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I always thought the advantage of BRK-X was not that they were good investors, per se, but that they chose companies that were struggling or undervalued, brough

I always thought the advantage of BRK-X was not that they were good investors, per se, but that they chose companies that were struggling or undervalued, brought them into the fold and multiplied their value. Investing in the company already valued the highest in the market seems odd from the old version of BRK that I thought I understood.

throwaway5752 4y ago
That's not quite accurate. They talk about paying, and possibly overpaying, for best of breed companies with high and sustainable ROE. They say that explicitly here, in their Acquisition Criteria https://www.berkshirehathaway.com/2000ar/acq.html https://www.berkshirehathaway.com/2000ar/acq.html
- mmastrac 4y ago
  Interesting. Though I find these quotes somewhat amusing from that page: > if there's lots of technology, we won't understand it > We are not interested, however, in receiving suggestions about purchases we might make in the general stock market.
chasil 4y ago
Actually, they said in one of their yearly reports that "it's better to buy a wonderful company at a fair price, than a fair company at a wonderful price." I think Berkshire is very willing to pay a premium for a company that meets their requirements in generating excess capital while maintaining some sort of advantage (moat) over their competitors.
- ISL 4y ago
  That is a shift over the last few decades. The company made its early money by buying undervalued companies at a low price, but came to understand over time that long-term, it is almost-irrelevant at what price you buy a truly wonderful company. Furthermore, the financial world took notice of the outperformance of the Graham-and-Dodd approach, meaning that few true bargains sit on the modern market for long, if ever. The challenge in the past decade or so for Berkshire has been that everything has, from a value-investor perspective, been substantially overpriced, making deploying new cash challenging. AAPL was one of the exceptions -- at the time that they bought it, as I recall, it had a P/E of 9 and a substantial competitive moat. The geopolitics risk remains, however, scary.
  - chasil 4y ago
    Berkshire has also grown so large that it is not worth their time to identify undervalued mid-cap companies. They are not pursing companies in the class of See's Candy any longer. The Munger article on the Register offers his opinion of the Taiwan situation: Speaking of China, Munger offered his opinion that the prospects of the Middle Kingdom invading Taiwan have fallen greatly since Russia's illegal invasion of Ukraine. In Munger's estimation, China felt Russia's invasion would succeed, but has changed its assumptions after Ukraine's successful defense. "I think it's off the table … for a long, long, time," he said, and that makes investment in China more attractive. It also means worries that China could disrupt global semiconductor supply chains are reduced. But Munger isn't keen on semiconductors because they're too capital intensive. https://www.theregister.com/2023/02/16/charlie_mumger_slams_cryptocurrency_again/ https://www.theregister.com/2023/02/16/charlie_mumger_slams_...
jasode 4y ago
>, but that they chose companies that were struggling or undervalued, brought them into the fold and multiplied their value. Fyi... That's the opposite of Warren Buffet's preferred approach. He's made it known that he's not a "turnaround artist" that buys distressed companies and fixes them. Some private equity firms specialize in that type of buy-and-flip but that's not Berkshire's preferred method. Warren's approach is to buy great companies generating free-cash-flow and with excellent management already in place.
hondo77 4y ago
> they chose companies that were struggling or undervalued, brought them into the fold and multiplied their value. Even if Berkshire did that, and they don't, isn't that also good investing?
lotsofpulp 4y ago
Already valued the highest is not mutually exclusive of undervalued.
quickthrowman 4y ago
> Investing in the company already valued the highest in the market (AAPL) seems odd from the old version of BRK that I thought I understood. Just because Apple has the highest market cap does not mean it’s overvalued. I added AAPL at $125 and $127 in early January because I thought the market was undervaluing Apple, just like Berkshire. Today it’s trading at $151/share. Tl;dr, market cap != ‘value’
runnerup 4y ago
