Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Berkshire Hathaway is trading at a significant discount in 2011.

|Includes: Berkshire Hathaway Inc (BRK.A), BRK.B

I recently bought shares this week in Berkshire Hathaway after reading a piece by Whitney Tilson showing why he believes that the company is trading at a significant discount.  His presentation can be found on this link:

www.tilsonfunds.com/BRK.pdf

Make sure that the “BRK” is capitalized or the site won’t come up. 

I have found Whitney Tilson of T2 Partners LLC. to be a very smart investor/speculator, not scared to short or go long as long as the risk/reward is within a significant margin of safety.  I never even heard of him until the financial crisis, but he has a really great track record, and I regard him as a guru investor.   But I do not stop there.  One of the other methods that I have used in the past especially with Berkshire is to relate the intrinsic value price which is the actual worth of a company based on a multitude of factors.  With Berkshire, a lot of people like to look at the earnings power, book value, and the underlying businesses which it owns.  I won’t get into all that here now.  You can read an entire book about Berkshire’s worth when you have more time.  Let’s concentrate on the intrinsic value number.  The one website which has been very consistent in publishing this data is here:

http://www.creativeacademics.com/finance/IV.html

Thank you John Kish for keeping this site for everyone through the years.  You will be remember in the annuls of time by the Brk’ers for your faithfulness.    So now that you have Berkshire’s past intrinsic values and the closing market price for each year, you can examine whether or not they are trading a reasonable discount, or at a premium price.  I have done all this work for you already in the following table.

 

Year

Intrinsic Value

Year End Share Price

Discount / Premium approx

2001

$63,846

$71,000

10% premium

2002

$74,592

$72,750

2% discount

2003

$87,939

$84,250

4% discount

2004

$100,142

$87,900

12% discount

2005

$110,746

$88,620

20% discount

2006

$133,518

$109,990

18% discount

2007

$149,626

$141,600

5% discount

2008

$125,919

$96,600

22% discount

2009

$130,419

$99,200

24% discount

2010

$151,684

$119,005

22% discount

 

*Intrinsic values taken from http://www.creativeacademics.com/finance/IV.html

If you had bought Berkshire at the end of each year when it traded at over a 20% discount you would have had the following returns in one year:

Buy at end of 2005 at $88,620: 24% gain

Buy at end of 2008 at $96,600: 2.7% loss

Buy at end of 2009 at $99,200: 19.9% gain

Buy at end of 2010 at $119,005:  Unknown

You might be saying, wow nothing in 2009 was gained!  True, but this was when the financial crisis was in full effect. The shares barely had a loss if the formula was used.  So I do recognize this, but have faith another crisis is not upon us.  Another item in your favor is the latest report which should come out late next month in February.  As well, the annual meeting shortly after.  The intrinsic value is almost certain to be higher, with my estimate putting it around $155,000 per share representing an even greater discount near 24%, a level that is rarely exceeded, and offer an excellent margin of safety.

Certain significant risks present include the death of Warren, which would more than likely have a negative impact on the price, or a super-cat insurance event.  These risks must be recognized before making any investment.  As well, all facts and figures may not be 100% accurate, but I have tried to make it as close as possible.

It may not seem like a lot to get a safe 20% gain, but I will take a fat pitch 20% gain, rather than a "hard to hit pitch" 30% gain any day of the week.



Disclosure: I am long BRK.B.