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Berkshire Hathaway Stock: Great Company, Good Price And A Potential Portfolio Anchor

Mar. 05, 2021 2:25 PM ETBerkshire Hathaway Inc. (BRK.A), BRK.B247 Comments
Jim Sloan profile picture
Jim Sloan


  • Berkshire Hathaway is the largest position in my own portfolio, and my conviction about it begins with values, corporate culture, and focus on long term value.
  • Berkshire is hard to analyze and different approaches produce varying results; its businesses and investments are very different and at the same time connected in ways that complicate valuation.
  • Berkshire is synergistic - the sum worth more than the parts - but is usually priced reasonably in the markets, which Buffett prefers as fair to both buyers and sellers.
  • Buffett's pivot from seeking huge acquisitions to making large buybacks enables holders to "create" a dividend while maintaining their share of the company; meanwhile, Berkshire's Return on Equity surges.
  • Berkshire may serve as anchor and risk reducer in your portfolio, replacing the stabilizing power bonds served when they had reasonable returns.

Editor's note: This article has been corrected to reflect Berkshire Hathaway's most recently reported book value and the stock's valuation based on that metric.

Some who follow me on Seeking Alpha must think of me as "the Buffett guy" because I have written so frequently on Warren Buffett and Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B). They are right to the extent that I have been a student of Buffett and Berkshire for more than thirty years. Last year I counted the pages of my articles about Berkshire over seven years on this site and they added up to the equivalent of a book of 300-400 pages depending upon print size. I don't think I repeated myself much except for a few subjects which come up repeatedly.

Few stocks are as interesting as Berkshire Hathaway. Very few have made investors as much money over the years with such modest risk. I am one of them, as Berkshire Hathaway is by a wide margin the largest position in my own and household portfolios. I bought much of it many years ago and thus have a very low cost basis. Rather than selling any of it and paying a whopper amount of capital gains taxes I plan to leave it all to my children - in the distant future, I hope.

The above disclosures hint at my perspective on Berkshire Hathaway. With all that I have written on it, some of it quite recently, I look forward to doing this article under a new SA program responding to popular questions from all sorts of readers including those new to investing as well as experienced and very well informed investors. I will try to write in a way that makes it relevant to all readers, but especially in the hope that it will attract new readers and introduce them to some of

This article was written by

Jim Sloan profile picture
I am a retired professor, a retired investment adviser, and currently a private investor and full-time tennis pro. I bought my first stock in a custodial account in 1958. I am a student of history, particularly military and economic/market history. The intellectual passions of my retirement years have been markets, mathematics, and quantum theory. Recently I have found myself reading book after book on the thoughts and feelings of animals, and I believe they are subtly influencing some of my views. I have a cat I like a lot. I like to travel. I served in Vietnam.

Analyst’s Disclosure: I am/we are long BRK, B, CB, TRV, GOOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (247)

Mountain Marmot profile picture
BRK price via BNSF holding appears even more attractive with current market valuing of KSU.
Disc; long/overweight BRK.B
John Warne Gates profile picture
@Mountain Marmot Actually its not a market valuation its value is being determined by egotists in a bidding war.
Mountain Marmot profile picture
@John Warne Gates
It's the price someone is willing to pay today, so that is it's market valuation, just like the overall market pricing on any given day.
John Warne Gates profile picture
@Mountain Marmot Actually that's not quite how it works. The market sets a nominal bid/ask. Egotistical CEOs bid premiums over the ask, typically 20%. Price is set at the margin and it is totally different than your "market valuation", as Buffett discovered after he bought Precision Cast Parts.

You might study up on enterprise value among other things.
capitalallocator profile picture
Should we have a dollar figure for the best capital allocator in history? That skill is valued at atleast $ 100 Billion.
John Warne Gates profile picture
@nashman Thank you for the suggestion but maybe we need both better addition and definitions. You said "Berkshire success is that 16 out the last 18 bear markets, Berkshire has outperformed the S & P."

Market historians define a bear market as a 20% decline from its high, irrespective of the number of years that it took to achieve that distinction, or its subsequent duration. A bear market is one bear market, it is not sized by it's duration.

