No. of Recommendations: 10
Fascinating to think if we have $50B of 'normalized earnings' with 8% growth/year that mgt (and/or investee mgt with retained earnings) will need to allocate cumulatively in the next decade as much as our current market cap!
I believe this is the key issue going forward - not succession. Where can such quantities of capital be placed at attractive returns?
In thinking about this, also consider that the two most capital intensive businesses of BRK - BNSF and BHE - don't depend upon BRK for financing. Both being regulated industries, they get their capital from internal cash flow and public borrowing for internal expansion. BRK may fund acquisitions but not maintenance and growth capex.
If one looks at privately controlled US companies, only Mars and Cargill could soak up huge quantities of cash. I doubt Koch is seen as a potential acquisition. While it's been some years since I looked at this in any depth, the size of other possible private US acquisitions drops off pretty rapidly.
So that leaves stocks, international companies, buybacks and dividends. And most of us don't want dividends - nor do the very large BRK shareholders. We don't have much of a track record internationally. Are index funds and buybacks our future?
Just rambling out loud on subjects that have been discussed many times before. Succession will happen - for better or worse. But that doesn't change the reality of the cash reinvestment challenge facing BRK.
