A story in last night's MarketWatch reports that the short-term bond rally Monday put the Fed to the test. The piece discusses how investors, in their flight to the relative safety of government bonds, have been pushing down short term bond yields, and in turn saving the government money. On the other end of the spectrum, corporate bonds are having to issue higher yield paper to get anybody interested in them, as they are paying investors more for the perceived risk.
There are, however, investors who manage to find safety in a better place. To me, the smart investors are not putting their money away in T-Bills, but are running to Berkshire Hathaway (NYSE: BRK.B) stock. Since I touted BRK in Chasing Value: Berkshire Hathaway -- the time is now on June 11, 2007, the stock is up 10% from $3,612 to yesterday's closing price of $3,962. While T-Bills are safe, they are static and offer no upside potential. I realize that the whole purpose of 'safety' is to avoid downside risk, but there is a such thing as overdoing it and you do not need to hide your head in the sand. In fact, you can also diversify your safe havens and put your money in both blue chip stocks and bonds.
In the mean time, Warren Buffett, the Oracle of Omaha and senior manager of Berkshire Hathaway, has $40 billion dollars in cash to play with in his very conservative sandbox, and invest in a multitude of opportunities. The following metrics for BRK stock are for June 11 and today:
- Price-to-earnings P/E: 14.92 (TTM) - Now 15.15
- Price-to-sales P/S: 1.71 (TTM) - Now 1.64
- Price-to-book P/B: 1.55 (TTM) - Now 1.60
- Dividend Yield 0.0% - Now 0.0%
As you can see, the data points have not changed much and still present a compelling story even though the stock is up.
In last week's Barron's (subscription required) there was an interview with Clifford Combs, a value investor who made the case that Berkshire remains disrespected by Wall Street and should be valued at a market cap of $170 billion, 31% higher than its current $130 billion. He was quoted saying that Berkshire Hathaway "is a collection of really extroadinary businesses" run by 'the smartest investor since Rothschild.'"
For myself, I will not be buying any treasury bills but will keep on looking to invest in quality companies that trade at a discount and Berkshire Hathaway qualifies for that category.
Disclosure: I own shares in BRK.B. Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.
To verify my track record, including bad calls, read Chasing Value and Serious Money.
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Reader Comments (Page 1 of 1)
8-21-2007 @ 7:17PM
alex said...
Inverting the price/earnings ratio of 15 means you will get around 7% on your money with BRK stock...
It is more than with treasuries...
11-27-2007 @ 1:41AM
michael said...
Present crises is caused by poor business practices and lots of manipulation by very large institutions that can direct market, at times. A free market works,but not a free for all. Cheapening dollar to current levels is devaluation and gov't not paying it's bills(large deficits)will not work well over the long term. You can never have a 100% level playing field in the investment arena as we don't all have the same access to vital information. All parties should be more honest about reforms in the economy and not delude themselves about getting something for nothing. We could all suffer a loss of 1/2 of assets value if the powers that be don't stimulate a viable economy. michael