Bilibala Q&A: Berkshire Hathway (BRK.B)
Question: Why is Berkshire Hathway (BRK) fall from $5059 (highest) to $4365 (lowest), dropped 13.7% in less than 2 weeks time?
Answer: Because 1 analyst (Barron) gave a "sell" to Berkshire last week. The main reasons of giving a "sell" are as follow: 1) Buffet is old and will retire soon, question on whether the new replacement can carry on & live up the legend; 2) it holds huge cash ($39B) without new investment plan and difficult for an giant “elephant” to have big move; 3) Based on P/E ratio, there are more attractive property & casualty insurance company in the market, eg. AIG, Wells Fargo, AE’s P/E ratio are only around 10 and Berkshire has 15. So he thinks Berkshire should worth only $4,100.
My argument to Barron’s comments are as follow: 1) yes, Buffet is old, I think he can handle the job for few more years as an CEO, because he only focus on investment and left the more stressful management work to others. Also Berkshire is a great business with great management skill set and system, as long as the new CEO follow without major mistake, it will continue to generate great profit to shareholders; 2) Cash is gold during the crisis moment and a giant company can always, always get better investment deal with low capital cost compare to others; 3) Berkshire is not a normal property & casualty insurance company. It holds 73 subsidiaries and invested public stocks in different sectors & countries. In terms of PEG, Berkshire is lower (means better) than the companies Barron pointed out. In conclusion, I think Barron is too conservative in calculating Berkshire’s share price.
