12/22/2010
I researched this as part of due diligence after placing my order for Markel. While I knew Markel was a company I really wanted to be part of, AGO & RNR came up as possible alternatives and turned out to be shit. Since I've never done a write up on Berkshire but follow a lot of Warren's investment advice and strategies (modified to suit my own knowledge base) I figured it was time.
Warren Buffet bought enough shares of a Textile company to vote himself into office in 1962, that company was called Berkshire Hathaway. He used that business to buy National Indemnity Company in 1967, and later acquired a stake in GEICO (Government Employees Insurance Company) both to serve as a source of capital for other investments. By 1985 the textile plants were shut down.
You can own part of Berkshire Hathaway in two ways, A shares and B shares. That is because Warren has always been looking for long term investors and feels that splits encourage a lot of buying and selling that he doesn't care for, so A shares never split. However at some point "the Oracle of Omaha" noticed that a lot of people (called Unit trusts) were giving lip service to copying his style and basically ripping off unsophisticated investors saying (in 1995), "The unit trusts that have recently surfaced fly in the face of [the goals of creating individual wealth]. They would be sold by brokers working for big commissions, would impose other burdensome costs on their shareholders, and would be marketed en masse to unsophisticated buyers, apt to be seduced by our past record and beguiled by the publicity Berkshire and I have received in recent years. The sure outcome: a multitude of investors destined to be disappointed." As of this writing A shares continue to have one vote while B shares have 1/10,000 and A shares can be converted into B shares at a rate of 1:1,500. Various market forces keep B shares from exceeding this valuation much, though nothing stops them from falling below that valuation.
These two types of shares will be reviewed together despite there being some disparity amoung them.
Price at time of evaluation: BRK.A $120,171.00 (not a typo), BRK.B $80.14
Valuation Ratios
Price/Earnings (TTM) . . . . . . . . . 16.65x
Price/Sales (TTM) . . . . . . . . . . . . 1.53x
Price/Book (MRQ) . . . . . . . . . . . . 1.33x
Price/Cash Flow (TTM) . . . . . . . . 12.64x
% Held by Inst . . . . . . . . . . . . . . 17.26
Davison . . . . . . . . BRK.A: 4.8, safe and investable
Davison . . . . . . . . BRK.B 3/5 Incalculable fair value & volatility
Benjamim . . . . . . . BRK.A 3.8
Thomas . . . . . . . . BRK.B 4.2/5: 10 mo. av price 78.73
Saxon . . . . . . . . . 3.4
Vickers. . . . . . . . One buy event, by Stephen Burke (Director) on 12/29/09 of 5 shares for $98,779.8 and one sell event, also by him, on 05/04 of 6 shares for $115,599.92. Netting 84,100.6 in 6 months.
So if you can buy even one A share at less than 20% of your portfolio and you can get them for less than 100k, do it. If you can get 5 or more A shares for less than 10% of your portfolio, think about it if they're around 105k. Since owning BRK.A would leave me terribly undiversified, I won't be owning it any time soon . . . but I'll think about it on the day Warren buffet dies. Since it's just a dream at 120k a share, I'll just focus on the B shares and business in general.
Berkshire Hathaway is almost a diversified stock, which doesn't normally happen. Generally when you buy shares of a company like Coke (KO) all you get is a lot of Coke and it's own infrastructure. Everything about Coke is about selling Coke, and as diversified as I think Coke actually is as a company it's not quite a diversified stock since if people stop buying Coke the company will go under. Berkshire Hathaway however owns or has controlling interest in a lot of companies as well as significant shares of a great many. It's largest holdings are Coca-Cola (a stake worth $11.4 billion), Wells Fargo ($9.0 billion), American Express Co. ($6.1 billion), and Procter and Gamble ($5 billion). In addition it owns several billions in Goldman Sachs and GE as well as at least $3 Billion in Dow Chemical Co. What do those business have to do with anything? Well they help achieve the company's long term goal of maximizing the "average annual rate of gain in intrinsic business value on a per-share basis." Basically the businesses Berkshire invests in consistently generate positive cash flow and above average returns on invested capital (ROI). Companies like Sees, Fruit of the Loom, MidAmerican Energy, Burlington Northern Santa Fe, and GEICO just fill it's coffers so it can make more acquisitions or returns on capital.
The difference with Berkshire is really Warren Buffet, the stock rides high on him because he is a known investing Super Hero. The shares are basically priced to prove it right now, but may not allow for the fact that Buffet is a key man and in a sense this makes the stock undiversified compared to Coke, which will keep going on if their CEO dies. Acquiring BRK.B shares around $75-$80 isn't a bad idea, earnings appear down after the Burlington Northern acquisition and will likely be up quite a bit in 2011 especially as the economy recovers, also Berkshire has the right to buy Several hundred million shares of Golden Sachs at $115 (less than current market price) . . . but Warren is 80 and on the day he dies these shares are going to plummet and on that day I'll buy as much as I can afford or a 10% allocation, which ever is more, since I happen to know that Warren doesn't make as many decisions these days as people think. Almost like the Queen, the real work is done by the Prime Minister.
If BRK.A was trading near book value (1.00 +/-0.05) or BRK.B suddenly was trading at a discount, I'd probably snap up 2.5 to 5% allocation of BRK.B a heart beat. But I'm going to sleep on it and look at TRH, and CB in the morning.
I researched this as part of due diligence after placing my order for Markel. While I knew Markel was a company I really wanted to be part of, AGO & RNR came up as possible alternatives and turned out to be shit. Since I've never done a write up on Berkshire but follow a lot of Warren's investment advice and strategies (modified to suit my own knowledge base) I figured it was time.
Warren Buffet bought enough shares of a Textile company to vote himself into office in 1962, that company was called Berkshire Hathaway. He used that business to buy National Indemnity Company in 1967, and later acquired a stake in GEICO (Government Employees Insurance Company) both to serve as a source of capital for other investments. By 1985 the textile plants were shut down.
You can own part of Berkshire Hathaway in two ways, A shares and B shares. That is because Warren has always been looking for long term investors and feels that splits encourage a lot of buying and selling that he doesn't care for, so A shares never split. However at some point "the Oracle of Omaha" noticed that a lot of people (called Unit trusts) were giving lip service to copying his style and basically ripping off unsophisticated investors saying (in 1995), "The unit trusts that have recently surfaced fly in the face of [the goals of creating individual wealth]. They would be sold by brokers working for big commissions, would impose other burdensome costs on their shareholders, and would be marketed en masse to unsophisticated buyers, apt to be seduced by our past record and beguiled by the publicity Berkshire and I have received in recent years. The sure outcome: a multitude of investors destined to be disappointed." As of this writing A shares continue to have one vote while B shares have 1/10,000 and A shares can be converted into B shares at a rate of 1:1,500. Various market forces keep B shares from exceeding this valuation much, though nothing stops them from falling below that valuation.
These two types of shares will be reviewed together despite there being some disparity amoung them.
Price at time of evaluation: BRK.A $120,171.00 (not a typo), BRK.B $80.14
Valuation Ratios
Price/Earnings (TTM) . . . . . . . . . 16.65x
Price/Sales (TTM) . . . . . . . . . . . . 1.53x
Price/Book (MRQ) . . . . . . . . . . . . 1.33x
Price/Cash Flow (TTM) . . . . . . . . 12.64x
% Held by Inst . . . . . . . . . . . . . . 17.26
Davison . . . . . . . . BRK.A: 4.8, safe and investable
Davison . . . . . . . . BRK.B 3/5 Incalculable fair value & volatility
Benjamim . . . . . . . BRK.A 3.8
Thomas . . . . . . . . BRK.B 4.2/5: 10 mo. av price 78.73
Saxon . . . . . . . . . 3.4
Vickers. . . . . . . . One buy event, by Stephen Burke (Director) on 12/29/09 of 5 shares for $98,779.8 and one sell event, also by him, on 05/04 of 6 shares for $115,599.92. Netting 84,100.6 in 6 months.
So if you can buy even one A share at less than 20% of your portfolio and you can get them for less than 100k, do it. If you can get 5 or more A shares for less than 10% of your portfolio, think about it if they're around 105k. Since owning BRK.A would leave me terribly undiversified, I won't be owning it any time soon . . . but I'll think about it on the day Warren buffet dies. Since it's just a dream at 120k a share, I'll just focus on the B shares and business in general.
Berkshire Hathaway is almost a diversified stock, which doesn't normally happen. Generally when you buy shares of a company like Coke (KO) all you get is a lot of Coke and it's own infrastructure. Everything about Coke is about selling Coke, and as diversified as I think Coke actually is as a company it's not quite a diversified stock since if people stop buying Coke the company will go under. Berkshire Hathaway however owns or has controlling interest in a lot of companies as well as significant shares of a great many. It's largest holdings are Coca-Cola (a stake worth $11.4 billion), Wells Fargo ($9.0 billion), American Express Co. ($6.1 billion), and Procter and Gamble ($5 billion). In addition it owns several billions in Goldman Sachs and GE as well as at least $3 Billion in Dow Chemical Co. What do those business have to do with anything? Well they help achieve the company's long term goal of maximizing the "average annual rate of gain in intrinsic business value on a per-share basis." Basically the businesses Berkshire invests in consistently generate positive cash flow and above average returns on invested capital (ROI). Companies like Sees, Fruit of the Loom, MidAmerican Energy, Burlington Northern Santa Fe, and GEICO just fill it's coffers so it can make more acquisitions or returns on capital.
The difference with Berkshire is really Warren Buffet, the stock rides high on him because he is a known investing Super Hero. The shares are basically priced to prove it right now, but may not allow for the fact that Buffet is a key man and in a sense this makes the stock undiversified compared to Coke, which will keep going on if their CEO dies. Acquiring BRK.B shares around $75-$80 isn't a bad idea, earnings appear down after the Burlington Northern acquisition and will likely be up quite a bit in 2011 especially as the economy recovers, also Berkshire has the right to buy Several hundred million shares of Golden Sachs at $115 (less than current market price) . . . but Warren is 80 and on the day he dies these shares are going to plummet and on that day I'll buy as much as I can afford or a 10% allocation, which ever is more, since I happen to know that Warren doesn't make as many decisions these days as people think. Almost like the Queen, the real work is done by the Prime Minister.
If BRK.A was trading near book value (1.00 +/-0.05) or BRK.B suddenly was trading at a discount, I'd probably snap up 2.5 to 5% allocation of BRK.B a heart beat. But I'm going to sleep on it and look at TRH, and CB in the morning.
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