The Stock You Should Own
Research for Online Investors

by John Dalt

12/01/09

I am reading Warren Buffett’s biography ‘Snowball.’  I am thankful to paid up subscriber M.B. for sharing this with me.  One of the first investment books I read was “The Intelligent Investor” by Benjamin Graham.  ‘Snowball’ gives the reader an inside look at Warren Buffett’s life.

Subscribers to Galt’s Long-Term Portfolio have owned Berkshire Hathaway since last February.  It was one of our first purchases to rebuild our portfolio after the carnage last fall and winter.

If you are looking for a good long-term investment, look to (BRK).  Warren Buffett’s investment company has been on the move in the last year.  During the credit crisis he pumped money into Goldman Sachs (GS) and General Electric (GE),  receiving warrants paying over 10% interest with the ability to convert to stock at attractive prices.  He also sold puts against stock indices, and this fall made his largest purchase ever, Burlington Northern Santa Fe Corp (BNI) railroad.

The BNI purchase is expected to close in the first quarter of 2010  The offer is for cash and or stock.  BNI shareholders can elect to take either, as long as the split is roughly 60% cash / 40% stock.  BNI shareholders that elect to take stock can receive either class "A" or "B" shares in BRK.

At present, BRK-B shares trade at 1/30th the value of the class "A" shares. They also have 1/200th of the class "A" voting rights. "B" shares will be split 50 to 1 before the purchase of BNI is completed. This will price the "B" shares in the $66 dollar range, opening them to purchase by more investors.

After the stock split and BNI acquisition, "B" shares may trade higher due to investor demand.  "A" shares are convertible to "B" shares, but not the other way. This allows "A" shareholders to play a game of arbitrage. If investors bid "B" shares above intrinsic value, "A" shareholders would trade their shares for 150 "B" shares. Long term this will have the effect of increasing the voting rights of "A" shares, thus concentrating power in the remaining "A" shareholders.

BRK makes its money off insurance, jet rentals, furniture, clothing, candy, paint, fine jewelry, and shoes.  For a full list of their businesses, you should visit their website at: http://www.berkshirehathaway.com

The cash cow for BRK is insurance.  We all have heard of Geico from their TV commercials.  BRK has nine other insurance companies also.  Insurance is a great business; you collect premiums today with a possible future liability.  You cannot spend the money, but you can invest it.  Warren Buffett invests BRK’s money very shrewdly.  He suggests that investors can expect BRK to make 7% per year.  He is leaving you a margin of safety.

Insurance companies make money, even in recessions, because their money management divisions can go long or short to protect their assets during the crisis.  Insurance is cyclical.  Premiums go up and down depending on competition in the industry.  The last year has seen AIG collapse.  According to Towers Perrin’s Commercial Lines Pricing Survey, year over year property and casualty insurance premiums rose in the last quarter for the first time in four years.

BRK is one of the safest investments you can make.  You have one of the best money managers in the world, Warren Buffett.  What is not to like?

From a technical standpoint, and in anticipation of a price increase with the planned stock split, BRK-B is an excellent buy at $3353  Everyone should own some shares.

I f you would have liked this recommendation to purchase at $2700, saving $653 per share, you can slip us $49 bucks and subscribe to Galt’s Long-Term Portfolio.  That is enough profit in 10 months, on one share, to pay for more than 13 years subscription!  We make one recommendation every two weeks, or next is due Monday.

Pull the trigger.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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