Berkshire Is Now A Hedge For $325 Billion Reasons

Berskhire stock (BRK.A, BRK.B) is now a hedge due to its money position. In case of a market crash BRK might actually go up like it held true in the 2000-2002 period when the S&P 500 crashed almost 50% while BRK increased 77% in the same duration.

The rationale is the following: with $325 billion in cash, Buffett is going to deploy that money in a crash. He typically likes to buy businesses that are short-lived low-cost but over the business cycle give a minimum of a 10% profits yield. A 10% profits yield on $300 billion is $30 billion. If I include that to the existing $40 billion of yearly revenues and subtract the $10 billion he is now getting on the money from interest, I get to $60 billion in incomes for BRK. At the existing PE ratio, BRK stock would go up, at the historic PE ratio of 15, it would remain stable (always comparing to a market crash), while even if down, it needs to crash less than the market.

BRK needs to be a strong position in a fully invested US portfolio with the exposure much higher than the existing BRK 1.73% direct exposure in the S&P 500. BRK now provides a much better longer term return and a much less risk compared to the market and numerous other investments.

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Berkshire Is Now A Hedge For $325 Billion Reasons