No. of Recommendations: 21
I understand how compounding works, and you may be surprised to learn Warren, Charlie, and Greg do too.
A very large percent of our Berkshire Hathaway present value accumulated over 60 years appears to have been created from capital deployment during the 2009–2014 period — when many people were already claiming…as you are now… Buffett has become “too conservative” to compound.”
Consider what came out of that brief period:
• The full acquisition of BNSF
• Crisis-era preferred stock/warrant deals
• Massive growth in Berkshire Energy
• Continued operating company reinvestment
• And eventually the Apple investment, which Buffett himself has indicated created $185 billion of value for Berkshire
For perspective: Berkshire’s entire market cap in 2004 was only about $135 billion.
Today, Apple gains alone exceed that figure. BNSF alone may approach it.
This is why the “Berkshire can’t compound anymore because of the cash pile” argument misses something fundamental:
Berkshire’s cash does not get deployed in a smooth, quarterly, Wall-Street-friendly manner. It gets deployed in massive, lumpy, highly opportunistic waves. After long investment droughts. We wait very patiently for fat pitches.
Most people simply lack the patience for that model.They always have.
Meanwhile, Berkshire’s existing portfolio of productive businesses and investments continues compounding internally every single day whether a major acquisition happens this quarter or not.
As Ajit pointed out our favorite word at Berkshire is no”. We say no most of the time. Always have. Berkshire has sat on very large chunks of cash for very long periods every decade. At one point even Warren got so bored he closed up shop and then returned all the money back to investors.
This is not for everyone. But enjoy the fruits of 3/4 of a Trillion dollars of productive asset deployment for our benefit. It helps manage the boredom in the meantime.
