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LarryDuff makes a few satirical comments about Warren Buffet, Chairman of Berkshire Hathaway. But is Larry right? Has Buffett lost the plot? I mean, look at some of his recent investment decisions.
Don't get me wrong, Buffett hasn't lost his investment ability. The above points are all minor quibbles. To be honest, I think Buffett is struggling to think of any investment ideas at the moment. He probably has his eye on a number of suitable companies, but just can't bear to pay over the odds. Another problem, although a nice problem to have, is the vast amount of money he has on hand. Buffett has billions in his war chest. A couple of million spent here or there isn't going to impact much on Berkshire's overall return. He needs billion dollar investment ideas to further Berkshire's overall performance. And in today's markets, overvalued using any traditional measure, value in suitably large companies can be hard to find.
I have two thoughts on this subject. The investment thought (which I have to say is limited!) and the overall Foolish educational thought. My investment thought on Berkshire for the Qualiport is, well, err... perhaps.
On the educational side of the Qualiport though, I think including Berkshire should be a "no". How would we further our own stock picking and analysis abilities by buying Berkshire? Effectively we would delegating part of this task to Buffett, and not developing our own skills. Essentially, we would be investing in the man, rather than the business he owns.
From the conclusions of Mark Lucas, HonkyTonkFool and myself, there is a general agreement for a PizzaExpress buy price of around 650p. That's set against the current price of 736p, after dipping to 708p. Isn't it funny how share prices always seems to hover just out of reach of any fair value calculation? So will Bruce take all this advice on board? I get the feeling Rentokil Initial (LSE: RTO) could be on the way out... But he has yet to make the final decision. Bruce has also thrown another contender into the ring -- Berkshire Hathaway (NYSE: BRK.A).
Buffett -- is he Toast?
Did he not sell his holding in McDonald's (NYSE: MCD) prior to a subsequent 60% gain in the stock the other year? And Allied Domecq (LSE: ALLD) -- what's the long term buy and hold story with them? Do you know? And that fractional aeroplane ownership company, NetJets, that Buffett now owns. Where is the "toll bridge" and "lack of heavy capital expenditure" aspect at NetJets? I thought Buffett was famous for demanding both of these characteristics in any investment proposition.
I assumed Buffett would steer well clear of any investment involving air travel after his experiences of holding USAir (NYSE: U) stock in the early nineties. Can he not remember how competitive pricing in airline travel and heavy fixed costs produced a mediocre investment performance back then? And where are the famous "barriers to entry" with NetJets, to stave off the competitive pricing? It appears anyone can set up a fractional aeroplane ownership company these days. Even ex-retailer Tom Hunter, with millions burning a hole in his pockets after selling his Sports Division outfit to JJB Sports (LSE: JJB), has started in opposition within this market.
No ideas and too much money -- then as now?
Buffett is in a similar situation now as he was in in the late sixties and early seventies, when he controlled the Buffett Partnership (the precursor to Berkshire Hathaway). Then he was up against the "nifty fifty". Stocks such as Polaroid (NYSE: PRD) and Xerox (NYSE: XRX), the high flying technology stocks of the day could, it was said, then be bought at any price. Then as now, Buffett just couldn't find any suitable investments. And a different investment "philosophy" was beginning to appear elsewhere...
Buffett eventually liquidated the partnership. He subsequently explained that he could not change his investment ways and alter his long-standing value principles. Buffett couldn't bring himself to join in the different investment party that had started to swing. So, he avoided getting involved in generating short term easy money, playing what in hindsight became a momentum game with technology stocks. Looking back, it was a sound move. A deep recession soon followed and Buffett was back in the market. He bought a large chunk of the Washington Post (NYSE: WPO) and the rest, as they say, is history.
Can Buffett and Berkshire revive the Qualiport?
