Berkshire back in portfolio for the 3rd time

In the depths of 2008-2009 financial crisis, we bought Berkshire Hathaway (NYSE: BRK.B) for the first time. The second time was approx. 3 years ago when P/E ratio was near multi-year lows and P/B was approaching 1,2x book value. That was the level  Warren Buffett had indicated to be the trigger for the formal share buyback program at the time.

Berkshire has been lately trading close to 1x book value. However, it has to be also taken into account that majority of Berkshire's common stocks have been beaten badly and the insurance industry is expected to take quite a hit.

Still, I felt comfortable raising Berkshire from zero allocation to pole position (largest holding). In my eyes there are few stocks better than that to own at times like these. I really like the management / investing style of Warren Buffett. It has taken Berkshire where it is today. I also like the fact that they had insane amount of cash available when the stock market tanked.

As Sean Weston wrote in his recent article about Berkshire in Seeking Alpha "shares trading this close to book value is a truly rare event, taking place only on two other brief occasions this century".

Sven Carlin examines in his recent article this attractive opportunity from the viewpoint of P/E when the Berkshire’s $124 billion cash pilecash have been backed out from the price of the company. The result of his analysis: Based on 2019 earnings and deducting the cash, the price to earnings ratio is ~10.

A word of warning: Berkshire earnings (and thus P/E) is very volatile as they use mark-to-market for their stock portfolio. Also, both of the above analysis have to be taken from the view point of long term (i.e. where the profitability / book value will likely return in 3-5 years).

Yet, we like.

Disclosure: Author is Long Berkshire Hathaway.

Changes in top 5 positions

Our top 5 positions on January 1st were:

1. Apple (USA)
2. Western Digital (USA)
3. Micron (USA)
4. UPM (Finland)
5. NVIDIA (USA)

The biggest changes have been (done in the midst of market crash):

- Sold Apple stock (all of them)
- Trimmed down Western Digital
+ Acquired shares in Berkshire Hathaway
+ Increased heavily our position in Nokia
+ Acquired shares in Broadcom


At the moment top 5 positions are as follows:

1. Berkshire Hathaway (USA)
2. Nokia (Finland)
3. UPM (Finland)
4. Intel (USA)
5. NVIDIA (USA)

Our largest sector allocation continues to be semiconductor industry by a wide margin to the next.

This is what being long in stock market at times like these look like

I have said previously that I don't believe in timing the market. This includes pledge of not jumping out of market when it starts to look bad. Only exception to this rule would be a clear stock market bubble (i.e. valuations become crazy like for tech stocks back in 1999).

Well,
This is what following these rules have looked like recently:

That's value of our largest broker account over 3 years. As you can see the recent crash has taken the aggregate value of all stocks in that portflio back to levels seen at end of 2018 and early 2017.

Some are still above 100% the buy price, but some have sank 50% of the purchase price. And the rest are in between these extremes.

Whatever time I have currently to spare to following market (and that's very little considering the exceptional situation we all are exposed to), I spend not focused on the daily swings of the market, but to the quality and financial condition of the corporations we continue to be invested in.

As Benjamin Graham has said and lately most famously echoed by Warren Buffett:

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

My experience with stock market crashes like this, 1999, 2008 and many more smaller ones is that market will overshoot both directions and it's close to impossible to find the top or the bottom. This is not to say I haven't made a lot of changes to the portfolio - I have. The point is that I make sure we are 90-100% exposed at all times because one day this craziness ends and markets correct very rapidly. We have stocks where the daily swings to both directions might exceed 15%. Missing few upward swings would be really bad especially now that we have taken the ride all the way down.

Rising tide will eventually lift all boats. The trick right now is to stay away from the boats that might sink and stay invested in the ones that will be there also very likely in 10-30 years.

Good health to you and your families and friends.
Stay safe.