We originally covered a teaser ad very similar to this on October 30, 2013. The ad promising a “Next Berkshire Hathaway” is circulating again and generating more questions from our readers, so I’m re-analyzing it here for your information. The ad has been slightly updated with new numbers over the years, and this article has been updated… and my opinion has changed a bit. We have left the original comments appended to this article.
This “Retire on one stock” idea was trading for about US$440 a share when it was first teased by Mizrahi 2+ years ago, it has been fairly volatile since but as of now has risen about 7% — though in Canadian dollars it has done far better (up 42%), thanks to the soaring US$. Over the past five years, the stock has done significantly worse than its sector — perhaps partly because of its very cautious “fully hedged” investment approach in recent years.
Promises that you’ve discovered the “next Berkshire Hathaway” or the “next Warren Buffett” will get you attention, and that’s been true for a decade or more as investors have continued to seek out the opportunity to buy that “next Berkshire” before it becomes a $100,000 stock.
And who can blame investors for looking? Putting a reasonable chunk of your savings in the hands of investing Whiz Kid Warren Buffett back in the 1960s when he was starting his partnership would have been enough to create a family fortune today — assuming, of course, that you had held that investment the whole time and not sold when Warren had a bad year, as he has had on occasion, or when you’d gained 100% or 200% or even 1,000% and lightened up your position. Not many people did that, but the few who did are endowing buildings at universities now… nice, right?
But how do you find the next Berkshire Hathaway? Well, no one is is promising to find the 30-year-old Warren Buffett … but some folks are intimating that they can find the equivalent of Berkshire Hathaway in the 1970s or 1980s or even the 1990s, when the company was smaller and the growth potential more dramatic — we’ve seen teases from newsletters over the years that pitched companies as varied as Brookfield Asset Management (BAM), Greenlight Re (GLRE), Markel (MKL), Leucadia (LUK), Loews (L), Allegheny (Y), Biglari Holdings (BH), Sears Holdings (SHLD) and White Mountains Insurance (WTM) as the “next Berkshire.”
Probably none of ’em is, of course, since that kind of remarkable return depended on a lot of external factors as well as on the ability of Buffett to master the use of insurance leverage in equity investing, and to do so without getting much attention in the first few decades. Doesn’t mean that they are or were bad investments, of course, those have all been interesting and probably worthy companies in one way or another at times, and I have written about or owned several of those over the years (I currently own both Markel and Berkshire Hathaway shares, both are among my top five individual equity positions).
But if we can’t find that $100 million company that’s going to become a $200 billion company in 30 years, then we at least want to find the $10 billion company that could outpace the market and become a $200 billion company… right? That’s really the promise that newsletters are pitching, not that you can buy 1960s Berkshire but perhaps that you can buy 1990 Berkshire, when it was at about $6,000 a share on its way to the current $175,000 a share.
Which would work out quite nicely, thanks very much.
I own Berkshire shares personally and added to my position a few months ago when it dipped below 1.3X book value, not because I think it will generate 25X my investment in 20 years but because I think it’s better than the S&P 500 with less risk — today’s Berkshire is still a pretty good buy, with a fantastic collection of businesses, but it won’t be a growth rocket.
Which was a long preamble to get us to the point of today’s piece — that Charles Mizrahi is pitching another stock as the “next Berkshire” in selling subscriptions to his Inevitable Wealth Portfolio ($999 “on sale”) … and no, it’s not one of those in that long list above.
I thought it was at first, to be honest — that’s because Mizrahi a couple years earlier was touting Leucadia (LUK) with exactly the same headline, “The Next Berkshire Hathaway: How this ‘Must-Buy’ Could Help Make You a Buffett-Sized Fortune.”
That turned out not to be a “must buy” just yet, Leucadia has been through some big changes over the past five years and is now one of the worst-performing “next Berkshire” stocks — and indeed, almost every time we hear a “next Berkshire” pitch, it turns out that the old Berkshire would have been a better buy at the time than the “next Berkshire.” (Leucadia is also down sharply since I wrote positively about it in March when it was in the low $20s.)
But no, Mizrahi’s got another stock in mind — another “next Berkshire Hathaway” for your consideration. Who is it?
Well, our favorite Irregulars already know the answer because of our handy dandy “quick take” box above, but the rest of you have to sit through just a few more paragraphs of my blather first (Not an Irregular yet? “Sign up now!” he suggests shamelessly).
“I’m about to reveal the details of a company that looks remarkably similar to what Berkshire Hathaway looked like 40 years ago when they were making huge double digit returns.
“For the better part of the last three decades, this company has been run by a man known as ‘Canada’s Warren Buffett’ – and he’s used the same value-oriented strategies Buffett favors to deliver remarkable returns.
“In fact, in the 29 years since the company began in 1985, this company’s book value has grown at a compounded rate of 21.1% per share each year.
“And their common stock price has compounded at 19.8% annually.
“$10,000 invested in this stock back in 1985 would now be worth more than $1.6 million, not including dividends.
“Simply put…this company has delivered exceptional returns for investors. But r