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Why I Won't Invest in Berkshire Hathaway

By Tom Dyson, publisher, The Palm Beach Letter
Thursday, May 8, 2008

The young man sitting next to me applauded so loudly, it must have stung his palms...

Warren Buffett had just given his opinion on ethanol. "Turning American corn into motor fuel is one of the dumbest ideas I've ever seen," Buffett said. The crowd went berserk. When the room settled down again, someone else asked a question. This one was about mass transportation. "Americans seem to like driving in their own in cars too much for mass transit to work," said Buffett. "It seems to be human nature."

The young man dropped his pen and slammed his hands together again. A big grin crossed his face and he whispered something approving to the guy sitting next to him.

The annual Berkshire Hathaway meeting is all questions. Someone in the crowd asks a question. Buffett answers. Then Munger answers. This lasts for five hours. The crowd asks anything. One man asked about religion. Another person asked about human rights in China. They discussed ethanol. The environment. Politics. Taxes...

The young man sitting next to me filled up an entire yellow legal pad with notes from the meeting.

Here's the thing about the question-and-answer format. It gives Buffett the green light to opine on any subject he wants to... even if it has nothing to do with investing. The people love this. They go to Omaha to soak up Buffett's wisdom and enjoy the show.

I went to the Berkshire Hathaway meeting to judge Berkshire as an investment. Here's what I found:

On the ground floor of Omaha's Quest Center, below the arena, there was an exhibition hall. It was the size of a Wal-Mart warehouse. Here, all Berkshire Hathaway's portfolio companies – See's Candies, Netjets, Wendy's, etc. – exhibited their products.

The diversification really struck me. Berkshire owns 80 different companies. These companies come from different industries, but they all have one thing in common: They all spew out cash like an oil gusher. As Buffett said, "We like to buy companies that drown in cash."

Most of these companies would give you great protection in a recession because they provide basic services like insurance, sliced cheese, chewing gum, and shaving foam.

And they'd also give you great protection against a weak dollar. Berkshire invests in real assets and companies that can raise prices right along with inflation. As Munger said, "While we don't like inflation – it's bad for our country and our civilization – we will make more money when there is inflation."

Here's the thing, if you enjoy researching companies, you should not invest in Berkshire Hathaway. That's because Buffett can only invest in companies with market caps above $50 billion. His universe of possible investments is so small, he doesn't have access to many easy profit opportunities.

Berkshire stock has grown about 21% a year since 1965. But Buffett said it himself... "Anyone who expects us to replicate the past should sell their stock. We won't be able to."

Instead, you should copy Buffett's investing technique and do it yourself. His method is simple. Any of the hundreds of books about Buffett will explain it. And you'll make much higher returns than Buffett. This is because you can choose from the whole market.

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If you don't know how to invest – or if you have no interest in the stock market – Berkshire Hathaway is the best stock investment you could ever make. You get a great portfolio of safe companies... protected from inflation and recession... and Buffett takes care of your investment. You'll make 8%-10% annual returns. You should buy today and never sell.

If you're looking for a safe place to stash your savings and compound interest, Berkshire is the only stock you should consider. But if you love researching investments – as I do – you should avoid it. We can do better than 8%-10%.

Good investing,


Market Notes


It's a tale of two vastly different markets in oil and RVs right now...

Deepwater drillers, independent producers, oil-sands miners, you name it – nearly every stock related to oil production is reaching a new high as you read this. This bull market is the mirror image of the bear market in companies that make recreational vehicles.

The RV industry has been hit with a perfect storm of high fuel prices, tight consumer credit, and a weak economy. It costs roughly $1 million to fuel up a big RV up right now. General Electric's large finance arm just announced it will no longer finance RV purchases. And Winnebago, the largest RV maker in the U.S., recently shut down most of its production lines for one week due to horrible sales. Profits fell 67% in the most recent quarter.

Winnebago's situation is shared by its competitors Thor Industries, Monaco Coach, and Fleetwood Enterprises. They also share Winnebago's chart pattern, shown below. In the past year, WGO has split 2-for-1 "the hard way." The business of landfill stuffing continues to suffer.

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