(B)(N) BRK-B Berkshire Hathaway Incorporated Class B

Omaha, Nebraska
Risky?

Drama. Berkshire Hathaway has been in the Perpetual Bond™ for a while (please see Exhibit 4 below) but only because it passes the test as a stock – the ambient stock prices (which are not made in Omaha) appear to be at or above the price of risk, and for no other reason.

As investors, we’re much better off to buy the Perpetual Bond™ (please see, for example, the recent Post, (B)(N) Hot Stocks In The NASDAQ) but that would be like putting the cart before the horse or moving into the bricks before the house was built because the Perpetual Bond™ is itself a portfolio of stocks diversified by the price of risk and no other criteria.

And what is made in Omaha is a consummate deal-making ability that we just can’t buy without also buying the stock (CNN Money, March 28, 2013, What Buffett deal says about Goldman Sachs) and with the stock comes that and a portfolio of companies that we can take a look at from the point of view of risk management, liquidity and the price of risk.

Based on its latest SEC Form 13-F filing, Berkshire Hathaway has an equity interest of $101 billion in forty-three companies with a current combined market value of $3.3 trillion (33× as much). Please see Exhibit 1 below for the fundamentals.

Exhibit 1: Berkshire Hathaway Equities Portfolio – Fundamentals – February 2014

Berkshire Hathaway Equities Portfolio – Fundamentals – February 2014

Berkshire Hathaway Equities Portfolio – Risk Price Chart – February 2014

The stock that owns all this is worth $132 billion but that’s not the whole story because the voting Class A stock is currently trading at $147 billion so that the combined “market value” is $279 billion and for this we get $458 billion in assets and a shareholders equity of $208 billion.

Moreover, based on the “Demand/Supply Equation” both the stock (please see Exhibit 4 below) and the portfolio (the chart on the left) are “undervalued”.

However, the portfolio with the Berkshire stakcs earned $47 billion last year (of which $30 billion was due to the Berkshire stock itself) for a return of +25% plus dividends of $2.1 billion (1% yield) but had it been run as a Perpetual Bond™ without quite so much vesting, we would have eked out +44% which is more than a 50% improvement and we’re also up +1.4% for the year-to-date instead of a loss of minus (3%) and $2.3 billion with the Berkshire weights. Please see Exhibit 2 and 3 below for the grim details.

“Under The Gaslight”, American Mutoscope and Biograph Company, 1914

A “value manager”, of course, doesn’t do “risk management” because they believe that the virtue that they have selected will be rewarded by the market. However, our estimate of the downside in this portfolio due to the demonstrated price volatility is minus (7%) if the market swoons for reasons which might not have anything to do with “value”.

And our preference for “virtue” is “no risk” – we want our money to be safe – 100% capital safety – and to obtain a hopeful but not necessarily guaranteed return above the rate of inflation. And we like to receive dividends too which we may or may not use to buy more stock in deference to our own liquidity.

Exhibit 2: (B)(N) Berkshire Hathaway Equities Portfolio – Prices & Portfolio – February 2014

(B)(N) Berkshire Hathaway Equities Portfolio – Prices & Portfolio – February 2014

Exhibit 3: (B)(N) Berkshire Hathaway Equities Portfolio – Portfolio & Cash Flow Summary – February 2014

(B)(N) Berkshire Hathaway Equities Portfolio – Portfolio & Cash Flow Summary – February 2014

Exhibit 4: (B)(N) BRK-B Berkshire Hathaway Incorporated Class B – Risk Price Chart

(B)(N) BRK-B Berkshire Hathaway Incorporated Class B – February 2014

Berkshire Hathaway is a “growth stock” and neither the Class A nor the Class B shares pay dividends; shareholders can only make money by buying and selling the shares to each other or to new shareholders; that, of course, doesn’t create wealth – it just re-allocates it – but companies in the Berkshire Hathaway portfolio seem to double and triple before too long.

(Please Click on the Chart to make it larger and again if required.)

The Class A stock is a voting stock and costs about $170,000 per share and there are about 864,000 of those; the Class B stock is also a voting stock at $120 and there are about 1.2 billion of those and 10,000 shares are required for one Class A vote.

For more information on “risk management” and additional references to the theory, please see our recent Post, The RiskWerk Company Glossary.

And for more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in America, Big Oil, Shopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.