WARREN BUFFETT – THE MAN, THE MYTH, THE LEGEND
The June 2020 stock of the month is none other than Berkshire Hathaway (NYSE: BRK.B). Berkshire’s Chairman and CEO, Warren Buffett, has led the company for over 50 years. You may know Buffett as the former richest person in the world (currently ranked number 4). Or you may know him for his pledge to give away all of his Berkshire stock worth billions of dollars to philanthropic foundations.
Buffett’s business acumen and stock-picking genius have turned Berkshire Hathaway into one of the best-run conglomerates ever.
At its core, Berkshire is an insurance business. But under the hood, it owns several exceptionally run businesses. Most of those businesses were purchased for far below their current market values.
Some of their wholly-owned subsidiaries that you may have heard of are GEICO Auto Insurance, Dairy Queen, Fruit of the Loom, Pampered Chef, and See’s Candies.
They also hold significant shares of stock of other well-known companies such as American Express (NYSE: AXP), Apple (NASDAQ: AAPL), Bank of America (NYSE: BAC), and Coca-Cola (NYSE: KO).
Buffett turns 90 this year and, of course, won’t be around forever. But he and the Board of Directors at Berkshire have built a culture that will very likely outlast his leadership. Although Buffett is giving away all of his stock to philanthropy, he’s doing so in such a way that it will take 12 to 15 years after he passes away for all of his stock to be sold. So he’s placing a big bet on his shares to do well so that the world can benefit from his wealth.
Aside from Buffett, there are other very exceptionally talented managers at Berkshire who are ready and willing to take the helm. All of them will have been at Berkshire for over a decade and are devoted to the company’s culture. There is already a succession plan in place in the unfortunate event that Buffett can no longer serve.
BE FEARFUL WHEN OTHERS ARE GREEDY AND GREEDY WHEN OTHERS ARE FEARFUL
Buffett’s famous quote has guided me in many of my investment decisions and is one big reason that I’m recommending Berkshire this month. The coronavirus pandemic has bashed the stocks of many great companies. Some of them have already rebounded, but Berkshire still remains heavily discounted. Berkshire’s last closing price on June 14, 2020, was $181.21.
MONTHLY STOCK CHART (1998 – 2020)
The bottom chart is the RSI. RSI is a way to measure investor sentiment in a stock. When RSI is low, the sentiment is low, and when it’s high, the sentiment is high. Following each of the RSI lows, Berkshire’s stock price climbed higher. With the most recent dip in the RSI, I believe that the pattern will repeat itself.
THE ULTIMATE DEALMAKER
Berkshire is known for making hugely profitable deals in times of crisis, and I speculate that this time will be no different. For example, after the Great Recession, Buffett made a deal with Bank of America that gave Berkshire 6% dividends in addition to warrants to purchase shares at a price of $7.14. Bank of America shares are worth $24.78 as of Friday’s close.
Even if no spectacular deals are made, I expect Berkshire to buy back a significant number of shares of its own stock this quarter. Share buybacks are great for shareholders. With fewer shares around, the intrinsic value of our shares, in theory, should increase. In their annual letters, Buffett and his long-time business partner, Charlie Munger, have discussed their rationale for buying back shares. I highly recommend reading Buffett’s past letters to shareholders if you haven’t already. Or read them again and again for nuggets of investing wisdom.
The coronavirus pandemic has offered a rare opportunity to buy Berkshire Hathaway at a significantly undervalued price. Even without Buffett, Berkshire should continue to be a great company.
I/we own shares of stock in BRK.B, KO
Except for Wolves of Investing, I/we are not receiving any compensation from and do not have any business dealings with any companies whose stocks are discussed in this article.
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Donnie Nguyen is the founder and CEO of Wolves of Investing. He started investing in the stock market in the early 2000s. He follows the teachings of Peter Lynch, Warren Buffett, and other investing legends. When he's not investing or blogging, he loves spending time with his family traveling and experiencing the world.
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