Post New

ThereisbignewscomingoutofBerk
shire Hathaway. IconWarren Buffett
will leavehispost asChiefExecutiveOf
ficerat theendof thisyear. The94year
oldhasledtheconglomerateformorethan
60 years and has transformed it froma
relativelysmall textilecompanytoamore
than-$1-trillionpowerhouse.Despitestep
ping down, Mr. Buffett will remain as
Chairman of the board of directors and
continueworking fromhisOmaha office.
Mr.Buffetthasanexceptionallystrongin
vestment track record and has handily
outpacedtheperformanceof theS&P500
Index over the decades. Greg Abel will
take over as CEO effective January 1,
2026. Mr. Abel currently serves as the
Vice Chairman of Berkshire Hathaway,
overseeing its noninsurance operations,
and is also the Chairman and CEO of
BerkshireHathawayEnergy.Hehasbeen
with the company since 2000.While it’s
verydifficult toreplacealegendaryinves
torsuchasMr.Buffett,webelievethatthe
companywill be ingoodhands.Mr.Abel
has been effective atmanaging and im
plementingchangeswithinthecompany.
Inothernews,welookforthecompa
ny’sresultstoremainstrongonanab
solute basis this year. While profits
mightwelltakeastepbackfromlastyear,
theyareupagainstadifficultcomparison.
We lookformostof thecompany’soperat
ing segments to performwell this year,
while above-average investment returns,
whicharea commonoccurrenceatBerk
shire, ought to furtherpropel growth.We
expectbottom-lineprogresstoresumenext
year.
Weforecast thatearningswillhit the
$30.00-a-sharemarkby the2028-2030
time frame. Berkshire has a history of
outperforming expectations, and we be
lievethat thisshouldcontinuewithanew
CEOatthehelm.
These shares offer worthwhile risk
adjustedtotal-returnpotential forthe
pull to 2028-2030. Acquisitions, which
aren’t included in our projections until
they are consummated, could addmean
ingfullytoourlong-termprojections.Berk
shirehasbeenabigplayer intheacquisi
tiongame forquitesometimeandwebe
lievethat strategywill continue, givenits
strongfinances.
AlanG.House May30,202

Thanks.

Extracted a few sentences:

While it’s very difficult to replace a legendary investor such as Mr. Buffett, we believe that the company will be in good hands. Mr. Abel has been effective at managing and implementing changes within the company.

We look for most of the company’s operating segments to perform well this year, while above-average investment returns, which are a common occurrence at Berkshire, ought to further propel growth. [Really?]

We expect bottom-line progress to resume next year.

We forecast that earnings will hit the $30.00-a-share mark by the 2028-2030 time frame. [Op. earnings $22/b-share in 2024]

Berkshire has a history of outperforming expectations, and we believe that this should continue with a new CEO at the helm.

These shares offer worthwhile risk adjusted total-return potential for the pull to 2028-2030. Acquisitions, which aren’t included in our projections until they are consummated, could add meaningfully to our long-term projections.

Thanks."

If someone has the time, space it out correctly. I have to get to the park for a pickleball match!

There is big news coming out of Berkshire Hathaway. Icon Warren Buffett will leave his post as Chief Executive Officer at the end of this year. The 94-year-old has led the conglomerate for more than 60 years and has transformed it from a relatively small textile company to a more than $1-trillion powerhouse.

Despite stepping down, Mr. Buffett will remain as Chairman of the board of directors and continue working from his Omaha office. Mr. Buffett has an exceptionally strong investment track record and has handily outpaced the performance of the S&P 500 Index over the decades.

Greg Abel will take over as CEO effective January 1, 2026. Mr. Abel currently serves as the Vice Chairman of Berkshire Hathaway, overseeing its non-insurance operations, and is also the Chairman and CEO of Berkshire Hathaway Energy. He has been with the company since 2000.

While it’s very difficult to replace a legendary investor such as Mr. Buffett, we believe that the company will be in good hands. Mr. Abel has been effective at managing and implementing changes within the company.

In other news, we look for the company’s results to remain strong on an absolute basis this year. While profits might well take a step back from last year, they are up against a difficult comparison. We look for most of the company’s operating segments to perform well this year, while above-average investment returns—which are a common occurrence at Berkshire—ought to further propel growth. We expect bottom-line progress to resume next year.

We forecast that earnings will hit the $30.00-a-share mark by the 2028-2030 time frame. Berkshire has a history of outperforming expectations, and we believe that this should continue with a new CEO at the helm.

These shares offer worthwhile risk-adjusted total-return potential for the pull to 2028-2030. Acquisitions, which aren’t included in our projections until they are consummated, could add meaningfully to our long-term projections. Berkshire has been a big player in the acquisition game for quite some time, and we believe that strategy will continue given its strong finances.

