Hamilton's E-Wave Analysis

BRK.A and the Buffett Fed.

brk dec 12 2012

Warren Buffett is the ’s most celebrated investor, perhaps deservedly so. Nevertheless it should be noted that in the last 10/15 years the stock of Berkshire Hathaway dropped by about 50%, more or less in line with the market itself. Yesterday it was announced that the company bought back a billion plus dollars worth of stock from some old estate. More importantly, the company also announced that from here onward (or should that be looking forward?), the company would be prepared to buy back stock at a level as high as 120% of book as opposed to 110% previously. Book is about $111,000 per share so the buy-back at about $131,000 a share was done at 1.18x book. On the news the stock rose $3169 on the day.

It is not clear how aggressive Berkshire will actually engage the market to buy back stock with the vast amounts of lose cash that they have. Nor is it clear what book value actually means, particularly not when much of what is in Berkshire’s corporate menagerie is in the insurance business that hardly has a book vale per se. In any event the message is clear, we stand ready to buy-back at about $130,000. per share if need be. We are now Omaha’s own Central Bank, just in case Bernanke’s 1 trillion/year until unemployment reaches 6 1/2 % does not do the trick.

By the way, the high in this stock was about $150,000 or so back in late 2007 (see previous blog). The low at about $80,000, so at $130,000 you are at the upper end of that range, not exactly buying low and selling high, or in this case, holding forever.