You on the other hand chose to count all or part of calendar years. Using your figures the result is as follows: 2+2+3+3+1+1+3+1+1=17

Forgetting that your definition is unique to you the sum is 17 which seems in variance with your statements. Perhaps you should recalculate using months, weeks or days. Please let us know what you decide.
John Warne Gates profile picture
@Briar So sorry but it is you who needs to do more homework. You will discover that broker's call, also known as the call loan rate, is the interest rate charged by banks on loans made to brokerage firms. What you are saying is that three distinct and different brokerage firms gifted you with money at no profit to them, all for the munificent sum of less than US$10Millions.

Please revisit this assertion in light of the fact that the call rate is between huge bracket banks and brokerage firms will literally US$Billions in capital. To have had funding at the rates you claim you would need to be in very august company. You should be loaning money to The Oracle. Thank you again for the view through the pipe smoke.
John Warne Gates profile picture
@Briar Sorry you got lost in your story line. Maybe if you could be a bit more consistent in the telling we would be more willing to disregard the obvious discrepancies. Then you would not have to rely on luck.
John Warne Gates profile picture
@Briar But Arthur before you said you met Buffet in Chicago and you were introduced by your professor Myron Scholes. Now you say all you did in Chicago was to read about Buffett in a book you borrowed that you can't even remember the title of. All this was in the early 70's when you worked in fundraising? How old were you at the time? What happened to your studying under Myron?

It sounds like "met" a lot of people in books not in person. I took a long look at Buffett's bio and he was never a director at a think tank in DC. maybe you just read about him while your were thinking and having a tankard of $KO.

Then all of a sudden somebody asks you to invest their money and then you're running like 30 family offices? Did you pass the Series 7 and Series 63 exams? What licensed firm sponsored you?

Like you said It is well worth one’s time to distinguish thinking from outcome and it sounds like you've got the two confused.

You still haven't told us where you're getting 2% margin money when the going rate on a Million Bucks is over 5%.
Briar profile picture
@John Warne Gates
You lost me. I thought we were going to have a good conversation. Good luck.
"...and can expect to regularly create your own dividends at 5%, if you wish". How exactly would one do this?
FinancialDave profile picture
You create your own dividends by selling shares, which is similar to what the company does when they send their cash to you. If they send too much of it they go broke. If you sell too many shares you don't go broke you just don't have that particular investment anymore:


Above is an article where I took a dividend portfolio by DVK, found a non-dividend stock with the same total return over the same time frame and sold shares of the stock. The point is either method will leave you with the same $ investment as it is the total return of the investment that is important and not the dividend.

It's just math as this article also points out:


@FinancialDave Let me ask you a riddle. Return on equity is often considered a measure of the earnings power of a company. The US average is something like 10%. Buffett has always touted the high ROE of his businesses, many of them having ROE as high as 20-25% or even higher.

Berkshire's aggregate ROE in 2020 was a little below 5%, looking at net income without the two large noncash items of unrealized investment income and the Precision Castparts write-down ($22 billion of net income divided by $451 billion book value).

If Berkshire owns primarily ROE businesses how can it's own ROE be so poor?
@FinancialDave Thanks for the clear explanation. I can see the mathematical equivalence, I just have a dislike for selling shares, especially when they are down. More of an emotional/psychological concern I think. As I said, the math makes total sense.
six profile picture
You think BRK replaces bonds in a portfolio? Are you really that unsophisticated?

Whenever someone uses the phrase "bond substitute" and they are referring to some sort of equity or equity like security it should be a red flag that they don't really understand investing. It is like calling an Impossible Burger a substitute for a real meat burger. Sure you can do it but it will not be the same and not have the same results.

Bonds, according to MPT, (Modern Portfolio Theory) are included in a portfolio to (mostly) lower volatility and (to a less extent) raise income while not lowering returns substantially.

As an example, from 1985-2021 if you bought the Vanguard Wellington Fund (a 60/40 stock bond fund, one of the best of it's kind) and the SP500 over the entire period 1985-2021 Wellington CAGR was 10.51% Standard Deviation 10% and Max Drawdown 32.5%... the SP500 CAGR was 11.41% Standard Deviation 15.12% Max Drawdown was 51%.

You can see that bonds greatly reduced volatility while not reducing returns in the same ratio- 50% reduction in volatility, 8.5% reduction in CAGR in comparison to the 100% investment in the SP500. (Compounded annual growth rate).

Let's look at the last 10 years 2011-2021...

BRK CAGR 11.51% STD DEV 15.22% MAX DRAW DOWN 21.29%
SP500 CAGR 13.67% STD DEV 13.46% MAX DRAW DOWN 19.63%
Vanguard Wellington- 9.73% STD DEV 8.72% MAX DRAW DOWN 14.09%

It is clear that BRK will not do anything similar in regards to reducing volatility and produces no income. Therefore suggesting using BRK as a "bond substitute" is at best off base.

