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Investment Analysis Clubs / The BMW Method


Subject:  Re: BRK Date:  11/28/2012  11:25 AM
Author:  kelbon Number:  40821 of 42233

The general consensus is that Berkshire's stock is under priced. And yes, there won't be amazing returns again, the company is just too big now.

It's been cheap, or very cheap, for years; something that won't last forever presumably. (In spite of what you might glean from a price-CAGR chart Berkshire has been, and is, cheap.)

Warren Buffett has promised to buy back a meaningful amount of shares if the share price dips below 1.1 book value. It's not that far north of that now (depending how you estimate and calculate book value). This, for most intent and purpose probably puts a floor under the stock price. It's estimated that Berkshire is likely to grow book value at around 8% a year going forward. If this comes to pass and the stock doesn't revert to a fair-value valuation you'll likely make 8% a year with little risk of permanent loss of capital and a likely downside stop. If the market values the stock a bit more generously, you'll make more.

Perhaps one thing that holds this stock back, given the "graying of America", is the fact that Berkshire doesn't pay a dividend, and is unlikely to as long as Warren Buffett remains at the helm. He's not done with his masterwork, he wants to reinvest all the money the company makes himself!

The Berkshire board is very active. You'll find lots of smart people who go through rigorous mathematical calculations proving to themselves, and presumably others, that the stock is dirt cheap. However, the board somewhat regards Berkshire as a cult, of which most posters there consider themselves members; they give short shrift to nay-sayers.

On a risk/reward basis Berkshire, if you don't already own shares, is (in my opinion) a buy as long as you're not thirsting for dividends.

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