FRI, APR 21, 2023
Berkshire's B shares are a relative bargain
The price of Berkshire's Class B shares is unusually low when compared to the Class A shares, but not as low as it was a few trading sessions ago.
Barron's Andrew Bary points out the Class A premium hit a more than three-year high of 3.42% last Friday. (He does the calculation by comparing the price of an A share to 1500 B shares, since any A share can be exchanged for 1500 B shares. It doesn't, however, work the other way around.)
At today's closing prices of $496,405 per A share and $324.33 per B share, the premium is 2.02%.
In a "memo" from Buffett on "Comparative Rights and Relative price of Berkshire Class A and Class B Stock," first written in 1999 and last updated in 2010, he writes:
In my opinion, most of the time, the demand for the B will be such that it will trade at about 1/1,500th of the price of the A. However, from time to time, a different supply-demand situation will prevail and the B will sell at some discount.
In my opinion, again, when the B is at a discount of more than say, 1%, it offers a better buy than the A. When the two are at parity, however, anyone wishing to buy 1,500 or more B should consider buying A instead.
(While 1,500 Class B shares are economically equivalent to one A share, they have much less voting power. Each B share gets 1/10,000th of an A share vote.)
Bary says it isn't clear what's behind the recent growth in the A share premium, but thinks it is possible "Buffett's widely covered trip to Japan last week has spurred buying by Asian investors, and that those buyers favored the A shares."
For many retail investors, though, the premium is probably not a factor since they're not willing, or able, to put down almost half a million dollars for a single Class A share.
And the A to B comparison doesn't say anything about whether either class is a bargain or not compared to the rest of the stock market, or any other asset.
We do know, however, that buyers have found Berkshire's stock attractive over the past several months.
B is up 24.8% since October's 52-week low and A, in keeping with its premium, is up 26.3%.
They are both near one-year highs.
Buffett's trip helps Japanese stocks, but that's not the whole story
Warren Buffett's trip to Japan last week to highlight Berkshire Hathaway's growing investments in five top "trading house" stocks has helped to increase foreign investment in that country's stock market.
Nikkei reports investors outside Japan bought a net $7.8 billion in stocks during the five trading sessions ending last Friday, the largest amount for any week since November 2013.
For The Economist, "Japan and Mr Buffett are a match made in heaven."
Buffett is "famed for his unerring focus on business fundamentals" and the Tokyo stock market's overall price-to-earnings ratio of 13 makes it "far cheaper" than American stocks, which have a PE ratio of around 18.
But analysts say that while Buffett's bullishness has brought more attention to Japanese stocks, there is another larger factor boosting the market there: corporate governance has "suddenly become a cause celebre."
Reuters reports that a threat by the Tokyo Stock Exchange to delist companies with underperforming stocks has helped rouse that market "out of decades of lethargy" by helping it shed its reputation "as a 'value trap' where companies focus on market share, hoard cash and care little about shareholder returns."
It quotes Simon Edelsten, the manager of UK-based Artemis's global select strategy fund as saying, "The worm has clearly turned in Japan. For the Tokyo Stock Exchange to say that all companies that trade below book [value] are going to have to do something about it is a massive change, a big step up."
GEICO is winning fewer 'defectors' from competitors
Even though a record-high percentage of consumers are shopping around for lower auto insurance premiums, there're not switching to Berkshire Hathaway's GEICO as much as they used to.
In its just-released first quarter report on the auto insurance industry, J.D. Power says that 13.1% of consumers in its survey last month reported they had shopped for auto insurance within the past 30 days. That's the highest level since it started tracking shopping daily three years ago.
But, according to J.D. Power, "this is the first quarter in our reporting where GEICO has not captured the largest share of any large competitor's defectors."
It says Progressive got 20.4% of the customers who switched to another insurer in the previous 30 days, compared to just 6.5% for GEICO.
The company is "struggling" to maintain its share of customers as it curtails sales in states where it has not yet been able to get regulators to approve the rate increases it says it needs to remain profitable.
Value Penguin estimates car insurance rates overall will increase by 8.3% in the U.S. this year, largely due to "an increase in car repair costs and claims."
BUFFETT AROUND THE INTERNET
Some links may require a subscription
HIGHLIGHTS FROM THE ARCHIVE
The ‘aha’ moment that changed Buffett’s life (2022)
Buffett shows some optical illusions to help explain how he suddenly realized everything he was doing in investing was wrong.
BERKSHIRE'S TOP U.S. STOCK HOLDINGS - Apr. 21, 2023
Berkshire's top holdings of disclosed publicly-traded U.S. stocks by market value, based on today's closing prices.
Holdings are as of December 31, 2022 as reported in Berkshire Hathaway’s 13F filing on February 14, 2023, except for:
The full list of holdings and current market values is available from CNBC.com's Berkshire Hathaway Portfolio Tracker.
Please send any questions or comments about the newsletter to me at firstname.lastname@example.org. (Sorry, but we don't forward questions or comments to Buffett himself.)
If you aren't already subscribed to this newsletter, you can sign up here.
Also, Buffett's annual letters to shareholders are highly-recommended reading. There are collected here on Berkshire's website.
-- Alex Crippen, Editor, Warren Buffett Watch
© 2023 CNBC LLC. All rights reserved. A property of NBCUniversal.
900 Sylvan Avenue, Englewood Cliffs, NJ 07632
Data is a real-time snapshot *Data is delayed at least 15 minutes. Global Business and Financial News, Stock Quotes and Market Data and Analysis.
Data also provided by THOMSON REUTERS