The Bargain in Berkshire

So we're buying Berkshire Hathaway (BRK.A Quote). Whether or not it was sheer luck, brilliant intuition, hard-nosed financial analysis or some combination thereof, we were in print on the reasons why did not we want to own Berkshire near its highs. I would like to postulate that we will now be in print on buying Berkshire near its lows.

We feel differently now for no other reason than price. As usual, we try to evaluate the operating characteristics of a business, take a reasonable assessment of its prospects in the intermediate future, understand management's game plan and, finally, compare our estimate of the value of the business to its current price. If there is a significant discount, and we can construct a reasonable scenario for why this discount could or should narrow -- ideally while the underlying value is growing -- then we think we have a winner.

Since the only thing that has changed in my opinion of Berkshire Hathaway since I last wrote about it is price, little more needs to be said. Berkshire has changed from a investment company run by a smart guy that happens to own insurance companies to one of the premier financial-service companies in the world that happens to have a very smart guy running the investments.

Investors are paying roughly 1.2 times book value for the premier name in insurance during a bear market for insurance. They are buying perhaps the world's greatest value manager in a bear market for value. I think a conservative re-estimate of fair value is $54,000 per A share, a number which abysmally understates the after-tax value of compounding the current portfolio even at Neanderthalean rates in the low double-digits, as was pointed out in some detail by TSC subscribers. I think the stock sits tight in a rotten market and has a double in it over four years -- if the insurance/reinsurance markets at least don't get any worse. ...