Wednesday, March 7, 2007

Buford Twain's Portfolio Possibility: Berkshire Hathaway

Gentle reader,

Warren Buffet and his Berkshire Hathaway company are truly diamonds in the rough.

Mr. Buffet is a man who is simultaneously smart, honest, funny and charitable.

As if that weren't enough, he consistently makes boatloads of money for his shareholders.

Warren Buffett started out in the textile business. When that didn't work so well, he moved on to re-insurance and "regular" insurance. For example, GEICO is a very MINOR part of Berkshire's portfolio of wholly owned companies. So is fast food (DQ anyone?), jewelry, private jets (NetJets is one of their latest acquisitions) and many other somwehat boring yet highly profitable businesses such as electronics components distribution (TTI).

Berkshire Hathaway's biggest "problem" is that they simply have SO MUCH MONEY floating around ("float" literally, from their insurance businesses) that they have a hard time finding quality things to invest in. Much of the money is invested in the stock market. Berkshire Hathaway owns around 8% of Coca-Cola and has a large stake in around 15 other large US-based companies including the Washington Post, Wells Fargo and Home Depot.

When Mr. Buffet sees a company that he thinks is priced attractively, poised to grow, and is run by good managers, well -- he buys it. Traditionally, these companies have been US-based. Increasingly, Warren is reaching further afield (e.g. ISCAR is an Israeli company that makes cutting tools).

Personally, I believe that Warren Buffet has shown that it is possible to make money AND not be morally bankrupt. Therefore, even those who lean toward socially responsible investmenting should take a look at Berkshire. Those of you who care solely about monetary matters (shame on you!) will also be intersted. In his annual review, almost the first thing Mr Buffet does is chart the performance of Berkshire Hathaway against the S&P 500. What other corporation does that? And isn't ashamed of the results??

Although A-shares of Berkshire Hathaway are currently running over $100,000 a piece, you can pick up a B share for about 1/30th of that, or around $3600. The only disadvantage of owning B shares is that they do not entitle you to vote as a shareholder. But you CAN attend the annual shareholders meeting in Omaha (May 5th this year)!

My only concern is Mr. Buffet's age (76). But, he is actively working on picking a successor
(or successors, since it will likely take 2 or more people to do what he was doing on his own).
Whether that person or persons will be able to carry on as effectively remains to be seen...
The question to ask about Berkshire is the same question Warren Buffet asks about the companies he is interested in acquiring, or investing in. That question is: "Is the company priced attractively and how quickly can it be expected to grow its profits?"

I leave you to do your own research on Berkshire and the "Oracle of Omaha".

But for now here are a few words of wisdom, taken from the Berkshire Hathaway 2006 Annual Report:

When someone with experience proposes a deal to someone with money, too often the fellow with money ends up with the experience, and the fellow with experience ends up with the money.
-Warren Buffet

If you want to get a reputation as a good businessman,
be sure to get into a good business.

-friend of Warren Buffet to WB

Be fearful when others are greedy,
and be greedy when others are fearful.

-Warren Buffet

ISCAR makes money because it enables its customers to make MORE money.
There is no better recipe for continued success.
-Warren Buffet

And until the next time, gentle reader, I remain,

Your friend,

Buford Twain

PS - This post was included in the Carnival of Personal Finance #91

[ Disclaimer: Not to be taken as financial advice. Think for YOURSELF at all times. ]

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