Interesting NY Times article on BRK.a.
Congrats, Eugene. You got the number right. You got it all figured out. Am buying back my B shares.
Best,
Beni Mick Mormony
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Omaha Oracle Taps a Medium on Wall Street
Such is the renown of Warren E. Buffett that 10,000 admirers flocked to last year's shareholder meeting in Omaha for his conglomerate, Berkshire Hathaway. Many of them regard publication of the company's annual report, whose main feature is Buffett's folksy philosophizing, as a highlight of their financial calendar. And people gladly shell out $30 for two decades' worth of the chairman's collected letters.
So why would this icon of Graham and Dodd investing, a man stingy with public utterance, who cares nothing for short-term performance, suddenly decide to establish a special link to Wall Street, cultivating a fraternity he has often disdained?
And why did Buffett agree to give Alice D. Schroeder, an analyst little known outside insurance circles and employed by a primarily, ugh, retail brokerage house, unprecedented access to Berkshire -- access that culminated in her issuing a report on the company last week, marking the first time a major Wall Street firm has covered the Omaha conglomerate?
In a written response to an inquiry by The New York Times, in which he said he did not actually "seek" a Wall Street intermediary, Buffett said he had been impressed with Ms. Schroeder's research. "It was clear to me that she was a superior analyst, both in her knowledge of the insurance business and in her willingness to do the legwork to garner facts," Buffett wrote. He added that he thought she was the only analyst to attend the special meeting at which Berkshire stockholders voted on last year's merger with the General Re Corp.
Ms. Schroeder, 42, who said she "nearly fell out of my chair" at Paine Webber's midtown-Manhattan office when Buffett first called, confirmed the rumor that he had provided direct access for her to the people who have run Berkshire with such success that each $10,000 invested in 1965 is now worth some $50 million.
"He asked if I would do him a favor," Ms. Schroeder recalled. The idea was to see that Berkshire, transformed by last year's purchase of General Re, the nation's largest direct writer of reinsurance, is less misunderstood.
Ms. Schroeder, who says she works 80 to 90 hours a week and has hung a boldly lettered "No Speed Limit" sign next to her desk, set about reading the voluminous public record on Buffett and Berkshire -- annual reports and transcripts of meetings going back decades, biographies and the occasional speech.
After building the most elaborate earnings model she had ever created for a company, Ms. Schroeder met with Buffett in New York one November day, flew with him to Omaha and then toured various Berkshire-owned businesses, including the famed 72-acre Nebraska Furniture Mart and Borsheim's, a giant jewelry store.
Her efforts resulted in the appraisal distributed to Paine Webber offices last week, the first time, according to Ms. Schroeder, that Berkshire has been examined by an insurance analyst.
In fact, despite obsessing over Buffett, Wall Street has done only cursory work on Berkshire over the years. The company is a poor source of business profit for Wall Street since it has little need for investment banking and since its shares tend to be salted away for long periods.
In lieu of a price target, Ms. Schroeder instead takes a page out of Buffett's own investing manual by estimating Berkshire's so-called intrinsic value, the discounted value of all future cash flows, a figure that is a key to security analysis as practiced by Benjamin Graham and David Dodd, who wrote the book on value investing.
Her conclusion, after repeatedly scaling back assumptions to avoid a number so high that it would have been "absurd," is that Berkshire's current intrinsic value is $91,000 to $97,000 for each class A share. The stock closed Friday at $65,000.
Underlying the analysis is Ms. Schroeder's rejection of the notion that Berkshire is basically a closed-end investment company whose value is determined mainly by the prices of the shares of Coke, Gillette and other stocks in its portfolio, with some premium added to account for the Buffett mystique.
Instead, she regards Berkshire as a holding company whose main business -- 79 percent of earnings -- is property-casualty insurance. Next comes its fast-growing aviation business, which trains flight crews and markets fractional ownership of executive jets.
"Thrilled" and enlightened as she was by Buffett's special attention, Ms. Schroeder said her report, which she views as a "tool kit" for fellow laborers, contains virtually nothing she could not have derived from the public record. "He's been very scrupulous," she said, in avoiding the impropriety of selective disclosure.
Buffett, in his statement, said: "I believe that interested investors can obtain all of the information they need about Berkshire from our published materials, but the quantity available may overwhelm them. Alice may fulfill a useful function by organizing and distilling."
So what do Buffett and Charles T. Munger, Berkshire's vice chairman, do for their next trick? Ms. Schroeder denies any knowledge of Buffett's next move -- one of the investment world's best-kept secrets -- and declines even to guess. She writes in her 54-page report: "We don't know. Please don't ask."
By ROBERT D. HERSHEY Jr.
January 31, 1999
nytimes.com |
