Warren Buffett has become one of the richest men in the world by using intrinsic stock value as a guide to investing for Berkshire Hathaway. But, Berkshire Hathaway is now a huge company with multiple holdings. There is a temptation to say that it has reached a mature state where there is not much more room to grow. Is that true? We don’t think so. So, why invest in Berkshire Hathaway today? The first reason is that the stock is undervalued.
Is Berkshire Hathaway Undervalued?
The Motley Fool says to in their article about three reasons to buy Berkshire Hathaway.
Over the last decade, Berkshire Hathaway has become a certified cash cow of the first order.
The gap between the stock price and the long-term value of the company has been widening lately.
They cite the profits that his whole owned companies generate and the fact that if they were to go public again, their values would be a lot higher than the book value at which they are now valued.
In addition, Buffett has been buying back shares. He has always been hesitant to do this, but as he sees his own stock as a bargain, he is buying his own shares at the rate of about $2 billion a year!
Why Invest in Berkshire Hathaway for the Long Term?
Many of us equate Berkshire Hathaway with Warren Buffett. As such, many might be tempted to get out of this stock when Buffet is no longer active in the business. However, the “Oracle of Omaha” has also been the planner and teacher of Omaha as well. Each of Berkshire Hathaway’s sixty business segments is run by someone who was trained by Buffett and follows his approach to fundamental analysis and working with the long view in mind. We can fully expect the company to follow the same approach to investing and business management when Buffett is no longer in the picture as now when he is still running the show.
Why Does Buffett’s Approach to Investment Work?
Buffett’s approach to investment, which he learned directly from non-other than Benjamin Graham, is simply to analyze an investment for its projected profit potential, determine an “intrinsic” value based on that assessment, and compare the intrinsic value to the current stock price. He has admitted that he and his team toss out 95% of stocks they analyze as being too difficult to make an informed judgement on. But, when they do pick a stock this way, they typically hold it for years. Buffett has been quoted as saying that his favorite holding period for an investment if forever. And, he and his team pick investments with that in mind. Thus, Berkshire Hathaway is comprised of companies selling products and services that are not likely to become obsolete with changes in technology and are likely to grow and produce more profits year after year after year.