“Berkshire Might Be a Bargain at $100,000” reads the headline in a Wall Street Journal article this week. Is Warren Buffett’s company really a bargain at $100,000 and is it worth the investment?
There’s no doubt Berkshire Hathaway stock has performed well over the past 30 years. Buffett took control of Berkshire in 1965 and since then the stock is up 5,555 times.
However, a closer look at Berkshire stock reveals the following: Most of the gains from the stock were made in the period from 1965 to 1995. From 1998 to today, the stock has only doubled.
There’s also a huge spread between the “bid” and “ask” price of Berkshire stock, which makes buying and selling the stock tricky.
In my mind, as Berkshire has grown through the years, and has invested in a variety of businesses, I believe the stock has become more of a gauge of the U.S. economy than anything else. Has anybody noticed the Dow Jones Industrial Average is up 13% so far this year and Berkshire stock is also up 13% this year?
Over the years, the price action of Buffett’s Berkshire Hathaway stock has been progressively linked to the markets in general. Investors need to face the reality that Berkshire is performing well over the past couple of months because the general market is performing well.
Would I buy Berkshire stock? No, I would not invest in Berkshire because I believe the stock market is overvalued, and with Berkshire stock being so closely linked to the action of the market, I see Berkshire overvalued as well.
The final big question on Berkshire, what happens to the company when Warren Buffett is no longer with us? Yes, they have an “unannounced” replacement, but can that person really fill Buffett’s shoes? Microsoft can survive without Bill Gates because Microsoft manufactures products and professional management is in place to ensure the marketing, production, and distribution of those products continues without Gates.
In Buffett’s case, Berkshire is really an investment holding company, having made investments in companies Buffett and Charlie Munger believed in. The next top person at Berkshire might not be as investment savvy as Buffett and that could be a real problem for the future growth of Berkshire.
NEWSFLASH–When the Dow Jones Industrial Average gained a whopping 114 points on Monday; the big one day gain by the popular index took most stocks up with it. That’s most stocks except real estate stocks, which went the other way. The Dow Jones was up 1% on Monday while the big U.S. home building stocks were down 1.1% the same day. Just another indicator of how weak the housing market is becoming.