At 2003 Levels, Berkshire Stock Is Enticing

In March of this year I claimed that Berkshire shares priced at $133,000 a share were no bargain. Then in July I said "priced at $111,000 a share, more downside is in store."

Today we sit at $81,000 a share, a 39% drop from March and 27% since July alone. Now at 2003 price levels, Berkshire looks enticing. The current environment reminds me of when I first bought Berkshire shares late in 1999 (I sold them in 2003 for a 63% gain, but don't cheer - I sold before another 60% could have been realized). Buffett then was being called "out of touch" and Berkshire shares had taken a beating as folks rushed into tech stocks.

Flash forward to today and Berkshire's situation is similar. Buffett is being questioned about investments in GE (GE) and Goldman Sachs (GS) and the market is pricing the risk of default by Berkshire higher on a daily basis. Currently the market thinks Berkshire has a higher default risk on its debt than Allstate (ALL), which defies all rational thought.

Buy? Well, not so fast. It all comes down to insurance for Berkshire. We know the operating businesses will not improve during a recession. Will insurance? The operating environment will stop sliding, but probably not turn. There are less homes to insure, less autos and those that are being insured are being done for for lower values. Both those add up to lower insurance results and lower earnings for a while.

I still think there is more downside to shares, maybe another 10% to 20%. We'll see....If I see that, I will be buying...

Disclosure: No position in BRK

Comments

[DonSuper:]

if they have come so low is because people have been "playing" with the CDS market and have been successful in creating panic...

shorts should be investigated...

and this is the cheapest BRK has been in the last 2-3 DECADES...
below book!! even Buffett has said that book value SIGNIFICANTLY undervalues the company, since companies like Seed's are worth 50x + what they are carried in the books...

but hey, if it goes lower, maybe I'll be some more...

2008 Nov 21 11:09 AM

[User 303490:]

On what type of analysis are you vauling BRK? What makes you interested at a 20% discount but not interested at today's prices? It's trading at a price that if you think BRK will survive the current economic downturn, it's about the most sure investment you can make. Pigs get fat and hogs get slaughtered. If you truly understand BRK, and would be willing to buy at 20% less than todays prices, you should be willing to buy it at market today. If you are interested in establishing a position in BRK, you have a very short window to go ahead and do that. Mr. Market is your friend and he happens to be sad right now and he is willing to sell you something for about half of what it is worth. If BRK were to ever go under, I think we will all be more focused on what we will use to buy food instead of how our portfolios are doing.

Mr. Long

2008 Nov 21 11:39 AM

[Directoy:]

" Berkshire stock"
Can we truly understand today's prices?

2008 Dec 31 01:45 PM