For some reason, people want to equate BRK with less risk than other equity investments. Which is, of course, true for some equity investments and not true for others. The FACT is, any large US index (cap weighted or not) has less risk of permeant loss of capital than BRK and has similar or better volatility characteristics.
@six Berkshire's risk profile is misunderstood. It is widely considered an impenetrable juggernaut of capital because of its overcapitalization and Buffett's extreme conservatism with equity.

However the company is not diversified. As Buffett pointed out in the latest letter, its results are primarily driven by 4 businesses, and he still controls all of the surplus capital. So you have a company with 4 subsidiaries and one 90 year old controlling over half of its assets. There is no other large company in the world with such concentration. Owning a stock index gets you much, much wider diversification.

There is also the risk of underperformance. The reason people take on the risk and volatility of owning stocks is so that they can get the returns of stocks. But Berkshire has been underperforming the S&P index for many years. So by owning Berkshire you get the risk and volatility of owning a stock but without the returns. There is no reason to own Berkshire, you would be better off owning a stock index fund.

And you are right that Berkshire is not a "bond substitute". With global interest rates at zero, there are no bonds that are attractive investments except for short term bonds that are cash equivalents. We are in store for a multi-decade bear market in bonds.
six profile picture

"There is also the risk of underperformance. The reason people take on the risk and volatility of owning stocks is so that they can get the returns of stocks. But Berkshire has been underperforming the S&P index for many years. So by owning Berkshire you get the risk and volatility of owning a stock but without the returns. There is no reason to own Berkshire, you would be better off owning a stock index fund."

I made this exact point in another article's comments. Investors not only mistakenly equate BRK with less risk, they also overlook a large (meaning long time period) performance gap compared to the SP500.

I tested ROLLING periods from 2003 to 2021... a sample of what actually happened if an investor bought and held BRK as compared to the SP500.
2003-2021, 2004-2021, 2005-2021 and so on... and except for one period, 2006 where it was a tie, BRK lagged the SP500 in every period.

The meaning of this is that, if an investor choose to invest in BRK on January 1 (arbitrary date, other dates may produce different results) and held to February 28 of 2021 (with dividends reinvested) for any year since 2003 (except for 2006 when it would have been equal) they would have outperformed BRK by investing in the SP500.

This is a stunning result. For 18 years an investor would have been better off being average.

For the record, I also looked rolling periods from 1985-2000 (1985-2000, 1986-2000 and so on) and the results were almost exactly the opposite.

BRK outperformed (often by a large margin) until the last few years of 1990s 1996,97,98,99,00

If you do the research it become absolutely clear that Buffet and BRK have seen their best days and they are well in the rear view mirror.
Why? Well, the most interesting coloration I could find were interest rates. 2003 was the first time since the late 1950s and early 60s the Fed Funds rate went under 1%. As rates rose, 2005-2006 back to more normal rates BRK had it's best year (2006) in comparison to the SP500.... then rates tanked again.

With rates as low as they have been, it raises the price (and value) of stocks. This makes it hard, if not impossible, to find the sort of opportunity that appeals to WB.

Warren and Charlie love to tell us (they have for decades) repeated the mantra that they ignore macro trends such as rates when investing. But it is clear that interest rates have been the undoing of BRK's outperformance.
FinancialDave profile picture
"... and Buffett's extreme conservatism with equity."

I would not call his positions in Apple and Airlines as conservative, would you?

