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Berkshire Hathaway Inc. Message Board

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  • Novalis_97 Novalis_97 Aug 14, 1998 11:08 PM Flag

    Better measure of earnings for BRK

    You believe that BRK's underlying businesses,
    like See's or 8% of Coke, would be cheaper if you
    bought those companies directly than if you bought BRK
    stock. However, that assumption is generally not true.
    By buying BRK (when it itself is undervalued), you
    are able to buy KO, G, etc. for below their
    individual market prices. It's also an ongoing mystery in
    finance circles why mutual funds often sell below the
    collective value of their stock holdings, but it happens. As
    recently as 12/31/97, BRK stock was undervalued. It's
    "investments per share" was $38,000 and the intrinsic value of
    its wholly-owned subsidiaries was about $20,000, but
    BRK's market price at the time was only $46,000. You
    could have bought it then and gotten all the stocks in
    Buffett's portfolio on the cheap.

    In addition, if
    you buy BRK stock, you benefit from Buffett's ability
    to obtain businesses (whether in whole or in part)
    AT A DISCOUNT. Maybe you have the same ability as
    Buffett to know when a business is selling at a discount
    or not, but most people do not. For example, Buffett
    is buying GRN now because he believes he can
    purchase it at a discount to underlying value (he's paying
    only $20 bil. for $24 bil. in floate). However, the
    average investor does not have the ability to determine
    whether a potential acquisition is selling at a discount
    or not. Buffett has the patience to wait until a
    stock he likes get extremely undervalued.

    It's
    true Buffett's reputation adds something to BRK's
    stock price. But, as Buffett and Graham have said,
    markets are efficient in the long run (but not
    necessarily in the short run), so even BRK stock will be
    correctly valued by the market over time.

    I disagree
    with your assertion that buying BRK reduces
    diversification. Quite to the contrary, I don't think you could
    get more diversified than owning World Book, Dexter
    Shoes, Dairy Queen, etc. (all different types of
    businesses) at the same time, which owning BRK stock amounts
    to.

 
BRK-A
206,900.00-421.00(-0.20%)Sep 30 4:01 PMEDT

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