Berkshire Hathaway

[Dod101]

It was a great investment but if it is not so now, I will agree with you. That being so, I assume it is because it is now so big that it reverts to the mean. Besides, Buffett is now well into his 80s and even his mind will not produce the ideas it did when he was 50.

In fact I expect that when Buffett is no longer with us (ie when he is dead) the business will be sold off just as Hanson was. It will be seen rightly as an amazing performance but it will also prove its limitations.

Dod

[SalvorHardin]

I don't get why everyone thinks it is such a great investment. The chart shows it to be in line with its index over at least 10 years but not outperformong it!

It holds some great stocks but are it's businesses holding it back. They seem a weird assortment of furniture shops etc.

Clearly not everyone thinks that it is a great investment

Bear in mind that a lot of the performance of the S&P 500 in the last few years has been driven by technology companies, notably the "FAANGs". Berkshire is not one of these types of company, so it isn't seen as being all that exciting by the market. That's nothing new to us long-term shareholders; we saw the same thing during the dotcom boom when Berkshire was deemed to be old tech. Funnily enough Berkshire is still going strong whilst most of the names touted back then are not.

Berkshire's furniture shops, jewellers, Sees Candy, etc. are a very small part of Berkshire's interests. Very small, but they get a disproportionate amount of the coverage because they were the earliest (and thus well reported) examples of the "moat" strategy in practice. The main drivers of Berkshire's future performance are going to be its major subsidiaries such as General Re, GEICO, Mid American Energy, McLane and Lubrizol plus the stock portfolio; not the furniture stores.

It's estimated that as many as nine of Berkshire's subsidiaries would be in the S&P500 if they were quoted separately. I reckon that if Berkshire's Burlington Northern Santa Fe railroad was quoted separately it would be valued at something like $100 billion (I'm basing this on Union Pacific's valuation - the two companies are very similar).

Nowadays Berkshire tends to lag the market during the good times and outperform during the not-so-good times. I see it as being like a no-fee S&P500 tracker without the upside and downside of tech stocks. That said Berkshire's biggest shareholding is Apple (last time I looked it was around $50 billion worth, which is a big chunk of Berkshire's $520 billion market value).

Berkshire won't get broken up when Warren Buffett retires. For one thing there are too many private investors who are strongly attached to the company and who fully understand the concept of "moats". I expect that there will be dividends.

The spectacular performance of the 70s, 80s and 90s will not be repeated. Berkshire is too big for that to happen again.

For most private investors, the best thing they can get from Berkshire Hathaway is to read Buffett's letters (if anyone wants to get one of the books I recommend Lawrence Cunningham's "The Essays of Warren Buffett: Lessons for Corporate America"). And to learn what is meant by "moat" when it comes to investment. Also to appreciate that investment returns tend to be "lumpy" not "smooth" - we're seeing a great example of this with the fall of General Electric, the poster boy in the 1990s and early 2000s for conglomerates producing steady growth (through accounting techniques).

https://nypost.com/2018/02/26/general-e ... stigation/

[Lootman]

Also to appreciate that investment returns tend to be "lumpy" not "smooth" - we're seeing a great example of this with the fall of General Electric, the poster boy in the 1990s and early 2000s for conglomerates producing steady growth (through accounting techniques).

https://nypost.com/2018/02/26/general-e ... stigation/

Funnily enough I was wondering yesterday whether WB might be sniffing around GE, as its price keeps falling ever lower. Although he might be more interested in a preference share arrangement like what he pulled off during the sub-prime crisis.

The aircraft engine business seems up his alley and the new Boeing 777-X will be powered only by GE engines.

[SalvorHardin]

Funnily enough I was wondering yesterday whether WB might be sniffing around GE, as its price keeps falling ever lower. Although he might be more interested in a preference share arrangement like what he pulled off during the sub-prime crisis.

The aircraft engine business seems up his alley and the new Boeing 777-X will be powered only by GE engines.

Agreed. Whilst I don't follow GE, it is the sort of business that would be of interest if it came up for sale. Berkshire bought Precision Castparts two years ago (for a mere $37 billion) and since it's a major supplier to GE Aviation he's probably got access to all sorts of information about the business.

The same applies for GE Power; Berkshire's got a lot of experience and knowledge of the power business through its MidAmerican Energy subsidiary.

GE's CEO is open to offers for many of GE's businesses, and given GE's policy of being either first or second in a sector (or getting out of it) there's going to be some good stuff up for sale. And Berkshire at the moment has a lot of cash sitting around waiting for an opportunity.

Berkshire might even be considering a bid for the entire company, though this would require a lot of due diligence regarding GE Capital given some of the accounting tricks that have been pulled over the years. Here's an interesting article from an Australian fund manager about this:

https://foragerfunds.com/news/ge-buffet ... -takeover/