Nuclear events are not a concern. Buffett has said that he has set up the insurance operations to withstand multiple Nuclear detonations in multiple major US cities without Berkshires equity being compromised.
The letter was interesting and left me pondering his reason to show his hand on the buybacks , the 4 jewels and how we might value them may also be telling . He has P&C number 1, then BNSF , followed by Apple then Energy . We know Apple is worth around 130B , energy 60B , say 130B for BNSF and if insurance is number 1 say 140B , the 138B float plus growth plus profit . With the cash that totals about 600B . This is a trillion dollar business and some. Currently getting everything else for free.
simplevalue274 profile picture
@oracle12 I agree I wish he didn't telegraph the buybacks so much because I think it will quickly become hard if he really does consistently buy back 10bn a qtr. The whole float cancelling out insurance biz value is always a debate. I kind of please ignorance but I agree people who apply a zero to insurance seems to conservative to me.
Highroller90 profile picture
With 'what happened with Exxon since 1950' you surely mean that it was one of the best long term investments the S&P500 ever offered, right? Every dollar invested back then would have given you Berkshire-style riches til today.
simplevalue274 profile picture
Imagine what could have been if brk was buying back 5bn a qtr for the past 3-5 yrs. Now he telegraphed it so loud it will be hard to buy consistently without bad news.
Briar profile picture
@simplevalue274 Hindsight has the present value of zero.
@Briar it isn’t hindsight when 3-5 years ago and way earlier many of us were identifying it and stating the no brainer explicitly non-stop and yet falling on deaf ears
Briar profile picture
@cjdwim You are so smart!
Bronxy profile picture
5 days ago...
"In summary I think Berkshire is still a buy with a good margin of safety up to at least $396,000 for an A share and $264 for the B shares".
As I type this at noon March 10 EST BRK.A is kissing $400,000.
Just saying.
Joshua Hartman profile picture
Here is how I value it. First, I think we need to measure intrinsic value independent of market conditions. So a 15 PE is fair for operating businesses. I also think the equity holdings are overheated, so I value it at 75% of its market rate. Second, since the insurance businesses are strong and growing, the float will NEVER be paid back and is used for investment gains. I assume the float is not quite as good as cash because you do have to be a bit careful and it limits the choice of investments. So I assume the float is worth 75% of its size. Finally, deferred taxes are another important source of leverage that won't be paid for a long time. I assume the liability is only 50% of the 35B. Putting this together: 281 * 0.75 + 147 + 15 * 24 + 130 * .75 - 35 * 0.5 = 797B. That would be a 27% discount to intrinsic value. My only criticism of Buffett at this time is that he is not buying fast enough. Buying back shares is a complete no brainer. He should plow at least half the cash on hand back into Berkshire. Better yet, sell Coca-Cola and buy more BRK back with the proceeds.
@Joshua Hartman "My only criticism of Buffett at this time is that he is not buying fast enough. Buying back shares is a complete no brainer. He should plow at least half the cash on hand back into Berkshire."

Nice creative and simple way to value Berkshire.

If Buffett began repurchasing shares "faster" he would likely drive the price of the shares up faster. Not what he wants to do - cheap hamburgers and all that. Not what I as a shareholder want him to do either.
Joshua Hartman profile picture
@Nnnnnot So Smart I thought of that too as I was writing it, that if he buys too fast the opportunity will disappear. That would be a real risk but he could at least go faster than cash flow because the gap seems to be remaining. I think the only other option is to give more money to Todd and Ted, they seem to be better at stock picking than Buffett is these days.
simplevalue274 profile picture
@Joshua Hartman I would disagree. Whoever bought the gold miner should be fired for even considering the idea. Very concerning that he even read the annual and even more upsetting whoever decided to put a couple 100mm into it. Worst business on the planet. The whole T&T is a waste of time. They should focus on finding deals for brk to buy and operating companies. Buffett shoul have been buying back 5bn a qtr for the past 3 yrs now he has telegraphed it and it will be very hard to do. Then he will say aw shucks guess can't buy that much. I really don't think he wants to buyback shares. He has been obsessed w his empire building and ego of wanting deals to come to him. Why are we buying real estae brokers who I think will not really exist in current form in 10 yrs vs just putting 15bn in HD?
@Jim Sloan Great article!

One question. When adding up the value of Berkshire's various components, you value the wholly owned companies using a multiple on earnings, but you value the equity portfolio on market price. I'm quite sure that this is not the way that Buffett would value the equity portfolio since he has said many times that the equities he owns he views as pieces of a business. Wouldn't it be more consistent to value the equity portfolio also using a multiple on earnings, with various companies having various multiples, dependent on their future prospects? It seems like a fairly imprecise shortcut to conflate value with price when it comes to the equity portfolio.
Jim Sloan profile picture
@dave9923 I think he uses this "look through" approach when mentally adjusting for ways that value may exceed book value, but not in any accounting sense. PE is a way of avoiding the acceptance of low cost basis of wholly owned companies, which do not trade, but he probably accepts, as I do, that you cannot mark up the value of companies beyond what they bring in the market.
@Jim Sloan Sorry Jim, I didn't understand your answer. Let me ask more succinctly. Why do you value Berkshire's equity portfolio using market prices, while you value their wholly owned businesses using future cash flow?

