Are you a Berkshire Hathaway Inc. investor?

[John Hjorth]

Please take the poll. And please feel free to comment the way you like.

 

Gross position defined as if you use leverage.

[Viking]

I recently established a position in BRK. Price is ok; not crazy cheap and not crazy expensive. I like its defensive nature (should outperform when markets sell off again). At current prices, I like Apple and the big US banks; holding BRK gives me some exposure to companies i like for the long term.

 

Buffett having $100 billion in cash also appeals to me right now; my guess is he will make a couple of large purchases over the next year or two. I would love to see them buy a chunk of GOOG if we get another big sell off.

 

Main risk is Buffett’s age.

[LC]

I am in the ~25% bucket.

 

Picture this (mental exercise, not a prediction):

 

Buffett and Munger gone.

Existing Berkshire businesses and CEOs continue running their respective businesses as usual.

All excess cash flows are dividended out.

As these existing businesses CEOs retire, etc. they are all sold and proceeds dividended out.

Essentially a slow portfolio runoff of the life work of Warren Buffett and Charlie Munger.

 

What is Berk worth in that scenario?

[shalab]

Six of my family members (other than myself) and several friends are investing in BRK.B in this way - buy or save money to buy 1-2 brk.b share every paycheck for atleast 50 brkb every year. We are comfortable to have up to 50% of our assets in brk.b

 

Please take the poll. And please feel free to comment the way you like.

 

Gross position defined as if you use leverage.

[John Hjorth]

Wow! - 65 votes right now...

 

This comes to mind:

 

Anything and everything to do with our favorite American insurer

[Spekulatius]

I agree with Viking that the risk is WEB age. I think the company will be differently run after he is gone. Headquarters will become bigger, because nobody can fill WEb role as a CEO if the holding with such minimal staff and ensure compliance. There is a risk that the culture will change for the worse. I could see BRK getting broken into three pieces (Insurance, Utilities, Industry), but that may not be easy, because the Insurance subs own shares in the other parts as well as the holding company and it may not be able to get the stakes consolidated. BRK is huge and May becoming too large to control for a new CEO. I am in the 5-10% bucket and wouldn’t go higher than 25%. There is always systemic risk that someone, somewhere does something and affects the whole company.

[sleepydragon]

I suggest also doing a vote based on the dollar value of the brk holding ..

[boilermaker75]

John,

 

What a great idea for a poll! I am really top heavy, 70%, compared to everyone else. The majority of the rest of my portfolio is BK, WFC, and BAC.

 

With Warren and Charlie gone, BRKB is still going to be generating great cash flow. I am not worried. Paying a large dividend, selling off parts, etc. will just increase the value--at least short term.

 

Mike

[Guest longinvestor]

I am in the ~25% bucket.

 

Picture this (mental exercise, not a prediction):

 

Buffett and Munger gone.

Existing Berkshire businesses and CEOs continue running their respective businesses as usual.

All excess cash flows are dividended out.

As these existing businesses CEOs retire, etc. they are all sold and proceeds dividended out.

Essentially a slow portfolio runoff of the life work of Warren Buffett and Charlie Munger.

 

What is Berk worth in that scenario?

 

An idea triggered by Munger’s comment in the 50th year letter, “The stuff we have now is enough” had me come up with NPV’s of future cash flows under various scenarios; staying flat at current rate for aa decade; growing modestly and then flattening out; and of course  various discount rates. Under all assumptions the price was lower than value. This was in 2015, I think. Berkshire ‘s value has marched on at some of my aggressive assumptions. I plan to do this again this May.

 

“All that an investor has to do is wake up every morning and see their holding go up in value“- This was one of the fund managers (Russo or Davis) during an interview after the 50th year meeting. Obviously he was talking about the 80’s until now. That sentiment is still intact. Today, if the market doesn’t mark it up to value, buybacks will. Buffett’s age and Berkshire’s size notwithstanding.

[TB]

WEB has already said he prefers share buyback to paying dividends. I also prefer this as it increases the value to continuing share holders. Furthermore there was a shareholder vote sometime back where 98%+ of all shareholders voted not to have a dividend

 

John,

 

What a great idea for a poll! I am really top heavy, 70%, compared to everyone else. The majority of the rest of my portfolio is BK, WFC, and BAC.

