Except for the chosen ones -- CEOs and the like who have outrageous salary and benefit packages -- almost nobody has been able to escape the financial pain in the world today.
'My pal Warren,' Chairman of Berkshire Hathaway (NYSE: BRK.A and BRK.B), who only draws a $100,000 salary, has watched his net worth diminished by billions of dollars as his stock has unraveled like everything else. I last read Buffett had a 31% stake in Berkshire so he understands his shareholders angst, even if he does not feel their pain. The stock has dropped from a 52-week high of $151,650 to yesterday's close of $77,500 for a loss of 49%.
Once again in quarterly SEC filings Berkshire's holdings were released and I could not help but wonder if this great holding company had not become one more giant index fund. There are a lot of quality names in the mix including:
- Burlington Northern Santa Fe (NYSE: BNI)
- Coca-Cola (NYSE: KO)
- ConocoPhillips (NYSE; COP)
- Johnson and Johnson (NYSE: JNJ)
- Kraft Foods'A' (: NYSE: KFT)
- Procter and Gamble (NYSE: PG)
- U.S. Bancorp (: NYSE: USB)
- Wells Fargo (NYSE: WFC)
The above referenced stocks are all down with the market and there are still more that might be considered fallen angels or turn-around plays within Berkshire's holdings that include:
- American Express (NYSE: AXP)
- General Electric (NYSE: GE)
- Goldman Sachs Group (NYSE: GS)
- Home Depot (NYSE: HD)
- Lowe's Cos (NYSE: LOW)
In addition to these publicly traded stocks Berkshire holdings include privately held Geico Insurance, See's Candies, Dairy Queen, Florsheim Shoes, and a multitude of others. Since so many stocks have been accumulated over the years I started to view BRK as a stock index and with that in mind did some comparisons between the Standard & Poors 500 and BRK.
The following is a three-year chart that illustrates that buying BRK instead of the index anytime in the last three years would have been beneficial by a 30% margin.
The benefit is less over a longer period as the following five-year chart indicates, with about a 22% difference:
The difference over a ten-year period is about the same as after five, however, there was a time when the index was favored, which is diferent then in the shorter periods. The following is a 10-year chart:
All of the stocks owned by BRK pay a dividend and it is higher than the average dividends paid by the Index. Could that be a factor?
No matter how negative you are about stocks today you have to figure the market will recover some day.
I have continued to buy individual stocks selectively over the past month, but the fear in the market has overtaken any valuation perspective so those daring (or foolish) moves have cost me so far.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of BRK.B, GE, & WFC.
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Reader Comments (Page 1 of 1)
11-21-2008 @ 6:24PM
David Shafer said...
One problem is using the stock prices to evaluate, especially the day after a huge drop of BRKA/B. Even with these inaccuracies, Berkshire outshines the index. Any finanical planner/investment advisor that advices buying an index over BRKa/b is only doing it for the commission or out of ignorance, for as you have pointed out Berkshire is diversified itself. Try using book value and doing the comparison with some metric that adjudicates for profits/cash flow better than stock price in the midst of a bear market! By the way, read Berkshires reports and it gives you the comparison between Berkshire and the S & P 500 (Buffett doubles the return over 43 years).
11-21-2008 @ 7:01PM
tshk1221 said...
Well, there are some stocks that we really do not need to have in Berkshire Hathaway holdings such as banks and financial institutions. I don't think we need to have twenty to thirty stocks to compete with the market and Berkshire at all. Five to six strongest blue chip companies with little debt and strong fundmental can outperform the market and Berkshire Hathaway.
11-22-2008 @ 1:14AM
Elliott said...
"The following is a three-year chart that illustrates that buying BRK instead of the index anytime in the last three years would have been beneficial by a 30% margin."
The above statement is based on an incorrect interpretation of the chart. That 30% margin is relative to the date on the left side of the chart. Buying BRK one year ago (23Nov07-21Nov08, which of course falls within your three year interval) was beneficial by a 10% margin.
BRK is great, but you can't say *anytime* in the last three years = S&P + 30%.
11-22-2008 @ 9:01PM
Sheldon L said...
Elliott -- good catch, thanks for adding your comment -- the full benefit in each time frame comes from being in at the starting point -- however, it is clear that BRK was the better choice almost any time, even if the degree of benefit is not constant.