Warren Buffett and the Motley Fool

Investment advice is kind of like fried chicken recipes. Everyone's got a tip they're willing to share – results may vary. Just when you think you might have the corner on a good piece of advice, something happens to shake that belief. My most recent awakening to the snake-oil side of stock research came when I tried to fool the Motley Fool by tracking down their "Only Stock You'll Ever Need!" through clues in a free teaser for a research report. I couldn't find the insurance stock they called the "next Berkshire Hathaway ," ( BRK-A ), but I did learn that this stock is similarly touted in other investment reports with nearly identical descriptive sales language. Here are a few lines from an e-mail I got from Kate Ward, publisher of Motley Fool Inside Value: Berkshire CEO Warren Buffett "used his business valuation savvy to recognize hidden assets. And help shareholders get rich. That was the simple Buffett strategy that built Berkshire – it's also the secret of the company we're talking about today. ... And it could make you rich." Yeah, like to the tune of $110,500 a share!

Sounds great, doesn't it? The e-mail was sprinkled with charts illustrating how this wonder stock killed the S&P 500 over the past several years and showing how magic value stocks recommended by Motley Fool sage Philip "Admiral" Durell will make you rich beyond your wildest retirement dreams. It also featured drool-inducing vignettes about the monumental gains realized by early Berkshire investors. At this point, already hot to the wonders of the Fool after buying a car with its advice, browsing its daily newspaper columns for years and digesting several similar e-mails - even going so far as to follow an Admiral recommendation and buy the high-yielding bank Lloyds TBS Group ( LYG ), which had done well enough - I was just about convinced that I had to buy their $149 investment letter subscription to get my hands on this next Berkshire. But before I called a buddy to urge him to go halves for this fount of knowledge, I did a little Googling to see if I could figure this one out. Then I did more. At first I couldn’t find for myself anything as exciting as what Kate was talking about. What I did find, though, with all my searching for the "next Berkshire," was an investment newsletter offer written by Addison Wiggin, publisher of Capital & Crisis , who for some time has been pedaling “The Only Stock You'll Ever need!,” which he says was pointed out by top-flight analyst Chris Mayer.

Here's how Mr. Wiggin describes this must-have stock: "Then (Buffett) used his own business savvy to dig out hidden assets ... and help the original owners of the business get very rich, while reinventing their companies as even bigger cash cows and wealth producers than they'd ever been before. That was the real Buffett strategy that built Berkshire. It's also the secret strategy of the company we're talking about today. And it could make you very rich." His letter was also sprinkled with graphics showing how this market-drubbing stock will weather you through good times and bad for generations to come as well as drool-inducing vignettes about early Berkshire investors.

And that's when I stopped taking the Fool so seriously.

Sears Holding Co.

Luckily, Googling for the next Berkshire led me to more than just greater skepticism for subscription investment advice. I also stumbled on a few 2004 articles about billionaire financier Eddie Lampert and his plans for Kmart. Articles from Business Week to New York Magazine questioned whether the savvy Lampert was going to use the struggling retailer as a base for a Buffett-style investment empire. Lampert went on to buy Sears and merge the two giants under Sears Holding Company, (SHLD ). The stock looks like a value buy by all the metrics I've reviewed and is now trading at a reasonable $155 after a hit, low in its 52-week range. In his letter to shareholders on the first anniversary of the merger, Lampert compared his goals to Buffett's: "Our goal is to increase the per-share value of Sears Holdings." Lampert initially plans to do so by improving operations in the core retail business and buying back shares at a reasonable valuation.

“It could make you very rich”

On a side note, while researching this column I did find new clues that made me certain I'd tracked down the stock touted in these two mirror-image investment reports. In case you’re interested (and want to save a little dough), this gem that launched a thousand investment letters is White Mountains Insurance Group Limited ( WTM ), an insurance holding company put together by John J. Byrne. Byrne's the executive who turned Geico Insurance into one of Berkshire's most profitable holdings and who Buffett once called the Babe Ruth of the industry. White Mountains has indeed soared and recently was topping the S&P 500 handily with gains of over 100 percent since 2003. It is trading near the top of a sour 52-week range at $575, less than 50 percent higher than book value. I'm bearish on WTM.

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  • published this page in Blog 2007-07-18 00:04:00 -0400

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