The market knows Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) has some of the best investors in the world calling the shots. Warren Buffett and Charlie Munger are, after all, the best duo on Wall Street. Thus, it's rare that Berkshire Hathaway sells at a discount to its book value.
Even so, waiting for a discount to the current price is still a fool's (not Fool's!) game. Here's why you won't ever be able to buy Berkshire Hathaway inexpensively.
Investors actually pay attention
Of all the companies on the public market, Berkshire Hathaway has the most loyal shareholders. Berkshire owners run the gamut from active value investors to passive followers who like having Buffett manage their money. And Berkshire's annual letter to shareholders is among the most widely read documents in the financial world when it surfaces each year.
Thus, investors are tuned in to what Buffett says.
In 1999, Buffett announced in his shareholder letter than he would consider buying back Berkshire Hathaway shares. He even mentioned a price. Here's what Buffett wrote:
Recently, when the A shares fell below $45,000, we considered making repurchases. We decided, however, to delay buying, if indeed we elect to do any, until shareholders have had the chance to review this report. If we do find that repurchases make sense, we will only rarely place bids on the New York Stock Exchange ("NYSE").
He never got the chance to buy back stock in Berkshire. Much later, at the 2006 annual shareholders meeting, Buffett said the following:
A few years ago, when we were willing to buy back our stock, the fact of writing about it eliminated the opportunity.
He was referring to his comments in the 1999 shareholders letter. Once that letter came out, Berkshire shares never traded as cheap at $45,000 for the A shares ever again, even though the S&P 500 fell for two years after his letter to shareholders.
What Buffett's said recently
Buffett recently announced a policy of repurchasing shares for Berkshire Hathaway only at a price of 1.2 times book value or lower. Since then, the company has traded for well above 1.2 times book value.
History sure likes to repeat itself. On two occasions, Buffett has named his price to buy Berkshire Hathaway shares, and the market responded by pushing Berkshire Hathaway shares higher.
On one hand, this prevents an opportunity to snag Berkshire Hathaway at a discount. However, it also presents an opportunity for conservative investors to snap up Berkshire shares. Because Berkshire Hathaway generates more cash than it can reinvest into new ideas, it's likely that it will make more repurchases in the next 10 years than it ever has.
There is a "floor" in place at 1.2 times book value, a price at which Buffett would start buying back stock. Investors won't easily get market-beating returns from an investment in Berkshire, but at least they'll have the comfort of knowing that Berkshire's cash will likely hold up the stock in a downturn. For this reason alone, Berkshire Hathaway may be the right stock for the investor who wants stock market exposure with less risk.
Fool contributor Jordan Wathen has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.