This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Buffett Got It Right This Time

NEW YORK ( TheStreet) -- Over the past three years I've found myself disagreeing with Warren Buffett more and more.

However, speaking to investors at Berkshire Hathaway's annual meeting this year, he finally said something I agree with: "If business schools could offer just one course, it would not be on stock trading, the efficient market hypothesis or modern portfolio theory. Rather, B-schools should be encouraging students to learn the boring, but critically important, discipline of business valuation."

Warren Buffett

There are 27 million small business owners according to the Small Business Administration's 2009 census. I would posit just a small fraction of these actually know what their business is worth. Worse, typically, a small business owner has some 90% of their net worth tied up in the business.

This is a very dangerous bit of ignorance on the part of business owners. Reason: Ceteris Paribas, the federal estate tax exemption will fall from $5 million to $1 million at the end of this year. That mean if you own a business worth $4 million, upon death, $3 million is subject to federal estate tax as high as 55% or $1.65 million.

The possible end games are not pretty:

  1. Litigate with the feds over the value of your business. Remember, this is the same Fed that has been printing money for the last several years.
  2. Wipe out your liquid net worth to pay estate taxes owed on the business.
  3. Sell the business to pay the estate taxes.

What keeps many small business owners from understanding what their business is worth is the cost. A business valuation study done by a qualified professional can start at $10,000, and many times costs much more.

But now there's no excuse. New online service and software from companies like BizEquity make the process simple and inexpensive. I've helped clients get a handle on their estate-planning needs with business valuations that cost well under $1,000. Remember, when it comes to estate planning, one of the big questions you are trying to answer is whether or not you need $250,000 of life insurance, or $2.5 million. And to understand that, you shouldn't have to spend $10,000 or more.

Is there value from a full-blown study? Absolutely. But remember, the underpinnings of business valuations lie in time-tested formulas related to earnings, growth, assets and liabilities. Converting these to an algorithm preserves much of the integrity of conventional business valuation techniques.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
AAPL $126.37 0.00%
FB $83.20 0.00%
GOOG $552.03 0.00%
TSLA $190.57 0.00%
YHOO $44.95 0.00%


DOW 17,976.31 +263.65 1.49%
S&P 500 2,086.24 +25.22 1.22%
NASDAQ 4,947.4410 +56.2220 1.15%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs