Everyone knows I'm a Buffett fan. I've owned Berkshire Hathaway (BRK-A), (BRK-B) shares in personal and manged accounts for years, and to me they look cheap at current levels - cheaper than they've been since the B-shares dropped below 1400 in early 2000. Of course the tech bubble burst soon after and Berkshire shares tripled before beginning their recent plummet from almost 5000 to 2849. Yet after following Buffett for more than a decade, I have never seen a more inane "analysis" of BRK stock than the one I spotted this morning on "Smart" Money.
Berkshire has never been easy to value, since it is a holding company with lots of moving parts: a massive insurance operation, a myriad of fully owned businesses ranging from candy makers and furniture stores to construction products and corporate jet services. Then there is the huge stock portfolio and a giant mountain of cash (albeit a rapidly shrinking mountain as Buffett deploys it into cheap investments). So you obviously cannot usea PE multiple or any other simple ratio to value Berkshire. You must break it up, and then value the parts. I mentioned in my last post that Alice Schroeder had a pretty nice valuation model 10 years ago that apparently Buffett approved of since he invited her to spend several years in Omaha digging through his files. Look for some more detail on that model in coming posts, but it in a nutshell it was based on valuing Berkshire's insurance float and then adding it to the other parts.
So I was simultaneously amused and revolted when I read a "Smart" Money article, entitled "6 Stocks with Plenty to Lose" which unveils the never before seen "Polo Shirt Indicator" as evidence that BRK stock is going DOWN :
Good LORD - ACTIVEWEAR?!?! Does anybody want to buy a whole bunch of Brk-B from me on Monday morning? I'll take anything for the shares - just take them off my hands!! (Disclaimer: I am just KIDDING -I am NOT SELLING any BRK!). Wow. Note also, that after he states that BRK has no profit margin (and hence no "E"), he then goes on to say its PE is too high!! Then he says it would probably not pass Buffett's own screen, yet Buffett hinted last week that he may consider buying Berkshire shares at these prices. You may or may not like Berkshire's stock or even Buffett himself, but you have to admit that this is some QUALITY analysis. Why this guy doesn't have a job at a top Wall Street Bank covering Berkshire I'll never know.
Berkshire has never been easy to value, since it is a holding company with lots of moving parts: a massive insurance operation, a myriad of fully owned businesses ranging from candy makers and furniture stores to construction products and corporate jet services. Then there is the huge stock portfolio and a giant mountain of cash (albeit a rapidly shrinking mountain as Buffett deploys it into cheap investments). So you obviously cannot usea PE multiple or any other simple ratio to value Berkshire. You must break it up, and then value the parts. I mentioned in my last post that Alice Schroeder had a pretty nice valuation model 10 years ago that apparently Buffett approved of since he invited her to spend several years in Omaha digging through his files. Look for some more detail on that model in coming posts, but it in a nutshell it was based on valuing Berkshire's insurance float and then adding it to the other parts.
So I was simultaneously amused and revolted when I read a "Smart" Money article, entitled "6 Stocks with Plenty to Lose" which unveils the never before seen "Polo Shirt Indicator" as evidence that BRK stock is going DOWN :
"Berkshire Hathaway (BRK.B: 2849.00, -109.00, -3.68%) doesn’t have a market share or profit margin as such, because it’s an investment vehicle for Warren Buffett. Stay clear of it, not because Buffett’s skill is overstated (it’s not), but because his fans are too adoring. One sign: There’s a link for ordering “Berkshire Activewear” on the company’s home page. Shares carry a price that would probably eliminate them from one of Buffett’s own value screens; they’re a third more expensive than the broad market based on underlying earnings."
Good LORD - ACTIVEWEAR?!?! Does anybody want to buy a whole bunch of Brk-B from me on Monday morning? I'll take anything for the shares - just take them off my hands!! (Disclaimer: I am just KIDDING -I am NOT SELLING any BRK!). Wow. Note also, that after he states that BRK has no profit margin (and hence no "E"), he then goes on to say its PE is too high!! Then he says it would probably not pass Buffett's own screen, yet Buffett hinted last week that he may consider buying Berkshire shares at these prices. You may or may not like Berkshire's stock or even Buffett himself, but you have to admit that this is some QUALITY analysis. Why this guy doesn't have a job at a top Wall Street Bank covering Berkshire I'll never know.
