Graham and Doddsville -- Value Investing In The New Era Message Board

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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era

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To: porcupine --''''> who wrote (78)	3/17/1998 9:40:00 PM
From: Freedom Fighter	Read Replies (1) of 1722

>Billionaire investor Warren Buffett, chairman of BERKSHIRE >HATHAWAY INC. (Friday's close Class A 59,300/Class B 1,985), >apparently has sold off a substantial portion of Berkshire's stake >in MCDONALDS CORP (Friday's close 54-5/8), the Wall Street Journal >reported in its electronic edition. I have been trying to understand this move. It is not clear to me. While 1997 was not the greatest year in MCD history, it was not a disaster. This is especially true overseas where the growth was and still is to begin with. I have a suspicion that it was sold because of the portfolio realignment Buffett talked about. He once said "In order to shoot a fast moving elephant, you much have a loaded gun." This means you need cash. He is raising cash level. His stake in MCD may still represent better value than many others in his portfolio. The difference being that a sale does not trigger large capital gains taxes since he bought it at a price around 41. The after tax value of a liquidated MCD may be better than the after tax value of a very appreciated security. This would only make sense if one insisted on raising cash. My own valuation places MCD (discounted at 10%) at 50-60 per share. I use my own version of the Capital Asset Pricing Model (no beta and other stuff) and several other models. 10% in this market is great. Most stocks show up in my model at 7%-8% assuming a continuance of the perfection of current ROE levels and inflation. MCD has less risk on the ROE front. That makes it a relative bargain and a decent absolute value. I am not selling my stake unless there is further deterioration in the fundamentals or I find a better deal.

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