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Hello investors, hello traders, welcome to our Stock Screen format. Today we're talking about Berkshire Hathaway and the strategy Warren Buffett pursues. A great deal has already been written and discussed about Berkshire Hathaway – no wonder, since it's the company of the world's greatest living investor, Warren Buffett.
Currently, many people no longer have much faith in the legendary investor, which is why he hasn't used the current crisis for acquisitions. I'll explain how I use this in the following article. Incidentally, I became aware of Berkshire Hathaway through our Stock Ranking tool and our Value Stocks template.
Using this template, the company is currently in first and second place. With the Value Stocks template, we identify stocks with low P/E ratios, low retail prices, or high dividend yields. With so -called value stocks, there's uncertainty about how the business will develop in the coming years, but precisely for this reason, there are also great share price opportunities with a time horizon of one to For our template, we've incorporated the following criteria as safety measures to avoid value traps over three or five years: Firstly, both profit and equity must have increased at least once in the last five years.
Secondly, debt must be low, and debt capital is weighted at 20%. Profit/return is weighted at an above-average 80%. Now, I'll show you how I became aware of Berkshire Hathaway. First, I'll register at peterfox.de. I'll do that now; I'm not registered yet. Okay, but now I'm registered. Then you can see I'm in the Thula stock rankings.
This tool is based on the Morningstar database. Over 15,000 stocks listed in Europe and the USA can be analyzed with it. The tool is part of the peterfox Morningstar data package subscription, which costs €19 per month. Our screening refers to... Now, let's go to the templates at the top, and then we still need to...
Template value search for stocks, then I load that, then you see that our screening refers to the 500 largest US stocks with the highest trading volume. We could, of course, change the universe; you have various options here, as you can see, but we won't do that now. As you can see, everything is preset here.
As ranking factors, I just mentioned the earnings yield and the debt-to-equity ratio, and the scan criteria this time only refer to fundamental factors. If I go to scan here, then the action will be displayed. I'm not doing that now because it always takes quite a while. I've already done it, and you can see there are currently 22 stocks that are relevant to you.
In first place and in second place, as I said, is Berkshire Hathaway. Why separate places? Well, that's because there are two types of shares: HP shares. Warren Buffett considered it important that the Berkshire Hathaway shares not be split, as this approach—that is, when the share price keeps rising—is detrimental.
It attracts exclusively long-term investors, and he was right about that. Currently, the stock costs approximately 300,000 US dollars, and you don't just casually add that to your portfolio, if you can even add it at all. Most investors simply do n't have the means to acquire these shares. And that was precisely the reason why Bahr, who decided to issue B shares in 1996, wanted to give smaller investors the opportunity to participate.
Initially, the B shares were worth one-thirtieth of the shares. However, in 2010, a stock split of 1,250 B shares was carried out, and since then, one share is equivalent to 1,500 B shares. Berkshire Hathaway is the world's largest private investment company with over 70 subsidiaries. Its market capitalization currently amounts to 487 billion US dollars.
The company has been owned by [unclear] since 1965. Warren Buffett leads Berkshire Hathaway, which owns entire companies, the most important of which are in the insurance, energy, and rail freight sectors. Berkshire Hathaway also holds stakes in many companies, including Apple and Coca-Cola, through equity investments.
Unlike many holding companies, Berkshire only intervenes to a very limited extent in the day-to-day operations of its portfolio companies. Warren Buffett's main task is to evaluate and select new investments. He is supported in this by his partner Charlie Munger and the two junior managers Ted Weschler and Todd Combs.
Berkshire and its subsidiaries employ approximately 391,000 people worldwide. The company headquarters itself employs fewer than 30 people, many of whom make the investment decisions. This very modest approach is also reflected in Warren Buffett's lifestyle. He is considered very frugal and rejects management salaries and bonuses.
I find it quite interesting that this modesty is also reflected on the website. As you can see here, unlike most companies, Berkshire Hathaway's website is very understated, with the added note that while comments about the website can be submitted in writing, a direct response cannot be expected due to the limited number of employees.
Essentially, the company can be thought of as a huge holding company. This company, which generated $327.22 billion in revenue in 2009, earns its money in two ways: firstly, the various wholly owned subsidiaries continuously generate income; secondly, investments in stocks and assets generate dividends and interest.
Additionally, revenue is generated from equity positions. Berkshire Hathaway is divided into seven different business segments, which together generated $254.6 billion in revenue last year. Berkshire Hathaway is one of the world's largest insurance companies, offering reinsurance, skin and... Unlike many other insurance companies, Berkshire Hathaway offers life insurance policies, which have the advantage that in most years the premiums paid by policyholders exceed the payouts.
This means that Berkshire earns additional money simply by collecting premiums. The insurance division of DECT accounts for a good quarter of its total business. Other segments include wholesale, particularly the McLane wholesale company, which distributes all kinds of products in the USA, from groceries and drugstore items to alcoholic beverages.
In addition, the company owns Berkshire Hathaway Energy, one of the largest energy providers in the USA, which generated a profit of around 15 billion US dollars in 2009/10. Another segment is the rail segment, which includes Northern Santa Fe, the largest railroad company in the USA. Revenue in this segment was 23 billion US dollars in 2009/10.
It is noteworthy that the largest companies are highly profitable and offer a range of products and services. which are basically always needed. If we look at the current stock portfolio, which currently has a value of 220 billion US dollars, then it becomes apparent that the six largest positions, with almost 170 billion US dollars, make up 70 percent of the portfolio.
