Warren Buffett is the pin-up
boy of investors everywhere, and it's easy to see why.
Over the past 40 years shares in his Berkshire Hathaway
investment company have grown at an average rate of 21.9
per cent a year, making a $US10,000 investment in 1965
worth $US50 million ($68 million) today.
But with the shares trading
at about $US88,000 a pop, few investors have enough cash
to join the gravy train.
John Price, who follows Buffett's
investment methods for his Conscious Investing share analysis
service, thinks investors could just as easily gain exposure
to Berkshire through its B shares, which are trading at
$US2900. A B share is one-thirtieth of an A share. The
B shares have less voting rights, but the price moves
in tandem with the A shares.
For example, investors could
set up an account with CommSec and for brokerage of $US65
buy a few B shares, and their money would be invested
purely in Berkshire Hathaway shares. By comparison, the
Global Masters Fund plans to invest up to 80 per cent
of investors' funds in Berkshire shares, with the remainder
in managed bond funds and cash to provide liquidity. As
Berkshire doesn't pay dividends, the income from the bond
funds will pay management fees and a small cash dividend
to investors, which can be reinvested at a discount of
5 per cent on the prevailing share price.
John Price says Berkshire is
difficult to value since it is a mixture of equities and
fully owned private companies.
Among Berkshire's largest equity
holdings are American Express, Coca-Cola, Gillette (now
Proctor & Gamble), H&R Block, Moody's Corporation,
PetroChina, The Washington Post Company and Wells Fargo.
Some of the largest totally
owned companies are insurers General Re and GEICO. It
also owns 80 per cent of MidAmerican Energy Holdings as
well as numerous home furnishings and jewellery stores.
One of the companies Australian travellers would be familiar
with is See's Candies, which are sold in most US airports.
Price says Berkshire is probably
undervalued at the moment because its share price has
not been keeping up with growth in equity.
"A big drag on the company
is that it has about $40 billion in cash because [Buffett]
hasn't found anything that meets his investment criteria
in big enough volume," he says.
Buffett has said he would consider
a share buyback or introduce dividends if he hasn't reduced
this cash in a few years' time.
Price says owning a B Share
can have spin-off benefits for investors. Not only does
it ensure you receive an annual report, but you can gain
admittance to the annual meeting.
"You may even get to meet
the man himself since for the past two years there has
been a special reception for overseas visitors,"
says Price, who has made the pilgrimage himself. Long-term
investors should also keep in mind that the so-called
sage of Omaha is already in his 70s and if anything happened
to him shares in Berkshire would come under selling pressure.
Appointing Microsoft founder
Bill Gates to the board was a shrewd move to allay investor
fears, but there is no doubt the company would lose its
almost mythical status without Buffett.