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Berkshire-Hathaway - The Next Stock Ready to POP?

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October 03, 2008 – Comments (5) | RELATED TICKERS: BRK-B

OK, I am kidding, but only just barely. I put BRK into my Fool portfolio a couple of weeks ago, mainly out of curiosity and to give me an opputunity to watch and study it. At the same time, I added several other stocks. Then, I noticed something amazing: the other picks were down 10 or 20% after a week or so, but darn if BRK was UP by the SAME %. Holy cow: I immediately thought that I must add it to my real portfolio. Then, I noticed something interesting: BRK has 2 classes of shares. The ones usually quoted by the media were the A's, which is $100k per. I was not aware that there was a class B, which is 'only' $4K, which puts it in the reach of us ordinary mortals.

Problem: at that point, I was 100% invested and had no cash left over. I ended up dumping the last of my high-tech stocks (JAVA) and the Calif-Muni-Tax-Exempt-Fund. Lest you think I am rich, I barely was able to scrape together enough cash for ONE share of B. I have only had it for a week or two, but I am already up by $600 on an initial investment of $4K: what, are you kidding me? How many of your stocks are UP by this amount in the past 2 weeks?? In fact, BRK-B is within 10% of not just a 52 week high, but an ALL-TIME HIGH. Guh?

Question: are you THAT sure that your personal investing acumen will out perform BRK-B? Are you that sure that, a decade hence, BRK-B will not also be worth $100k per? If I put the correct sort of batteries in my HP 12C calculator, Buffet invested $10B in 10% warrants, so he will get $1B per year in dividends; plus, if GE goes to say $44 per share, he can cash in his warrants get $3B in profit, just because he a nice guy who lent GE $5B when the sledding got tough.

OK, the BETA of BRK-B during the next stock market rally may actually be less than 1.0. Right now, my money is on the Oracle of Omaha.

 

5 Comments – Post Your Own

#1) On October 03, 2008 at 10:45 PM, barich1 (38.84) wrote:

I have an account that tracks 20 or so of the top stocks which comprise BRK.B and they have all lost 10-20+%.  I have also been watching BRK.B because my mom owns it.  The only reason I can come up with for it doing so well is not because the oracles stock picks are doing so well but because a huge number of people have seen it doing well, kind of think of it as a safe haven, and have bought in to it.  Don't start dreaming of riches just yet, it can only continue at that pace for so long.  Regardless, that was one of the very few good buys you could have made, congrats. 

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#2) On October 03, 2008 at 11:37 PM, wm052 (34.10) wrote:

Last time I looked, BRK-A and BRK-B don't pay dividends because of Warren's idea about using all the earnings for corporate growth. Makes some sense but then you get no cash flow without selling after appreciation (kind of like a zero coupon bond). Also he expects people who buy never sell - obviously that's not happening since there is a market for B shares. cheers W

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#3) On October 03, 2008 at 11:39 PM, wm052 (34.10) wrote:

Last time I looked, BRK-A and BRK-B don't pay dividends because of Warren's idea about using all the earnings for corporate growth. Makes some sense but then you get no cash flow without selling after appreciation (kind of like a zero coupon bond). Also he expects people who buy never sell - obviously that's not happening since there is a market for B shares. cheers W

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#4) On October 03, 2008 at 11:42 PM, nuf2bdangrus (< 20) wrote:

Overleverraged and overvalued.  Too much insurance industry exposure.  BRK A & B tend to go up when the market goes down, as people gravitate to Buffet.

 

Not to be morbid, but I'll buy the B when WB moves to the great stockpicking place in the sky, as the stock will drop in panic.

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#5) On October 04, 2008 at 2:54 AM, goldminingXpert (29.67) wrote:

No No No... $5 billion in derivatives on stocks to go up... stocks dropping... since they are puts, these could end up costing umpteen billions of dollars. They also wrote a bunch of puts on junk bonds which they will end up eating. Buffett goes all wah wah on blaming derivatives and then blows up his own company's balance sheet with them. Bwahaha.

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