Tuesday, March 9, 2010

The Case for Selling Short Berkshire Hathaway

A Cornell MBA student, Raj Rajagopal, has put together a case for selling short Warren Buffett's Berkshire Hathaway. His case is based partly on the fact that Berkshire is simply a "bailout baby." Raj also points to the huge insurance risks and derivative risks taken on by the company.

His full analysis is here(PdF).

Buffett is clearly not investing using his old style and principles. This may mean that Berkshire could lead the market on the downside.


  1. An MBA student? Really?! I have not read the "full analysis" but if it is based on Buffets "old style and principles" it probably mis-understands Buffet.

    Of course that would depend on your definition of "old style and principles." If by that you mean some rigorous form of fundamental financial analysis than you clearly mis-understand Buffet's success.

  2. Some of the analysis is weak.

    1. Burlington acquisition : cites an EV/FCF with no reference to the business cycle of Burlington. The ratio is not high if Burlington is at the industry cycle low. Analysis needs to address this.

    2. His criticism of Ajit Jain seems to be that Jain is not well known to the analyst. So? He is well known at Berkshire.

    3. Without proof he attributes large trading volume on Berkshire after split to retail investors. Many institutional investors are closet indexers and will buy BRK because it now in the S&P 500 index.

    His points on involvement with banks and derivatives--where you can't know what you own--are valid.

    Interesting analysis but I don't plan on selling short.