The Warren Buffett Discount: No Clear Successor and A Charitable Future
#in Why wouldn't you buy stock in Berkshire Hathaway? The company is a cash machine, well-diversified, and has a collection of some of the finest businesses in the world. It also is run by the best allocator of capital in the modern economic era.
The stock is also pretty inexpensive. BRK trades at a mere 1.2 times book value and has dipped by 8% over the past 52 weeks while the S&P has run ahead by more than 4.5%. So why does the stock languish?
There are certainly risks: the early storms this year may be foreshadowing heavy natural disasters in the future that haven't been effectively priced into Berkshire's immensely profitable "super-cat" policies. Buffett has always warned investors of the possibilities of such catastrophic claims. Bank of America is certainly not out of the woods, the investment in China's BYD is looking less robust, the newspaper investments are doubtful producers of future growth, and GEICO (in spite of its charming advertising campaign) is locked in a brutal competition.
But I think the real problem is the lack of clarity on a successor. Buffett says he has selected one, but why won't he announce this person's name publicly? This is a question that has been asked many times in the past week.
The markets crave predictability. Why not unveil the person to the investor community?
The other question I have is whether Buffett's decision to leave his wealth to the Gates Foundation requires some kind of discount. Will the Foundation be forced to sell shares for its future endowment? Will Berkshire need to start paying a dividend to fund the charitable work? Most importantly, who will be the representative of the Gates Foundation which will own the stock? I'm not saying you need some kind of Carl Icahn figure stocking the board to agitate for higher stock valuations, but charitable foundations are not known for holding corporations accountable, they're usually more... well, charitable.
