Take the Free Put on Berkshire Hathaway Stock

Oracle of Omaha, Warren Buffett, is nothing if not clever. By offering to buy back his holding company’s stock, Berkshire Hathaway (BRKA), for the first time in history, he is in effect offering investors a free put. And the way he is going about this, it will not cost him a penny.

This is no idle threat. Berkshire boasts a gargantuan $77 billion in cash and equivalents on the balance sheet. Buffett prefers to keep at least $20 billion in cash at all times in case a prospective elephant comes into his sites. That still leaves $57 billion for stock buy backs in a company with a market cap of $165 billion. Buffet has said that he will pay no more than a premium of 10% over book value.

Unlike you and I, Buffett likes to buy whole companies instead of shares in listed firms. That’s how he swallowed whole the railroad, Burlington Northern, last year for $40 billion. The company is believed to have doubled in value since then, powered by a massive cash flow.

Buffett’s last try at bottom picking in 2008 worked out fairly well, when he bought $50 billion worth of blue chip stocks like Goldman Sachs (GS), General Electric (GE), and Dow Chemical (DD) for pennies on the dollar. His timing may be early from the point of view of shorter term traders like myself, but they usually turn out well.

Although many describe Berkshire Hathaway as a quasi-index fund, Buffett’s cumulative return since 1964 is 500,000%. Buying one of the world’s best quality, cash flow rich portfolios run by the world’s smartest investor at a big discount with a free put sounds like a deal to me. Many of his holdings are wholly owned and unavailable to investors any other way. Buy the shares, and you’ll get some free See’s Candies at the next shareholder meeting as well, another firm that Berkshire owns.

For those who wish to participate in Macro Millionaire, my highly innovative and successful trade mentoring program, please email John Thomas directly at madhedgefundtrader@yahoo.com . Please put “Macro Millionaire” in the subject line, as we are getting buried in emails. Hurry up, because our software limits the number of subscribers, and we are running out of places.

To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.

Total
0
Shares
Previous Article

A Decade of Household Deleveraging?

Next Article

Positive Signs Exist, but Europe and Policy Are Unclear (Doll)

Related Posts
Subscribe to AdvisorAnalyst.com notifications
Watch. Listen. Read. Raise your average.