Something amazing is going down in Omaha, Neb., this weekend.
Tens of thousands of Berkshire Hathaway
You may be there. A few of my fellow Fools will certainly be there. I won't. In fact, I'll never be there. I have come to the realization that I will never own shares in Berkshire.
It's not that I can't afford them, though like most investors, I would probably have to limit myself to a mere handful of the lower-priced B shares. It's not that I think that Buffett is anything less than a national treasure. He is.
Something to chew on
I guess it was this week's Wrigley
Yes, I realize that Berkshire is actually paying slightly less per share for its equity position than Mars, but it's still paying too much. I realize that Buffett's amazing track record merits the benefit of the doubt, even in matters like picking out the pair of socks he will wear tomorrow or what he will order off the menu tonight.
Is it wrong to judge Berkshire based on a single purchase? Perhaps. This is still a company that relies on its insurance stronghold to generate more than half of its operating earnings. Even in a tricky environment last year, Berkshire's book value took a valiant 11% step forward last year.
I have other reasons for swearing off Berkshire. Whereas others see the $32 billion unrealized gains as a buy-and-hold badge of success, I see the eventual tax liability. Buffett may be fit as a fiddle, but he's 77. He can't last forever.
Perhaps my biggest concern is that Berkshire can't revisit the past.
You can't party like it's 1972
"We bought See's for $25 million when its sales were $30 million and pre-tax earnings were less than $5 million," Buffett writes in this year's shareholder letter, referring to the sharp 1972 confectionary purchase.
"There aren't many See's in Corporate America," he ultimately laments.
How painfully true. Compare the See's Candy multiples to Wrigley's ransom. Compare that to what candy makers like Hershey
Berkshire is great today because of the dirt-cheap investments it made decades ago. How will the future look based on today's shopping list? Oh, and you'd better believe that Buffett will go shopping. With the company's coffers brimming with $37.7 billion in cash and another $28.5 billion in fixed maturity securities, how will it spend that money? Now that short-term interest rates are barely hovering over Nil City, it's going to be awfully tempting to deploy those greenbacks.
How many more premium-priced Wrigleys will it take on? It may have the occasional 21st-century hit -- like when it bought $488 million worth of PetroChina
I apologize for the timing of my pessimism. There are 30,000 people lining up in Omaha who vehemently disagree with me. God bless them all. I won't rain on their parade. I can't. My water guns will never get within firing distance of Berkshire.
For more on Berkshire:
Wrigley is a Motley Fool Income Investor pick. Cadbury Schweppes and Berkshire are Motley Fool Inside Value selections. Berkshire is also a Motley Fool Stock Advisor recommendation. The Fool owns stock in Berkshire. Try any of our Foolish newsletters today, free for 30 days.
Longtime Fool contributor Rick Munarriz would rather hit Omaha during the NCAA baseball championships. He does not own shares in any of the stocks in this story. He is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.