In a previous post back in September, ValueExpectations.com provided an analysis of the main holdings from Berkshire Hathaway and how each company was viewed according to The Applied Finance Group’s (AFG’s) valuation model and Economic margin methodology. The 29 top holdings of Berkshire were divided into 3 buckets (Attractive, Fairly Valued and Unattractive) based on how each company ranked according to key AFG criteria including valuation.
Thus far each bucket of companies has performed just as expected.
Return Information from 9-29-09 to 1-7-10:
Attractive Co’s = 10.60%
Fairly Valued Co’s= 7.59%
S&P500 = 7.16%
Unattractive Co’s= 6.57%
The companies AFG labeled as attractive outperformed both other buckets, the fairly valued companies performed in-line with the S&P 500 and the unattractive companies underperformed the rest.
Also we recently issued articles discussing Warren Buffett’s acquisition of BNI and his decision to oppose Kraft’s bid to issue more shares to fund its deal to acquire British candy maker Cadbury. ValueExpectations.com presented the case for each acquisition, both of which ultimately came to the same conclusion as Buffett.
Berkshire’s acquisition of BNI (which had been a holding in The AFG 50 that was purchased in June of 2004 with a target price of $120) is one of the few that we approved of given AFG’s extensive background in acquisition analysis. More often than not the acquiring company pays too high a premium for the target company, resulting in excessive expectations that may not be attainable. However, we have to agree with Buffett in the BNI acquisition as Berkshire was buying a great company at a price justified by very reasonable future expectations.
Also VE.com released a few articles discussing disapproval for Kraft’s bid to acquire Cadbury saying the deal made no sense as what Kraft offered was much higher than the expected benefits Kraft would receive by acquiring Cadbury. Our thoughts on this deal were then backed up by Buffett’s opposition to the deal a few weeks later.
We think Buffett ought to take some well-deserved time off to play bridge with Bill Gates, and leave it to VE.com to provide valuable insights on the equity market.Share Investor Links
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