It's Been a Bear of a Year for Berkshire, but Managers Cite the Long View

Buffett built Berkshire over four decades from a failing maker of men's suit linings to a $180 billion company. He plows revenue into companies whose management he trusts and whose business models he deems superior. The billionaire's Berkshire stake makes him the world's richest person, according to Forbes magazine.

With Berkshire's $35 billion in cash, Buffett can scoop up bargains on beaten-down securities and make acquisitions while near-frozen credit markets curb purchases by leveraged-buyout firms, Tilson said.

Buffett entered the bond insurance business in December as the largest companies in the industry, MBIA and Ambac Financial Group, struggled to maintain their credit ratings. CIT Group, a lender that lost 84 percent of its market value in 12 months, said last week that a Berkshire subsidiary agreed to pay $300 million for its portfolio of loans backing factory-built homes.

Tilson calculates the so-called intrinsic value of Berkshire's assets and operations at $157,000 a share. The stock reached intrinsic value in 11 of the past 12 years, Tilson said.

This year's decline emerged as commercial property rates dropped from their peaks after Hurricane Katrina in 2005. Property and casualty prices in the United States fell 14 percent in the first quarter from the first quarter of 2007, according to a survey by the Council of Insurance Agents and Brokers.

For Berkshire, which owns National Indemnity, General Re and Geico, first-quarter earnings from underwriting insurance policies fell 70 percent, to $181 million. Pretax underwriting profit at Berkshire Hathaway Reinsurance Group, which sells catastrophe coverage, dropped 95 percent.

Buffett said the United States is mired in "stagflation," a period of slowing economic growth and accelerating inflation.

"We're right in the middle of it," Buffett said in a June 25 interview. "I think the 'flation' part will heat up, and I think the 'stag' part will get worse."

An economic recovery isn't "going to be tomorrow, it's not going to be next month, and may not even be next year," he said.

Tilson and Carret Zane's Betz said they'll wait. Berkshire has gained 26-fold since 1988 in NYSE trading -- a return more than three times as great as the S&P 500.

"I sleep well," Tilson said. "It's not going to double overnight, but we think it will in five years, which is a 15 percent compounded annual rate. It's the stock you want to own."

Erik Holm in New York contributed to this report.