Barron’s article over the weekend on Berkshire Hathaway, “Mr. Moneybags”, highlighted the enormous earnings power of Berkshire Hathaway. According to the article, Berkshire could earn between $12 billion and $13 billion in profits in 2011 and could end the year with as much as $50 billion in cash. The stock looks attractive at a projected 1.15x projected 2011 year-end book value.
Relying On Old-Fashioned Stock Picking, Lee Ainslie Reports His “Strongest Quarter” Ever
Lee Ainslie's Maverick Fund USA enjoyed its "strongest quarter in the fund's history" during the three months to the end of June. According to a copy of the firm's second-quarter letter to investors, which ValueWalk has been able to review, Maverick Fund USA gained 18% in the second quarter. Following this performance, the fund was Read More
As optimism begins to return to the stock market, many investors will once again become infected by greed and increasingly lose sight of the very real risks of coming late to the party by buying or holding overvalued stocks.
In contrast, the article pointed out that Berkshire Hathaway’s attractive valuation provides “significant downside support”.
I’d also like to point out one other fairly obvious advantage of owning Berkshire Hathaway. If the economy continues to improve and stabilize, Berkshire’s wonderful collection of businesses will shine and the stock will – over time – reflect its vast, growing stream of earnings, regardless of what sell-side analysts are saying. In the long-term, the market is indeed a weighing machine.
On the other hand, Berkshire is very well positioned if the market were to undergo a major correction in the short-term to medium-term.
At the 1994 Berkshire Hathaway annual meeting, Buffett pointed out that the best thing for Berkshire Hathaway was for the market to go down a “tremendous” amount – although he was not predicting it and he was clear to point out that he was not wishing for such a thing to happen. That way, stocks and businesses would become cheaper, and Buffett would be able to put Berkshire’s cash to optimum use. (1)
Buffett said we should fear a sustained irrational bull market because attractive purchases would likely dry up. Given what we have been through, that’s a problem I’m prepared to live with. If, however, the market goes down, Berkshire shareholders have the advantage of a huge amount of cash and Buffett’s incomparable investing talents. That’s a bet I’m comfortable taking.
(1) Outstanding Investor Digest, June 23, 1994, p. 20.
The author of this blog is NOT an investment, trading, legal, or tax advisor, and none of the information available through this blog is intended to provide tax, legal, investment or trading advice. Nothing provided through these posts constitutes a solicitation of the purchase or sale of securities/futures. The data and information presented in this blog entry is believed to be accurate but should not be relied upon by the user for any purpose. Any and all liability for the content or any omissions, including any inaccuracies, errors or misstatements in such data is expressly disclaimed.