Berkshire Hathaway shares will outperform the Russell 2000 Index over the next 10 years — perhaps significantly.
Such a high level of conviction comes from the fact that both Berkshire the stock and Berkshire the company possess powerful ingredients for meaningful appreciation and growth of per-share intrinsic value. Berkshire Hathaway is currently the largest portfolio holding at Wedgewood Partners, where I am chief investment officer, with a 9.5% weighting. In addition, our clients have owned Berkshire almost continuously since 1998.
Berkshire’s stock nowadays is notably cheap — particularly in the context of the great bull market that has marked its fifth anniversary earlier this month. Berkshire’s Class B shares currently trade at little more than 1.3 times book — a tad over Buffett’s oft-stated buyback level of 1.2 times book. Do not ignore Buffett’s carefully chosen words from his recent chairman’s letterwhen he stated that “Berkshire’s intrinsic value far exceeds its book value,” and that if Berkshire stock breaches 1.2 times book value, he will be “aggressive” in buying back shares.
Given that a value-investor’s “margin of safety” has been the pillar of Buffett’s investment philosophy (and success) for the past 60-odd years, share repurchases at 1.2 times book would be significantly accretive to Berkshire’s earnings-per-share growth.
Source: Marketwatch
Source: Marketwatch
