B of A/Buffett #5

Hello, my worthies,

I have some to add to the Buffett discussion. First let me state I admire Mr. Buffett's business acumen. I applaud his insights and strategic moves.

I first became aware of Berkshire Hathaway many years ago. One share back then was around $3,000. I bought a few shares. That was a weird phone call to my broker: "Can I buy two shares of BRK. I sold it at around $6,000, thinking it could not possibly go higher. I got back in at $12,000 and sold for $22,000. When it hit $30,000, they did a new IPO for a second class of stock, now called the B shares, as in BRK.B. These shares were pegged to the A shares (BRK.A) in a 30:1 ratio. As the A shares moved up to $36,000, the B shares would go for $1,200 plus change.

I bought some B shares, and sold them later at $2,200. They kept going up. The A shares hit about $130,000 per share recently. Yes, you read that right. Now, they've back off a bit, but they're still high. And the B Shares? Well first, they did a 50:1 stock split on the B shares. So they now trade at a 1,500:1 ratio in tandem with the A shares. I like these. You would own a piece of Americana---they own the Gecko, Burlington Northern Railroad, and dozens of other companies and hundreds of investments. It's like a Mutual Fund without all the fees. I think sometime in the future they may do a "Cram Down," and send everyone with the A shares, 1,500 of the B shares, effectively doing a 1,500 to 1 Stock Split. This probably won't happen until Warren is in the ground. I hear he doesn't like stock splits.

Okay, now to the point of this Blog. This is the week of their investment of $5,000,000,000 into Bank of America. I wrote previously about the Book Value of B of A. Remember that the Book Value, or Break-Up Value is based on GAAP, an accounting way of placing lower values on real assets. Berkshire Hathaway has billions of dollars of assets that are carried on their financial statements at a value way lower than their true value on the street. The book value is currently $98,700. When this was written last week, the stock was at $105,000 per share.

Now, in a Barron's article we learn that the A shares are trading at a 1.1 times book value. This is very low., and again, the book value stated is much lower than real life. For years the book value of BRK has been at 1.5 times. This means their stock, recently trading at $105,000, could have a stock price at near $150,000 and that would not be unusual.

My point, is that many companies trade at three times book value. I'm not saying anything about the direction of this stock, but a $200,000 to $250,000 share price would not be unreasonable. Obviously there are numerous other factors, P/E ratios, cash availability, expansion, etc., but this is one factor that should be taken seriously. I think this is a good move. Right now I think the play is on Bank of America, either as a hold, or a covered call candidate. Run it passed you advisors.
One more blog coming up on Mr. Buffet, unless something else comes up.

Thanks for participating.
Wade