 

With Warren and Charlie gone, BRKB is still going to be generating great cash flow. I am not worried. Paying a large dividend, selling off parts, etc. will just increase the value--at least short term.

 

Mike

[John Hjorth]

Welcome to you here on CoBF, TB!

[rkbabang]

I agree with Viking that the risk is WEB age. I think the company will be differently run after he is gone. Headquarters will become bigger, because nobody can fill WEb role as a CEO if the holding with such minimal staff and ensure compliance. There is a risk that the culture will change for the worse. I could see BRK getting broken into three pieces (Insurance, Utilities, Industry), but that may not be easy, because the Insurance subs own shares in the other parts as well as the holding company and it may not be able to get the stakes consolidated. BRK is huge and May becoming too large to control for a new CEO. I am in the 5-10% bucket and wouldn’t go higher than 25%. There is always systemic risk that someone, somewhere does something and affects the whole company.

 

I am slightly under 5% for the reasons you and LC have articulated.  I wonder if when WEB retires or can otherwise no longer be CEO what will happen in the short term to the price?  Will there be panic selling?  At the right price I'd increase my position, but probably not higher than 10-15% unless the price was really crazy low.

 

[Gregmal]

After much thought, over quite a long time, I purchased a small position today. To me, the key man risks are outweighed by the sheer quantity of great businesses that run independently, and will IMO eventually be spun off. BRK trades at a discount to these, and IMO the current price, is kind of at the upper end of the "cheap" range. Not slam dunk, but with an IB account, only having to put up ~20% of capital in a margin account, it should either outperform the carry cost, or keep dropping, which will further skew my future expected returns and allow me to add into it with greater size.

[Jurgis]

I am firmly in the camp of Buffett-key-man-risk. Looking at Munger though, we can possibly expect another 7 years +/- couple of Buffett. And the company won't deteriorate immediately after Buffett dies, so it is still investable IMVHO.

[Liberty]

I don't own any, but I manage my wife's account, and she owns some.

[John Hjorth]

John,

 

What a great idea for a poll! I am really top heavy, 70%, compared to everyone else. The majority of the rest of my portfolio is BK, WFC, and BAC.

 

With Warren and Charlie gone, BRKB is still going to be generating great cash flow. I am not worried. Paying a large dividend, selling off parts, etc. will just increase the value--at least short term.

 

Mike

 

Thank you Mike! [ : - ) ]

 

- - - o 0 o - - -

 

Here, I'm adding a few personal thoughts - unordered, phrased short:

 

1. I always appreciate reading your posts, Mike. Thank you for sharing.

2. Spekulatius' concerns should not be disregarded. Doing so would be unwise. The risk is real. However, it's doable.

3. If Berkshire is broken up/starts fading/loosing its marbles, we'll leave it, seeking greener grass for our herd, whispering : "What a ride we had!"

4. This poll has been on my mind for years. Finally got my act together.

5. I'm surprised about how heavy the board in general is on Berkshire. I already knew about a few you, though - through your posts.

6. Asking about absolute capital allocation is perhaps not good form, ref. Sleepydragon. The short answer is: "A lot!" [ : - ) ]

[SmoothSailor]

Have a tiny position that I bought in 2014 to attend the annual meeting, been holding since

[John Hjorth]

At 92 votes, I'm still the lonely guy in the 40 - 35 bracket, that nobody wants to play with. And I'm a chicken. -Mike, this better go well!

[boilermaker75]

I agree, I rather see share buybacks than a dividend as long as the buybacks are below IV.

 

WEB has already said he prefers share buyback to paying dividends. I also prefer this as it increases the value to continuing share holders. Furthermore there was a shareholder vote sometime back where 98%+ of all shareholders voted not to have a dividend

 

John,

 

What a great idea for a poll! I am really top heavy, 70%, compared to everyone else. The majority of the rest of my portfolio is BK, WFC, and BAC.

 

With Warren and Charlie gone, BRKB is still going to be generating great cash flow. I am not worried. Paying a large dividend, selling off parts, etc. will just increase the value--at least short term.

