November 03, 2009
– Comments (9)
I sold BRK-B today in response to the news about its BNI acquisition. No longer fits in the portfolio: investment thesis has changed forever.
You sure it wasn't the 50-1 split? Whats a matter, don't want to be in amongst the rabble?
No, brickcityman, don't want to be among the BNI owners :)
I can undersand that...
Not sure why, but Buffet always struck me as the sort of man who even in his adult years loved playing with trains. So this mornings announcement had me initially thinking that perhaps he was finally realizing a childhood dream....
I've also seen some discussion about how this might be a shadow bet on the future of coal. That's an interesting hypothesis, but if you follow his line of argument he doesn't really care what gets shipped he just thinks its a superior transport mechanism in terms of efficiency.
I don't think we'll be shipping anything except food and Chinese imports. Anyway, if the investing prowess of Buffett boils down to his ability to buy BNI for $100, I want them to count me out. I could do the same for 30% cheaper (until today, that is). And Buffett doesn't have any dry powder left. He spent his last remaining cash today and has no more cards to play.
The bigger question (in my mind) was why now?
In any event, hope you got out with a gain and some powder to burn elsewhere.
I think Berkshire probably paid too much for BNI. However, BNI is definitely a good company to own in the long run.
The part about the deal that worries me a little is Buffet using Berkshire stock for part of the acquisition. He normally doesn't do that. I suspect that it means Berkshire is overvalued in his opinion. Recently he was talking about the Kraft-Cadbury deal and he was saying that Kraft should keep in mind that they're paying for Cadbury with an undervalued stock.
The other thing about Berkshire stock is that it's always been at a price that keeps it somewhat exclusive. The average Joe could buy maybe a share or two of the B shares, but in general we were kept out of the stock by the high price. Now the stock is going to split and fit right in with AAPL and AMZN and other stocks that average Joes buy. It seems almost like a desperate attempt to pump up the stock price, which is unlike Buffett.
I'm not that wild about some of the stuff in the Berkshire portfolio. Of course it makes a ton of sense to have me critiquing Buffett on what is a good investment, so I won't go on about what I like and what I don't.
I can see what he likes about railroads - they have a huge moat. But what I don't see is why he bought now rather than waiting 6 months to a year or why he didn't go ahead and buy out BNI last winter when it was cheap. I think he paid way too much.
Last, I think the premium of Berkshire's stock price to net asset value should decrease if Buffett has spent the last of his cash. Buffett plus $40B in cash is worth more than $40B for sure because of his investing abilities. But Buffett plus a fully invested portfolio is probably not worth much more than the value of the underlying investments. If he isn't buying new companies, he's just a nice old (another problem for the stock as you won't be getting Buffett for the next 30 years) man who comes up with great funny quotes.
I'm closing my green thumbs on Berkshire stock.
That's exactly the reason I sold. The excitement about the stock is gone. Up till now, everyone was intrigued, everybody was thinking: "this guy Warren has 40 billion of cash left, and he is a genius. True, I don't see any goods buys in this market, but it's just me. Surely HE can still find some 10-cent dollars, and make me rich if only I now pay a small premium for BRK-B". Well, this is no longer the case. You now have a mediocre mutual fund and it has overpaid for its largest holding.
And one more thing. If Buffett now goes Lehman by taking on more leverage, somehow it wouldn't surprise me.
Let's do some parsing here:
"I don't think we'll be shipping anything except food and Chinese imports."
Nonsense. BNI ships a lot of coal and other commodities. Maybe we'll ship those to China some day!
"Anyway, if the investing prowess of Buffett boils down to his ability to buy BNI for $100, I want them to count me out."
That's your good right! Anyone who does not like the acquisition should sell. And doing that today on the bump up following the news was a great opportunity to do so.
"I could do the same for 30% cheaper (until today, that is)."
Only true if you want to buy small amounts. Anyone who wants to buy 77+% of a company is going to create an enormous spike in demand, and consequently in the price.
"And Buffett doesn't have any dry powder left. He spent his last remaining cash today and has no more cards to play"
That remains to be seen. The offer allows BNI shareholders to choose between cash and BRK shares. The cash reserves will go down significantly but they will not go anywhere near zero.
Disclosure: long BRK at the time of writing.
"Anyone who wants to buy 77+% of a company is going to create an enormous spike in demand, and consequently in the price"
If you buy it like a fool, then yes, it will. Nobody prevented Buffett from purchasing 1% of the company on the open market on Mar 9. So by March 10 you only need to buy 76% of the company. It is easier to negotiate the purchase of 76% than 77%. Whatever way you look at it, it was an unprofessional job.