Post of the Day
September 29, 1999
Berkshire Hathaway Folder
Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light.
Buffett is a Grandmaster Chessman, nonchalant about having his pawns (read "share price") batted about while he maneuvers his monolith.
For all you ladies and germs who bought Berkshire many a percent ago (on the upside), take heed of this quote which I attribute (so far as I remember) to Buffett: "Price is what you pay; value is what you get." Something like that, anyway. Even for invaluable things, price still matters (in the short to intermediate run). The point goes back to the linkage of stock price to intrinsic value. The two should move like siamese twins. However, they don't always travel in lock-step, as Buffett freely admits, and points out. Share price can get ahead of itself. If you don't need your money back soon, don't despair (unless the margin man comes calling), because Berkshire is a value creating machine � a money tree, of sorts. And the fruit will come into season, as the laws of the business universe have not been turned permanently upside down.
|"Look, if you don't agree with Buffett's principles, don't invest in Berkshire."|
That brings me to this salient issue: the nature of business. Succinctly, businesses are about profits and expanding worth. In the long run, if a company doesn't bring home the bacon, pumped up share prices will deflate. Bull runs like this seem to camouflage that little fact. For instance, I read today that the 199 internet companies covered by Mary Meeker and her minions have a collective market cap approximating $450 billion. These 199 companies, in sum, sell $21 billion of goods and services. The kicker, though, is that their profits total negative $6.2 billion. I leave it to you, because I'm a bit busy today, to compare that to those three statistics for Berkshire. Who among us thinks that $450 billion market cap is sustainable, or immediately growable, Information Age or no? I see a plate with fried eggs and hash browns, but the bacon yet wallows in the sty, so far as I can tell.
Look, if you don't agree with Buffett's principles, don't invest in Berkshire. Sell your shares to those who do. How can you not appreciate what the man does, though? He has assembled a constellation of companies that produce returns on equity above the average American business. That's why he's killed the market average for over thirty years! This year wouldn't look bad if the share price hadn't gotten out of whack to begin with. It's all relative.
|"Those who doubt the benefits of a burly bear don't get what Buffett is about."|
As for the Gen Re incorporation hiccups, at the very least we can congratulate WEB for utilizing the over-priced shares as currency. He didn't do the purchase without being confident that the assets of Gen Re (though, float, I believe, is a liability, technically) would aid Berkshire on its elephant poaching ventures. Yep, it seems that we underestimate the power of $40 billion or so that lays in wait at the bottom of a bear market chasm. Those who doubt the benefits of a burly bear don't get what Buffett is about. As the market depresses, Berkshire's share price will sink too, but the beauty of it is that the value of the company will soar when WEB plucks up new highly profitable businesses at deep discount prices. That's WEB's modus operandi, hence why the dude's personally worth over $30 billion, having started life with less money than one pays for parking at Disney Land. When the bear market ends, Berkshire's intrinsic value will have increased tremendously, due to many more billions of dollars having been transitioned out of cash and short term securities, and into long term, compounding holdings. This is a multi-year process, so look at it from that perspective. And, hey, if a bear market never presents itself, we'll all get stinking rich from our other over-inflated investments. Either way, we can't lose (over the long run)!
P.S. I'm not a technophobe, as my two largest holdings are Microsoft and Cisco Systems (two additional companies I think to be invaluable). I am prepared to see them get slammed in a bear market. Also, I think Ms. Meeker is a very nice person. The same applies to her minions.