For example, let's say that the market price of Berkshire's stake in Coke shot up by a factor of 10 with no news or change in Buffett's evaluation of Coke's intrinsic value (I know, not realistic, but just as an example). Would you therefore expect Buffett to increase his evaluation of Berkshire's intrinsic value accordingly? Isn't the cornerstone of Buffett's investment philosophy, as summarized in Chapter 8 of The Intelligent Investor, that the market is there to serve you, and not to inform you (of value).
Jim Sloan profile picture
@Jim Sloan Let me try again. In the article I attempt to provide a rough estimate of Berkshire's value. For the stock portfolio, it's sort of automatic. Reporting of GAAP earnings as well as GAAP valuation pretty much requires using the change in market price in the former and change in book value in the latter. You may think Coke, Apple, American Express are actually worth more, or maybe less, by your assessment of their operating results, but it's hard to make an argument for just writing in your number for earnings or value. Buffett, once again in this year's Letter, points out that nevertheless, on the premise that you are buying a share of a business, you may think of it in the "look through" way, but I think he would agree that this does not change fundamental accounting based valuation. Now: there are many ways to value whole companies, but the two most common are simple comparison to a similar company or companies or summation of cash flows discounted in a reasonable way. If you were buying or selling one of the units, you would look at it that way. If you were buying or selling Coca Cola, you would be compelled to go by the market price whatever your opinion. That's about as clear an argument as I can make. It would be the Harvard Business School case approach, I'm pretty sure. What you point up is that there is no perfect internally consistent way to value a company as complex as Berkshire.
simplevalue274 profile picture
He did a good mea culpa on PCP but did not mention anything about lack of activity in 2020. Perhaps if he had been buying back stock for the past 5 or so yrs he wold not even felt the need to buy pcp since the money would not have been piling up so fast. He sold all the banks, airlines, oxy near the lows. Brk's main benefit is they always ride out the downturns, this time he sold.
@simplevalue274 He increased his size in BAC . Let's be realistic , who actually thought that was the bottom. Plus who would have known that the government would have stepped in this fast too. It's easy to second guess now. Plus he was able to pick up the D pipeline at ta good price too . Remember, the majority of Berkshire's money comes from the 70 plus companies they own not the stock portfolio.

I’ve been critical of the last decade, but selling the airlines made sense. 

First, it’s insane they held that much in airlines in the first place, and industry full of incompetence, a history of financial failures, and a keen ability to contract when they should be expanding and expanding when they should be contracting.

Second, the legacy carriers current stock prices are also insane. There is still no business travel and good portion of it is not coming back. Flights have been reduced by over 50%, and existing flights are leaving middle seats empty. They are also acting like nazis with the masks to their customers and making long flights unbearable. Leisure travel has picked up but the leisure airlines are better positioned for that.

One of the three legacy carriers won’t exist in another year. There simply is not enough volume and businesses are in no hurry to add this layer of cost back.

Current airlines economics do not support their stock prices. In the long run it will be clear selling was the right thing to do.
@simplevalue274 "He did a good mea culpa on PCP but did not mention anything about lack of activity in 2020. "

Bought back $25 Billion in Berkshire stock (small but growing elephant). Lack of activity?
An example how fairly Buffett treated his early investors came when he disbanded the partnership in the late 60s. Another manager might just have handed over the money and left the investors to go on their way.

Buffett took the care to explain that he would arrange for those who wished to buy municipals bonds at good prices at the time. For those who wanted to stay in stocks he personally recommended some fine value managers like Sequoia.
You’ll note Buffett has very little exposure to being hurt from China but as a country we haven’t dealt with them very aggressively and have allowed them to play by way different rules than American companies. Now one story after another is coming out how China isn’t always a dependable manufacturer not to mention politics and they can shut down numerous American industries at will, which clearly violates what every mother taught as a basic life principle: never put all your eggs in one basket.
All glory is fleeting.
Mr Buffett is keeping his cards very close to his chest. Maybe he thinks we’ll likely have a supercharged economy from all the stimulus goosing then a collapse as high interest rates will ultimately kill the economy.
What about the Chinese Empire (the current one isn't)? They have arguably at least 3 Golden ages - (the early parts of the Han, Tang and the Qing dynasties).
@g18 You forgot very important one, Ming.
I wonder, are those considered to be one empire or several?
The current tyranny is ambitiously imperialist, and a grave threat to the rest of the world.
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