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What you need to know about Berkshire (going forward) is that Buffet just said that there is no more low hanging fruit for him to pick as a result of private eq

by gist 8y ago

What you need to know about Berkshire (going forward) is that Buffet just said that there is no more low hanging fruit for him to pick as a result of private equity getting more into the game and throwing around money. It's in the letter but also detailed here: https://www.reuters.com/article/us-berkshire-buffett-m-a/warren-buffett-says-prospects-poor-for-elephant-sized-acquisition-idUSKCN1QC0HR https://www.reuters.com/article/us-berkshire-buffett-m-a/war... So just like the small VC when the game was small and before (as the saying goes) everybody and their uncle got in they did well. Now it's a much different story. And importantly the halo of Buffet will not win out over a much bigger offer from someone else. It maybe have in the past but the game has changed. Now add to that that it's obvious that Buffet will not be a star or around for another X years and we have a recipe for Berkshire not being a long term bet. So once again two things going on here. a) Warren won't be around for long enough for the tide to turn back (if it does at all). Many of the deals that got done are because of his star power (similar to Steve Jobs at Apple closing an important arrangement by force of will and halo) b) Others in the game. Competition that far exceeds what it was in the past.

knn 8y ago
What you're saying is not exactly true. It's not necessarily competition from PE firms, it's high market value of good businesses. From the letter: "In the years ahead, we hope to move much of our excess liquidity into businesses that Berkshire will permanently own. The immediate prospects for that, however, are not good: Prices are sky-high for businesses possessing decent long-term prospects." What you're saying about competition is more true in a low growth regime (Europe pre-industrial revolution) in that too much capital kills return on capital. However growth rates are high, and will continue to be high for the foreseeable future, and return on capital in general will still be really good. Theory aside, the thesis of Berkshire is making good investments at a low price, and running businesses - of which Buffet's 'star power' is a more marginal factor in my opinion.
- gist 8y ago
  > it's high market value of good businesses High market value is based on what companies (or with goods people) are willing to pay. If there is more money floating around and there are more buyers then the price you pay will increase. And I am not talking about economics taught in school either. I am talking common sense the way anyone can observe even if they never took a course or read a book.

by gist 8y ago

knn 8y ago

What you're saying is not exactly true. It's not necessarily competition from PE firms, it's high market value of good businesses. From the letter: "In the years ahead, we hope to move much of our excess liquidity into businesses that Berkshire will permanently own. The immediate prospects for that, however, are not good: Prices are sky-high for businesses possessing decent long-term prospects." What you're saying about competition is more true in a low growth regime (Europe pre-industrial revolution) in that too much capital kills return on capital. However growth rates are high, and will continue to be high for the foreseeable future, and return on capital in general will still be really good. Theory aside, the thesis of Berkshire is making good investments at a low price, and running businesses - of which Buffet's 'star power' is a more marginal factor in my opinion.

gist 8y ago
> it's high market value of good businesses High market value is based on what companies (or with goods people) are willing to pay. If there is more money floating around and there are more buyers then the price you pay will increase. And I am not talking about economics taught in school either. I am talking common sense the way anyone can observe even if they never took a course or read a book.