 

Mike

[boilermaker75]

At 92 votes, I'm still the lonely guy in the 40 - 35 bracket, that nobody wants to play with. And I'm a chicken. -Mike, this better go well!

 

John, Yes, it better go well for us! Owning BRKB is like owning stock in 75 different companies. We are well diversified by owning BRKB. Better yet, BRKB will do better in any downturn than any set of 75 companies. And you only need 15 to get rid of most of the unsystematic risk. -Mike

 

PS Yes I know with it all under one umbrella there is a risk. But at least while Buffett is still around I am not worried about that risk.

[Lemsip]

Hi guys,

First time poster but a long time reader here.

I am one of those in the 35-40% bracket with Brk. I have increased the proportion recently bearing in mind a few developments :

- A current price which more than compensates for any negative post-Buffett risk

- More flexible ( and I would argue more rational ) buyback policy.

- Buffett buying back stock at $207 and Ajit jain buying 20m worth on his personal account at $197 per B ( where it trades today)

- Management with skin in the game ( Ajit and Greg have most of their net worth in Berkshire with shares bought in the open market).

 

Obviously the core business is as bulletproof as it gets and is being managed very rationally.

All the issues regarding Buffett's eventual passing are well known, widely discussed and any negative scenarios are already priced. What is arguably not priced is any positive developments from the next generation of management who might execute better than Buffett. As the market is neither widely discussing nor pricing this eventuality, at the current price I think it is a good bet.

 

[Dynamic]

Welcome, TB, from me too.

 

With Warren and Charlie gone, BRKB is still going to be generating great cash flow. I am not worried.

 

I agree with this. I've held Berkshire as the bulk of my portfolio (well above 50% at almost all times and willing to have it be my sole investment, which it almost has been at times except for minor positions) ever since I had the ability to by US stocks in July 2003 considering it to be a least somewhat better than an index fund in terms of reliably preserving and growing capital over the long term. Despite paying around 1.6x BVPS back then when perhaps I needed more patience, my original stake has been ahead of an equivalent tax-free stake in the S&P500 Total Return Index quite consistently since October 2007 and fairly close above and below the index even before then.

 

I've added more since at lower P/BV and obtained a slightly greater internal rate of return than the original position.

 

I actually took 95% of my Berkshire position to cash temporarily once, for non-investing reasons, but other than that it was always well over 50% for me.

 

I considered the risks of Buffett and Munger's mortality or retirement modest enough back then not to worry me, especially given the diversity of subsidiaries gushing cash and being run almost autonomously. I did expect to be investing for many years more, allowing me to recoup any permanent losses, though I put the probability of serious permanent loss very low indeed, even if it might suffer a temporary hit on the loss of a key person.

 

I am of the same opinion today, reassured by my perception of Todd, Ted, Ajit and Greg, but now anticipating that Munger and Buffett will probably not both be working for Berkshire in 10 years' time. I'm thinking it will continue to operate very well for quite some time (perhaps a decade or two) after the succession plan is required, before the culture is at risk of much degradation at all, during which time I'd expect it to have grown substantially in per-share intrinsic value compared to today.

 

By that stage in my life maybe 2035-2050, I will be well into retirement and will be sure to have sufficient diversification that we can withstand positions suffering permanent impairment, even if it means accepting lower returns.

 

In the last few years since I have resumed adding new savings rapidly and managing investments more actively, I have to some extent considered Berkshire to be my default option for new funds, giving reasonable downside protection if bought fairly patiently by waiting for a modest P/BV (it's rarely priced extremely high or extremely low so I never feel I'm paying too much for it) and providing remarkably reliable compound growth in IV and stock price over the medium and long term.

 

If I then happen to find any of those relatively rare (for me) high-conviction opportunities, like Apple at $95 in May 2016 where I want to make a sizeable bet when the odds appear to be heavily in my favour, my general approach is that I am happy to fund those purchases that I expect to generate out-sized returns by selling some of my Berkshire holding, while keeping enough Berkshire to meet my retirement goals even if, say, much of my 25% position in Apple were to flounder and go the way of Blackberry or Nokia from their heyday to their decline.

 

Given that BRK.B is always priced below my estimation of its IV, it often helps me to wait for a suitably large margin of safety in the alternative before I pull the trigger.

