(MONEY Magazine) – Both men are astute investors. Both are longtime members of Forbes magazine's list of the 400 richest Americans. And both run companies that are essentially giant investment vehicles with serious stakes in many other firms, anchored by large insurance businesses. But in mid-October, one of their companies was trading at a 7% premium to the value of its components, the other at a woeful 22% discount. By analyzing their stocks, you can learn a lot about the way emotion has overpowered reason in both situations--something that can happen to any stock at any time.

The two men in question, of course, are Warren Buffett, 67, who runs the seemingly overpriced Berkshire Hathaway (ticker symbol: BRK.A; recently traded at $45,000 a share on the New York Stock Exchange; no yield), and Laurence Tisch, 74, who with his brother Bob runs the undervalued Loews Corp. (LTR; NYSE, $113.75; 0.9%). The valuation figures are courtesy of editor James Grant and analyst Ken Shirley of Grant's Interest Rate Observer ($610 for 24 issues; 800-215-9156), who recently compared the two companies to illustrate how illogical the supposedly rational stock market can be. Their conclusion: "We'd sell Buffett, or at least not buy him," says Grant. "And we would buy Tisch, or at least not sell him." (See the tables on the facing page for scorecards on the two companies.)

To be sure, both Berkshire and Loews are complicated conglomerates that defy easy analysis. Property/casualty concern Berkshire has some $40 billion of investments in companies ranging from Coca-Cola to International Dairy Queen, which Buffett was in the midst of buying for $585 million in stock and cash when Money went to press. Loews owns 84% of property and casualty insurer CNA Financial plus interests in tobacco, hotel, watchmaking, and oil and gas drilling operations. The difference in relative valuations that Grant cites, however, is simply too big to ignore.

There are several reasons for the value gap. For starters, Buffett has the stronger career stats. Investors have reaped 29% average annual returns in Berkshire over the past 12 years vs. 16% for Loews. "Of course you'd pay more for Buffett," says Andy Kilpatrick, who published his own Buffett paean, Of Permanent Value: The Story of Warren Buffett. "The Tisches have been great investors, but Buffett's been better."

Then there's the fame factor. With the most celebrated investor of all time at the helm, Berkshire exudes an aura unrivaled in the financial world. Indeed, when rumors spread in August that Buffett might have been selling some or all of his $2.2 billion in Wells Fargo stock, the shares were knocked down 6% within hours. (Wells Fargo says that Buffett remains a "substantial stockholder.") By contrast, Loews languishes in the same relative obscurity as Tisch himself, who could likely pass you unnoticed on the street.

The billionaires' distinctive styles in the ring also have an impact on the value of their stock, says analyst Peter Russ of New York City investment bank Laidlaw Global Securities. Buffett is the ultimate buy-and-hold guy, seeking solid companies that dominate basic businesses and hanging on to them for years. Some of Buffett's biggest knockouts have come in stocks like Coca-Cola (up more than elevenfold since he first bought it in 1988) and Gillette (up more than 700% since early 1991). That type of success attracts investors--and boosts stock prices.

Tisch is a counterpuncher. He prefers down-and-out companies and industries and often makes a fortune once they turn around. For example, in the late '80s, when oil prices were depressed, the Tisch brothers started snapping up idle drilling rigs on the cheap through their Houston subsidiary, Diamond Offshore Drilling. In 1995, they took Diamond public for $12 a share. The stock now sells for about $65--and the brothers' current 50% stake is worth $4.6 billion.

But Tisch's long-shot wagers haven't always paid off. Loews lost $467 million earlier this year, primarily on equity index futures and options that would have soared in value had stocks fallen. Tisch's contrarian style makes many investors wary of Loews' stock, says David Schiff, editor of Schiff's Insurance Observer, a bimonthly newsletter. A more serious handicap may be Loews' $3.3 billion investment in Greensboro, N.C. tobacco company Lorillard, maker of Kent, Newport and True cigarettes. With at least 50 class-action suits pending against cigarette manufacturers, tobacco isn't exactly the glamour industry of the '90s.

Still, it seems clear right now that Loews is the better buy. Just look at Berkshire's holdings. Many of the largest trade at lofty price/earnings levels: Coke at 36 times 1997 earnings, for example, and Disney at 30 times. Although some optimists argue that we've entered a "new era" of sustainable high profits, many analysts still insist those multiples are too lofty. Investors in Berkshire, then, are overpaying not once but twice for their share of those companies: first, individually, and second, as part of the overall Berkshire portfolio. If any of those multiples drop, Berkshire shareholders could be in for a nasty surprise. "Is this a new era?" asks Grant. "For the sake of the holders of Berkshire Hathaway, it had better be."

Conversely, Loews is a two-fisted bargain, says Harry Rosenbluth, manager of the $4 billion Smith Barney Premium Total Return Fund, which owns $190 million of Loews. Aside from the discount of the portfolio as a whole, he also thinks that Loews' CNA subsidiary is undervalued by at least 20%. Salomon Bros. analyst Diana Temple believes that the market is treating Tisch's tobacco division too severely. She figures that even after accounting for the possible settlement payments, Lorillard is worth some $22 per Loews share; she values the rest of Loews at $115. With the stock trading at $113 or so, investors are essentially getting a free share of Lorillard plus $2 with every share of Loews. So if you don't mind owning part of a tobacco company, Loews looks almost too good to pass up. Temple thinks the stock price could hit $137 when the tobacco haze lifts during the next year or so, which would give you a 21% total return by the end of 1998.

As for Berkshire, we've told you not to buy it before--and we've been wrong. But we're going to (reluctantly) say it again: There are better places to put your money. (The same goes for Berkshire's low-priced but similarly valued B shares.) Although purchasing Berkshire gives you the world's best investor and a portfolio of great companies, many of those firms are overpriced and you're paying extra for the privilege of buying them. Our caveat: If you own Berkshire, we certainly wouldn't advise selling it. Observes Michael Murphy, editor of the newsletter Overpriced Stock Service: "It's tempting to short the stock on principle, because we are in the midst of a silly mania. But you're looking at a religion here."

Berkshire certainly trades at levels determined more by faith than by reason. So, as long as true believers exist, Berkshire will likely continue to sell for more than it's worth. When it comes to the Oracle of Omaha, the customary rules don't seem to apply.