Warren Buffet (Berkshire) as an example of success
Introduction
Berkshire has been described as
“...the last Great American conglomerate, with hundreds of subsidiaries fused with the backbone of the US economy. Its freight trains run over more than 51,000 kilometres of track. Its utilities provide power to 13 million customers, and in GEICO, it owns one of the largest insurers in the country…”
Eric Platt et al, 2024
Not all Berkshire's investments were successful.
Despite recent lack-lustre performances, ie under short the index, since 1950s Berkshire has
“...outperformed the S&P 500 by more than 4.3 million percentage points…”
Eric Platt et al, 2024
The main reason for the recent lack-lustre performance is that Berkshire was not keen on the tech stocks and the recent rally was tech-dominated. Warren Buffet
“...stating he is ill-equipped to assess their prospects and uncomfortable with their unpredictable cash flows and they're often have brief lifespans so dependent on innovation…”
Eric Platt et al, 2024
However, in 2016 they invested in Apple, ie $US 40 billion that was worth around $US 175 billion in late 2023; this is worth around 1/5 of Berkshires total valuation.
Some of the principles and guidelines of Berkshire investment success include
- Being a voracious reader, ie picking through newspapers, trade publications, company annual reports, etc; seeking sources of information that are different to what others seek
- Variant perception, ie seeing things differently
- Seeking out good businesses with strong management teams that are trading at attractive prices
- Look for investment that have an unique, sustainable competitive advantage, ie hard for rivals to imitate
- Look for financial characteristics, like
“...low capital intensity, pricing power, reoccurring revenues, staying power, and the likelihood of long-term growth..."
Todd Combs quoted by Eric Platt et al, 2024
- Look long-term, ie plan to hold the stock for ever
"We never take the one-year figure very seriously. After all, why should the time required for a planet to circle the sun synchronize precisely with the time required for business actions to pay off? Instead, we recommend not less than a five year test as a rough yardstick of economic performance."
Warren Buffett as quoted by Tim McArthur, 2025
Additional comments
- In 2011, Berkshire invested around $US 11 billion in IBM which prove to be a failure; the stock was sold within 7 years Is it appeared trapped in a cycle of declining revenues
- Market conditions in 1973 (oil embargo) and in 2008 (global financial crisis) adversely impacted Berkshire’s investments
Some competition to active, managed funds like Berkshire are the passive index funds that are claimed to be safer, cheaper and more reliable than active fund manager