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Buffett’s Berkshire Bails Out of CarMax Too Early: Chart of Day

Warren Buffett’s Berkshire Hathaway Inc. may have been too quick to complete the sale of a stake in CarMax Inc., the largest U.S. seller of used cars.

CarMax’s shares rose to a record yesterday as Manheim Consulting released the Used Vehicle Value Index for November. Last month’s reading for the index, a gauge of wholesale used-car prices, was the highest in its 15-year history.

The CHART OF THE DAY illustrates the relationship between CarMax’s stock and the Manheim index since the end of September 2002, when Circuit City Stores Inc. spun off the company.

Used-car price increases may cause the company’s fiscal third-quarter gross profit from each vehicle to be $50 higher than in the second quarter on average, Ryan Brinkman, a Goldman, Sachs & Co. analyst, wrote today in a report. He had previously expected a $40 reduction.

Brinkman has a “neutral” rating on CarMax, based on its price. The stock climbed 24 percent for the fourth quarter through yesterday, when it reached $35.22. The surge paved the way for its seventh advance in the last eight quarters. Since the end of 2008, the stock has more than quadrupled.

Berkshire sold its remaining 7.7 million shares last quarter, according to a regulatory filing. The stake peaked at 21.3 million shares in the first half of 2008. Last quarter’s sales preceded the year-end retirement of Louis Simpson, who picks stocks for Berkshire’s Geico Corp. car-insurance unit. CarMax was one of Geico’s investments.

(To save a copy of the chart, click here.)

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