No. of Recommendations: 43
I also read the Barron's post via Apple News. If you have an Apple device, for $14.06 a month you can read most of the Barron's articles without a firewall. And access a huge number of newspapers - including the WSJ - without a subscription. It is my opening read each morning. Being also a college football fan, I read the newspapers from the cities that won, and the cities that lost. A real bargain in my judgment.
I find no disagreement with the Barron's article. It reflects my own feelings about where BRK stands now.
Let me refer to LongTermBRK's comments on BRK. We've known each other for a long time, dating back to the old AOL board. He knows Buffett directly, while I only know close friends of Buffett. And he's owned BRK a lot longer than I have. So I listen to his views about BRK seriously. He's been right for a long time, and I've profited by following his footsteps.
Where we may differ is that if the past cycle timings stills holds for the future. History says business cycles happen. But the timings may differ in ups and downs. It is the average across the cycle that determines the best strategy. Do the downside opportunities offset the time not invested in the upturns?
For background, I'm a very long term shareholder in Exxon. Exxon accepts that it is a "price taker". It cannot control the price of oil. It must function within prices set by the market - particularly now OPEC+. BRK is basically the same way. It generates cash, but it doesn't make the opportunities. It must wait until the market offers opportunities for investing the cash. BRK is a "market taker" - basically the same.
That's unlike firms like private equities and their kin. They can buy companies in trouble, fix them, and then resell them at a profit. Wash and repeat. BRK can buy undervalued companies, but they don't "fiX" them. They buy for the long term, and expect they will return to normal, or better, values. They don't expect to "fix" them and resell. That's not one of their core capabilities. BRK's real strength is to have capital available when others need it. And their strategy is to wait, patiently beyond most, for that opportunity to happen.
The track record says that strategy has worked. BRK has basically tracked, plus-or-minus a little, the market since the huge mistake in acquiring Gen Re for stock transformed the company. As the stock issued for Gen Re has grown in value, and Gen Re has largely stagnated, those excess shares have been a growing drag on BRK. That was a transition event, and it has only grown worse over the years and decades. As Buffett has stated, we gave up much more than we received. The fixed income investments that we acquired for overvalued BRK stock were never invested. All subsequent acquisitions were funded by cash flows. We gave up 20+ percent of BRK for a commodity insurance business in trouble.
That's then, this is now. Now we once again have built large cash reserves. And we wait for the opportunity to deploy them. Jim pointed out in a recent post that how well that works depends upon how much opportunity is lost waiting depending upon how much is gained during downturns. When the size of BRK increases, the bigger the opportunity must be to offset the years lost in waiting. At circa $1 trillion in current assets, how many of those opportunities - of sufficient size - will happen?
That, to me, is the core issue looking forward.
The Barron's article points out that the existing businesses face headwinds in terms of growth. Their alternate opportunity may be to hold on to current markets while improving profits by reducing costs. That seems to be the current trend in businesses - with AI expecting improved efficiencies by reducing manpower. Will BRK join the game?
I'm not as sanguine as LongTermBRK. I'm standing pat because of the capital gains implications of trading. But I've reduced expectations. Do I hear Charlie's words in the background? Be content with what you've got. Worry more about avoiding permanent loss of capital than beating the market.