I share your same viewpoint. My take is that Berkshire's historical value proposition which you described is falling apart and its traditional investments are giving way as it gradually transitions to kind of just being another hedge fund plus a handful of other golden geese like BNSF. Honestly Berkshire's management of the companies it wholly owns has been surprisingly bad lately. They've been taken over by narcissistic internal parasites, the same people who always chase prestige and money. Buffett and Munger have lost control of the ship and are not able to prevent the internal rot. This isn't reflected in their share price because SO much of their share price is just AAPL (currently APPL composes 20% of their market cap, was even more before AAPL prices dropped in the tech crash) Look at Lubrizol, with three CEO's in less than a year. Berkshire installed Chris Brown, formerly the COO of Detroit for <2 years (both "Detroit" and "<2 years" are very strong anti-signals...). He got into yelling matches with front-line lowest-level engineers over tiny projects (<$3 million) that he wanted to micromanage and was quickly let go for what people presume were "HR issues" (bit of a euphemism there, his replacement is a woman). His behavioral issues and "emotionally charged leadership" with all types of employees were obvious -- front and center, constantly. The damning part is how did Berkshire appoint a guy that bad? Where are the internal controls? It wasn't just the CEO either. Berkshire ended up replacing basically the entire C-suite in less than a year. [2] vs. [3]. Don Grafton as head of Operations was also a complete disaster for similar reasons, minus the rumored HR violations. He constantly refused common sense ROI improvement proposals and critical maintenance projects, but approved and championed really dumb high-capital, low ROI work and micromanaged down to the level of "The storage tank needs to be this size and shape." At no other large company would the projects that he micromanaged even have been reviewed for approval by the C-suite. They were shockingly low-level, low-impact work, far below what C-suites should even be aware of, let alone spending half their time on. I've heard better things about the current CEO but Brown was so bad that "better" is pretty relative. Plus the new CEO has very little to work with at this point due to truly unbelievable attrition. The C-suite told everyone in an all-hands sitewide roundtable "We're not adjusting salaries for inflation, if you feel you're underpaid then find another job". About 1/3rd of the Lubrizol engineers took them up on that and now its pretty bleak inside their plants with a huge loss of expertise and nothing replacing it. Multiple people who worked there (people from both their HQ in Ohio and also in their largest chemical plant in Texas) have told me they can't come up with a single colleague that they professionally respected who didn't leave and move on. They've had two huge industrial accidents in that time which, in this case, was a direct result of top-level mismanagement and failure to invest in maintaining equipment and failure to retain any of their top talent. Rouen, France [0]. Rockton, IL [1]. It's not clear that France will even let them re-open the plant, its rumored they've lost their "license to operate" there. "License to operate" isn't a literal technical thing, its an industry term for the confluence/totality of all political and regulatory barriers to proceed with construction and operation of facilities in a particular jurisdiction. It doesn't reflect well on the board of directors at all. I will say the new CEO is focusing hard on attracting new top talent and looking at grand improvement projects and potential restructuring deals to change up ownership of particular production units. She's making the right moves now but it's a really, really tough place to begin from. 0: https://en.wikipedia.org/wiki/Lubrizol_factory_fire_in_Rouen https://en.wikipedia.org/wiki/Lubrizol_factory_fire_in_Rouen 1: https://chicago.suntimes.com/2021/6/25/22549407/chemtool-chemical-plant-explosion-lubrizol-aftermath-rock-river-pollution-oil-rockton-illinois-epa https://chicago.suntimes.com/2021/6/25/22549407/chemtool-che... 2: https://web.archive.org/web/20211208153334/https://www.lubrizol.com/Our-Company/CEO-and-Leadership/Leadership/Bios/Don-Grafton https://web.archive.org/web/20211208153334/https://www.lubri... 3: https://www.lubrizol.com/Our-Company/CEO-and-Leadership/Leadership https://www.lubrizol.com/Our-Company/CEO-and-Leadership/Lead...
paulpauper 4y ago
BRK is way bigger now. Also, value investing has done poorly as of late, compared to in the 80s and earlier. The era of tiny, undiscovered value companies going up 10x or more has largely ended. There is no need to buy tiny , undiscovered but risky companies when large companies like AAPL , V, or MA can generate even better returns and with more stability. Compare the long-term returns of MA or V...you will be hard pressed to find any company that beats those.

