Berkshire Hathaway Now?

[windsurf]

I am a chump who pulled out (the irony of that challenge now versus forty years ago) in February ahead of (amidst) the doom and gloom. Wanting to average back in, how does Berkshire look right now as, say, a five year or longer play (Warren looks likes he's still got significant tread left)?

[Nords]

Originally Posted by windsurf

I am a chump who pulled out (the irony of that challenge now versus forty years ago) in February ahead of (amidst) the doom and gloom.

Hey, I spent a couple weeks of Feb rebalancing out at an average of $4700/share and watching the price go down as somebody dumped all theirs. Was that you?!?

Originally Posted by windsurf

Wanting to average back in, how does Berkshire look right now as, say, a five year or longer play (Warren looks likes he's still got significant tread left)?

Did you sell on an asset-allocation decision or a market-timing one? For us, it was ER-portfolio rebalancing and the kid's college fund. We're not adding to our current holdings. If you're not happy with your sale then you may experience difficulty with the next question.

Are you planning to buy as an asset-allocation decision or a market-timing one?

For us it's asset allocation. We still have 22% of our ER portfolio in Berkshire Hathaway and plan to keep it around 18-28%. I suspect that the next five years will look at least as good as the last five, except that Buffett will buy more foreign companies and fewer domestic stocks. I think that they'll experience explosive growth in their municipal-bond insurance business. I bet that supercat reinsurance rates will be a lot more profitable, too.

FWIW the annual meeting weekend starts in only five days (http://www.berkshirehathaway.com/meet01/2008meet.pdf). The share price will probably start to rise as CNBC and the rest of the financial porn press flog the event. There may be an even bigger bump on 5 May as every other market-timer rushes into a thinly-traded stock, but Buffett's annual report worked very very hard to dampen unrealistic expectations and I expect that theme to be promulgated at the annual meeting.

Of course if Buffett drops on stage during the Q&A period, clutching a cherry Coke in one hand and a DQ Burger in the other and choking on a See's chocolate nougat, then all bets are off. Or if he announces that he's retiring from Berkshire to start a new hedge fund. Or if the CIO runoff winner is a turkey. But I believe that the shares are currently trading below their intrinsic value-- and far below the company's breakup value or its potential dividend rate.

Another great time to watch Berkshire Hathaway shares rise has been in Sep/Oct, after the Caribbean & northern Pacific hurricane seasons have wound down and if the company hasn't had a big hurt inflicted on it by a storm. But that price rise is usually caused by emotional investors who don't realize that Berkshire reinsures southern-hemisphere catastrophes as well as northern ones.

Maybe you'd be happier in an index fund or an ETF that happens to hold Berkshire shares.

[brewer12345]

Originally Posted by Nords

I bet that supercat reinsurance rates will be a lot more profitable, too.
.

I bet not. That ship has largely sailed, unless Florida gets rid of its idiotic state-run cat insurance scheme.

[Ed_The_Gypsy]

But I believe that the shares are currently trading below their intrinsic value-- and far below the company's breakup value or its potential dividend rate.

Nords,

[major gaff deleted by the original gaffer]

It would seem that buying a company at a significant discount to its intrinsic value is a great opportunity. It is weird that BRK would be discounted in this way. What gives? 1/PE = 1/15 = ~ 6.7%. Not bad.

[clifp]

It had a decent drop today after the bad Q1 earnings. I don't think there is a truly a bad time to buy Brk below $150K /5000 (b) but my almost useless crystal ball very hazily makes this observation.

The hoopla before during and after the Shareholder meeting has risen to unbelievable levels. Warren is making a conscious effort to raise the profile of Berkshire perhaps to make his phone ring more from oversea private business looking for a buyer. I think we will see an increase in the number of momentum shareholders and less long-term folks
like Nords and myself. We have seen an increase in volatility of the stock, and I don't think this is going to go away anytime soon.

As a shareholder I am less than thrilled with this (although the direction of the stock has been very positive over the last year). Watching your 1 share go up and down by >$10K in a few weeks reminds more of internet circa 1999 or financial 2008, than the Berkshire of old.

Finally, after GE I think Berkshire is probably the hardest big company to properly value. The concept of float is an integral part of understand Berkshire's value, I can say that after 6 years of reading and studying, I am still mostly clueless.

All that said, either Warren Buffett is one of the shrewdest, and yet most honest CEO, in America, or he is the best actor in the world. At some level buying Berkshire is an act of faith.

[novaman]

Originally Posted by windsurf

I am a chump who pulled out (the irony of that challenge now versus forty years ago) in February ahead of (amidst) the doom and gloom. Wanting to average back in, how does Berkshire look right now as, say, a five year or longer play (Warren looks likes he's still got significant tread left)?

Buy and hold Baby!

[kcowan]

Their overvalued derivatives only accounted for 38% drop in profit. The rest (24%) was lower profits in their insurance businesses. That would indicate a correction of 24% to be valued according to last year.

[Art G]

My only fear in owning BRK is that Warren is 77 years old. No matter how many times he tries to assure the shareholders that he has a plan in place for his replacement, I still predict, if he were to suffer a heart attack, his stock price would plummet. JMO.

[kumquat]

Originally Posted by Art G

My only fear in owning BRK is that Warren is 77 years old. No matter how many times he tries to assure the shareholders that he has a plan in place for his replacement, I still predict, if he were to suffer a heart attack, his stock price would plummet. JMO.

