Berkshire Struggles With Being Ignored
Thanks to Barry for passing this along.
By Warren Buffett's reckoning, his company had a good 2011. But you would hardly know it to look at Berkshire Hathaway Inc.'s stock price.
When Mr. Buffett releases his annual letter to shareholders on Saturday, the renowned investor is expected to emphasize that his company's value increased faster than the stock market last year, the first such performance in three years.
The Omaha, Neb., conglomerate's growth in book value per share—a measure of net worth, and the performance yardstick Mr. Buffett favors—likely beat the Standard & Poor's 500-stock index's 2.1% return last year by a few percentage points, several analysts estimate. Berkshire likely saw improved earnings at its railroad and manufacturing businesses as well as stock-investment gains in 2011, they say.
But in a twist that puzzles many Berkshire Hathaway followers, the company run by the 81-year-old billionaire has by some measures rarely been more ignored by the market. After dropping 4.7% in 2011 and rising only half as much as the S&P 500 index so far this year, Berkshire shares are trading near their lowest valuation in decades: close to 1.1 times book value, versus its average valuation of about 1.6 times book value over the past two decades.
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Even though Berkshire consistently outperforms the market over long periods, not all shareholders "have the patience to wait" for that to materialize, says Max Olson, who runs private investment firm Max Capital Corp. in Salt Lake City and has owned Berkshire shares since 2005.
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