Newsletters' take on Buffett's stocks
By Mark Hulbert, CBS.MarketWatch.com
Last Update: 12:01 AM ET March 9, 2004
ANNANDALE, Va. (CBS.MW) - This past Saturday was one of the most anticipated days on the value investor's entire 2004 calendar.
That's when Berkshire Hathaway released its annual report, the highlight of which was Warren Buffett's discussion of a broad range of investment topics.
Steven Check, editor of The Blue Chip Investor, wrote last week: "I'm almost embarrassed to admit that on the night before the letter is to be posted on Berkshire's site, I find my anticipation almost as strong as when I was a kid waiting for Santa Claus on Christmas Eve."
And Jack Adamo, editor of Jack Adamo's Insiders Plus, implored his subscribers to read Buffett's letter "a few pages a day for the next week. It will be a valuable education."
What I find striking, however, is that relatively few of the newsletter editors that got so excited in anticipation of Buffett's letter have translated that anticipation into investing in the stocks in which Berkshire Hathaway owns a major position.
Ironically, in fact, far more newsletters currently are betting on Berkshire Hathaway itself than they are on the companies whose common stocks it owns. Among the 170 or so newsletters tracked by the Hulbert Financial Digest, for example, 10 are recommending that their subscribers purchase either the Class A (BRKA: news, chart, profile) or Class B (BRKB: news, chart, profile) shares of Berkshire Hathaway.
In contrast, of the 10 companies in which Berkshire Hathaway's common stock position exceeds $500 million, none is recommended by seven or more newsletters. And just two are recommended by six: American Express (AXP: news, chart, profile) and H & R Block (HRB: news, chart, profile).
The next-most popular of Berkshire's common stock holdings are recommended by four newsletters each: HCA (HCA: news, chart, profile), Moody's (MCO: news, chart, profile), and Wells Fargo (WFC: news, chart, profile).
There are, no doubt, many different reasons why newsletters like Berkshire Hathaway more than the individual stocks that it owns.
One is that these 10 companies are not screaming values at current prices. As Buffett himself wrote in his recent letter, he is not particularly "enthusiastic" about their investment potential, even though he continues to believe they represent "excellent businesses."
That's because their "current prices reflect their excellence. The unpleasant corollary to this conclusion is that I made a big mistake in not selling several of our larger holdings during The Great Bubble. If these stocks are fully priced now, you may wonder what I was thinking four years ago when their intrinsic value was lower and their prices far higher. So do I."
Hardly a ringing endorsement.
Why then, do 10 newsletters currently recommend that their subscribers buy stock in Berkshire Hathaway, which owns these stocks?
Because Berkshire Hathaway is widely diversified beyond the stock market. As one measure of that diversification, Buffett points out that only 11 percent of his company's realized gains last year were attributable to common stocks.
In contrast, 36 percent was traceable to U.S. government bonds, another 28 percent to junk bonds, and 20 percent to foreign exchange contracts.
Though many, including Buffett himself, compare his company's returns to the S&P 500 (SPX: news, chart, profile), a more appropriate benchmark for his performance would seem to be a composite of several different asset classes.
While I have not constructed such a composite, my guess is that its 2003 return would have been a lot less than the S&P 500's.
That, in turn, would imply that -- contrary to the many headlines over the past three days reporting that Berkshire Hathaway lagged a buy-and-hold strategy last year -- in fact, the company beat it. |
