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Stocks B / Berkshire Hathaway


Subject:  Heresy Date:  4/24/2013  1:34 PM
Author:  mungofitch Number:  201156 of 255376

Debating time!

Resolved: Wells Fargo is a better investment than Berkshire.
In terms of rate of growth of observable value, and in terms of price/value today.

Using the technique from Brooklyninvestor, a simple proxy for ROE-like return
each year is ((BookPerShareEndYear2-BookPerShareEndyear1)+DividendsPaidDuringYear2)/BookPerShareEndYear1
i.e., the main destination of earnings is the increase in book value
per share plus the dividends paid, expressed as a function of shareholders' equity.
This is a bit better than simple EPS/startingbook because it avoids
oddities like other-than-temporary-impairments which don't add up.

I calculated this for the last 14 full years for both WFC and BRK, and first quarter 2013 annualized, for a total of 15 numbers.
In 15 years, the WFC number never once failed to beat the BRK number.
The simple average year-on-year "ROE" was 8.6% at Berkshire, 17.8% at Wells Fargo.
And that's with a period including a once-or-twice-in-a-century (we hope) financial crisis.

What have they done for me lately?
Since a year ago, say end March 2012 to most recent statements and today's price.

WFC book/share up 11.2%, BRK up 7.2%
WFC price up 9.1%, BRK price up 31.1%
Then: WFC price/book 1.34x, BRK 1.14x
Now: WFC price/book 1.32x, BRK 1.40x

So, BRK might have been the better pick a year ago because of the
very attractive valuation multiple, but that has evaporated.
The growth rate at Wells really seems likely to continue to outperform
that at Berkshire, AND it's at a lower multiple of book.

Sure, there are other factors to consider. Berkshire is more unkillable.
But one might argue that it takes a huge desire for that "economic Kevlar" to
overcome the prima facie numbers on which seems to favour WFC.

Currently my allocation to Berkshire is several times that of WFC.
Perhaps I have that a bit backwards?

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