Looming Opportunity: Berkshire Below Book

Andrew Bary examines Warren Buffett's Berkshire Hathaway in Barron's this week, and estimates its stock trades at 1.3 times book value.

Doug Kass has been writing on TheStreet.com (HT: RealClearMarkets) that Buffett's salad days "are over" and that his investment style is "stale." I actually believe Buffett's problem is that Berkshire is so HUGE that his universe is limited. Whether that's true, or presents anything approaching a major obstacle to his long-term performance, is open to question.

Anyway, Kass speculates that Berkshire Hathaway common shares might suffer the same fate of many closed-end mutual funds -- gradually trade at a discount to their net asset value. I take it he thinks the discount could prove chronic. That's what many investors lament about closed-end funds.

I think Berkshire at a discount to book could be a no-brainer. Especially in this lousy market. Yes, it's a humongous company that can only invest in "elephants" (as Buffett himself says). And you could make the case it is a play on financials. But not paying less than a buck for a buck's worth of assets controlled by Buffett and Charlie Munger could look really foolish some years from now.

The only reason not to would be if you think that Buffett's investing style is stale. I don't think value investing is stale.

Comments

[Jordan]

Interesting article. Check out this similar story at http://www.marketminder.com/a/fisher-investments-capitalism-media-hype-myths/55d6bd56-e222-4c88-a908-1b9b652a1658.aspx Fisher Investments MarketMinder

[Bad Credit]

Yes berkshire is great with its above 10% returns per year but after all thie madoff ponzy schemes and all this recession talk, investing in anything like a fund seems a bit risky until the regulators get their act together.

[CONTROLLED GREED.com]

@Jordan: Thanks for the link.

@BC: If Buffett and Munger ever run anything like Madoff, the world will end ;-)

[Jason]

Joran--- what does the Fisher link have to do with the Buffet story... just wondering, not trying to be snide..

[John]

I "think" he offered the link as something tangentially related. I may be wrong, but wanted to give the benefit of the doubt and not delete it.

[Zach]

I don't think it would be too likely for Berkshire to trade like a close-end. It could trade at a discount to book but the operating elements are a key part of the company. If a discount were to come about it wouldn't entirely be for the same reasons. Also Mr. Kass brings up the point that American Express has compounded at 2% for the company. I find it a bit unfair to use what might be a low point to say Buffett's magic is gone.