Berkshire Ruminations

Wednesday, June 14, 2006

What is up with this market?!?!

This market is really hard to take. Every day, lower prices. But one stock that has hung in there is Old Dependable, Berkshire Hathaway. I won’t begin to speculate why the market has been doing so poorly the last couple months, whether this is a correction or the start of a bear market, but the fact that BRK has outperformed is a testament to the trust its shareholders have in its operations and the strength of its portfolio.

To illustrate, ask yourself this question, Do you have any doubt that Berkshire is not a strong as its price would justify? For me that question is no, but for many of my other holdings, I can’t say that with as great of confidence. BRK pays no dividend, but has the lowest turnover ratio on the NYSE and attracts a faithful horde of 20,000+ individuals to its annual meeting. Clearly, these shareholders are something special.

As a value investor, I try to keep an eye on the “biggest losers” list, to try to catch stocks unfairly punished by the market, particularly when everything is going down. But this can be a risky strategy to follow without very careful diligence.

For instance, Jos. A. Banks (JOSB) shares got slaughtered when the company released some disappointing earnings last week, but it was likely the timing of the announcement – right in the middle of a market downturn when investors were already uneasy – that caused the 35% drop. Or take Monster (MNST) who is currently center stage in the stock options backdating scandal. Had this scandal broken in January, perhaps the shares wouldn’t have fallen nearly 40% as they have.

A more conservative and appealing strategy is to try to pick up some shares of great companies at a small discount. Coach Inc. (COH) comes to mind. This is a great, consistent, well-positioned company, which I have always had an eye on but has always seemed expensive. At $28/share, down from a recent high of $36, the company now stands at 23 times ttm earnings. Still pricey, but much cheaper than it was only a few weeks ago. And the fundamentals, if anything, have only improved.

To summarize, there still doesn’t seem to be a lot for the picking at the moment, but certainly we have a longer watch list. So buffer your portfolio with BRK, and watch for bargains…


Post a Comment

<< Home