Nope. Not unless you think that trees grow to the sky. Not unless you think Buffett, 65, will live to the ripe old age of 96 without losing his investment touch. And not unless you think that 31 years from now, Berkshire’s stock will be worth 10 times the value of all the goods and services currently produced in the United States.
Lest you think that I’m disrespecting Buffett, he’s telling anyone who will listen that Berkshire is overpriced. “As I write this–with Berkshire stock at $36,000–. . . I do not believe it undervalued,” Buffett said in the company’s recently issued annual report. “Berkshire is selling at a price at which… I would not consider buying it.” This makes Buffett the only corporate chairman I know to warn investors away from stock the company plans to sell. Such candor is an example of why Buffett is revered while other billionaires are treated as greedheads.
Buffett, who declined to be interviewed for this article, has been warning for years that Berkshire has gotten too large to maneuver as nimbly as it once did. But look. Rather than doing worse as Berkshire grows, investors are doing better. The stock’s price is up 32.5 percent a year, compounded, since 1985. Since 1990, 36.3 percent a year. Since the start of 1995, 50 percent. By contrast, in Buffett’s first 20 years at Berkshire, the stock rose only–only!–23.5 percent a year.
But I think Berkshire is priced insanely high, largely because it’s become a cult stock. Anyone who buys Berkshire at today’s price expecting the next 31 years to match the past 31 is betting on miracles. Buffett is still brilliant; it’s a question of math. Berkshire’s stock is valued at more than $40 billion in the market, up from around $18 million when Buffett took control on May 10, 1965. To match that rate of increase, Berkshire’s stock (including Baby shares) would have to be worth $75 trillion by the fall of 2027. That’s trillion, with a “T.” Some 10 times the current GNP of the U.S. Ain’t gonna happen.
Berkshire has prospered largely because Buffett is the greatest stock picker in history. At year-end, Berkshire was more than $6 billion ahead on just one investment, its 10 percent stake in Coca-Cola. And $3 billion ahead on Capital Cities/ABC. Not to mention $500 million ahead on its 15 percent of The Washington Post Company, NEWSWEEK’S owner. But this can’t go on forever. Not to be morbid, neither can Buffett. Or his running mate, vice chairman Charles Munger, 72. Or even Buffett’s apparent successor, Geico Corp.’s Lou Simpson, 59.
Berkshire is issuing new stock not because it needs money, but because Buffett and Munger want to torpedo plans by Wall Street types to offer fee-laden thousand-dollar securities based on Berkshire. I can’t wait until Buffett files the documents describing Baby Berkshire. And to see how he tries to discourage people from buying it.
I think Buffett, as long as he stays sharp, can continue to make a nice return for Berkshire. Unlike the folks who run, say, Fidelity’s $56 billion Magellan Fund, Buffett can put huge sums to work by making a small number of huge bets or buying entire companies. Buffett doesn’t have to worry about managing cash inflows or outflows, or about beating the market averages every quarter. But unless he can repeal the laws of age and gravity, the next 31 years at Berkshire can’t be as lucrative as the last 31. And maybe by 2028, I’ll have stopped kicking myself for not buying Berkshire when it was cheap.