throwaway5752 4y ago

That's not quite accurate. They talk about paying, and possibly overpaying, for best of breed companies with high and sustainable ROE. They say that explicitly here, in their Acquisition Criteria https://www.berkshirehathaway.com/2000ar/acq.html https://www.berkshirehathaway.com/2000ar/acq.html

mmastrac 4y ago
Interesting. Though I find these quotes somewhat amusing from that page: > if there's lots of technology, we won't understand it > We are not interested, however, in receiving suggestions about purchases we might make in the general stock market.

chasil 4y ago

Actually, they said in one of their yearly reports that "it's better to buy a wonderful company at a fair price, than a fair company at a wonderful price." I think Berkshire is very willing to pay a premium for a company that meets their requirements in generating excess capital while maintaining some sort of advantage (moat) over their competitors.

ISL 4y ago
That is a shift over the last few decades. The company made its early money by buying undervalued companies at a low price, but came to understand over time that long-term, it is almost-irrelevant at what price you buy a truly wonderful company. Furthermore, the financial world took notice of the outperformance of the Graham-and-Dodd approach, meaning that few true bargains sit on the modern market for long, if ever. The challenge in the past decade or so for Berkshire has been that everything has, from a value-investor perspective, been substantially overpriced, making deploying new cash challenging. AAPL was one of the exceptions -- at the time that they bought it, as I recall, it had a P/E of 9 and a substantial competitive moat. The geopolitics risk remains, however, scary.
- chasil 4y ago
  Berkshire has also grown so large that it is not worth their time to identify undervalued mid-cap companies. They are not pursing companies in the class of See's Candy any longer. The Munger article on the Register offers his opinion of the Taiwan situation: Speaking of China, Munger offered his opinion that the prospects of the Middle Kingdom invading Taiwan have fallen greatly since Russia's illegal invasion of Ukraine. In Munger's estimation, China felt Russia's invasion would succeed, but has changed its assumptions after Ukraine's successful defense. "I think it's off the table … for a long, long, time," he said, and that makes investment in China more attractive. It also means worries that China could disrupt global semiconductor supply chains are reduced. But Munger isn't keen on semiconductors because they're too capital intensive. https://www.theregister.com/2023/02/16/charlie_mumger_slams_cryptocurrency_again/ https://www.theregister.com/2023/02/16/charlie_mumger_slams_...

jasode 4y ago

>, but that they chose companies that were struggling or undervalued, brought them into the fold and multiplied their value. Fyi... That's the opposite of Warren Buffet's preferred approach. He's made it known that he's not a "turnaround artist" that buys distressed companies and fixes them. Some private equity firms specialize in that type of buy-and-flip but that's not Berkshire's preferred method. Warren's approach is to buy great companies generating free-cash-flow and with excellent management already in place.

hondo77 4y ago

> they chose companies that were struggling or undervalued, brought them into the fold and multiplied their value. Even if Berkshire did that, and they don't, isn't that also good investing?

lotsofpulp 4y ago

Already valued the highest is not mutually exclusive of undervalued.

quickthrowman 4y ago

> Investing in the company already valued the highest in the market (AAPL) seems odd from the old version of BRK that I thought I understood. Just because Apple has the highest market cap does not mean it’s overvalued. I added AAPL at $125 and $127 in early January because I thought the market was undervaluing Apple, just like Berkshire. Today it’s trading at $151/share. Tl;dr, market cap != ‘value’

