Everyone here knows I’ve been in a particular trade and playing things aggressively for nearly two years now. But as this trade matures and we move closer to the stock’s catalyst, I’ve struggled with where to go next.
Should I really put millions under the mattress? Or hide it in gold, which has historically taken a beating during recessions—same with silver and bitcoin?
What about a money market that’s making 4%? Sure. Not bad.
But what if the White House wants to cut interest rates to 1% next year? Nope. That’s not going to work. And even worse, if I don’t find something that’s going to preserve my purchasing power and inflation stays at 3%, I’d be losing $20,000—every year—on every $1 million I stack in the barn.
Not good!
Of course, if I bomb, none of this is going to matter anyway, but I know many of you are struggling with the same question: what do I do with cash?
Although I can’t answer that question for you, I now know where I’m going to hide should the world continue to hate Berkshire Hathaway now that the old man isn’t asleep in an easy chair somewhere in the back office.
The math is simple.
They’ve averaged a 20% rate of return since 1965.
One-third of the company is sitting on $350 billion cash pile and is ready to be deployed should any market fire sale arise. But all that cash is also contributing to earnings because it’s drawing interest, so if I go with Berkshire, I’d essentially be like having my money in a glorified money market account that I could get to rather easily should I need it in a hurry.
Plus, if the U.S. government is going to stimulate, Berkshire’s businesses are going to rake in the earnings during the euphoria, so it’s protected on the high side and on the downside.
But the key for me is staying extremely liquid, and it’s hard to beat BRK-B stock. But why?
Well, let’s look at what’s going on in the market today….
We’ll talk more about it later, but the damn Buffett Indicator is 5 percentage points away from an all-time high. And CNN’s Fear & Greed index is bumping “Extreme Greed” with still more room to run.
And how is all this froth materializing?
Well, look at the P/E multiple on the S&P 500!
It’s double that of Berkshire’s. And the Russell 2000, which has a lot more risk, has a P/E multiple of 18.
So, in this context, should BRK-B, which is about the best low-risk cash cow on Wall Street be trading like it’s in a recession just because the old man isn’t in the driver’s seat anymore?
Should it be trading at a 10% discount from its all-time high when Warren Buffett announced his retirement?
The way I see it, BRK-B should never be trading cheaper than the Russell, which is full of speculative, non-profitable companies.
And furthermore, in December of 2018, Berkshire’s P/E ratio reached 125. It’s all-time high was 143 in 2001.
But what’s even better, because the company is sitting on a $350 billion cash pile, if the stock falls much cheaper, Berkshire will just buy back their own stock back, which will increase the value of my holdings.
In short, BRK-B at a 12.75 P/E ratio is a bargain buy that will make money and preserve my purchasing power in all weathers.
Factor in the Fed cutting interest rates and a permanent corporate tax rate of 21%, it’s gonna be hard to lose on BRK-B. My mattress money is going here.
Hope this helps.
-Tweedle