Warren Watch: Tracking Berkshire stock trends over the long term

The last time Berkshire Hathaway Inc.'s stock price took a sharp tumble, in March 2000, it took five years and five months to get back to its previous high.

If the same timing holds true following its 2008-2009 decline, the price would regain its all-time high of $149,200 a share in May 2013.

A simple tracing of Berkshire's long-term stock price trend line would cross that high-point line a bit earlier, about December 2012.

The long-term trend line, in the graphic at right, shows the company's steady rise over the decades of CEO Warren Buffett's leadership. It also clearly shows when investors have driven the price above or below the normal bounds of Berkshire's growth pattern.

The latest anomaly was last spring, when the price fell sharply below $100,000 a share as the entire market lost value and the financial system faltered. If long-term trends influence your investment decisions, that was certainly the time to think about buying Berkshire.

Although Buffett warns against trying to “time” the stock market's ups and downs, one can't resist pointing out that a well-timed sale, followed by a well-timed purchase, would have looked like this:

Sell one share of Berkshire stock at $149,200 on Dec. 10, 2007. Put the money in the bank. On March 5, 2009, buy $149,200 worth of stock. At the latest price, the shares would be worth a total of $212,775, a gain so far of $63,575 or about 43 percent.

‘Snowball' paperback

Buffett led Berkshire to a “stellar performance” last year when major banks and others were crumbling, according to Alice Schroeder's updated biography of Buffett, “The Snowball: Warren Buffett and the Business of Life.”

She added the section for the paperback version (Bantam Dell Publishing, $20, 832 pages), which went on sale last month, calling the drop in Berkshire's value “insignificant” compared to what happened to other companies.

“You would not know this by reading some of the commentary on Buffett,” she wrote. “One of his challenges at this late stage of his long career was that he tended to be measured by some observers and journalists against a standard of perfection, as if he had to be infallible to be any good at all.”

During the crisis, Schroeder wrote, “Buffett made a series of characteristic brilliant moves interspersed with some surprising errors. Above all, he stood pat on existing investments while adding cleverly structured new deals, deals that for the most part were not available to ordinary investors.

“These opportunities came to Berkshire because of its ready cash and underlying financial strength, and because of Buffett's willingness to rent his well-earned reputation and provide quick, trustworthy handshake deal-making.”

His actions “would enrich Berkshire shareholders for many years to come. At the same time, the crisis — which admittedly had so many episodes of heart-stopping disintegration into near economic collapse that in some ways it eclipsed the events leading to the Great Depression — left Berkshire a weaker company financially.

“It undercut Buffett's reputation as a nearly infallible manager, and cost the company its top financial rating.”

The loss of Berkshire's AAA financial rating, she wrote, doesn't reflect changes in Berkshire as much as the fact that last year's crisis “unveiled the true risk inherent in the global financial system — and the rating agencies had responded by increasing the capital threshold for a triple-A rating to a level that meant even the soundest institution found it financially unattractive to qualify.”

Rail purchase loan

Berkshire said it would borrow $8 billion from JPMorgan Chase and Wells Fargo & Co. toward the cash portion of its purchase of Burlington Northern Santa Fe Corp.

Buffett has said he would pay the loan back in three annual installments. The other $8 billion in cash would come from Berkshire's cash reserves, and the rest of the $26 billion purchase price would be in Berkshire stock.

Some of the interest on the $8 billion loan will benefit Berkshire indirectly. The company is the biggest shareholder in Wells Fargo, owning about 6.7 percent.

Buffett's ‘tutoring'

TheStreet.com reports that Goldman Sachs' announcement of a charitable effort to help small businesses and students in low-income areas is the result of Buffett's “tutoring” of Goldman's management on philanthropic ideals.

Money manager Don Dion of Williamstown, Mass., said Goldman's scholarship and capital investment efforts, with Buffett and Goldman CEO Lloyd Blankfein acting as overseers, “appears to be a sign of atonement for past sins.”

Blankfein also apologized publicly for actions that contributed to the financial problems, and critics have complained about Goldman paying big bonuses after accepting government bailout money.

The charitable program was a surprise, Dion wrote, but “Warren Buffett watchers know that the financier is no stranger to philanthropy,” citing the Susan Thompson Buffett Foundation and Buffett's pledge to the Bill & Melinda Gates Foundation.

“On the surface this latest plan appears virtuous. However, not ones to miss out on a profit, it is likely that the new initiative will bag both Goldman Sachs and Professor Buffett a nice profit,” Dion wrote.

Goldman's “10,000 Small Businesses” program may result in Goldman expanding its small-business financing operation, and if the company's image improves, Buffett's investment stake in Goldman improves, too, Dion wrote, adding:

“Whether the program is profit-driven or not is still up for debate. However, for Goldman's sake, it would be in their best interest to ignore the bottom line for a while and focus on helping the people who helped them. The $500 million and Buffett's blessing are a good start, but it's going to take results, rather than an apology, a pile of cash, and a press release, to regain the public's respect.”

Electric car unplugged

BYD Inc., the Chinese electric car company partly owned by Berkshire, saw its stock drop as much as 7.6 percent in Hong Kong after a finance company advised investors to take profits by selling the stock after its five-fold increase over the past several months, Bloomberg News reported.

Chardan Capital Market LLC said BYD's price was over-valued, at 37 times next year's projected earnings. Berskhire's investment and favorable comments by Buffett and Berkshire Vice Chairman Charlie Munger have been cited as prompting investors to bid up BYD shares.

“It's time to get off this bus,” Chardan said in a note to investors, adding that electric vehicles likely won't gain meaningful market penetration for several years.

Meanwhile, just-auto.com reported that BYD plans to build China's largest vehicle testing center in Shaoguan, Guangdong province. The facility also will make auto parts, with operations due to start before 2012. BYD makes all its vehicle parts except tires and windshields.

BYD also has manufacturing plants in Xi'an and Shenzhen, a vehicle crash testing lab in Shanghai and a research and development center at its headquarters in Shenzhen, including a high-speed curved track.

Plant to close

Berkshire's Clayton Homes division, which builds and finances modular homes and other structures, plans to permanently close a plant in New London, N.C., by Jan. 15, terminating 97 workers, the Charlotte Business Journal reported.

Contact the writer: 444-1080, steve.jordon@owh.com

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