RAMC, well done, now you can do it every 90 days! IF you want anything else let me know I can send it to you privately.

Berkshire has a history of outperforming expectations, and we believe that this should continue with a new CEO at the helm.

There is no chance of that whatsoever.

CEO may be better than Buffett, more hands-on no matter what Buffett gaslights us with. CIOs (investment, not information) will be undoubtedly worse than Buffett, who himself is bad-to-mediocre compared to an indexer in terms of stockpicking in recent years.
Intrinsic shmintrinsic. Show me the money.
Bitcoin hodlers are laughing all the way to the bank as my tax dollars will soon go to the "strategic bitcoin reserve." Value investing is no longer compatible with reality. Please, please prove me wrong. I don't have infinite time to wait.

You can be certain of two things in life..... death and taxes. 🙂

Value investing is no longer compatible with reality. Please, please prove me wrong. I don't have infinite time to wait.

Mhm, do you 2 more years?
Unfortunately the minimum on Longterm bets is 5 I think. The gambler in me is willing to do that.

Value investing is no longer compatible with reality. Please, please prove me wrong. I don't have infinite time to wait.

I guess it depends on how you define value investing. For me, it's "paying a low multiple of pretty-darned-sure future earnings" (several years in the future), whether there are any current earnings or not.

I would include in that category buying Berkshire shares when they are attractively valued, and sitting on your duff. The future won't be as bright as the past, but they still make money faster than they issue shares, so the value of a share can be expected to keep rising at a useful rate. From time to time the stock has clearly traded at less than 10 times average value per share growth 5-10 years out, and I imagine that will remain true.

Jim

paying a low multiple of pretty-darned-sure future earnings

"Multiple" of "earnings"? That's 20eth century talk.
People making real money in the last 15 years are the ones gambling in "assets" with zero cash flows and some indeterminate high terminal "value".
Sorry for all the quotation marks, but the bitcoiners, memecouners, meme stock guys are the retail "investors" (quotes again) who have made real money.
Next tier is those who invested in large cap US growth stocks at nosebleed valuations 5-10-15-20 years ago.
Value investors calculating multiples and earnings are beginning to resemble madhouse residents mumbling to themselves about the real reality and how the rest of the world has gone mad, not they.

paying a low multiple of pretty-darned-sure future earnings
...
"Multiple" of "earnings"? That's 20eth century talk.
People making real money in the last 15 years are the ones gambling in "assets" with zero cash flows and some indeterminate high terminal "value".
Sorry for all the quotation marks, but the bitcoiners, memecouners, meme stock guys are the retail "investors" (quotes again) who have made real money.
Next tier is those who invested in large cap US growth stocks at nosebleed valuations 5-10-15-20 years ago.
Value investors calculating multiples and earnings are beginning to resemble madhouse residents mumbling to themselves about the real reality and how the rest of the world has gone mad, not they.

Though I appreciate that your comment is partly tongue-in-cheek, I think you're pretty far off the mark about the equities...bearing in mind that the key word in my comment is "future" earnings.

For example, in the last decade, investors in firms like Microsoft, Google/Alphabet, Facebook/Meta, and even Netflix have done very well.
But were they at nosebleed valuation levels a decade ago? Not at all, because of the word "future". Their average trailing earnings yield equated to P/E ratio of 44 a decade ago, but they were all trading at only 4.2-5.4 times their respective average earnings per share in the last three years. (Apple too, the only difference being that it was also cheap on trailing earnings at the start). You'll generally get an above-average return buying at any multiple of (say) 8-year-forward earnings under 10x. In short, they were trading at less than half of fair price.

The second most important part of that comment is the "pretty-darned-sure" part: future earnings haven't happened yet. You'd have had to know each business pretty well to estimate with confidence the earnings trajectory that we've seen. Many people bought those stocks for bad reasons or no reason at all, but those who did estimate the forward trajectory correctly were value investors, not speculators, because they were really cheap. And, to the point, value investing therefore worked spectacularly. With few exceptions, the only time it fails are those times that one's estimate of value (almost always EPV) 5-10 years later are off. The most common cause of THAT is people who aren't estimating years-forward earnings, or overestimating the relevance of trailing earnings in doing that estimate.

Perhaps a P/E ratio seems old fashioned or arbitrary, but the best way to think of it is this: "If the market closed, how many years would it take for the owner earnings to make back my purchase price?" This emphasizes that the important thing is the sum of all future earnings, not last year's. A possible rule of thumb is that this should not exceed your life expectancy!

As for the speculators who have made tons of money on a mark-to-market basis lately by speculating in the prices of non-earnings assets, well, prices do go up and down. Those profits definitely exist...but only for those who have sold. I imagine there will be some fat ladies singing in the next decade, and that the population of big winners with closed positions will be modest. The main result won't be a lot of aggregate profit, it will be a lot of transfer of wealth from the gullible to the cynical. And, to be fair, to the price speculators who are neither, merely above averagely nimble in the timing and luck of their exit.

