Invite ye felawes and frendes desirous in gold to enter the gates of Shrewd'm, for they will thanke ye later.
- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 3
I think that Berkshire Hathaway is the best company in the world, but that's basically all because of Warren. Warren is truly unique in his honesty, skill and shareholder friendliness. When Warren steps down as CEO in a few months, things will change. The change might be slow at first, but it's inevitable. Berkshire will become an average company, and owning Berkshire will become no better than owning the S&P 500, except that, as Buffett pointed out, it will have single-company risk.
A few specifics, not to sound too critical: BNSF does not look to be much different than its peers, and BHE suffers from owning PacifiCorp. GEICO has gotten its combined ratio up, but basically by increasing prices, reducing advertising and cutting the workforce, down from 50,000 employees to 20,000. Acquisitions like Lubrizol and Precision Cast Parts, which were made by Warren but pushed by David Sokol and Todd Combs, have not been anything to write home about. The best capital allocation of late was Apple stock, which Warren bought.
After Warren steps down as CEO Berkshire will still be a good company, with competent managers and a very strong balance sheet, but it will no longer be the great company that it has been under Warren. It saddens me.
No. of Recommendations: 0
"GEICO has gotten its combined ratio up"
That should of course be "down."
No. of Recommendations: 0
Precision was bought too soon.
No. of Recommendations: 0
Apple was orignally bought by Todd too.
No. of Recommendations: 1
"It saddens me."
Not just to see my investment return fall, which it will, but also to see a great company fall. All it takes is for a great CEO like David Packard, Andy Grove or Warren Buffett to retire.
No. of Recommendations: 1
So sell?
I am a bit baffled by mixing emotions with investments, though not as baffled as your god wiyld be, who would never do that.
A company is not a family or a circle of friends. Read Dan Ariely (very readable, with slightly discredited theories but not as much as Munger's "two trillion dollat Coke" cr*p). Social and economic relationships are like oil and water.
If Berkshire in your opinion will turn into a mediocre investment, chuck it and buy an index fund. It may be Buffett's monument but it's not mine, any more than Facebook & WhatsApp and Instagram. All Zuck's, not mine. No misplaced loyalties (well, except to family and friends sometimes).
No. of Recommendations: 8
I think that Berkshire Hathaway is the best company in the world, but that's basically all because of Warren. Warren is truly unique in his honesty, skill and shareholder friendliness. When Warren steps down as CEO in a few months, things will change. The change might be slow at first, but it's inevitable. Berkshire will become an average company, and owning Berkshire will become no better than owning the S&P 500, except that, as Buffett pointed out, it will have single-company risk.
A few thoughts:
- Berkshire has the ability to use very cheap leverage (float).
- Berkshire isn't restricted to investing in the USA.
- Management after Buffett will likely be honest and shareholder friendly.
- It's possible that Abel, given a free hand, will improve improve those lackluster businesses.
- Berkshire pays no dividend - important if you're trying to keep taxable income down.
No. of Recommendations: 19
I don't arrive at your conclusion starting from the same evidence you're looking at.
You mentioned the best allocation of late was Apple stock, an idea that came not from Warren, but from Todd. You're criticizing BNSF, and BHE, but those are Warren's ideas. It's true that in the current landscape, BNSF and BHE are not set up to make large volumes of revenue. One of the strengths of Berkshire vs a pure electric utility or railroad company is that they can take profits from BNSF and BHE and invest them in other ideas. The investment thesis with both these companies was Berkshire could reinvest large amounts of cash for guaranteed returns. BHE for example could finance overdue large-scale improvements in the electricity distribution in the western US, but the returns aren't there because of regulators. I take it as a sign of proper restraint that Abel has decided not to pursue those projects. And indeed Berkshire will be there waiting with massive financial backing when the country decides those investments are indeed needed. I'm OK with waiting until they're profitable.
In comparing BNSF to its peers, remember that Berkshire doesn't specialize in owning the best companies out there. Fruit of the Loom trails Hanes, Benjamin Moore trails Sherwin Williams, Dairy Queen trails most other food franchises. The purchase price matters, Berkshire was able to buy all of BNSF for a discounted price after the 2008 crash.
Two main strengths of Berkshire's insurance business are its unwillingness to write money-losing policies (underwriting prudence), and its ability to invest float through the head office - investing in other companies' growth projects, repurchasing stock, etc. When you see underwriting prudence at work, it looks just like what you described is happening at Geico, a reduction in advertising expenses, and a reduction in the number of employees.
One of Berkshire's biggest mistakes of omission is saying no thanks to a large early investment in Google. Buffet has written about this before, and this was despite Geico spending a large amount of money advertising on the platform. I see Berkshire's purchase of Apple - first by Todd, then by Buffett - as a sign that this won't happen again. So I believe it's reasonable to expect that Berkshire will be every bit as strong, with multiple people at the helm - Ted, Todd, Abel, Jain - as it has been in the past. And maybe stronger than it was when it decided to forgo the Google investment.
