With Berkshire Hathaway’s stock price down roughly -12% in 2015, you would think that the conglomerate was suffering a series of major setbacks. Nothing could be further from the truth, as Berkshire just reported record year that brought a 6.4% gain in book value, and saw profits skyrocket 32% in the fourth quarter.
Earnings per share in Q4 were $3,333 (up from $2,529 for the same period in 2014), which beat Wall Street estimates by a hair.
Nervous shareholders may be feeling a little bit better these days, as Berkshire’s stock price year-to-date has been steady (if flat) while the S&P 500 is down -4.59%, and they should rest assured that better days are ahead.
You want to be nervous? Just look at Chesapeake Energy (CHK), and its plunging stock price in 2015, if you want to see a stock really worth panicking about. Chesapeake saw its stock down a precipitous -77.5%, which was related to a very real drop in energy prices that is bringing bankruptcies to a number of players in the sector.
Berkshire on the other hand is flourishing, and it’s only getting stronger with the newly completed acquisitions of aerospace manufacturer Precision Castparts, and battery-maker Duracell.
The stock market is just that, a market, and it is not always logical—at least not in the short term.
While the disconnect between Berkshire’s profits and its languishing stock price draws lots of sniping from pundits, it should be remembered that a stock can’t wander too far from its fundamentals forever. Eventually, it’s going to move up or down based on the actual value of the company.
As Benjamin Graham famously said, “’In the short run, the market is a voting machine but in the long run, it is a weighing machine.”
© 2016 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.