For the most part, the price of a stock does very little in telling investors whether it is a good value or not. Any astute investor will do his or her best to estimate their own fair value for a stock. However, in certain circumstances, an extremely high stock price can be quite telling.
The best example comes from Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B). Its Class A shares trade at more than $121,000 a share and easily represents the highest share price for any stock out there. According to Warren Buffett, the high share price is meant to reduce shorter-term speculative trading and encourage loyal shareholders planning on holding the stock for a very long time. (And the only reason the 'B' shares were split were to facilitate Berkshire's acquisition of Burlington Northern Santa Fe.)
The signal sent by a high share price can be that management is committed to growing its business over the long haul and is not willing to sacrifice long-term profitability for short-term results, such as by holding off on paying a bill to make sure it beats quarterly profit expectations. Again, Berkshire is the paradigm case for striving for long-term shareholder value. Here are four other firms with high share prices that share similar views on how to run their businesses and treat shareholders.
1. Markel Insurance (NYSE: MKL)
Business: Specialty insurance
Forward P/E: 24.6
Keen investors in Berkshire Hathaway are fully aware that the executive management team at Markel Insurance is out to emulate the Oracle of Omaha. The company even presents during Berkshire Hathaway's annual shareholder meeting in Omaha. Markel is known for taking a patient approach to managing its insurance businesses and investment portfolio using the premiums it collects from customers. The company has a ways to go to match Berkshire's share price, but it is close to reaching $400 a share. Shareholders have done very well over the years and Markel has been able to grow sales and earnings at more than 10% annually in the past decade.
2. Fairfax Insurance (OTC: FRFHF.PK)
Business: Property and casualty insurance
Forward P/E: 8.3
Like Markel, Fairfax's shares are also hovering around the $400 level and focus on insurance. Similarities to Berkshire Hathaway are also prevalent: CEO Prem Watsa has been referred to as "the Warren Buffett of Canada," given the firm's strong track record in managing its own investment portfolio. Book value has grown by more than 20% for more than a decade and serves as another example of how focusing on long-term value creation can be quite lucrative for patient and loyal shareholders.
3. International Business Machines (NYSE: IBM)
Business: Diversified technology
Forward P/E: 12.9
Finally, moving away from insurance and taking a look at a company in another industry, the company known as "Big Blue" sports a high share price of nearly $150. This is a high price in absolute terms and compared with other tech rivals. Just as with Berkshire, this is meant to encourage a more patient shareholder that is less likely to jump in and out of the stock. IBM's track record is impressive: earnings have grown by more than 9% in the past 10 years. The technology industry may be fast paced, but IBM has stuck to a consistent strategy of moving into higher profit software and IT services for a number of years now, and the moves are paying off big for investors.
4. WW Grainger (NYSE: GWW)
Business: Industrial products and services
Forward P/E: 20.8
With a share price hovering close to $140 a share, maintenance equipment maker WW Grainger has among the highest share price levels of its peers. Its long-term focus has allowed earnings to improve more than 11% on average during the past decade. In addition to a loyal shareholder base, Grainger's customers are loyal and choose it over rivals, given the firm is well-run and able to pass low costs onto its clients.
Action to Take —> An occasional screen of stocks above the $100 share price level could be a worthwhile endeavor for uncovering companies that have treated their shareholders well over the years. It can also be indicative of above-average growth prospects ahead.
A high share price by itself is not proof-positive that a company's management team is committed to Warren Buffett's philosophy of stable, consistent shareholder returns over many years, but it's usually a good indicator. The stocks mentioned above are all good examples of this and are good candidates if you're looking for these qualities in a long-term holding.
– Ryan Fuhrmann
P.S. — We've just identified six surprising events that could break your portfolio wide open in 2011. Knowing these pivot points in advance lets you focus your investing strategy like a beam of light in the dark… and make a lot of money in a hurry. Get them free by simply watching this video presentation.
This article originally appeared on StreetAuthority
Author: Ryan Fuhrmann
What These 4 Stocks Have in Common With Buffett…
Some questions about stocks and investing?
Hi. I am just having trouble with some finer details about stocks and trading. I have some questions here, and if you have anything to add besides answers to them, please do tell.
1. Can a stock be simultaneously sold/available for sale on the NYSE and Nasdaq? Or any stock market for that matter. Can the stock be sold in more than one place and, once sold, be immediately taken away from the other ones? Or does this only work with electronic ones such as Nasdaq? Please explain.
2. Where should a young person looking to begin investing start? Is buying online the best way? Anyway, what other ways are there even? I mean, is another way to directly call up a company or call a broker? How do most successful investors start out? Everyone starts somewhere.