To take a single but important example, the buying power of a bitcoin will top out at some point. As with any non-earning capital good, its price rises only if aggregate demand rises faster than supply, and aggregate demand has to top out at some point, even if (say) the US treasury starts printing dollars to buy them. Since essentially every holder of a coin is holding it for no reason other than the expectation that its price will rise, once the price tops out the sole reason to hold it will be entirely in the past. Some people will realize that quickly, and some will realize it slowly, so the main effect of the whole exercise will be the transfer of actual wealth from the latter to the former. Plus the precisely balancing wins and losses of short term holders during various sub-periods.

Jim

Their average trailing earnings yield equated to P/E ratio of 44 a decade ago, but they were all trading at only 4.2-5.4 times their respective average earnings per share in the last three years. (Apple too, the only difference being that it was also cheap on trailing earnings at the start). You'll generally get an above-average return buying at any multiple of (say) 8-year-forward earnings under 10x. In short, they were trading at less than half of fair price.

The second most important part of that comment is the "pretty-darned-sure" part: future earnings haven't happened yet. You'd have had to know each business pretty well to estimate with confidence the earnings trajectory that we've seen.

This is the key weakness of value investing. In short, they chicken out when there is no margin of safety, because future earnings are so unpredictable as they were for the tech companies you cited. No way you could project Netflix's earnings, for example, without considering all the bad things that could have happened. Or Amazon's without knowing AWS will be a money machine. Of course people buying for "bad reasons" were buying on hope and faith in unknown future good news, visionary leaders (Bezos eg) etc. Not based on financial statements.
Damodaran tried to capture this in numbers using "growth assets" added to their balance sheets but ultimately it's an exercise in futility to predict earnings when the landscape is ever-shifting. Dispersion in future returns overwhelms the trend line.
Obviously I don't know what the answer is, and it's a problem even Graham recognized, but the world moved at a snail's pace in his time compared to ours. Now the only stocks value investors can comfortably buy are somewhat slow growers / no growers. Fast growers are so popular that they will forever be too expensive by numbers (considering MOS) and yet with forever better returns than value stocks. Partly because of the demand (similar to crypto) and partly because they can raise money at will to develop or buy any new potential money machines.

This is the key weakness of value investing. In short, they chicken out when there is no margin of safety, because future earnings are so unpredictable as they were for the tech companies you cited. No way you could project Netflix's earnings, for example, without considering all the bad things that could have happened. Or Amazon's without knowing AWS will be a money machine. Of course people buying for "bad reasons" were buying on hope and faith in unknown future good news, visionary leaders (Bezos eg) etc. Not based on financial statements.
Damodaran tried to capture this in numbers using "growth assets" added to their balance sheets but ultimately it's an exercise in futility to predict earnings when the landscape is ever-shifting. Dispersion in future returns overwhelms the trend line.
Obviously I don't know what the answer is, and it's a problem even Graham recognized, but the world moved at a snail's pace in his time compared to ours. Now the only stocks value investors can comfortably buy are somewhat slow growers / no growers. Fast growers are so popular that they will forever be too expensive by numbers (considering MOS) and yet with forever better returns than value stocks. Partly because of the demand (similar to crypto) and partly because they can raise money at will to develop or buy any new potential money machines.

Hey, nobody said it was easy to predict what will happen to a firm. The good news is that you don't have to be able to predict the future earnings of very many firms, and precision isn't needed.

As for growth being the right way to go, it's certainly a compelling narrative, but it's unfortunately contradicted by decades, centuries, of empirical evidence to the contrary. Sure, a growing firm is worth more than a creeper, for sure. No argument. And a few of the super-fast-growers will be the biggest winners of all. The problem? To overgeneralize, a growing firm is (say) worth twice as much but usually costs three times as much, so the average forward return is lower than for a middle-of-the-road firm. People always overpay for growth (on average), it's like a law of investing thermodynamics. It's quite hard to identify the few among the very rapid growers that will succeed, and the average is working strongly against you, so it's like being on the wrong side of a table at a casino. I'd prefer to be on the dealer's side, where the odds are in my favour.

Heck, who did better in the last decade, Warren Buffett or Cathie Wood? The king of boring, or the queen of zoom?

Nah, keep it simple. Buy something that's trading at a low multiple of its plainly foreseeable (by you) future value, and sit back. If you feel like being fancy, re-evaluate that ranking from time to time and switch horses if you like...as Manlobbi advocates.

