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(Precious) Words of Wisdom : "Wall Street makes its money on ACTIVITY, you make your money on INACTIVITY." ~ Warren Buffett

Warren Buffett's company's share hits $200,000 price

Yes, you read it right! Each share of Berkshire Hathaway now trades at around $200,000. This company, as you may be aware, is Mr. Warren Buffett's holding company that owns his various investments.

Before you get any wrong ideas that at US$ 2 lakh per share (or Rs.1.20 crore per share) it is simply toooooooo expensive, let me tell you that at this price the P/E ratio is a mere 17.15. And it compares quite favourably with Dow Jones Industrial PE at 15.87.

Just to put things in proper perspective, many of our FMCG, IT and Pharma companies are a lot more expensive trading at 35-40 PE, which is double the Nifty / Sensex PE of around 18-20.

As all experts repeatedly warn, share price in isolation has simply no meaning. You can only understand it in relation to other parameters such as earnings, peer group, EPS growth rate etc. That is why I often counsel you not to buy penny stocks. The prices may be cheap and thus look hugely attractive. But at the core they are utterly rotten businesses.

Coming to the moot point.... why does Berkshire Hathaway's share cost so much?

Because Mr. Warren Buffett does not believe in market gimmicks called Bonus Shares and Stock Splits ['Bonus Shares are just a Market Gimmick']

Because Mr. Warren Buffett does not declare dividends as he believes — and rightly so — that he can invest the profits better than his shareholders can.

As such, over the years as the company and its profits have grown, the share price too has continued to rise.

Do you know that you too can employ the same strategy and make millions for yourself?

How? Buy good mutual funds with 'Growth' option. They don't have any payouts or dividends, which makes the corpus... and the hence NAV... grow with time.

As the markets grow over the next few decades, NAV of these funds will continue to rise. And, like Warren Buffett you too would be sitting on tons of money. [Don't miss the eye-opener 'Are you missing out on mind-boggling returns?']

And to reiterate... please be VERY patient... and let the economy and fund managers do their wonders.

Meanwhile enjoy the '12 Simple Lessons to Learn from Warren Buffett'.

An Investment In Knowledge Pays The Best Interest ~ Benjamin Franklin

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