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By Brett Horn, CFA | 04-26-2010 05:15 PM

Berkshire Stands Its Ground

Berkshire's resolute actions in the downturn both exhibited its internal financial strength and also bore fruit for shareholders, says Morningstar's Bill Bergman. Plus our take on Berkshire and derivatives legislation.

Brett Horn: Hello, I'm Brett Horn, associate director of equity research, here at Morningstar. We've got Berkshire Hathaway's annual meeting coming up this weekend, and I wanted to bring in Bill Bergman, our analyst who covers Berkshire, to talk about it a little bit.

Bill Bergman: Hi, Brett.

Horn: Hi, how are you doing?

Bergman: OK.

Horn: I guess there's a few topics I want to cover, but just to start with one topic: derivatives. This is a topic that there's been a lot of clamor about over the last couple of years, throughout the financial crisis.

Bergman: Rightfully so.

Horn: [laughs] Maybe the first thing to start with, what a difference a year makes, right? Last year, Warren Buffett had sold some, fairly large market puts. There was a lot of cry that, hey, maybe he'd misjudged this time, and Berkshire was going to lose a lot of money on them. A year later, it's looking a lot better. What would you have to say about that?

Bergman: I think that those equity put options, as well as the credit derivatives that Berkshire entered into, were both representative of a broader philosophy at Berkshire Hathaway. Where you have an institution that has traditionally exercised underwriting discipline in two different ways. One of them, is they're very careful when pricing is soft.

But at the other hand, they're also very resolute, and they stick to their guns when they think things are underpriced as well. And Berkshire has stood its ground during the financial crisis, in ways that exhibited both its internal financial strength and also bore fruit for shareholders in the last year or so. And we're seeing the fruits of that now.

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