Wednesday, June 15, 2011

Thanks, VFCorp! My Earnings Are Bound For Buffett

I would have liked to see Timberland grow and make me money for years to come. But I'm not going to complain about the 73% return VFCorp delivered me by buying the boot maker earlier this week.
Now, I've got some money burning a hole in my TradeKing brokerage account.
Figuring out where to put new money is never easy. There are always going to be what ifs before and after you buy.
I've learned I have to be satisfied with what I believe is a smart choice. I've also learned to love stocks research, and I'd recommend learning the basics to any investor. It's the only way smart choices can be made. (Unless you're paying someone to make them for you.)

For me, research has come to involve a few things:
  • Taking a look at companies' fundamentals
  • Thinking long and hard about what the companies do, where they're headed and what their prospects for growth are
  • Reading about what people a lot more experienced and knowledgeable than me have to say about these stocks

Buying Buffet
I'd been eying Warren Buffet's Berkshire Hathaway since I started investing.
I never bought BRK.B because $3,500 was out of my price range.
But I vowed last year, when the stock split, that I would revisit it someday.
That day's today.
And the stock looks pretty good to me.
Buffett's venerable Berkshire trades at a price-to-book-value below its peers. In fact, it may be selling at its lowest price-to-book value ever.
Berkshire's stock price has trailed the S&P since the stock market collapsed in Sept 2008.
What's more, it's now selling at a price below what it sold at after last year's stock split.
Yet Berkshire has out-paced its peers in sales growth over the past five years.
As this Motley Fool article notes: "... right now there's no Buffett premium. ... There's no real premium of any sort here."
Hard to imagine the vaunted Berkshire Hathaway -- once untouchable to investors like me -- selling at a discount.
But that's what I see here.
But perhaps the strongest selling point for me is Berkshire's track record. Buffet and his lieutenants have delivered their shareholders a great return for decades. Even if you go back over the last five years, Berkshire has returned more to investors than its peers by a ratio of about 5 to 3.

The bad
The company has hit a rough patch, returning less to investors last year than its industry average.
It's also been mired in controversy over former top executive David Sokol's purchase of Lubrizol shares just before he convinced Buffett to buy the company.
That hasn't helped the company's image with investors.
On top of that, there is concern over the ages of Buffett and right-hand man Charlie Munger. Both are octogenarians.
That means both are approaching their twilight, and investors worry that when a new day dawns for Berkshire under new leadership, it will never live up to the one that's already passed.

What others have to say
Motley Fool's Stock Advisor ranks Berkshire as a buy, and Matt Koppenheffer's article I referred to earlier echoes that call, albeit less bullishly.
Morningstar's Ultimate Stock Pickers include the company in their top 10 holdings, and at least three of those ultimate pickers are adding to their Berkshire holdings.

The bottom line
I'm willing to bet that Sokolgate will pass. I'm willing to wager that the line of succession at Berkshire is strong. Smart leaders surround themselves with smart people. Buffett will be handing the reins to someone he has great confidence in.
And when I strip away those concerns, I see a good deal on a great stock.
I like Berkshire here. And I'm giving it a prominent place in my portfolio.

How do you feel about BRK.B? Is there someone you'd trust to better invest your money than Warren Buffett?

No comments:

Post a Comment