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BusinessWeek: "Buffett's Big Task- Bringing Berkshire Back Up to Speed"


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I doubt anyone here will see much in this article as insightful (except from a contrarian perspective), but for what it's worth:




"Where is this renowned value investor going to find bargains after stock prices have advanced 67% in nine months? Why is Buffett making the biggest acquisition of his career, railroad Burlington Northern (BNI), at a price even he admits isn't cheap? And, perhaps most important, what will Berkshire look like after Buffett?"


"The questions might not vex investors so much if Berkshire Hathaway hadn't lost some stock market respect in recent years. For 15 of the last 22 years, Berkshire stock has beaten the broad Standard & Poor's 500-stock index. But in 2008, shares tumbled 32%. They failed to rise more than 2.7% in 2009—20 percentage points behind the S&P 500 last year."


When I read this, I got the feeling the author was suggesting that this was a negative from an investment standpoint.  I couldn't help but think that these facts instead made the case for why the stock should be purchased.


"He has a celebrity and marquee [name] that opens doors for him," says Wisdom, who owns Berkshire shares. Whenever Buffett steps down, Berkshire loses that public face. Some worry there is a big "Warren Buffett premium" built into Berkshire's stock price, which could be deflated when he leaves."


I don't know about you, but I feel like there is actually a Warren discount in the current stock price as a result of his age.



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I don't know about you, but I feel like there is actually a Warren discount in the current stock price as a result of his age.



I've posted this before but it's probably worth re-stating that the only stock tip WEB has ever publicly given was to some reporter who asked him for one and he gave his usual "well I don't give out stock tips etc" and then caught himself and said "Here's a good one - the day after my death is announced, buy Berkshire".


The market hates uncertainty and the derivatives (misunderstood) and WEB's age both create uncertainty and therefore reduced stock price.


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There is some truth to that statement - should be a good time to buy BRK.  Of course, no one wants to see that.


I don't think BRK is a screaming buy here, but it is one of the best managed companies in history.  So for value investors, there is a little bit of opposing forces at work.  I own a little BRK but I view it not as a value play, but a play where I am allowing a manager of risk named Buffett (and co.) to invest in value plays. 


I have stated that the BNI purchase was not a value investment, but BRK will be able to generate so much free cash flow over the next five years that there will be tons of additional capital that can be invested in the future.


The put option contracts and preferred stock investments were very low risk, high reward in my opinion.  While I am still a little surprised Buffett didn't invest more in common stock during 2009, it is what it is. 

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