There are a lot of reasons for not investing in Berkshire Hathaway (BRK.A -0.30%) (BRK.B -0.26%). It's a huge company. It's has too much cash and no good place to put it. Warren Buffett and Charlie Munger are getting old (OK, they're already old).
Even so, there are plenty of investors that think Buffett's Berkshire is still positioned to beat the market.
One of those investors is hedge fund manager Whitney Tilson. At Tilson's Kase Capital, Berkshire is the only stock that's been in the portfolio since the fund's inception roughly 16 years ago.
In the video below, Tilson explains why he believes Berkshire is still a market-beating investment. A transcript follows the video.
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Koppenheffer: Kase Capital is an owner of Berkshire Hathaway. That is one of your larger holdings.
Tilson: Yes. It's the only stock I have owned since inception, almost 16 years ago. I've owned it for a long time.
Koppenheffer: That's long-term ownership! I know that's a lot of your investing thesis, just like Buffett's.
Tilson: It has ranged from a 3% position to a 30% position over that time period, depending on how attractive the stock price was, but today it's my second or third largest position, about a 6% position. I'd call it a safe, cheap, 85-cent dollar. It's not screaming cheap, but it's better than holding cash.
Koppenheffer: The question comes up, as it often does, of the size of Berkshire Hathaway today. Do you have concerns about it being able to beat the rest of the market?
Tilson: I would give 80-90% chance that it beats the S&P 500 over the next 5-10 years. But that is not any high bar, given I think after five years of a bull market, I would guess an S&P 500 index fund might to 5% a year, compounded for the next five years or so, would be my guess.
I think Berkshire Hathaway's intrinsic value is growing maybe 10% a year, barring some severe economic downturn or something. I think it is trading at about a 15% discount to its intrinsic value, so there's always a chance that discount closes, which means if the intrinsic value grows 10% a year, that value gap closes a bit, I might make 12-15% a year. You just have to have reasonable expectations.
Berkshire is a "sleep well at night" kind of stock. You've got pretty decent downside protection in that Buffett is willing to buy it back at 1.2x book. Today it's -- off the top of my head -- 1.35x book or something so, much more than 10% downside on the stock from here, and Buffett himself is willing to step in.
There aren't many stocks that have decent upsides, super high quality balance sheet business management, and you have pretty well-capped downside, 10-15% down from here.