 

Even if I'd held onto Apple until their price today amid plenty of worries once more, I'd still be 60.7% plus dividends up (and the Berkshire I sold at $140 to fund it is up 38.5% in USD without dividends, so it's still a 22% outperformance plus dividends).  I quite often approximately track the alternative investment's market price versus Berkshire's in this way to judge whether I'm making good Value Trade decisions and how fast they're paying off (if they are) in market price terms compared to my default of holding BRK.B, especially if I funded it from my Berkshire holding. Luckily tax doesn't usually complicate the picture!

 

I've then tended to revert to buying Berkshire instead when I close those other positions as I think their potential downside risk versus upside potential starts to look a little less favourable than Berkshire's.

 

This way if these side bets (Value Trades) outperform Berkshire as I anticipate the usually will, I can usually end up owning considerably more Berkshire over time by reinvesting their capital, capital gains and dividends as well as my new cash savings into Berkshire.

 

Berkshire being my default investment seems to have paid off so far, and has been well worth the time I devote to understanding it as thoroughly as I feel I need to and knowing that I'm getting it for a good price with fairly limited downside risk when I add.

 

Others will have different strategies and taxation situations and different circles of competence, so your mileage will certainly vary.

 

But this approach has worked for me, and for me it seems as though it's better for me long term than holding too much cash in fear of the bear, which it seems is always looming for a few years before it arrives, during which time Berkshire is likely to compound at 10% or so for a few years prior to an eventual 20-30% decline, maybe 50% in extremis like 2008-9 GFC, so I will usually be well ahead of the cash alternative when the bear finally arrives and still able to take advantage of bear market opportunities within my wheelhouse.

 

Berkshire as my default holding with cash at modest levels allows me to be patient and sleep soundly knowing my capital is at work in a range of great businesses before I occasionally take advantage of what I feel are fairly rare and special opportunities within my small circle of competence when I happen to spot them.

 

In all the 16 years I've held it, Berkshire has not been close to the legendary super-compounder of the 70s and 80s (nor did I expect this), but it's consistently been a very good option for preservation and safe compound growth of capital over long time periods able to take advantage of bear markets for a little extra upside, and as I've come to understand it better, I've mostly purchased more at prices where I rarely see the price go very much more than 5 percent lower than my last purchase, while not missing out very often on upswings by waiting too long (I think I slightly missed out in late 2017 when the price rose above $190 in anticipation of the tax cut before I invested about 10% cash, but I still beat the market by holding two of the largest beneficiaries so I can't complain).

 

One of these days we will find out what happens when Buffett or Munger leaves the scene, but that could still be quite a time and quite a lot of compounding in the future, so I'll continue to hold an awful lot of my old faithful default option.

[aws]

I'm in at 50ish% now.  I increased it a lot initially last summer in the high 180s, and now again around 195 in these days while BRK underperforms the market bounce.  Now that I'm basically fully loaded I would be perfectly happy for whoever is in charge here to take the lid off the price and allow it to move up with the general market. 

[SHDL]

I probably have something like 10-20% of my household net worth in Berkshire, and that is despite the fact that I have enough hubris to believe that I can get better returns elsewhere.  As far as passive wealth preservation vehicles go, it’s really hard to find anything much better than this. 

[LC]

An idea triggered by Munger’s comment in the 50th year letter, “The stuff we have now is enough” had me come up with NPV’s of future cash flows under various scenarios; staying flat at current rate for aa decade; growing modestly and then flattening out; and of course  various discount rates. Under all assumptions the price was lower than value. This was in 2015, I think. Berkshire ‘s value has marched on at some of my aggressive assumptions. I plan to do this again this May.

 

Yep - I have not done the exercise outside of my mind but that is what I concluded the result would most likely be.

 

Everytime someone says that "Buffett's age is the risk" I think, well if he died tomorrow and they started such a runoff, it would probably increase the speed at which Berkshire's value is "realized".

 

Regarding buybacks vs. dividends -

Once Warren is gone, I prefer dividends. I don't trust the next guy to buy appropriately.

While Warren is alive, I prefer neither. I'd rather give him as much opportunity to find another elephant.