Berkshire Hathaway Needs Jumper Cables


Despite the hits to his portfolio, we’ve been Warren Buffett defenders*, arguing that the financial crisis has only enhanced his reputation since it’s shown that he’s been wearing swim trunks the whole time. Other folks have talked a good, conservative game only to be exposed for buried risk.

But that doesn’t change the fact that his stock is down like everyone else’s, and his job is to make investors money. Berkshire Hathaways earnings come out this Friday, and Barron’s has a look at what factors might help turn the stock around. It basically boils down to three things:

  • Berkshire has made a number of preferred stock investments, with very generous yields, in companies like Tiffany’s, Goldman Sachs (GS) and GE (GE). If those companies don’t go bust, these are golden.
  • The stock trades at 1.2x book, which is about 20% cheaper than its historical norm.
  • Cash: the company has it.

Conversely, the stock portfolio’s been hit hard, and its non-financial, industrial businesses won’t escape the recession, so its book value could continue to wilt. We’re looking forward learning more Friday, though mainly we’re excited to read Buffett’s annual letter when it comes out. Obviously, he should have a lot to say.

*Disclosure: We’re long a single Berkshire B share.