Mr. Market has been very temperamental lately. In fact, he has been quite fearful and depressed, with occasionally bouts of enthusiasm. In effect, he has been giving the rest of us in the market one fine roller coaster ride. However, the intelligent investor does (and must) not let Mr. Market's moods affect his own. The intelligent investor is free to either agree with Mr. Market's quoted price and trade with him, or ignore him completely.
The investor who plans to be a net buyer of equity for the next decade or so must watch Mr. Market these days -- the poster child for the value investing philosophy, Berkshire Hathaway, is selling for quite a discount these days. At the time of this writing, Berkshire Hathaway closed at $115,350/share, i.e. 1.52 times book value. This is one of the lowest valuation we have seen this fine business to be trading at for some time. Lower valuations may definitely be offered by Mr. Market.
According to my calculations, the intrinsic value of Berkshire Hathaway is $145,517. My calculations are based on long term track record of the business and allow for a reasonable amount of margin of safety.
However, this stock is not dirt cheap, but such a great business hardly ever becomes incredibly cheap. You can be sure that Buffett will buy back stock if it ever became dirt cheap -- he admitted to almost doing so during the tech bubble when Berkshire Hathaway was being sold by Mr. Market for deep discounts to intrinsic value.
If it is not incredibly cheap, why am I long on it?
I strongly believe that this business is worth owning for life. If one can, they should own and hold this stock for the rest of their life. Not only will it perform reasonably well (note the strong long term track record and excellent cash flow), it is also tax advantaged (notice the lack of dividends). One hidden benefit of holding this stock is that it is always a source of the most enjoyable and knowledgeable shareholder letters -- letters that will prove to be useful throughout your investing career. Not to mention, it is a great gift to pass on to your children.
