El Bar de los Pufforeros. Inversión de la A a la Z: Fondos, ETF, planes de pensiones, acciones, metales preciosos, etc

Berkshire’s stock portfolio was ridiculously expensive in 1998, matched by the stock market and likewise by Berkshire’s own shares. Berkshire paid $22 billion in stock for General Reinsurance, of which $14.5 billion was goodwill. That’s a pretty healthy premium for the tangible equity of an insurance company. Must be a catch. Berkshire issued General Re shareholders 272,200 shares of equivalent A shares at $80,882 per share, 2.9 times Berkshire’s March 31, 1998 book value. The catch, part of it: Berkshire’s intrinsic worth was only about half that price, meaning Berkshire bought General Re for a little more than $11 billion, not the $22 billion headline price. Berkshire’s use of its overvalued stock as currency was but one important aspect of the deal. The rest of the catch: The stock portfolio was extremely expensive as well. Fully 75% of Berkshire’s $47.5 billion investment portfolio was invested in very highly appreciated, fundamentally overvalued common stocks. Against a cost basis of $7.2 billion, the large $36.2 billion stock portfolio comprised a whopping 115% of Berkshire’s entire book value.

Prior to the acquisition, 90% of Gen Re’s investment portfolio was invested in fixed-income securities, typical of most insurer’s invested assets. When the portfolios were consolidated, stocks combined at only half of the overall investment mix at year-end 1998, down from a three-quarters weighting in Berkshire’s portfolio prior to the deal. Consolidated equities closed 1998 at $37.3 billion, only $1 billion more than Berkshire owned alone prior to the deal. The fixed-income balance, however, ballooned to $31.2 billion, up from $10.3 billion the year before.

Buying General Re tripled the size of Berkshire’s insurance float, General Re’s float of $14.9 billion being twice as large as Berkshire’s $7.4 billion. Combined float totaled $22.7 billion and increased invested assets at Berkshire by more than 50%, bringing an additional $25 billion into the portfolio. It was an astounding transaction, paying $22 billion in stock which was worth only about half that and adding $15 billion in float which financed an additional $25 billion in investment assets. By design, in my opinion, stocks as a percentage of Berkshire’s book value declined from 115% to only 69%. As a percentage of firmwide assets, the allocation to stocks declined to 30% from 65% without paying a dime in capital gains taxes, then at a rate of 35%.

• Actualizado: 26 oct, 2021 17:25