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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 g

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...

jamesash 4y ago
Would be interested in learning more on poor management of BRK companies, do you have a source?
- runnerup 4y ago
  For better or worse, this is the stuff you need personal connections with industry insiders to get the scoop on. The chemical industry doesn't have anything like [0] to get internal scoops so these stories are not published anywhere. It's one of those "go to the right school and know the people in the room" things. Everything I've mentioned is stuff that tons of low-level people are fully knowledgeable about and commonly known to the chemical engineering community around Houston, but I also know people who work with the C-suite and these issues are absolutely reflecting in the top-level business reporting as well. Which I could be bullshitting because when you see "The direct economic consequences resulted from companies partially ceasing their activity (e.g. neighboring chemical manufacturers in the area, and/or customers, or suppliers, etc) and farmers that had to destroy their harvests." in Wikipedia, any business intelligence service could do some research to estimate the potential damages and obviously these things "would reflect in the top-level business reporting as well", whatever that means. One of BRK's huge advantages is its ability to obfuscate individual company performance in combination with its historical reputation for excellence. Its quarterly reports don't break out how well each company performs so if AAPL goes up 25% it makes up for a lot of mismanagement and performance issues across BRK's portfolio companies. So people just assume its constituent subsidiaries are continuing to be managed well. But BRK has a huge influence on rail regulation, and we can also see how forward-thinking they are there as well. Inferences can be made from the risky practices they're implementing and what reliability innovations they're resisting. Who in the upcoming generation are going to want to go into the rail industry? Even for the degreed civil or transportation engineers, the rail industry lifestyle is now unappealing when compared to other markets they can apply their talents. The pay absolutely doesn't make up for the constant travel and lack of any social life, unlike, say oilfield engineering compensation which has a similar lifestyle. That said, do I think BNSF is at risk for losses? No. They clearly fit the BRK model of a business with a "natural moat" and in these times of extremely constrained shipping capacity, they will be able to charge whatever they need to, in order to maintain healthy BNSF profitability. The point is more: 1) This is a concerning pattern in how BRK manages its subsidiaries. Some of its other holdings won't be able to tolerate it and stay above water. 2) Some of the individual things are so bad and reflect on BRK so directly (appointment of obviously terrible C-suite leaders) that it's prima facie evidence of BRK deterioration. We would need strong counter-evidence to reject that conclusion. 0: https://www.theinformation.com https://www.theinformation.com

jamesash 4y ago

Would be interested in learning more on poor management of BRK companies, do you have a source?

runnerup 4y ago
For better or worse, this is the stuff you need personal connections with industry insiders to get the scoop on. The chemical industry doesn't have anything like [0] to get internal scoops so these stories are not published anywhere. It's one of those "go to the right school and know the people in the room" things. Everything I've mentioned is stuff that tons of low-level people are fully knowledgeable about and commonly known to the chemical engineering community around Houston, but I also know people who work with the C-suite and these issues are absolutely reflecting in the top-level business reporting as well. Which I could be bullshitting because when you see "The direct economic consequences resulted from companies partially ceasing their activity (e.g. neighboring chemical manufacturers in the area, and/or customers, or suppliers, etc) and farmers that had to destroy their harvests." in Wikipedia, any business intelligence service could do some research to estimate the potential damages and obviously these things "would reflect in the top-level business reporting as well", whatever that means. One of BRK's huge advantages is its ability to obfuscate individual company performance in combination with its historical reputation for excellence. Its quarterly reports don't break out how well each company performs so if AAPL goes up 25% it makes up for a lot of mismanagement and performance issues across BRK's portfolio companies. So people just assume its constituent subsidiaries are continuing to be managed well. But BRK has a huge influence on rail regulation, and we can also see how forward-thinking they are there as well. Inferences can be made from the risky practices they're implementing and what reliability innovations they're resisting. Who in the upcoming generation are going to want to go into the rail industry? Even for the degreed civil or transportation engineers, the rail industry lifestyle is now unappealing when compared to other markets they can apply their talents. The pay absolutely doesn't make up for the constant travel and lack of any social life, unlike, say oilfield engineering compensation which has a similar lifestyle. That said, do I think BNSF is at risk for losses? No. They clearly fit the BRK model of a business with a "natural moat" and in these times of extremely constrained shipping capacity, they will be able to charge whatever they need to, in order to maintain healthy BNSF profitability. The point is more: 1) This is a concerning pattern in how BRK manages its subsidiaries. Some of its other holdings won't be able to tolerate it and stay above water. 2) Some of the individual things are so bad and reflect on BRK so directly (appointment of obviously terrible C-suite leaders) that it's prima facie evidence of BRK deterioration. We would need strong counter-evidence to reject that conclusion. 0: https://www.theinformation.com https://www.theinformation.com