Sunday, March 9, 2014

Latest Buy: BRK.B

On March 1st Warren Buffett, CEO of Berkshire Hathaway, released his annual stockholder letter. If you haven't read it, I suggest you do. It's a very well written, easy to understand piece. It gives you a peak into the mind of one of the most successful investors in history.

On monday 3/3/2014 I bought:

  • 13 Shares BRK.B @ $116.16

Why now? Warren Buffett said it himself: The intrinsic value of Berkshire Hathaway shares exceeds 120% of book value by a meaningful amount.
A quick calculation, using numbers from the annual report, puts the value of BRK.B shares at $107.98. I basically picked up some shares at 129% book value ($116.16 a share) which is probably a good deal is 120% of book value is cheap.

This buy will not give me dividends. I think it's highly likely BRK.B will start paying a dividend in the future, it may be 5 years, it may take 10 or 25 years. When Berkshire grows bigger and bigger, it will become exponentially harder for the director's to find good use with the incoming cash, to the point it starts to make sense to send a piece of the profits to shareholders.

Berkshire doesn't grow, or even pay a dividend, but its ability to pay out a dividend grows over time.

Buffett passing away doesn't scare me too much. Berkshire is a very decentralized business where every manager is focusing on his specific area of expertize. If Buffett passes away you still have the dozens of high quality, privately held businesses, hand picked by Buffett, bringing in cash to the headquarters. Buffett has two capital allocators working for him. Todd Combs and Ted Wescher, who actually outperformed Buffett's portfolio by a wide margin.

Berkshire is a great collection of businesses, there are very talented people in charge and the price seems good too. It's great to finally be a shareholder of Berkshire Hathaway.

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