No. of Recommendations: 15
* The company is just really really big now.
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I think the current pile of cash is a direct reflection of the concentration of market power among corporations worldwide. In "the olden days", say 20-30 years ago and beyond, the distribution of capitalization of public and private companies had more dollar value "meat" in the middle of that distribution. If you were an investor like Buffett and Munger with tens or hundreds of millions to invest into new opportunities somewhere in the middle of that distribution, there was a lot more to choose from.
As companies have merged in major industries and market capitalization has been absorbed into ever larger entities, the middle of that capitalization distribution has been hollowed out. And companies with the largest capitalizations are now generating hundreds of millions or billions in free cash. The problem is that it is "easy" to find a company that might be able to generate 8-10% yearly returns over the next decade if their revenues are only $10 million. It's virtually impossible to find a company that can do that with billions in revenue. When BRK goes looking for opportunities that can absorb that influx of investment, there's nothing left in the middle and all of the opportunities are locked up in other megacorps. Any purchase by BRK of any entity capable of utilizing multiple billions of investment would likely involve a firm already at the limit where antitrust measures would prevent completion of a deal.
The real issue here is the concentration of market share. The fact that the smartest guy in investing has so much money that no investment can accomodate his available cash is a sign the corporate world has been allowed to grow beyond scales that actually produce any efficiency according to classic theories of competition.
I susepct the dynamic that will play out over the next decade is that some of these existing megacorps are going to encounter operational problems that their size and arrogance insulated them from correcting before issues snowballed. At that point, divestitures will become more common as existing owners unload businesses they've forgotten how to operate efficiently. At that point, BRK will have opportunities but they will be far riskier than BRK's prior diet. Instead of buying up well-operating mid-sized businesses with strong management, these divestitures will reflect neglected businesses with inefficiencies, operational issues and potentially incompetent management.
WTH