Perhaps the most compelling thing about Berkshire as an investment is its relative predictability. The rate of return may not be outlandish, but the unlikely extreme outcomes to the downside (and upside) are not much different from the most likely outcomes. It certainly isn't always compellingly cheap, but when it is, it's obvious.

Jim

People always overpay for growth (on average), it's like a law of investing thermodynamics.

Exactly what Ben Graham said.
The thing is, I don't have many decades or even one century to invest and reap the rewards. "Forty Seasons" or whatever the fat Buffett Jr said. If people KEEP overpaying for growth, then I will overpay when I buy but also get overpaid when I sell.

As for BRK, P/B is too high, so last 10 years is definitely not going to be the next 10 years.
Also, in the last 10 years, ARKW, or 1/2 each ARKW+ARKK beat Berkshire. Only ARKG was a stinker. Which you could get out of, it's not like investors are married to Cathie Woods ETFs the way they are to BRK.

Also, in the last 10 years, ARKW, or 1/2 each ARKW+ARKK beat Berkshire.

Have you looked at the charts of ARKW and ARKK?

Yuck!

But at least ARKW has somewhat recovered and it now only -25% below its high.

50/50 ARKW+ARKK max drawdown was -81%.

Which you could get out of,
If you know when to get out and when to not pile in. Looks kinda bitcoin-ish to me.


AJG looks better, steadier grower overall.

Philosophically, it seems that shares of stock should be a representative value of their proportion of the business. That dictates that a quantitative approach should be optimal to discover a share's present value.

Purchasing stock requires "excess" assets over what is required to live at one's accustomed standard of living. Despite all the hair-burning political rhetoric, it seems that, whether due to programs like IRA's, increased retained earnings, along with a constant drumbeat of owning stock to be for "the common man like you" (and as a way for the poor to effortlessly become wealthy - in the same vein as a lottery) has made purchasing of stock to be socially more likely than in the past.

For better or worse, the increase of funds flowing into the market, frequently into companies which have popular names, rather than with due diligence, as well as into "general market" ETF/funds, has inflated the price of shares across the board. When the commodity being purchase are the shares of the company, rather than their represented value of the company, you set up a competitive bidding scenario which does not reflect the underlying value of the shares - in essence, inflation of the share prices. When this happens across a particular market, there are few places to hide in that environment - and time to explore other venues.

That's not to say that American companies are without value, but rather to say that their shares, as the commodity offered for sale may not be, in general, worth the money they cost.

The stock you own doesn't have to be sexy. Back, in 2009, when the southern EU countries were under financial stress and I noticed that the Spanish bank Santander was being mauled. Looking at their annual report, it seemed that only 15% of their business was in Spain and their dividend yield was somewhere off the charts (relatively speaking, so I decided to pick up a few chip's worth of their ADR and set it on auto-DRIP. I guess others recognized the same thing and, when the stock had nearly tripled in price, about six or eight months later, I gave in to the market's request for my shares and sold out. Good timing as the price then crashed, but I kept my eye on the stock as it seemed to be chugging along despite the gyrations of its share prices. I bought back my position in 2020 as, despite its operations still boringly chugging along, it was priced for extinction. Since then, despite the dilution of the DRIP, the position is up well over 200%. OK, nothing to brag about compared to those who bought the eight or ten tech stocks which knocked it out of the park over the same time frame, but not bad for a boring European bank. Frankly, its P/E ratio is back to 9, so it is time for me to do another due diligence dive to make sure the shares have retained an expectation of maintaining their value into the future.

For a company to be successful it has to execute its business well. For the shares of a company to continue an upwards price trajectory, it has to execute what the market perceives to be its business well. They may not be the same goals, and the market price is frequently biased by factors outside of the company's controllable system - inflation, recession, meme-mania, whatever. Currently, there is a huge amount of cash in the system struggling against the bonds of uncertainty and the market may be becoming increasingly fragile. That's the US market, but it seems that global equity markets are still very linked as they all swim in the same money bit.

Jeff

in the last 10 years...ARKK beat Berkshire...

Actually, no.
BRK ten year CAGR 13.42%
ARKK ten year CAGR 11.20%

Which is really surprising, since what's basically a momentum strategy should have done pretty well in what was mostly one long bull market for tech.

And for further comparison, to see if the manager earned her fees,
SPY ten year CAGR 12.74%
QQQE ten year CAGR 12.02%

As always, a single start point and single end point doesn't say that much. For once, a chart tells you more: ARKK did amazingly for 12 months from the pandemic low, then scarily gave all that back in the next 12 months, and had nice boring returns the other 8 years, though below market overall.

If there is a lesson, it's that overhyped growth stocks are *on average* poor picks. That they were poor picks for her in the last ten years, a golden age for them, is surprising.

Jim

Post New

Berkshire Hathaway FAQ

---

Contact Shrewd'm
Contact the developer of these message boards.