BRK-A and similar stocks are essentially worthless

Discussion in 'Economics' started by kxvid, Dec 1, 2008.

  1. kxvid


    BRK-A analysis first. Lately Warren Buffet is showing his age with his terrible trading. His GE and GS trades have been nothing short of a disaster. To make matters worse, both companies are at genuine risk of collapse. His recent multi billion complex option derivate deal has gone horribly. He has also lost billions recently selling cash backed S&P puts in the open market. All this caused the BRK-A's third quarterly profit drop, down 77% in Q3.

    Berkshire-Hathaway is running into the law of large numbers big time. Additionally, it's core holdings as a conglomerate have obviously gone south with the economy. There is no foreseeable earnings growth (law of large numbers, buffet forgetting how to trade) for BRK-A. This wouldn't be such a bad thing if the company issued a dividend, but it doesn't. Instead Buffet pisses away the profits of its holdings in perma- bull trades.

    Buffet has maintained that he can make more money on earnings by investing than shareholders can. This is why he issues no dividend.

    Buffett: "We will either pay large dividends or none at all if we can't obtain more money through re-investment (of those funds). There is no logic to regularly paying out 10% or 20% of earnings as dividends every year."

    If an entity had enough money to buy berkshire, they could make a tender offer. However BRK-A has entrenched management, it is very likely Warren would try to stop such a deal.


    Ok, I understand BRK-A isn't completely worthless. It has tens of billions in the bank which it could use to issue a dividend. The only reason to hold a stock like Berkshire is for the possibility things could change. The possibility that a dividend could be issued. The possibility for share price appreciation (which I think is unlikely for reasons outlined above).

    My point is if a company has entrenched management, no dividend, and no possibility for earnings growth their stock is essentially worthless. The only value in such a stock is the possibility of things to change. In my opinion, the market should price such stocks at a massive discount versus stocks with potential for share price appreciation, a dividend, and management that would consider any good offer.
  2. I think your opinion is worthless. Not sure how you fell under the illusion that it wasn't, but thanks for sharing.

    Just my opinion.