Under Warren Buffett's direction, Berkshire's performance has been nothing short of remarkable over the past two years. His disciplined capital retention looked overly conservative for many years, but when the crisis of 2008 hit there were few buyers and waves of panicked sellers, so he was able to deploy tens of billions of dollars in some terrific businesses, on highly favorable terms. Thus, ironically, while Berkshire’s stock is down 15.0% since the beginning of 2008 (-31.8% in 2008, up 2.7% in 2009, and up 21.4% in 2010), the company’s intrinsic value has risen markedly, which we believe makes it an exceptional bargain today.

While the stock was up 21.4% in 2010, we made a much higher return by correctly anticipating that Berkshire, once it completed the acquisition of Burlington Northern, would replace BNI in the S&P 100 and 500 indices. We estimated that index funds would have to buy approximately $38 billion worth of Berkshire stock, which would cause the price to jump, so we significantly increased our position – and were quickly rewarded when the stock popped 15.5% in January.