3. Once a stock is publicly traded on the public markets, does the company still have the power to sell it directly themselves?
4. Is it as simple as just buying stocks and selling when they go higher…or is a lot more stuff able to be traded? What I mean is, for ETFs and other things, is it possible to buy any of it online or through a stock exchange? When the famous or even just any relatively experienced investor buy stocks, they don’t just buy online, right? They must do something. What do they do? Do all of them have umbrella companies? Please explain how the whole process "works" and all scenarios possible.
6. This is a little bit redundant, but, how exactly are things besides stocks traded? Or just stocks? Do most people just go online or what? I mean, I cannot think of another way, but Warren Buffett and others do it. Do they use phones? Email?
7. When someone or some company actually sets out to buy a whole company, do they just go to the stock exchange and buy over 50% of the shares (after research etc. is done), or is it more of a transaction.
8. When a company wants to go public, who do they call to put the shares on the market? Also, do any companies actually market (as in advertise) their shares to potential buyers?
9. Is there any one single book or two or three books that can explain all of this stuff (that are good books)? Or maybe biographies or something? I have read a few investing books, but I feel like they all assume that the questions I just asked are common knowledge.
10. I am 17 and in high school. I am going to major in economics and minor in mathematics at either Brown, Princeton, or UF (applied to all of them and I will at least get into UF) and I want to learn about investing. Investing could definitely be a good career for me, and I am highly interested by it. I understand that some good job opportunities come from going to top tier schools and getting internships, but I do not want to "rely" or even have to deal with that competitiveness. As much as I would like to work that stressful life, I want to have good knowledge on the side. Plenty of famous investors never worked in investment banks. They just managed companies that did hedge funds or something like that. How do they get into those positions? Or must one get an MBA from a top school to get there?
11. Are there any famous or not famous millionaires or rich people that simply made money by investing by themselves and not by working at some bulge bracket firm?
I feel like I do not know anything about this, and I should. Is it because I haven’t actually bought a house or anything yet so I do not know? If these are silly questions, sorry.
I look forward to learning. Thanks!
It’s such a deep topic, and there does not seem to be an "order" as to which you learn it. I want to learn about all of it and be familiar so I can begin my journey. There is just so much information. I can feel that I have only knicked the giant boulder.
Also, when you do want to buy online, do you just go somewhere like Scottrade you’re good to go? Or is there some process?
It is all so esoteric to me.
1. Yes. You get a couple of stocks listed in both Nyse and Nasdaq. Multinational companies are list all over the world exchanges.
2.At the moment I recommend mutual funds or ETF’s that invest on emerging economies. Developed economies offer very little growth for now. But if you want to play it safe, and are young and working and debt free then BUY A HOME, now,while homes are cheap and interest rates low. A home is a life long investment. You will always need it. And you also don’t want to be an old man who is tired by repayments when you should be taking it easy.
3.A company can issue more stock. A company can buy stocks back and sell them later. Companies never sell direct to the public market at any time, they sell through financial institutions, that’s what investment banks are there for. Stocks are publicly traded through market-makers like New York stock exchange and Nasdaq. A company may sell to its employers, it may sell stocks that it is still holding in its books to whom ever it wishes, but these would not really be public trades, but even with these transaction if a company is publicly traded then it has to report to shareholders through financial statements and Sec filings and it must comply with market-maker policies.
4. Your retail traders mostly buy on line or through a broker. Remember trading really is happening in computers for most countries. Not anyone can just trade directly with the exchange, the big institutions or broker companies place our orders on our behalf. But again everything is online here, in other words very fast.
6.If your big investor or institutions then you do not have to buy on the market, special deals can be made. The market serves as a guide line or indicator.
7.There are two main popular types on take overs:
a) Hostile takeover – that is when the number of shares needed to be a majority shareholder are bought or an offer is made on the public market and or from individual shareholders, without consulting directors or after being rejected by directors.
b)Friendly takeover – Directors are approached and an offer is discussed with them
But which ever type of takeover an offer will be made to the shareholders. The stock traffic and price on the market will reflect the proposed takeover.
8. Financial institutions, such as investment banks facilitates stock offerings. The whole process is complex and has legal requirements and representatives. Normally an offering is announced prior, through financial news media.
9 Stocks for dummies is very good with basic, even I sometimes refresh my memory by using it .
10Everything starts with passion. Love finance with your heart. Read books on the subject, follow financial news, makes notes, learn as much as you can about something you come across but do not understand.
11.Warren Buffet, look him up on wikipedia.
Yes, but you will have to open an account with Scottrade first.
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