I mean, that's enough, right? The man who managed, through rising and falling markets, to return to his shareholders, on a post-tax basis, market-beating returns for 35 consecutive years, has earned the right to receive the benefit of the doubt from us mere investing mortals.
And yet, the brickbats fly.
"He's too old."
"He missed the technology revolution."
"His stock is going down."
The answers are no, no, and yes. Berkshire Hathaway has lost more than 40% of its share value over the last 12 months. And 1999, the year that the Nasdaq Composite companies returned more than 85% to shareholders, Mr. Buffett's investment vehicle and operating company lost ground from a share price perspective.
Thus far, 2000 has not been that different, with the stock dropping an additional 20% from last year. But for the same investors, many of whom have held their shares for decades, such a retrenchment is yet another opportunity to buy. And they're right. Warren Buffett and the army of executives he has assembled under the Berkshire Hathaway umbrella have plenty of swing left in their bats.
A common misconception of Berkshire Hathaway is that it is a glorified mutual fund. Clearly, Berkshire's sizable public holdings are an important component, but I submit that Berkshire's public holdings are more important to those companies -- including Coca-Cola, Gillette, American Express, Citigroup, the Washington Post Company, and Disney -- than the other way around. But the fact that several of these holdings have had highly publicized swoons this year has exacerbated Berkshire's problems with its insurance companies, giving Berkshire Hathaway the proverbial double whammy. And Berkshire Hathaway, at its heart, is an insurance company. The ferocious weather-related losses in the United States and in Europe in 1999 produced claims higher than any other year in history, causing significant downward pressure on Berkshire Hathaway's operating results.
These things happen, but not often, and even less often in tandem with the other events that have conspired to punish the share price of Berkshire.
So let's sum up. Higher expenses in operations. Lower "look-through earnings" from Berkshire's public holdings. A share price that has dropped by more than 40%. An aging chief executive who won't invest in companies that he cannot safely predict 10 years' worth of earnings. What's to like, then?
Well, let's start with a $36 billion cash war chest. Add in the value of the publicly held companies, the value of all of the wholly owned subsidiaries, and you've got a book value of some $1200 per Class B share (1/30 of the older Class A shares), awfully close to the current share price.
So the vaunted "Buffett premium," at this point, assuming absolutely no net profits from operations, is only 25%. This is about as risk-free an investment as exists in equities. Risk-free is not something that is currently in vogue. But vogue has never mattered much at Berkshire, in its simple Omaha headquarters, far from the maddening hue of Wall Street.
What matters to Berkshire and its shareowners is fundamentals. Cash. Intrinsic value. Look-through earnings. Internal rate of return. Propeller-head stuff.
But this fundamental approach is as Foolish as can be. It is based in Warren Buffett's intellectual approach to business, and the simplest approach to investing known to man:
If you would not buy the entire company, you should not buy any of it.
Can't stand to read the annual letter from Warren Buffett? Don't buy Berkshire.
Love share splits? Don't buy Berkshire.
Can't understand why Warren Buffett won't buy technology stocks? Well, you know.
But if you are intrigued by having the world's most successful investor work for you, provide you an owner's guide, and manage your money, all at an annual salary that is a fraction of the going rate for the chairman of a $100 billion company, have I got a deal for you.
Bring on the Bear.
This Week's Duel
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