Subject: Meanwhile Back at The Ranch
Some background for this post. This past week I had lunch with a very good friend that I had not seen in person since Covid began. We did keep in touch with long phone calls but no close contact. We talked for about three hours. Like myself, he has 60-70% of his investments in Berkshire.

As we were winding down, I commented that we had talked very little about Berkshire. He replied that we’ve about “talked out” Berkshire. What more is there to say?

I’ve been thinking about that and, except maybe for some specifics items, I think he’s right – at least for now. Let’s look at the broad picture.

Succession: We’ve known for some time now that Greg and Ajit would run BRK after Warren. Actually, that part of the succession has already happened for the businesses. The only remaining question was about who would manage investments. That was cleared up at this last meeting. Now it’s just about when Buffett moves on (Hopefully not soon.).

Investments: The potential investments that would impact BRK have become a well picked over menu. And the prices have been driven up by cheap money. Thus Buffett has clearly decided to wait until the next market drop presents better opportunities. No cap on the size of the cash pile. If interest rates stay relatively high, a lot of cheap debt is going to have to be refinanced in the markets. That could slam highly leveraged private equity firms and similar businesses. This will create opportunities. Patience is the strategy. Buybacks help some but can only provide limited capital consumption because of the market volumes.

Insurance: Ajit is firmly in control. For reinsurance, we’ll take advantage of attractive markets and sit on the sidelines when it’s not. Geico is being turned around and Ajit suggests a couple more years should see it fully competitive again. Insurance will be profitable, but cyclical.

BNSF: A lot of major capex is behind us. Double decking has almost been completed. Profitability lags competitors so the name of the game is cost control and right-sizing to match demand. What needs to be done is clear, let’s make it happen.

BHE: Demand is expected to grow rapidly, requiring a lot of capital. Recent events in terms of liabilities from wildfires have brought acceptable returns on those investments into question in some markets. BHE will do what makes sense and has made the issues public. It is an evolving situation.

Pilot: Berkshire now owns and the squabble has been cleared up. Some lessons learned. Right people now in management and operations are being upgraded. Pilot will react to how the markets evolve. Valuable real estate.

Manufacturing: Basically tied to GDP. Profitable but slow growth. Greg has established his position and become familiar with the managers and businesses. A wide range of businesses from good to not-so-good. Focus will be on tighter management. Underway. Greg’s leadership will lead and monitor.

Service and Retail – Also tied to GDP. Another mix of good to average businesses. Hard to get details. Will follow similar strategy to Manufacturing – tighter management, Greg will lead.

Given Berkshire’s size now, it’s hard for me to see significant growth opportunities in MSR. But it provides positive cash flow for investment.

Intrinsic Value: Long a favorite hobby of many of us. Now there are several estimates published by others. These range from fairly simple macro models to highly detailed sum of the parts studies. Frankly, you can choose your own estimate and find a study that mostly agrees with you. What seems clear is that BRK is selling closer to a conservative estimate now than in the recent past. But it remains an attractive choice for preserving capital with some growth. Compared with index funds, its large cash holdings and still conservative pricing make it attractive to value investors. And it has tax advantages. But not really that appealing to those with higher animal spirits.

The foregoing are my opinions – others may disagree with some or all. But they’re all areas that have been discussed in depth over many years.

Maybe that’s why this very intelligent board gets tempted to debate option strategies a lot. And to stray into other topics that may, or may not, have much relationship to Berkshire.

And why my friend and I talked mostly about other subjects.