The Most Valuable Company in History
In 1988, my wife and I were blessed with our first child. We had a beautiful, healthy daughter.
Next to the day I married my wife, it was the greatest day of my young life.
But I also knew my life changed forever on that day. I was a father. And I took it seriously.
When my daughter was only seven days old, I was already planning her financial future.
I wanted to put away $5,000 into one stock and forget it. I was looking for one stock that I wouldn’t have to think about for the next 20 years.
It was then I started to seriously read about Warren Buffett and Berkshire Hathaway.
Keep in mind, this was 1988 — back in the Stone Age of postal mail and phone calls. Researching a company wasn’t so easy.
The internet was in its infancy. When I researched a company, I prepared myself to spend many hours on the phone and at the library. Then I would wait by my mailbox.
Our office was in New York City. We were lucky — mail was delivered twice a day.
The morning mail came at 9 a.m., and the afternoon mail at 1 p.m. Each day I would stand by our front door waiting for the mail. My, oh, my, how times have changed.
I first heard about Berkshire when I was a floor trader.
All I knew about it was that the stock was one of the highest-priced stocks on the NYSE. There was a big deal made when the stock broke $1,000 a share, but that was as far as my “research” went.
I had heard about Warren Buffett before that, but not much.
Back then, Buffett wasn’t Buffett. I don’t recall seeing him in the media. Other than a few articles he penned in Forbes, there wasn’t much about him.
I sent a letter to Berkshire’s office in Omaha, Nebraska, requesting a copy of the company’s annual report. When it came to the office, I ripped open the envelope and started to read Buffett’s letter to shareholders. Once I started reading, I was hooked.
Two things jumped out at me when I read his letters. In the first few sentences, he told you the company’s book value per share and how much it had grown since he took over.
Most CEOs usually bury those numbers when they have a bad year. Or they switch it up — they show a number that did well. For example, one year they might tout revenue when they had a bad earnings year. The next year, they might talk about free cash flow or something else.
Not Buffett. Every letter started off the same way. It started with the growth of book value and the change from the previous year. In good or bad years, Buffett was out front and center with how the company did.
The second thing I noticed was the clarity of his writing.
Clearly and concisely, Buffett took complexity and made it simple. He was candid, funny, and often poked fun at himself.
Like I said, I was hooked. I called his office and asked for all the past annual reports.1
I’ve been an avid reader since then. I also read his partnership letters that date back to 1956.2
The Real Art of the Deal
Buffett’s approach of getting more value than you pay made sense. And, of course, it was working.
During some periods, Berkshire underperformed the stock market. But his approach, while out of favor some years, never wavered.
In 1999, Buffett’s approach was way out of favor. It was so out of favor that many thought Buffett was washed up.
By the end of 1999, the Nasdaq Composite rose 86%, the biggest one-year gain for a major index in U.S. history!
Berkshire’s book value increased by only 0.50%. The stock price fell more than 23%.
It was a rather dismal showing. It didn’t matter to many investors and the media that Berkshire was beating the stock market over the past 30 years.
Many thought Buffett had “lost it.”
Barron’s ran an article titled, “What’s Wrong, Warren?”
A publisher of a technology magazine said Buffett should say “I’m sorry” to his shareholders.
On March 10, 2000, the Nasdaq reached an all-time high of 5,048. On that same day, Berkshire’s stock price reached a one-year low: $41,000.
And then... the dot-com bubble burst. It would take the Nasdaq more than 14 years to recover to its old high.
Berkshire’s stock price is now more than $300,000 per share.
It was Buffett who had the last laugh.
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Another Bubble Forms
This time around, it’s a new bubble that is attracting investor attention: Bitcoin.
Bitcoin is up more than 10x... even after giving back almost 50% of its gain over the past year. And yet again, Bitcoin speculators are asking, “What’s Wrong, Warren?”
Buffett doesn’t like Bitcoin and will never invest in it... ever.
He doesn’t know when the end will come for cryptocurrencies, but he says that “they will come to a bad ending."
Over the past year I’ve asked Bitcoin zealots, “How do you value Bitcoin?”
I’ve never received a straight answer. No one could tell me if $1,000 is the correct valuation or $20,000. The reason they are buying, they tell me, is because it is rising. That’s it.
To me, that has always been a piss-poor excuse for ever buying anything.
I have a simple rule: If you can’t understand the investment, then you can’t value it. If you can’t value it, you shouldn’t invest in it. It’s that simple.
Sometimes It Really Is That Simple
That simple rule has saved me from investing in the madness of crowds. There are many things I can’t value — so I don’t invest in them. And that’s okay.
The ones I do know, I back the truck up and buy as much as I can.
There is one investment I have been researching over the past year.
I even went to Israel to speak to the professor who is credited with discovering this new technology.
I understand it well enough to know that it is a game changer. It is one of the only public companies you can still invest in that uses this technology.
The most recent company was just acquired. The stock price soared more than 90% since the beginning of 2018.
You see, the company has developed a revolutionary medical treatment for killing and curing cancer.
So let me be brutally blunt: As you read this, the total market capitalization of Bitcoin is around $190 billion. How investors arrived at that valuation is a mystery to me. And quite frankly, I don’t give a hoot.
But I do know this: If the company I’m about to tell you about fulfills its promise to cure cancer, its valuation is going to be way more than $190 billion.
You can take that to the bank.
All my best,
Founder, Park Avenue Digest
Charles cut his chops on the trading floor of the New York Futures Exchange before he moved on to become a wildly successful money manager on Wall Street.
And with more than 35 years of recommending stocks under his belt, Charles has knocked the cover off the ball. He's compiled an amazing record of success and posted gain after gain for his loyal readers. He's the founder of Park Avenue Investment Club and Insider Alert newsletters.
Charles is also the author of the highly acclaimed book Getting Started in Value Investing.