Seriously? You guys really want to make the case that this unknown kid named Warren Buffett made a $45B fortune through favoritism? You think the counterparties to his transactions intentionally gifted him with billions of dollars worth of undervalued assets out of generosity? I guess the dude has some rich groupies. tomcole, I'm not the one who came up with this sweetheart deal theory. I think Warren Buffett gets the exact same kind of sweetheart deal that any other good investor or trader gets, the one where you buy an asset for less than it's worth because you're smarter, better informed, or more experienced than your counterparty. Hey, at least we're making some progress. Seems we've agreed that Buffett is either one of the most successful investors in history, or one of the most successful panhandlers in history. Martin
Read the thread. Berkshire has made about $2B through the end of 2005 shorting the dollar. Another $238M so far in 2006. Martin
There's no question that Berkshire has underperformed since 1998 relative to the exceptional standard that was set in prior years. However, in terms of financial performance, Berkshire continues to significantly beat the S&P 500. Between the end of 1998 and the end of 2005, Berkshire has returned 57% on its book value, whereas the S&P 500 has returned 13% including dividends. In book value, Berkshire outperformed the S&P 500 by 5.36% per year since 1998, compared to well over 10% per year prior to 1998. I believe that the size of the portfolio and the large cash position have a lot to do with this relative underperformance. Yet the question remains, why is the market so evidently discounting Berkshire shares in price/book terms? Why has Berkshire stock price gone up 15% while its book value went up 57%? By far the most common explanation I've seen from Wall Street analysts is that Berkshire is plagued by concerns over Warren Buffett's succession. In other words, the market believes that a great deal of the value of Berkshire Hathaway is Warren Buffet. That's a whole lot of Buffett groupies. Martin
Maybe they simply domt believe the "book values" Buffett places on his holdings. Or, firms like KKR and Bain are much better places to put money. And by the way, if large cash holdings are difficult to manage and acheive returns on, why did KKR and Blackstone just raise over $20 billion for a new fund?
This is getting rich, and I'm not talking about Buffett. Let's see, we've got.......eh...........trader talking about book value. Well, why stop at 57% in nominal terms? Offer some conjecture on under-stated real estate, or fully depreciated fixed assets still turning out widgets, or unamortized goodwill? As a trader, you should grasp, you buy PRICE, you sell PRICE, not book value. Price movement is either penetration or re-test, That's all there is. Until 2005, there was NO net progress in BRK's price. Even with net progress, quantified, 1.33% per annum. Rationalizing it away with relative strength is cute. How many times in the last 3 years has the S&P moved more than 2% in a day mister trader? Speaking of relative strength, my grandmother in 1998 could have hobbled with her cane to the neighborhood savings & loan and passively outperformed 1.33% in each of the last 8 years And........might have snagged a toaster in the process. Increased book value stems more from cash inflows that equity investment acumen. A rising tide lifts all boats. Particularly when the tide is 16 years long (17 years in the case of '49 to '66) You should write Berkshire (I doubt Warren answers his mail) and see IF they offer a BRK T-shirt. Make sure they're 100% cotton and colorfast. You don't want those babies fading in the wash. Wouldn't be as striking (don't confuse that with Babe Ruth) at the mall.
<i>Maybe they simply domt believe the "book values" Buffett places on his holdings.</i> Maybe. There's no evidence for that, and I've never heard anyone else make such a claim, so that hardly seems plausible. Book value is much more difficult to fudge than earnings. <i>And by the way, if large cash holdings are difficult to manage and acheive returns on, why did KKR and Blackstone just raise over $20 billion for a new fund?</i> Look at the incentives. Hedge funds and private equity funds charge fees on assets and performance. They have a strong incentive to maximize assets under management even at the cost of ROE. You would expect them to raise capital even at the cost of their existing investors. Martin
I trade on book value all the time. Ever heard of closed end fund arbitrage? Hint: book value equals net asset value. Berkshire is in essence a closed end fund strapped onto an insurance company. When closed end funds measure their own investment performance they always use net asset value, just as Berkshire has always reported their performance with book value on page one of their annual report. If you measure investment company performance by share price you will have a strong tendency to buy at premia and sell at discounts. Even traders don't get very far buying high and selling low. When are you guys going to give up? I'm getting bored of your ignorance. Martin
FYI, KKR, Blackstone and bain all tap the same set of investors for funds. Not only are you naive, you're uninformed and inexperienced. PS Book value is the easiest thing to fudge.