The answer is not as clear cut as STL says. I don’t think BRK is as undervalued as before. Historically it trades at roughly 1.5 BV, and at 1.2BV, it is still undervalued but nothing compared to earlier. There is also the complication that it is very difficult to value on a piece by piece basis, so I’m just going with BV multiples.
Google though is really trading at lows, its OCF always exceeds NI, so PE ratio will be overstated…and it should have higher (but slowing) growth in the future compared to Brk. I’d go with Goog.
I think Berkshire does have strong upwards momentum though as market has slowly started to recognize its value since B started the buyback program.
BRK hands-down, I said mentally when I read the question.
If I may be a bit harsh to highlight the current situation - GOOG doesn’t know what the fuck they are doing. They have a great big moat in search, which pays handsomely. Then they squander the money that it makes, on random shit like Google+. They are a one-trick pony and will be, for the foreseeable future. If someone comes along with a better search engine (and I don’t mean retards like wolframalpha - remember that hype?) then GOOG is toast.
How much money does Chrome or Android make? And those are the best products by market share in respective markets. Rest are nothing. Google is NOT Apple and Brin or anyone else is not Jobs.
Berkshire operating companies on the other hand are boring, low-tech and very diverse. Great revenue protection on the downside, and can keep up with inflation on the upside. Individual CEOs are independent and (if you believe Buffett, which I do, Sokolgate notwithstanding), know what they are doing. BRK does NOT need to make good investments. All Weschler/Combs have to do is keep up with S&P. They can become closet indexers for all I care.
google tries a lot of big things and fails, yes, i like the fact they try cause you only have to get 1 big thing right…
…they have dominated search and dominated mobile software which will be used to feed into the mobile lifestyle through search, pay, apps etc…can they monetize mobile search/google maps with NFC and more advertising? time will tell, but the company isn’t selling for a high amount for this option…
the company has gotten better overtime and the CEOs are still young which is a great…
if someone comes along and takes search away, than yes, they will be in trouble…but what search engine do you use? do you use youtube? what is your smartphone?
its not bad to be a one trick pony if that trick is pretty cool.
There is indeed the risk that its extra projects may not play out. But as long as search is dominant, I think google will do well. Also they have large insider ownership and really, many of the projects they do are designed to entrench google search.
The real concern is either a new, better search engine, or more persuasively, an alternative paradigm of web computing where search advertising is not useful. That’s more of a “Black Swan” risk…we have to consider it, and to hedge that black swan risk we shouldn’t put ALL our money in GOOG…but I believe it is undervalued.
He’s had a series of very public, very poor calls. He shorted Netflix right before it’s huge run-up only to write a mea culpa to his investors and reverse his position. Shortly after going long it tanked. Every thesis he had on the company was incorrect, twice.
That was his most famous blunder…there was a pair trade he did earlier this year that he got exactly wrong as well…don’t remember the two names off the top of my head.
I was exaggerating before. He’s put together some nice returns on the whole. But over the last few years whenever he’s marketed a specific call they’ve worked against him. He should keep his mouth shut, stay off TV and just manage his portfolio. Actually, that goes for all HF managers.
Please educate me on why you don’t include a company’s liabilities when you value their equity. I understand that it’s interest-free money, but it’s not yours. I can see there being some value attributable from the earnings you can derive from this interest-free money, but calling the interest-free money yours does not make sense to me.
Can’t we all just get along? You are both half right.
It is uncallable leverage. Yes, float is not your money, but at the same time, no one (except God and accidents) can force your hand to hand it out tomorrow. So it is not like any other liability. Even deferred tax liabilities (in theory) will reverse.
Someone (Munger?) said to count 70% of float as a liability. (Sorry, very hazy here and I could be completely wrong.)
I’m almost entirely in cash right now, besides a few grand in positions in my Roth IRA. I am in the middle of moving accounts around and getting things set up, so I liquidated my positions a few days ago. That and I’m pretty out of new ideas since I’ve been too busy with CPA studying to study the market. Looking to get invested within the next couple months once I get my new account open since I have entirely too much cash right now.
I am about 1/3 cash right now. Seriously thinking about upping that to 50% or even 60% right now. I just don’t see the justification for the recent run-up. Even if Europe gets its act together, it’s still going to have either inflation or recession, or both. Stocks keep up with inflation over the long term, but in the short term, they take a hit when inflation rises.
i have been grappling with the question of “should you make investment decisions on companies/stocks based on some macro uncertainty”…so far my philosophy has been “ignore macro and focus on what you can know/understand which is companies and valuation”…
a buddy of mine suggested i should get into cash for a lot of my holdings because of the future fiscal cliff that is looming…
Well, you’ve been saying that price drops are not real risk, only bad valuation and bad business strategy is risk. So according to your philosophy, you shouldn’t care what the broad market does.
Whether you will care if the price of absolutely everything goes down by 30% and you have virtually no cash to deploy will be a test of your investor mettle. Remember, you can’t pay rent with relative gains.
The problem with macro analysis is that it’s really really hard to do…and you need to be patient for these events to unfold…
Speaking of macro themes. Going through deleveraging we can expect that US borrows less in the future, which means that emerging markets who are holding US debt are going to move that cash somewhere else…any ideas where?
On that note if we look at the balance of payments, starting with the above premise, if foreign holdings of US debt drop…that would mean that the trade deficit would drop as well right? (BoP always balances)…if that is the case, then is the trade deficit going to drop by simply contraction in imports…or will that be driven by rise in exports? If US is importing less…then many chinese exporters would suffer…if the latter…maybe US manufacturers are an idea?
(Please nobody make any comments on dollar devaluation or currency price movements in their answer, I don’t feel like going into why)
You are both half right.