Berkshire Hathaway Inc. (BRK-B) – Buy
I added to my position in Berkshire Hathaway Inc. (BRK-B) at $177.019. Berkshire Hathaway is now our 10th largest position at this time.
I bought my initial position in Berkshire Hathaway back in 2007 for the split adjusted price of $72. I’ve wanted to add more since then, but the price was usually higher than I liked. With the recent pullback the valuation is now low enough for me to add more. As usual, I prefer to add to companies I have at least some affiliation with. I’m a Geico customer and have been happy with the insurance. The rates are the best I’ve been able to find and the service is decent. Also, they give a discount for being a shareholder which is great.
I’m also a fan of Buffett and Munger’s investing style and the culture they have grown throughout the company which should persist even after they are no longer with the company. Buffett has a substantial amount of wealth in the company’s stock and only receives $100,000 per year plus another $300,000 in all other compensation, so his interests are clearly aligned with shareholders.
Berkshire Hathaway Inc is a holding company with a wide array of subsidiaries engaged in diverse activities. The firm’s core business segment is insurance, run primarily through Geico, Berkshire Hathaway Reinsurance Group and Berkshire Hathaway Primary Group. Berkshire has used the excess cash thrown off from these and its other operations over the years to acquire Burlington Northern Santa Fe (railroad), Berkshire Hathaway Energy (utilities and energy distributors), and the firms that make up its manufacturing, service, and retailing operations (which include five of Berkshire’s largest noninsurance pretax earnings generators: Precision Castparts, Lubrizol, Clayton Homes, Marmon and IMC/ISCAR). The conglomerate is unique in that it is run on a completely decentralized basis.
An issue has been Berkshire’s approximately $130 billion in insurance float. The company has been criticized for a while for maintaining such a large amount of cash, but now the company can put it to work with the market at such good prices. I’m sure the company is analyzing and most likely participating in many opportunities that are usually uniquely offered to companies like Berkshire Hathaway. Berkshire Hathaway has assembled a team of some of the world’s best capital allocators to put the capital to work. This kind of market is really the best kind for Berkshire Hathaway to thrive.
The best way to judge Berkshire Hathaway’s performance is book value growth and their book value has increased at an estimated 18.8% CAGR during 1965-2019, compared with a 10.1% return for the S&P 500 TR Index.
Berkshire Hathaway currently trades at a price to book value of 1.12 which is significantly lower than the 1.41 5 year average. It hasn’t been this low in at least 10 years. The normal earnings valuation metrics look very good, but are not really useful as they reflect the ups and downs of the stocks they own therefore the price/book is most likely the best way to figure it out if the price is right.
If the stock price stays this low or continues to fall I will most likely add more.
