Something amazing is going down in Omaha, Neb., this weekend.
Tens of thousands of Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) investors will gather for the mother of all shareholder meetings. They will hear legendary investor Warren Buffett wax brilliantly on the state of the economy. Along with Charlie Munger, the two will field questions for hours before shareholders empty out into a massive exhibit space featuring exclusive deals and presentations on the more than 70 operating companies that pop a squat in Berkshire's portfolio.
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 (NYSE: WWY) deal that sealed my fate. Berkshire joined chocoholic magnet Mars in snapping up the chewing-gum giant for $23 billion. I never thought much of Wrigley before this week's buyout. Do I really want to own a company willing to pay almost a 30% premium for a slow roller like Wrigley? More to the point, if chewing on a meandering company like Wrigley at four times last year's revenue and 35 times earnings is indicative of where Buffett is finding value these days, do I really want to entertain the going rate for roundtrip airfare to Nebraska?
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 (NYSE: HSY), Tootsie Roll (NYSE: TR), and Cadbury (NYSE: CSG) are fetching today. It's insane. It's Willy Bonkers and the Chocolate Factory, my friend.
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 (NYSE: PTR) about five years ago and punched out last year for $4 billion. But why pay a premium for Berkshire as either an insurance company or an investment company when yesterday's bargains are gone?
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:
