Today I will show my first analysis of an international action. This was my first purchase for my Global Portfolio.
This is Berkshire’s website, one of the simplest I’ve ever seen, it looks like it was done by a fifth grader, but on their site, they have EVERYTHING you need to know about the company.
Funny, who am I to analyze Berkshire? There are hundreds of reviews out there on the internet, but I decided to do mine too, after all, I do not even know if I trust the analysis of others or with what intentions they were made, Wall Street is not for anyone. What could I say in my view of a Brazilian buying Berkshire?
Well, it’s a growth company, which has existed since 1889 and has consistently been growing and increasing its profits without dividends. According to the Buffet itself, nor is there A MINOR prediction of distributing dividends, which is great.
It is one of the largest US companies with a market value of $ 391 billion. A single BRK-A share is costing $ 215,000. These shares can be divided into a lot of 1500 BRK-B shares and so anyone who had BRK-A could turn them around and sell a little, I ended up buying someone BRK-B.
Today Berkshire is made up of 64 different companies, that is, it is a mega holding, buying it you are diversifying into 64 American and global companies (this is already more than twice as many companies that I have in Brazil), they are:
Obviously, the proportion is not equal, to know the proportions have to give one more researched, see:
If you are going to pick up the top 5 biggest companies already will give almost 50% of Berkshire’s weight: Kraft, Wells Fargo, Coca-Cola, IBM, and AMEX. Kraft Heinz has a heavy share of Jorge Paulo Lemann.
I personally like all five of these companies, sure that Coca-Cola and AMEX have already had their heyday, but they are still monsters, as is Wells Fargo, which is one of the largest banks in the US, which is almost recovered from the 2008 crisis.
For a change, personally, I really like the insurance industry, so much that I have a great position in Porto Seguro and Banco do Brasil Seguridade. So would also fall well a reputed insurer in the USA.
The staff worries a lot about Buffett’s death and what will be Berkshire’s after him, but he himself has said that he has trained the team of successors, that the expectation of future profits is to rise on average 10% a year in the next ten Years, independent of him, see that the company is more than 50 years old and is well matured.
I think she’s a bit focused on the financial sector, which is not one of the most profitable in the US, but the Berkshire directors must have their reasons for it, by sector it looks like this:
I like the part of consumer staples, which is basic consumption. I miss a Unilever or a Johnson & Johnson in the package, but this I can buy out if I want. Remember that Berkshire is a traditional insurance and insurance company that gives a lot of money, also because of the actuarial issue, which is a very complex science that considers everything, investing the money of the users, and pays after it already receives many interests and returns from the Investments.
In addition to insurance, it is a leader in reinsurance, life, health, operates railroads, distributes and generates solar, wind, nuclear, coal, is a lot to talk about, it does not fit here, it also operates in the Paints, solvents, newspapers, various tools, jewelry, alkaline batteries, utilities of the home in general, clocks, things of consumption, in fact.
Berkshire does not sell promises, it sells things that people use and buys every day since the 60’s. The company was founded in 1889 as a textile mill but it is not long over.
Now we go to an analysis of Berkshire’s past profitability comparing with the SP500:
That is, from 1965-2015 the annual gain was 19.2% annualized. When the index falls, Berkshire falls much less, and when it rises, it rises much more. Berkshire manages to be the all-in of many people by itself, a lot.
They call it the portfolio of one company. See the bad years of the company (in parentheses) 2001 and 2008, years of general CRISIS in the markets, the first of the .COM bubble and the other after the subprime crisis, outside of those two years, the rest was good winnings or beautiful gains.
Now we go to a more classic fundamentalist analysis:
The first download, read and save this report, it is important to learn these concepts to be a global investor.
Once you understand the CAPE and I’ll post just about it (after), you’ll be able to compare the various world markets. Understand the CAPE as being an improved PE, our famous P / L. The famous Nobel Prize and professor of Yale Robert Schiller created the CAPE to better measure the PE considering the growth of the profits of the companies and pondering them for the inflation.
The current US CAPE is at 25.5, it’s VERY high, the average is 16.6, and we know it tends to return to the average. This is really a nice peak in NYSE shares, maybe (maybe even, that’s not an explanation, that’s not an exact science) because of the low interest rates being paid by European and American bonds, there’s no way Investor, or have the money in cash in hand or will have to buy shares / real estate / REITs “expensive” or migrate to emerging markets if you want to risk to have some profit, if you do not want to buy bonds paying 0% , Or 1 to 2% or even negative.
Anyway, for now, the US market is very expensive, the index itself has a higher PE than many other good companies, so that does not make much sense to me. So although I do not believe in timing, at the moment I think it’s better to buy Berkshire than the SP500’s own index, and that’s what I did.
First, let’s look at the graph of the last 10 years of the action:
The stock has risen 115% in the last 10 years, without paying dividends to shareholders, reinvesting everything and growing always, with small variations, so I see the company with good eyes, consistent profits, low debt, good investments to grow more, growth of Profits, good management, no profit that falls, no surprises, in the end, I spend a relative tranquility investing in it for the long term.
Operating margin of 12% and ROE of 10% with a balanced debt are also good for fundamentals. Most important, in fact, to me is the consistent growth of profits and controlled debt.
From this small table, we can see that revenue growth in the last 10 years was 8.40% per year, EBITDA grew 10.4%, as well as operating profit growing 11.90% per year. And now going to the last swing taken from the company’s website (each quarter is 3 months, each year has 4 quarters) – the analysis of the second quarter is as if it was a half annual analysis, as you can see no surprise.
All this for a PE of 14, in a CAPE 25 market, I think a safe, growth action with a PE of these is the good size for now. The company continues to invest in growing more.
To study the company I used the Morningstar, Gurufocus and Berkshire websites. There’s a lot more analysis out there to do a comparison, but I’ve never seen anyone detonating Berkshire. So what can I expect from her? Consistent growth and tranquility. The contribution was quite large, U $ 5k. The next addition that is also a bit bulky will be in the active SWDA, and when I buy I put the analysis here.