Currently, I've no idea how the market value of Berkshire reflects the intrinsic value of the common stock holdings and businesses the group owns. Assuming it's at no significant discount, can Buffett keep his legendary record going? He hasn't done too well this year. Although I've mentioned the involvement in NetJets and the rest, one thing I'm still pretty convinced of is that Buffett hasn't lost his magic touch.
The trouble with Berkshire though is that it's big. Very big. Can Buffett compound investment returns of 15%, over the next five to ten years? Maybe we should wait for a stock market shake out and then ride with Buffett, as he picks up his favourite stocks. We could be waiting a while though for the necessary decline though.
Education, education, education
The Foolish educational side to the Qualiport is significant. Look at the lessons learnt from the Qualiport over the years -- buying Marks and Spencer (LSE: MKS), not selling Rentokil and overpaying for both Unilever (LSE: ULVR) and Emap (LSE: EMA).
What would Foolish Qualiport followers learn if Bruce bought Berkshire? Whatever Buffett does or says is widely reported, and I'm sure everyone would get to hear the latest words of wisdom at some point. I don't feel we could do any material investigation into Berkshire and the underlying businesses, due to the "conglomerate" nature of the overall group. I'm sure we'd always be saying "believe in Buffet" if we thought that Berkshire's operating performances were deteriorating. And would we ever contemplate selling Berkshire?
I feel buying Berkshire wouldn't be of benefit to any Qualiport reader's education. We must continue to promote how any Foolish investor can successfully invest in straightforward UK companies, using the long term buy and hold principle and fundamental analysis. The Qualiport will eventually show how effective this strategy is. To a certain extent, buying Berkshire is rather like throwing in the towel on the general Foolish Qualiport investment ambition.
At the end of the day, the Qualiport should be showing how to emulate Buffett, not just hitching a lift from him.
Over to you.
What do Fools think? Has Buffett seen his best days? Should he give the investment game up, now that hi-techs are all the rage? Or does the old dog still have some tricks up his sleeve? And anyway, is Berkshire a viable candidate for the Qualiport?
If you have any thoughts on Buffett, Berkshire Hathaway, PizzaExpress valuations or comments on any other company that you think fits the Qualiport criteria, then please post them to the Qualiport message board.
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Company Change Bid DELL(US)+2.00 49.60 EMA -0.35 12.80 IIG +0.01 2.61 MSY +0.21 8.83 PIZ +0.10 7.20 RTO -0.13 2.15 ULVR +0.02 4.31 LLOY +0.07 7.42 Qualiport Stocks Last Rec'd Total # Company Buy Current Change 22/04/99 542 Misys 5.57 8.83 58.4% 17/04/98 301 Emap 10.20 12.80 25.5% 27/01/99 74 Dell (US) 44.63 49.60 11.1% 27/10/98 1133 Indep Ins 2.60 2.61 0.4% 29/09/99 356 Lloyds TSB 7.56 7.42 (1.8%) 04/11/98 245 Pizza Exp 7.93 7.20 (9.1%) 19/12/97 783 Rentokil 2.55 2.15 (15.7%) 17/07/98 266 Unilever 7.53 4.31 (42.7%) Last Rec'd Total # Company In At Value Change 22/04/99 542 Misys 3065.85 4785.86 1720.02 17/04/98 301 Emap 3139.85 3852.80 712.96 27/01/99 74 Dell (US) 2007.42 2224.48 217.07 27/10/98 1133 Indep Ins 2990.63 2957.13 (33.42) 29/09/99 356 Lloyds TSB 2723.20 2641.52 (81.68) 04/11/98 245 Pizza Exp 1966.34 1764.00 (202.34) 19/12/97 783 Rentokil 2046.53 1683.45 (363.08) 17/07/98 266 Unilever 2052.00 1146.46 (905.54) Cash: £ 38.91 Current Total : £21,094.62 Total Invested: £20,184.62 Profit/(Loss) : £ 910.00 Value Per Share Day Month Year Qualiport 0.30% 5.92% -0.12% FTSE 100 0.31% 1.99% 14.38% FTSE All Share 0.36% 2.28% 18.07%