Diversification is therefore not as strong as one might assume. But Barfeld isn't a fan of diversification anyway; if he senses an opportunity, he seizes it, and then he really goes for it. The largest position is currently Apple with 83 billion US dollars, followed by Bank of America with 26 billion US dollars and Coca-Cola with 19 billion US dollars.
With almost 55 billion US dollars, the banking sector is currently the largest sector after Apple, but it is being gradually reduced. For example, Goldman Sachs shares were sold off further in the last quarter, even though it's always said that he's a fan of technology stocks, with almost 90 billion US dollars from this sector in the portfolio.
Admittedly, this is due to Apple's large position. The four airlines, Delta, Southwest American, and United Airlines, were all sold in April. I'll briefly address this further below. Yes, although fundamental key figures like revenue or profit are secondary for holding companies like Berkshire Hathaway, as they are constantly distorted by acquisitions and sales, I would still like to present the basic key figures of recent years for the sake of clarity.
For a company like Berkshire Hathaway, however, it is much more important, besides the return on equity (which was a solid 21 percent last year), to pay attention to the quality of the investments and how they are financed. It is noticeable that Berkshire Hathaway only wants to acquire its investments based on the strictest criteria.
These include, among other things, good management, clear competitive advantages, high returns, and reliable profits. Furthermore, it is important to pay attention to how the investments are financed. At Berkshire Hathaway, these are mostly financed through The equity capital is financed, and that's a huge plus.
The equity capital stood at an incredible 425 billion US dollars at the end of 2009/10 and has almost doubled since 2013. This remarkable capital growth demonstrates how well the investments are paying off. Additional steps: the company does n't pay dividends, but the company itself receives several billion US dollars in dividends annually.
In 2009/10, that was about four billion US dollars. Warren Buffett has always spoken out against dividend payments from companies because he could always invest the money himself more effectively. Many investors are increasingly asking themselves this question lately, but that doesn't even apply. Distributing dividends isn't necessarily better.
Due to the enormous size of the company and the fact that it currently has a cash balance of more than 130 billion US dollars, it could very well happen sooner or later that some of the money is distributed to the shareholders. If we want to approach a valuation of the company, then the simplest way is via the share price.
The book value ratio over the last six years has been between 1.1 and 1.6, currently at 115, indicating a slight undervaluation. Buffett himself seems to agree, given the relatively large number of shares repurchased in the last two quarters. Warren Buffett is known for only buying back shares when he considers the price too low.
In the last quarter of 2009, 10 shares worth 2.2 billion US dollars were repurchased, the highest amount ever. In the first quarter of 2020, the total reached 1.7 billion US dollars, with an average price of 220 US dollars. Now, let's look at the growth prospects. Buffett is frequently criticized for his buying and selling strategies, especially for not increasing his positions during the last market crash, a criticism that only intensified when it became clear that...
When he sold his airline holdings at a loss, there was a real uproar, and many observers are now certain that Buffett has finally lost his feel for the market. Buffett's most prominent critic is currently Donald Trump, who is convinced that Buffett made a mistake in selling the airline shares. This may be true, but I personally see things differently.
When Berkshire Hathaway, which includes Buffett and Munger as well as his two junior managers, makes investments, it should be considered that the company never does things halfway, and this is also evident in the complete liquidation of the airline. Moreover, these sales, in combination with a strong position in real estate construction (apologies to Bauer, of course), could indicate a significant strategic change at Goldman Sachs, because banks no longer represent the largest sector.
As already shown, Apple, which, incidentally, only yesterday reached a new all-time high, now holds the largest position in the portfolio. So, if one wants to criticize him, one should always keep in mind those who criticized the airline sales. Keep in mind that Apple stock, when its largest share is currently rising to all-time highs, I suspect Berkshire Hathaway used the crisis to reorient itself.
Ted Weschler and Todd Combs are both very focused on the technology sector, so it could now gradually lead to a more gradual reduction in investments in older industries and a greater emphasis on future-oriented sectors. For example, at the end of last year, shares in Amazon were increased, which is primarily due to the two managers and Wetzlar.
Somehow, Buffett had assured us in this context that they were somewhat dissatisfied with the situation, and by that, of course, he meant technology stocks. And when he is now 96 years old, he recently said that one has simply reached a certain age. Our trust in the inner workings of the company is also diminished.
I think this is a wise decision because they have done everything right so far with their positioning in the technology sector. This crisis could now have been the trigger. That is at least my opinion regarding Berkshire's investment strategy. Incidentally, this isn't the first time Hathaway has been redefined.
And now let's look at the share price development. Berkshire Hathaway's stock has been in a continuous upward trend for many years. We're only looking at the B shares here, as these are the only ones most investors are interested in. The all-time high was $232, and the stock is currently still about 20 percent below that level.
Since the financial crisis of 2008/2009, the stock has gained a good 300 percent. A positive aspect is that the stock is very stable, and the average volatility over the last few years is significantly shorter than that of the S&P 500. It 's also noteworthy that the drop this spring, at a good 35 percent, is already enormous, but hardly noticeable on the long-term chart.
If I were to consider a long-term position, the timing of the entry is, of course, never really the primary concern. However, I would still wait until the stock has completed its bottoming-out process. So I would wait to buy in until the stock breaks out above $200 and would set an alert in my system.
If you liked the video, please give me a thumbs up; I'd really appreciate it, as always. One last tip: if you don't want to miss any more Regina recordings and videos, subscribe to our YouTube channel now and click the bell icon so you'll get a notification when we release a new video. Have a great weekend! Until next time, says Andreas Hahslinger.
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