As always, those below the dashed line are companies I like but prevailing prices have become too high. Several are just barely above or below the highest price I am willing to pay. The objective, of course, is to buy them well below that price whenever possible.
BRKb has been adjusted for the 50-1 split. I've also adjusted the price I'd being willing to pay higher (from the split adjusted $ 60 to $ 68/share). This increase in valuation has nothing to do with the split. The increase is due to my estimate of the growth in the intrinsic value of Berkshire Hathaway's assets over the past year subtracting a reasonable margin of safety. I consider Berkshire Hathaway to to be worth at least $ 90/share (in other words, I believe its intrinsic value to be roughly $ 10/share higher than a year ago) and prefer to buy it at a 25% discount to current value (25% discount of $ 90 = ~$ 68). Each year most of the companies on this list should increase their intrinsic value. If Berkshire Hathaway were a lower quality business I would require a larger margin of safety.
As always, the stocks in bold have two things in common. They are:
1) currently owned by Berkshire Hathaway (as of 12/31/10) and,
2) selling below the price that Warren Buffett paid in the past few years.
There are several other Berkshire Hathaway holdings on this list but they don't have the 2nd thing going for them.
These are all intended to be long-term investments. A ten year horizon or longer. No trades here.
Stock/Max Price I'd Pay/Recent Price (2-26-10)
JNJ/65.00/63.00 - Buffett paid ~$ 62
KFT/30.00/28.43 - Buffett paid ~$ 33
COP/50.00/48.00 - Buffett paid ~$ 82...sold some shares at a loss
WFC/28.00/27.34 - Buffett paid ~$ 32
USB/24.00/24.61 - Buffett paid ~$ 31
Stocks removed from list:
- BNI - I liked purchasing BNI up to $ 80/share. It was bought out by Berkshire Hathaway for $ 100/share in late 2009. Deal closed in early 2010.
Some of these stocks have rallied quite a bit compared to not too long ago. So they're more difficult to buy with a sufficient margin of safety. Still, that doesn't mean the risk of missing something you like when a fair price is available (error of omission) won't ultimately be more costly than suffering a short-term paper loss.
Here are some thoughts on errors of omission by Warren Buffett from an article in The Motley Fool.
"During 2008 I did some dumb things in investments. I made at least one major mistake of commission and several lesser ones that also hurt... Furthermore, I made some errors of omission, sucking my thumb when new facts came in." - Warren Buffett's 2008 Annual Letter to Shareholders
In other words, not buying what's still attractively valued to avoid short-term paper losses is far from a perfect solution with your best long-term investment ideas.
To me, if an investment was initially bought at a fair price, and is likely to increase substantially in intrinsic value over 20 years, it makes no sense to be bothered by a temporary paper loss. Of course, make a misjudgment on the quality of a business and that paper loss becomes a real one (error of commission).
There is no perfect answer to this problem. When highly confident that a great business is available at a fair price it's important to accumulate enough while the window of opportunity exists. Sometimes accepting the risk of short-term losses is necessary to make sure a meaningful stake is acquired.
* This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here are never a recommendation to buy or sell anything and should never be considered specific individualized investment advice. In general, intend to remain long the above positions (at least those that eventually become, or have previously become, cheap enough to buy) unless they sell for significantly higher than intrinsic value, core business economics become materially impaired, prospects turn out to have been misjudged, or opportunity costs become high.
** The required margin of safety is naturally larger for a bank than for something like KO. When I make a mistake and misjudge a company's economics in a major way, the margin of safety may still not be sufficient. Judging the durability of the economics correctly matters most. If the economics remain intact but the stock goes down that is a very good thing in the long run.