CaptainJJack

Berkshire Hathaway Stock Portfolio: At Risk of Resembling an Index Fund?

I own BNI, and I disagree with Berkowitz and the critics of Buffet's deal.

Yes, he paid a lot. But, in my opinion, you get a lot when you become an insider.

But, by far, the overriding dynamic is that railroads are now clear monopolies in most of the areas they operate. Just look at a railroad map of the US, and you find little overlap.

The main competition is trucking, and if you look at the economics of that business, you find it turns on finding and holding on to truck drivers.

Their key constraint is capital: They have to find a way to fund the initial costs of a trucker getting into the business. I haven't seen much on this lately, but I am guessing that banks are reluctant to loan person enough money to buy a rig and finance their first years in operation.

So, I think the railroads will be very profitable in the future, and I am willing to bet rates will rise even if other prices are falling.

Where Is the Competitive Advantage for IT Companies?

I just sold my ACN shares @$38.

I bought in at $30 primarily because I have a discipline that requires my to buy when my Stock/Bond ratios get too low. Things were spooky at the time, and ACN had a strong balance sheet.

While I agree with your analysis on competitive advantage, (I personally think that the relationships are the key source of profitable advantage because it keeps the customers you have) the issue for me has never been with the company as much as the stock.

How do you possibly value a company with a price to book greater 8 times? What kind of metrics, other than P/E, are meaningful?

I got out of ACN even though I have no issues with the company, per se. I just feel like I got what I wanted (downside protection), and I got a 20% gain to boot.

And I had no way to know whether it was still a good deal, or not.

I wish there were more info on Book-to-Bill ratios. The only hard guidance management seemed to give were sales numbers; there was not much concerning new orders.

So, I sold.

Large Caps Could Lead the Market Much Higher

We have had a HUGE run-up of P/E multiples since March. In fact, I could argue that the ONLY thing that has really changed since March are the P/E multiples.

Anybody who has been in this market over the last year knows how notoriously bad the forward earnings numbers are -- just take a look at forward estimates at the start of this year for THIS year.

While there is a lot of manufacturing leverage now that companies have cut so much payroll, the current fixed infrastructure is currently being supported by large government (both US and Abroad) stimulus.

The key question is: What happens when the stimulus is withdrawn?

The key metric is the top line, not the bottom line: Those forward earnings are only as good as the sales projections.

As an aside, there has been a significant tax cut which, if I remember the numbers right, amounted to 2/3 of the tax stimulus proposed by some Republicans ( there never was a unified Republican stimulus alternative, but the number $400 billion was often used as the tax cut required --- and the only stimulus needed).

We should have seen the top line numbers rising by now if the tax cuts were as powerful as they were being promoted, and I for one, do not see it.

As far as I can see, the $250 Billion tax cuts have had almost zero effect, and this is similar to the tax rebates of last year--coming into effect in at the end of the 2nd quarter, after the recession was 2 quarters old, and just before the economy tanked.

Accenture: Poised to Grow

I own Accenture, and I regard it as a very solid company.

However, I have a stop-loss at $38, and I tightened it substantially over the last few days. I expect I may be out of it over the next few weeks.

While I like the company, at the current prices, I don't love the stock, and I've learned the hard way over the years, that there is a big difference between a company and a stock.

What leads this company's stock performance is the book to bill ratio, especially in consulting, and that has deteriorated with the economy. While the stock has had a huge run, it is mostly in improving multiples and was justified by the incredible ROE, in my opinion.

But, it is currently trading at over 8 times book, so ratios such as ROE or ROI, which are based on book value, are now close to meaningless as far as the stock price goes.

From everything I can figure out, the growth rates will be flat, with risk to the downside, and the stock is trading at around a 15 P/E. I figure it is pretty much fully valued until its prospects improve.

So, I have had a great run. I started buying at 28, and most of my buy was at 30. It may go to 40, but it may fall back. I put the odds at 50/50.

In general, I am very cautious about the next few years. While I consider Bernanke and Paulson to be heros for saving us from a depression, there are going to be downsides: there isn't any area of economic activity that isn't currently backstopped in one form or another by the government, and this cannot end well.

SO I am happy the market has recovered, but as my stock/bond ratios get above my objectives, I am a seller, not a buyer.

Top 10 Components of the Dow Jones U.S. Economic Stimulus Index

While it may be obvious, I do not think it meaningless.

All it says to me is that a portfolio of companies that has more exposure to the Stimulus may outperform a market neutral index like the SPY, and has done so, so far.

If you believe, as I do, that the consumer is retrenching, and that with capacity utilization at historic lows, private investment has tanked, then knowing which companies have the greatest exposure to the only significant buyer is good information.

I know nothing of how this index is composed and how the stock weights are determined, but I do not look at this as being anything more than a "portfolio strategist" estimate of which companies will do well in the near term.

Instead of it being Goldman or Morgan Stanley, you have some analyst hired by Dow doing the picking.


On Sep 06 06:46 PM whidbey wrote:

> What, if anything, does your post prove? That the stimulus has been
> more effective for the index as compared to the S&P? If that
> is your argument you deserve to be ignored. Pitiful and meaningless.