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Why use book value when talking about Berkshire Hathaway? March 10, 2009

Posted by shaferfinancial in Finance, Uncategorized.
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I have had some problems with the blog over the last couple days and believe I have lost a couple of comments.  If you commented and it didn’t show up, please try again with my apologies.

I had one person ask me why I used book value to discuss Berkshire Hathaway?  That is the metric Warren Buffett believes is of critical importance when looking at a stocks value.  He reports this value every year and it is he who compares it to the S & P 500 Index.  Some say that it is unfair comparison, but it is really just a simple way to look at his return over the years.  Over time, the stock value will go up with the book value although at times the stock price will not reflect the book value appreciation, while other times it will be too generous of a price compared to the book value.  Since Buffett believes in long term investing, he doesn’t feel it is necessary to consider the price which reflects emotional tenor of the market as much as the actual value of the company.

The same person wondered why I chose 9 years in my last post on Berkshire to look back instead of 10.  Normally, I do 10 year look backs (and 15 or 20), but as we approach the end of the decade, I have done a couple of posts only looking back to the year 2000.  It is not me trying to make Berkshire look any better than it is, believe me it doesn’t need me to pump it!  Something about what the Wall Street Journal has coined the lost decade has made me only look back to 2000.  A full 10 year look back doesn’t change any of the comparisons!

I still believe Berkshire is ready for a really good decade and it is only a matter of time before that becomes apparent.  To all Buffett’s doubters, I only have to say time will tell us who is on top of their game 🙂

Make your own decisions of course, don’t listen to me or anyone else.

warrenatworksmall

For me, I will continue to place my money with Warren over anyone else!

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Comments»

1. Joshua - March 10, 2009

David:

I’m young and just beginning my investment career. The stock has done well for many years with Warren Buffett running the show.

However, seeing that he is almost 80 years old prompts me to pause at the aspect of trusting his stock over the next 10-20 years. As I doubt he will last that long and even if he does if he’ll still want to be running the show.

My question to you then is: How can we trust that the stock will continue its previously glory when the oracle is gone? Who will be running the show and how can we estimate it’s ongoing performance?

shaferfinancial - March 11, 2009

Joshua, I think you are asking two questions here. First, what are the long term prospects of Berkshire Hathaway? And secondly, what happens when Buffett bows out?
I like these questions so much I will post the answers to all the readers today!


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