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It’s been 1-2 years since we talked about the intrinsic value of Berkshire Hathaway. The last time I publicly commented in any meaningful way was to say that I thought Morningstar was wrong in its model. This put me in the interesting position that rarely happens: I thought intrinsic value was higher than the analysts who were publicly writing about it. Normally, I’m the one exclaiming that the estimates and variables used were too rosy.
A comment reply I needed to post about the Wachovia banking collapse was too large to fit in the comment thread so I am publishing it as a mail bag feature. It deals with my thoughts on investing in bank stocks and holding a large exposure to the banking industry.
In finance, there is a concept known as total return. The goal of total return is simple: To tell you what the overall results were to you, the owner, during a time period you held an asset. This includes any fluctuations in the liquidation value of the asset itself, profits produced by the asset and distributed to you as dividends, spin-offs from activity split off from the asset, etc.
As you probably know by now, The Walt Disney Company has acquired Lucasfilm Ltd. in a $4.5 billion deal. The studio owns franchises such as Star Wars and Indiana Jones. Half will be paid in cash and the other half will be paid in newly minted shares of the company, diluting the existing owners. However, the terms are so favorable that, frankly, it looks like George Lucas took a much lower price than he could have gotten elsewhere solely to have Disney protect the brand, given the latter’s reputation and massive resources. Not even including the cash that Lucasfilm itself produces, Disney could pay for the acquisition in less than 6.7 months using the money generated by its vast empire.
The New York Stock Exchange is set to reopen today after having been closed for two consecutive trading days as Hurricane Sandy made landfall on the Eastern seaboard. The last time this happened due to weather was in 1888, when a blizzard shut down the city. It could have been much worse. The lesson: You…
I often get messages from some of you expressing a desire to invest but not wanting to sign up for a life buried in balance sheets or income statements. The good news: In investing, you can do extremely well if you have a few good, big ideas in your lifetime. You don’t have to become a master of everything. You just need to understand what you are doing, focus on it with the persistence of a pit bull, and be patient during the periods when there is nothing attractive to do, content to sit on cash. There is no need to master every industry, or spend your evenings pouring over the disclosure documents of a pharmaceutical giant to make money. It isn’t necessary.
How to Remain Detached from the Stock Market and Treat Your Investments Like Private Businesses When I was much younger, I kept seeing Benjamin Graham’s famous allegory called Mr. Market mentioned by great economists, investors, and financial historians. I bought a copy of The Intelligent Investor to figure out why everyone was so enthralled with a book…
Some of you had asked me to explain how I research stocks – specifically, where I look for investment ideas, which data sets I use, and how I find potential holdings for the portfolios I manage for my household and businesses.
I’ve done case studies in the past of slower growing, highly profitable businesses such as Clorox, Nestlé, Coca-Cola, Procter & Gamble, and Colgate-Palmolive among them. We’ve also discussed case studies of some initial public offerings, such as an investment in Tiffany & Company twenty-five years ago. I thought it might be interesting to look at another…
Personally, my household owns shares of Nestlé SA, the Swiss-based chocolate, water, coffee, condensed milk, packaged food, and nutrition giant. I’ve never been able to get as much of it as I want due to valuation1, but whenever the stock is within striking distance of my conservatively estimated calculation of intrinsic value, I write a…
