The headline story in Barron's (subscription required) this week "Sell Buffett" may have created a buying opportunity! I thought that the story by Andrew Barry was a very fair analysis. However, since I wrote Chasing Value: Berkshire Hathaway did what it's supposed to do -- go up! like Barron's, calling attention to Berkshire Hathaway (NYSE: BRK.A)'s stock rise and suggesting investors put it on their watch list waiting for a pullback -- Barron's might have triggered just such a slip.
In Barron's story, they make the case that fair value for BRK.A is probably around $130,000. It was $142,400 at the time of publication. The article suggests Berkshire is overvalued by at least 10%. Guess what, today the BRK.A shares are trading around $133,000, down about 9%.
When I wrote a week before the Barron's story came out, I suggested the same thing they did, but unlike Barron's, I felt that if it came down it would be worth buying, not because it was set to jet in the near future, but because a 10% to 15% pullback gives you the opportunity to add one of the most solid companies in the investing universe to your core holdings at a time when the market is very erratic, and oil, gold, interest rates, food, energy, housing, etc. is in turmoil.
There may be better stocks for those looking to make a quick buck, but if you are building a long-term portfolio with 10 to 20 holdings, I do not see why Berkshire should not be included. For most people, it makes much more sense to buy BRK.B shares, which I own in several portfolios. These B-shares were trading for $4,905 when I called readers' attention to the stock. It is trading at $4,443 as I write at 2:00 PM EST, a pullback of 9.4%.
I am watching Berkshire very closely, and if it continues to fall I will buy some more and write a thank you to Barron's and Andrew Barry for contributing to the opportunity.
To verify my track record, including bad calls, read Chasing Value and Serious Money.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.
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Reader Comments (Page 1 of 1)
12-18-2007 @ 3:43PM
michael schneider said...
Barron's was negative on the company many years ago as I recall a similar negative article and the stock has done nothing but rise. The main difference now though is Warren Buffet is quite a bit older and ou don't know how long he will be there. Synopsis of a recent, more positive article published on Berkshire around the same time as the Barron's piece is available with many other Warren Buffett items in the (yellow label, top) Billionaire Watch section at http://www.Barrelomoney.com
12-18-2007 @ 8:57PM
ejhickey said...
The Barron's article raises some good points and evidently the market agrees because BRK.A has dropped 10% in the last 5 days. The fact that Berkshire does not pay dividends and is so closely associated with Mr. Buffett make owing this stock costly in the the short term and risky in the lang term. Also doesn't BRK.A have a sizable stake in housing related stocks? No institution is always successful. Even the New York Yankees had sub par periods and time and the law of averages may be catching up with B-H.
12-18-2007 @ 9:27PM
Sheldon L said...
Some points worth discussing EJ,
1) The stock is down after the Barron's cover story. So the market is reacting to news headlines from a very respectable journal.
2) I am reacting to the news too. If the price is driven down the opportunity returns. I too was not a buyer last week at the all-time high.
3) Berkshire owns some small positions in manuafactured housing. This is not the same thing. They have not tied up resources in land. They build for demand not on spec and they serve a lower cost market that is growing.
4) Long term this company is a conservative index fund.
5) Buffett may be the best but his associates are not "chopped liver" and are capable of managing almost anything in the world.
6) They do collect dividends from their many holdings, BRK.A just chooses to re-invest them. As long as they continue to get a higher return on equity then I could on my own -- thats fine -- and that is the whole idea.
7) Yes the Yankees do have off years. Those are the years they do not play in the World Series. They have never been out of the running for very long. They are almost always contenders -- so is BRK.
12-21-2007 @ 5:20PM
jackson said...
I bought BRK/B at $3572. Bought more at $4187.
still up over 20% over last 8 months. My father recommended it as a lifetime investment. He is 79 and has done well over the years for him. Pretty hard to deny wisdom and experience.