, despite the fact that we've had the attenuation of concern in the financial markets, in part because we got the Burlington Northern acquisition, all the new shareholders, and things like that. But it looks like the attendance and the buzz at the meeting is going to be equal or even better than last year, even though we had such a trying time last year.

Having said that, yes--going forward we have a new era in financial markets as a consequence of what happened in the crisis and response of our government to that crisis. And attenuating the losses for the firms that were relatively weak in those periods, I think Berkshire Hathaway certainly did exhibit its financial strength and recoup some very strong benefits for their shareholders.

But the kind of public policy response that we've had is one that's muted the kind of longer term, I think, returns to Berkshire unfortunately.

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