No. of Recommendations: 4
I feel the most important thing Abel can do is discredit the current dogma that Berkshire is a huge, lumbering giant that is capable of quick action or fast growth.
All one has to do is look at the BUSINESS performance of other mega caps in Berkshire's league size wise to see this is simply not the case.
Im hoping we will look back in 2 years and clearly see that having Warren and Charlie maintain their leadership positions into their mid nineties was a massive and somewhat comical mistake.
And I love and respect those men, their character, and accomplishments, and wisdom as much as anyone.
But is it possible we were all lulled to sleep????
No. of Recommendations: 17
But is it possible we were all lulled to sleep????
At the very least, perhaps we were sleeping in the wrong place. The popular notion has been that, yes, Berkshire was now too big to do particularly well on the investment side, but the wholly owned subsidiaries were an unusually good bunch on average.
Last 3 years annualized, per share figures, inflation adjusted
Rails earnings after tax: -5.6%/year
Utilities earnings after tax: -2.3%/year
Manufacturing/Service/Retail after tax: -1.8%/year
...but Investments per share: +9.7%/year
Endpoints can lead you astray a bit sometimes. There are some specific moving parts that really ought to be considered before considering these to be simply trends, the wildfire liabilities and the fact that BNSF seems to have been coming off some unsustainably high earnings from coal carloads. But certainly at a top level you can say that investments have been the stars lately, not operating earnings.
Jim
No. of Recommendations: 18
But certainly at a top level you can say that investments have been the stars lately, not operating earnings.
I remain pessimistic about Berkshire, at least at this price, but I think this is a bit too negative, especially regarding the MSR group.
Last 3 years annualized, per share figures, inflation adjusted
Rails earnings after tax: -5.6%/year
Utilities earnings after tax: -2.3%/year
Manufacturing/Service/Retail after tax: -1.8%/year
...but Investments per share: +9.7%/year
One of the primary advantages that Berkshire has had over its history is its anti-empire building approach: subsidiaries earn money, but that does not entitle those subsidiaries to *keep* that money in the absence of reasonable investment opportunities. It instead gets allocated by corporate. That's part of the magic sauce that led to Berkshire's rate of compounding over time.
A consequence of this is that, almost by design, many Berkshire subsidiaries, especially capital-light subsidiaries, should tend to show lower subsidiary-level earnings growth than otherwise similar firms in the same industry that retain and reinvest a larger share of their earnings; their generated earnings are funneled to Omaha and deployed to better opportunities. [Handwavy estimate incoming:] You can compare the MSR segment's $13.65 billion after-tax earnings number to the change in identifiable assets of that group in footnote 26 (187.22-183.88) and roughly ballpark that they're only retaining about 25% of their earnings. So if you wanted an apples-to-apples comparison, you'd want to compare that earnings growth to the earnings growth of companies with similar earnings retention.***
[Of course, the reason I'm pretty pessimistic is that I no longer believe there are sufficient opportunities to deploy those earnings, which is consistent with the enormous and growing cash pile. But that's a different conversation.]
*** Back of the envelope math is comparing 2025 after-tax earnings from MSR group in Item 7 to year-over-year change in Identifiable Assets in footnote 26 for the Manufacturing, Service and Retailing, McLane, and Pilot lines of business. This is a rough proxy, not clean accounting: identifiable assets are not retained earnings, and the estimate would be off if the segment used a lot of earnings to pay down liabilities or if acquisitions/disposals/working-capital swings moved the asset base. But as a ballpark, comparing MSR’s $13.65B of after-tax earnings to the roughly $3.34B increase in identifiable assets suggests only about a quarter of earnings stayed in the group as incremental assets.
