Berkshire Hathaway Presents a Rare Opportunity

In the midst of Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A) reporting its worst year ever, -9.6%, the stock price has plummeted to a level not seen in almost 6 years.

Mr. Buffett’s usual “Warren-isms” were all at play in Saturday’s Annual Letter to Shareholders. At one point he disclosed there were mistakes he had made…

“Furthermore, I made some errors of omission, sucking my thumb when new facts came in that should have caused me to re-examine my thinking and promptly take action.”

When a legendary investor like Warren Buffett can make statements like that, it gives comfort to the rest of us “mere mortals.”

Now outsiders look at the return of 2008 will note that while the performance was the worst ever, it still ranks as the sixth best in comparison to the S&P 500’s (.INX) results. Buffett beat the index by 27.4%. Last time we checked, that’s not bad.

Monday, Class A shares of Berkshire closed at $75,750. This represents an incredible buying opportunity for anyone with funds on the sidelines – A rare chance to invest with the best. Here’s why.

What the annual reports and updates don’t detail is the amount of private companies they’ve purchased and large dollar loans they’ve negotiated with numerous companies. Berkshire has been able to receive terms and interest rates that would leave bondsmen drooling.

Look at the deal with Constellation Energy (NYSE: CEG) as an example: Berkshire provided short term financing and a large loan for 50% of the company. After French Électricité de France [EPA: EDF] came back and negotiated higher terms, Berkshire still received 14% interest on $1 billion in loans and a $175 million termination fee.

A 14% return is almost unheard of in this market. It’s the kind of deal that’s commonplace at Berkshire Hathaway, and the reason why it represents such a value right now.

Comments

[Owen:]

Berkshire is now trading below their book value of $77,500, or $2,580 for the B class. You can buy the stock for its liquidation value, paying zero premium for the great management and fairly dependable earnings stream. This may not happen again for decades.

Mar 04 05:53 AM

[Andrew Meri...:]

Berkshire has also generated over 25 billion in float and over 100 million in underwriting profits through his insurance companies. He will continue to use this money to grow and expand his existing operating businesses and as well as make further investments in equities. I thought the letter to shareholders was positive about the future and showed that he has tremendous opportunity to benefit during this down cycle.

Mar 04 07:51 AM

[auto44:]

(FFH) is a Buffet like operation but with a market cap of only about five billion. As a much smaller company it is far more nimble than the behemouth Berkshire has grown into an therefore small deals can move it's bottom line where small deals don't even tickle the bottom line of Berkshire.

Mar 04 02:58 PM

[ARC:]

SO, IS THIS THE TIME TO BUY BERKSHIRE B???

Mar 04 08:26 PM

[Josh Wong:]

I would consider -9.6% "Outperform" considering the 50% off fire sale prices across the board in the market right now.

Mar 04 11:06 PM

[huskerbob:]

According to Investment U, the time to buy BRK.B was last year:
"Yet the B shares are currently trading at $3,860, off 24% from the 52-week high and 20% year-to-date.

History shows that when Berkshire is down 24%, it's not just a good buy…

It's an outstanding one."
I like BRK and Warren Buffet as an investor and also as a man of some integrity. We are in desperate need of more Warren Buffets in the financial world, but I am worried about the market's possible reaction should the 78 year old Oracle of Omaha develop health problems.
Keeping that in mind, I would need a much more significant discount to consider purchasing BRK.

Mar 05 01:04 AM

[drbob66:]

BRK/A is an even better deal today (closed @ $72,400)...but still seems expensive at 22x earnings. I'd like it a lot better at 12x (around 39,000).

Hey, don't laugh...it got that low in 2006. Seems far-fetched for BRK to drop 46% from current levels -- but in this market, anything's possible. As huskerbob notes above, any concerns about Buffett's health (physical or mental) would surely result in a panicky flight away from BRK stock.

Mar 05 06:05 PM

[beegdawg007:]

Not to be morbid, but what happens when WEB dies? Look at what happened to AIG after Hank Greenberg left! My concern with BRK is that it is all about Buffet! If he passes away, BRK sells off big time... All insurance companies - Berkshire is an insurance company - make money by investing the float until that day when a claim needs to be paid. If the float can not be invested in a way that returns more than it costs, there are no profits. Buffet has been brilliant about managing the float so that returns hold up during all markets. But who will replace him and how many years will pass before we know if that person is anywhere as good as WEB?

Mar 06 03:14 PM