And produce a buying opportunity?

[free4now]

I'm holding my BRKB. No question BRK is getting more volatile in recent years, and that doesn't bode well for what will happen when those burgers and steaks catch up with Warren. I think BRK is becoming a stock where nervous nellies shift their stashes when the TV pundits tell them the economy is in trouble. It seems to go up when the economy as a whole goes down, which is a very useful characteristic to have.

Certainly when Warren passes on the stock will take a dip as the nervous nellies run for the exits. But I predict it will recover pretty fast, and in a couple of years later will be back onto even nervous nellies shortlist... after all once he's dead we don't have to worry about that anymore.

In some sense it comes down to how efficient do you believe the market is. If you believe the market is efficient, then the risk of WB's death is already correctly priced into the current price, and is hardly worth considering if you are a long term holder.

I can't say I am sure the market price of BRK is close to the intrinsic value, but I do have to believe that if any business trades near its intrinsic value, BRK would be that business. I suppose this is where the faith that clifp talks about comes in. Whereas most CEOs have big incentives to inflate the market value of their company, WB seems to not be interested in that game.

[Art G]

Originally Posted by kumquat

And produce a buying opportunity?

I believe that's what they said after Peter Lynch left Fidelity Magellan. You're buying Berkshire for one reason and one reason only...you're buying it because Warren is awesome. Without Warren, you're buying the Warren minion fund. It's not like the company actually makes anything.

[brewer12345]

Originally Posted by Art G

I believe that's what they said after Peter Lynch left Fidelity Magellan. You're buying Berkshire for one reason and one reason only...you're buying it because Warren is awesome. Without Warren, you're buying the Warren minion fund. It's not like the company actually makes anything.

Thank you for that wonderful chestnut of "wisdom." It shows me all the time and effort you put into fully understanding BRK (and all the other tickers you mention).

[free4now]

You're buying the Warren minion fund even if you buy today. Warren only spends a small percentage on buying new companies every year, so between now and when he dies he's unlikely to significantly change BRK through acquisitions. So if you're only interested in what he'll buy in the future don't buy BRK now. Buying BRK only gives you what he bought over the many decades of his successful career.

[Art G]

Originally Posted by brewer12345

Thank you for that wonderful chestnut of "wisdom." It shows me all the time and effort you put into fully understanding BRK (and all the other tickers you mention).

Yeah, what do I know. I just keep picking stocks that go up.
I don't have the luxury of being a big enough hedge fund to sack the market when I have short plays working.
Oddly enough, you've never wowed me with any of your nuggets either.

[brewer12345]

Originally Posted by Art G

Yeah, what do I know. I just keep picking stocks that go up.
I don't have the luxury of being a big enough hedge fund to sack the market when I have short plays working.
Oddly enough, you've never wowed me with any of your nuggets either.

I'll give you "nuggets." Got any lemon slices?

[FinanceDude]

Originally Posted by free4now

You're buying the Warren minion fund even if you buy today. Warren only spends a small percentage on buying new companies every year, so between now and when he dies he's unlikely to significantly change BRK through acquisitions. So if you're only interested in what he'll buy in the future don't buy BRK now. Buying BRK only gives you what he bought over the many decades of his successful career.

I agree..........Charlie Munger is also in his 70's, and he won't live forever either. IMHO, you buy Warren because it IS Warren. Whomever the unlucky group is to take over Berkshire will in all likelihood NOT have the same instinct as Warren has.

Guys like Carl Icahn, T. Boone Pickes,. Warren Buffett, and Peter Lynch don't come around often at all......

[Art G]

Originally Posted by free4now

You're buying the Warren minion fund even if you buy today. Warren only spends a small percentage on buying new companies every year, so between now and when he dies he's unlikely to significantly change BRK through acquisitions. So if you're only interested in what he'll buy in the future don't buy BRK now. Buying BRK only gives you what he bought over the many decades of his successful career.

This may be true, but like many stocks you may be buying, it's the "perception" of value that appeals to you.
Mark my words, when Warren's gone, BRK falls drastically.

[free4now]

If you are looking to buy the "perception of value", yes BRK will probably disappoint when he kicks the bucket. But if you're looking to buy a solid stream of future income at a good price, stay and enjoy the ride.

[Art G]

Originally Posted by free4now

If you are looking to buy the "perception of value", yes BRK will probably disappoint when he kicks the bucket. But if you're looking to buy a solid stream of future income at a good price, stay and enjoy the ride.

I'm confused by what you mean by "a solid stream of future income"?...Did they start paying a dividend I don't know about?

[Nords]

Originally Posted by FinanceDude

I agree..........Charlie Munger is also in his 70's, and he won't live forever either.

Uhm, FD, Charlie's birth date was 1 Jan 1924... he's 84 years old.

He made a comment last weekend about that up-and-coming youngster named Warren Buffett who might someday, with enough time & experience, live up to his potential.

Munger also commented that he's running for President so that McCain won't feel so bad about being the oldest candidate.

We sold about a third of our shares to take our ER portfolio AA down to 23%, and we sold the shares in the kid's college fund because she only has two years before she starts. But all y'alls feeling uncomfortable about owning your Berkshire shares are welcome to tell Clif & me how much you'd take for them. $4700/"B" share seems fair to me, even if today's close was $4345/share.