runnerup 4y ago

I share your same viewpoint. My take is that Berkshire's historical value proposition which you described is falling apart and its traditional investments are giving way as it gradually transitions to kind of just being another hedge fund plus a handful of other golden geese like BNSF. Honestly Berkshire's management of the companies it wholly owns has been surprisingly bad lately. They've been taken over by narcissistic internal parasites, the same people who always chase prestige and money. Buffett and Munger have lost control of the ship and are not able to prevent the internal rot. This isn't reflected in their share price because SO much of their share price is just AAPL (currently APPL composes 20% of their market cap, was even more before AAPL prices dropped in the tech crash) Look at Lubrizol, with three CEO's in less than a year. Berkshire installed Chris Brown, formerly the COO of Detroit for <2 years (both "Detroit" and "<2 years" are very strong anti-signals...). He got into yelling matches with front-line lowest-level engineers over tiny projects (<$3 million) that he wanted to micromanage and was quickly let go for what people presume were "HR issues" (bit of a euphemism there, his replacement is a woman). His behavioral issues and "emotionally charged leadership" with all types of employees were obvious -- front and center, constantly. The damning part is how did Berkshire appoint a guy that bad? Where are the internal controls? It wasn't just the CEO either. Berkshire ended up replacing basically the entire C-suite in less than a year. [2] vs. [3]. Don Grafton as head of Operations was also a complete disaster for similar reasons, minus the rumored HR violations. He constantly refused common sense ROI improvement proposals and critical maintenance projects, but approved and championed really dumb high-capital, low ROI work and micromanaged down to the level of "The storage tank needs to be this size and shape." At no other large company would the projects that he micromanaged even have been reviewed for approval by the C-suite. They were shockingly low-level, low-impact work, far below what C-suites should even be aware of, let alone spending half their time on. I've heard better things about the current CEO but Brown was so bad that "better" is pretty relative. Plus the new CEO has very little to work with at this point due to truly unbelievable attrition. The C-suite told everyone in an all-hands sitewide roundtable "We're not adjusting salaries for inflation, if you feel you're underpaid then find another job". About 1/3rd of the Lubrizol engineers took them up on that and now its pretty bleak inside their plants with a huge loss of expertise and nothing replacing it. Multiple people who worked there (people from both their HQ in Ohio and also in their largest chemical plant in Texas) have told me they can't come up with a single colleague that they professionally respected who didn't leave and move on. They've had two huge industrial accidents in that time which, in this case, was a direct result of top-level mismanagement and failure to invest in maintaining equipment and failure to retain any of their top talent. Rouen, France [0]. Rockton, IL [1]. It's not clear that France will even let them re-open the plant, its rumored they've lost their "license to operate" there. "License to operate" isn't a literal technical thing, its an industry term for the confluence/totality of all political and regulatory barriers to proceed with construction and operation of facilities in a particular jurisdiction. It doesn't reflect well on the board of directors at all. I will say the new CEO is focusing hard on attracting new top talent and looking at grand improvement projects and potential restructuring deals to change up ownership of particular production units. She's making the right moves now but it's a really, really tough place to begin from. 0: https://en.wikipedia.org/wiki/Lubrizol_factory_fire_in_Rouen https://en.wikipedia.org/wiki/Lubrizol_factory_fire_in_Rouen 1: https://chicago.suntimes.com/2021/6/25/22549407/chemtool-chemical-plant-explosion-lubrizol-aftermath-rock-river-pollution-oil-rockton-illinois-epa https://chicago.suntimes.com/2021/6/25/22549407/chemtool-che... 2: https://web.archive.org/web/20211208153334/https://www.lubrizol.com/Our-Company/CEO-and-Leadership/Leadership/Bios/Don-Grafton https://web.archive.org/web/20211208153334/https://www.lubri... 3: https://www.lubrizol.com/Our-Company/CEO-and-Leadership/Leadership https://www.lubrizol.com/Our-Company/CEO-and-Leadership/Lead...

paulpauper 4y ago

BRK is way bigger now. Also, value investing has done poorly as of late, compared to in the 80s and earlier. The era of tiny, undiscovered value companies going up 10x or more has largely ended. There is no need to buy tiny , undiscovered but risky companies when large companies like AAPL , V, or MA can generate even better returns and with more stability. Compare the long-term returns of MA or V...you will be hard pressed to find any company that beats those.