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Berkshire Hathaway Inc. Message Board

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  • jad1148 jad1148 Sep 23, 2012 6:07 AM Flag

    Why I sold 80% of BRKB

    Well, I don't know about other people, but the lack of a dividend is why I now refuse to own this stock and I have owned it several times over the past fourteen years.. My very first purchase was actually one week short of fourteen years ago, at a split adjusted 39.56, (I paid 1,978 plus commission on 9/28/1998). I didn't know it at the time, but I had bought it at roughly 2.4X book, a big mistake, a really BIG mistake, considering that WEB's hints now imply that it might be worth 1.22X book at best. If I had held and had sold at last Friday's close (89.54 on 9/21/2012) my annualized total return, before expenses, would have been about 6.0%. That's nothing to brag about. But back to dividends. In my opinion, the single most important thing that dividends do for a stock is create a credible means of valuing it. Without historical dividend data one resorts to all sorts of nonsensical financial fantasies (the two column method, other folk's intrinsic calculators, look-thru-earnings, price to book, etc.) trying to come up with what ultimately turns out to be an incredibly inaccurate, horribly bad, guesstimate of intrinsic value.

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    • Jad, your "mistake" was not that you bought the stock in 1998, but that you didn't sell it a number of years ago when it became expensive by just about every valuation metric (I made the same mistake).

      I don't think the issue is dividends. The real issue is that WEB's investment objectives have changed, as has the makeup of the stock. Now that the stock is primarily a group of operating companies, 20%/year growth is impossible. It is not so much the size of the company, but the fact that you can't sell operating companies (even if you wanted to) as easily as you can unload a stock. Many of our operating companies are cyclical, and this cycle has been brutal. I still believe that size will one day probe to be a huge advantage, when we have cash that no one else has to acquire one or more very large positions at a large discount. It will take a market dislocation like what occured in 2008, and it will happen sooner or later. For my $, hopefully it happens later, because WEB's primary objective now is to preserve the company's capital, as opposed to trying to generate largely outsized gains. Hopefully the younger managers who will take over for WEB will see things in a different light and live up to their lofty repuations as superior money managers once WEB retires.

      To me, the only benefit of a dividend is that it would create more demand for the stock. In all likelihood, such a dividend would remain relatively small, and hence not a good measure of value.

      • 1 Reply to beachlawyer2003
      • beachlawyer2003., after goofing with BRK-B for fourteen years, I'm done with it. Even if WEB announced a dividend today, I wouldn't touch it.

        I did manage an annualized total return, before expenses, of 35.4% on one of my many trades. I bought at 2897 and sold 663 days later, on 12/07/2007, at 5020. By the way, that 5020 is the equivalent of a split adjusted 100.40. Needless to say, the tax bill on the long term capital gains was horrific. :)

    • Dividends are only one guage as they can be paid from funds that otherwise might be usefully enpoloyed in growing the business, or paid from reserves, thus weakening a company's financial strength.

      And note that if you had held on, your 6% gain would have had no tax consequences so from an economic point of view, not terrible.

      • 1 Reply to vensh
      • « And note that if you had held on, your 6% gain would have had no tax consequences so from an economic point of view, not terrible. »

        Vensh, from a tax avoidance point of view, my very first BRK-B trade was a rousing success. I bought at 1978 plus a commission and sold 1653 days later at 2305 minus a commission. Needless to say, the tax bill on my long term capital gains net of expenses, was wonderfully low. But then, so was my 3.4 percent pre-tax annualized total return.

        My very first broker used to address a SRO crowd of clients and invited guests every January to review his picks of the previous year and to share his picks for the year ahead. He would end each annual review by saying: "I love paying taxes. I hope that I pay even more taxes next year. I just don't want to pay more than my fair share." What a wonderful attitude!

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