Subject: Re: Berkshire's decline
Any portfolio looks pretty darned good if you ignore the results of the few big losers (something Berkshire has always been very good at), and looks really bad if you ignore the few big winners. Evaluating Berkshire either way doesn't make much sense...after all, it's the overall result, the weighted average, that matters. It's not meaningful or useful to say "it would have been better without dud XXX" or "it would have been worse without success YYY". Results have been very good overall, far better than shareholders had any reason to expect of this era seen from 10-15 years ago, and seen as a whole it wasn't luck.

To my thinking, any decline is concentrated in two areas worth considering. Weakness in the rail earnings, and problems at BHE. Those are entire segments of the firm important at the top level, not single stock picks.

For the rails, I think the problem is primarily cyclical. Things are a lot less profitable than they were a few years ago, but with hindsight we can see that there was a bit of a windfall period for coal loadings. The trend line of observable earning power may be at a lower slope than we previously estimated, but ultimately the very long run earning power remains intact, so I wouldn't lose too much sleep over that. BNSF will still be making a decent buck from people moving things by rail 100 years from now.

BHE is a bigger issue. Utilities are great investments only so long as the regulators let you make a decent buck, and in that sense they've always relied on the kindness of strangers. The kindness has been lacking. BHE is itself an entire portfolio, much of which is just fine, but it does seem to have a serious problem with the intersection of fires and regulators that may be a material and lasting impairment. That being said, it's survivable. There is a whole lot more to BHE than the west coast of the US, and there is a lot more to Berkshire than BHE. What would constitute a really bad outcome? If the ultimate outcome were a one-time permanent loss of 15% of the value of a Berkshire share, but continuing the long run growth in value of (say) inflation + 7-8%/year before and after that drop, it's the equivalent of losing two years of growth, not the equivalent of Berkshire no longer being a viable investment choice.

The overall strategy is to buy into businesses that appear to have an unusually long runway of owner earnings, and not overpaying too much for them. Those attempts will inevitably have a range of outcomes, if only because almost all economic moats have a finite lifespan, but it's such a good strategy (and so rarely attempted) that a satisfactory outcome is still pretty much guaranteed. Assuming you think something in the range of "inflation + 7%/year without any risk of blowup" counts as satisfactory.

Jim