Berkshire
by ryansch | May 6, 2014 10:18 am
Hello Travis, Others,
Any recent thoughts on BRK.B, Markel, or your other (Re)Insurers?
Ryan
Source URL: https://www.stockgumshoe.com/2014/05/microblog-berkshire/
Berkshireby ryansch | May 6, 2014 10:18 am
Hello Travis, Others,
Any recent thoughts on BRK.B, Markel, or your other (Re)Insurers?
Ryan
Source URL: https://www.stockgumshoe.com/2014/05/microblog-berkshire/
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Not a lot of detailed thinking recently, but the basics are:
Markel is about as expensive as it’s been since the crisis, I still think it’s worth more but investors have historically not been willing to give it the valuation I think it deserves, so it’s not necessarily an easy buy now at more than 1.3X book. I’m holding here.
Berkshire is worth buying anytime if you want basic market performance with less upside in bull markets and less downside in bear markets. It’s a no-brainer buy at anything less than 1.25X book value, but it’s well over that now.
Greenlight and Third Point data are really stale now — the book value and other numbers are from December 31, they report this week and next. TPRE has not had a great year so far in terms of portfolio performance, but they are up so book value should rise a little and I think it’s probably still worth accumulating under 1.2X book as we look forward to them possibly breaking even on an underwriting basis by the end of the year (that means roughly under $16 right now, though the book value is stale). GLRE is trading at the same valuation as Third Point and I think it’s a better and more established company, so it would be a slightly easier buy right now but, as I said, the numbers we get from those companies over the next week could easily drive the shares up or down by 10-20% from here if the underwriting or investment performance or guidance surprises in either direction.
Right now, I’d be comfortable nibbling on either GLRE or TPRE but would wait for a better price on MKL or BRK-B unless you have a very long time horizon. I’m not currently buying any of them personally, but I own them all and BRK-B, MKL and GLRE are in my top ten largest individual equity positions.
Regarding Berkshire, we must understand that the remarkable boom in railway shipments of Bakken light, very dangerous, crude oil & Canadian oil sands oil by rail has flooded BRK/Burlington Northern S.F. RR with enormous wealth. This Obama/Buffett contrived, politically engineered scheme is meta-stable; due for some huge train wreck event that burns up downtown Chicago or some other hapless city bigger than Lac Megantic, Quebec. From Edmonton/Calgary to the USA Gulf, there is a great risk of this strategy coming off the rails. Some Berkshire stock holdings are doing quite well, like Buffett’s continued new investments of $2.2 Billion in Goldman Sachs, $2.3 in DaVita, $3.2 in US Bancorp and $4.2 Billion in Exxon-Mobil; but what happens if oil markets turn soft due to over supply, Iran returns to the market, and interest rates become more volatile or finances in China and Europe become more risky? It could be that oil by rail suddenly gets to be a huge liability just as these other investments encounter rough international waters. The risk is that Berkshire tops out, or Buffett suddenly gets a lot less healthy and BRK starts a slow slide down with market weakness. Caution to all those contemplating a large bet on this behomuth now!! I say hold but don’t plunge in just yet.
Having owned BRK.B for some time, the track record is the real story here, (pun intended for train buffs). Frankly, if you really want to read about BRK.B and study it, read their stockholders report and then move on to the New York Times article today on “Trust” and the Buffett management team. Refreshing for some of us who feel that many businesses are micromanaged. It is hard to believe Berkshire is publicly traded and still functions without the control systems in place with most large organizations. Buffett believe in his system, and the employees and management. So far, only a few have failed him over the years — and at least one who lost his organization millions of dollars was not fired, (read about this in various books published on Warren Buffett and his life).
You have raised a number of the recurring concerns about BRK.B (aging top management), and then the concept that there is risk in all of their enterprises. Baker, If you know anything about BRK.B or Buffett and his team, it is that they are risk managers. If there is a concern about the price of oil, they will hedge it. If they are concerned about trains derailing, or possibly creating a disaster, the will insure and reinsure against those events.
Go ahead, Baker, and buy some shares and follow this company closely. As you say, don’t place a big bet, because if it goes back down toward $100 a share, there will be a lot of buyers, and you could join them. I sold 130 calls for May on my position and hope it is not called away, because I would have to buy the stock back, or options.
BTW Selling Calls is a way of gathering a dividend on BRK.B, since they are not paying one. Clearly, Buffett is planning for his potential exit from BRK.B. The three managers he is grooming for the job will never replace him — but they might do a better job of dealing with the issues raised in today’s New York Times. Sometimes, the Old School approach of trusting employees and managers has its limitations, however, lets hope that the new team does not try to fix something that is not broken.
Motley fool is touting BRK.B as best buy this month.