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- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 12
Berkshire’s combined operating businesses have generally provided the firm with a narrow moat, with its ability to produce additional excess returns from the cash flows thrown off by its disparate operations historically pushing our rating into wide territory. But we’ve seen more signs of slippage in the railroad business, as well as increased litigation exposure for the utilities/energy business, which have put downward pressure on excess returns for the noninsurance operations. Meanwhile, price hardening in the property and casualty market, more manageable catastrophe losses, and robust investment returns (all of which may not repeat themselves) have masked years of poor performance from Geico.
Berkshire’s size has also made it difficult to find deals or investments that can add significant value, due to increased competition from private capital and the company’s constricted opportunity set, diminishing the benefits from ongoing capital allocation. With the firm also unlikely to replicate the historical advantages of CEO Warren Buffett overseeing investments once he departs, it has gotten harder to see Berkshire generating excess returns consistently beyond the next decade, leading us to lower our moat rating to narrow from wide.
https://www.morningstar.com/stocks/berkshire-hatha...
No. of Recommendations: 11
Their analysis may or may not have merit, but I wish someone would tell them that a wide moat is better than a narrow one, not a downgrade : )
Jim
No. of Recommendations: 3
Their analysis may or may not have merit, but I wish someone would tell them that a wide moat is better than a narrow one, not a downgrade : )
Didn't they indicate that they understand that by saying "leading us to lower our moat rating to narrow from wide"?
I also don't like when the "from" item comes after the "to" item. It makes the sentence more difficult to understand in left-to-right languages (which leads to left-to-right understanding, both for language, and for logic/math statements).
No. of Recommendations: 14
I also don't like when the "from" item comes after the "to" item. It makes the sentence more difficult to understand in left-to-right languages (which leads to left-to-right understanding, both for language, and for logic/math statements).
Sadly that has become the norm in most business stories I see. When I talk to someone it’s always “from” —> “to”. I’m going from Pittsburgh to Boston. My sales went from $100m to $200m. I’m going from the 2nd floor to the 9th floor, not “I’m going to the 9th floor from the 2nd floor.” I started noticing the reversal a few years ago; I didn’t like it then, I am still not used to it, but I don’t know who to complain to to make it stop.
Meanwhile the “downgrade” makes a couple of valid points, such as “Capital allocation” after Warren. Of course right now capital allocation with Warren is proving difficult, so…
Frankly I have wondered for a while about the whole “moat” thing. There are times when it is wide and wonderful - city newspapers for 50 years between 1950-2000, for instance, and suddenly there’s no moat at all. I have never understood the moat for See’s except “good candy”, but so what, there’s lots of good products that hit the skids. Coke? OK, but maybe “liquid candy” will hit the same “healthy” patch that tanked other consumer favorites (probably not, but heck, anything *could* happen).
I’m a firm believer in energy (we’re always gonna need it, and from whatever source is available.) And insurance, a business that’s as old as we are. And BNSF because building an integrated rail system - including ports - is near impossible. Then again that’s what they said about the Buffalo News and Washington Post, both struggling at the moment.
Anyway, overall I don’t disagree with the piece (much) but for me, at least, it’s already a case of “in for a penny, in for a pound.” Except for the considerable stack in the IRAs, the rest would require a big haircut to exit and I have no better prospects anyway.
No. of Recommendations: 6
I was thinking more of their first sentence...
Berkshire’s combined operating businesses have generally provided the firm with a narrow moat...
...which seems to me to be talking about their prior better rating to have been what they call "narrow", the reverse of the meaning you would expect from a castle metaphor.
Jim
No. of Recommendations: 14
I wish someone would tell them that a wide moat is better than a narrow one
Morningstar:
"Berkshire’s combined operating businesses have generally provided the firm with a narrow moat, with its ability to produce additional excess returns from the cash flows thrown off by its disparate operations historically pushing our rating into wide territory.
But…
…, it has gotten harder to see Berkshire generating excess returns consistently beyond the next decade, leading us to lower our moat rating to narrow from wide."
Seems to me they got the analogy right. Operating businesses alone: narrow moat. Because of good reinvestment opportunities for excess profits: wide moat. Loss of that ability to profitably reinvest earnings: back to the narrow moat.
DTB
