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Quick takeaways
- Berkshire Hathaway's preference for stable, durable businesses like Coca-Cola showcases Warren Buffet's investment style.
- Warren Buffet's acquisition of General Reinsurance in 1998 marked a departure from his usual aversion to issuing stock.
- Buffet's surprising acquisition of a utility company, MidAmerican Energy, in 1999 demonstrated his willingness to invest in stable, regulated industries.
- During the financial crisis of 2008, Berkshire Hathaway's investments in companies like Goldman Sachs and GE yielded substantial profits.
- The hiring of Ted Weschler and Todd Combs marked a significant shift in Berkshire Hathaway's investment management structure.
- Warren Buffet's investment in Apple, driven by its powerful brand and low propensity to switch, has become one of the greatest in history.
Deep dives
Warren Buffet and Bill Gates at Sun Valley Conference
In the summer of 1997, Warren Buffet and Bill Gates attended a panel discussion at the Sun Valley conference hosted by Don Keough. Gates made a comment about Buffet's investment style, comparing the ease of running his businesses to a ham sandwich, which offended Roberto Goizueta, the CEO of Coca-Cola who was also present. Buffet shrugged it off, but it marked the contrast between Buffet's preference for stable, predictable businesses and Gates' focus on the rapidly changing technology industry.
Warren Buffet's Acquisition of Coca-Cola
Warren Buffet's investment in Coca-Cola was a shining example of his preference for stable, durable businesses. Buffet purchased a significant stake in Coca-Cola in 1988, which has since grown in value. The company's iconic brand, international expansion, and reliable cash flow were key factors in Buffet's decision to acquire the stock.
Warren Buffet's Purchase of General Reinsurance
In 1998, Warren Buffet made a significant acquisition by purchasing General Reinsurance, one of the world's largest reinsurers, for $22 billion. This marked a departure from Buffet's usual aversion to issuing stock, as the acquisition was made entirely with Berkshire Hathaway shares. However, the purchase of Gen Re proved to be a challenging endeavor, with subsequent accounting scandals and financial losses impacting its reputation and performance.
Warren Buffet's Investment in Utility Company
In 1999, Warren Buffet surprised many observers by acquiring a utility company, MidAmerican Energy. This move demonstrated Buffet's willingness to invest in stable, regulated industries like utilities. While it may have seemed unconventional at the time, the acquisition aligned with Buffet's preference for businesses with predictable cash flow and long-term prospects.
Berkshire Hathaway invests in various companies during the financial crisis
During the financial crisis of 2008, Berkshire Hathaway deploys approximately $18 billion in capital by investing in companies like Goldman Sachs, GE, and Bank of America. These investments yield substantial profits for Berkshire, with returns estimated to be around $25 billion. Warren Buffett also makes a series of questionable investments during this time, such as IBM and the acquisition of Precision Castparts.
The hiring of two investment managers: Ted Weschler and Todd Combs
In 2011, Berkshire Hathaway hires Ted Weschler, a hedge fund manager, and Todd Combs, a former hedge fund manager, to manage a portion of its public equity portfolio. Both managers outperform Buffett himself, and Weschler beats the S&P 500 by a wide margin for several years. This marks a significant shift in Berkshire's investment management structure.
Warren Buffett's costly investments: IBM, Precision Castparts, and airlines
Warren Buffett makes some significant missteps during this period, with investments in IBM, Precision Castparts, and airlines. Additionally, the sale of IBM in 2018 leads to losses of around $2 billion. Despite these failures, Buffett acknowledges that both Ted Weschler and Todd Combs have consistently outperformed him in terms of returns.
Conclusion: Berkshire's portfolio and succession planning
Berkshire Hathaway's portfolio sees various successes and failures during this period. Investments like Goldman Sachs and GE yield substantial returns, while others like IBM and Precision Castparts result in significant losses. Moreover, the hiring of Ted Weschler and Todd Combs marks a shift in Berkshire's investment management structure, and the succession planning for Warren Buffett's eventual departure takes shape.
Warren Buffett's Incredible Investment in Apple
Over the past five years, Warren Buffett and Berkshire Hathaway have made an amazing investment in Apple. The initial investment of about a billion dollars in 2016 eventually grew to a market value of 120 billion dollars, resulting in 89 billion dollars in gains. This investment in Apple has become one of the greatest in history. Warren Buffett's strategy was to focus on Apple as a consumer product with a powerful brand name and a low propensity for people to switch. Despite not fully understanding how Apple works or all its technical aspects, Buffett's investment in Apple has proven to be highly successful.
Grading Warren Buffett's Career
Warren Buffett's career as an investor deserves high praise. Over the course of his career, spanning over 63 years, Buffett has achieved a blended internal rate of return (IRR) of 22.3%. This remarkable performance has outperformed most other investors and has resulted in phenomenal returns for his partners and shareholders. While recent years have shown a decline in Buffett's performance, particularly in the last five years, with an IRR of 13.5%, his overall career performance still warrants high praise.
The Future of Berkshire Hathaway Stock
The decision of whether to hold or sell Berkshire Hathaway stock depends on an individual's financial goals and circumstances. Investors who prioritize stability and long-term wealth preservation may choose to hold their Berkshire Hathaway shares due to the company's conservative management and historical track record. The stock has served as a reliable investment, providing consistent returns over the years. However, younger individuals or those seeking higher growth opportunities may opt to invest in other stocks or industries, as Berkshire Hathaway's performance in recent years has not outpaced the overall market.
9.
The Networks Face an Interesting Challenge as We Move From Television on to the Internet Like Right There
2min
30.
The Proliferation of Innovation Does Not Mean That There Is Value to Be Captured
3min
46.
Warren Buffett's 'What if We Just Put an Open Call for Candidates' in the Annual Report?'
2min
55.
Investing in Apple - More or Closer to More Dollar Returns Than the Rest of Warren Buffet's Career
2min
It's time. We wrap our Berkshire Hathaway trilogy with Warren and Charlie entering a new era: the age of the internet. Can they and Berkshire adapt to this brave new world? We find out. And, after 9+ hours, we render our final judgments on Berkshire and Warren's career. Is "Never bet against America" still the right longterm approach? Or is there another, even bigger Snowball out there that Warren may be missing?
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© Copyright 2015-2024 ACQ, LLC
The Berkshire Hathaway Playbook is available on our website at https://www.acquired.fm/episodes/berkshire-hathaway-part-iii
Links:
- Bill Gates 1996 Wired interview: https://youtu.be/VFFlO7yBIBM?t=1056
- Jeff Bezos's 2008 AWS == electricity talk at YC Startup School: https://www.youtube.com/watch?v=6nKfFHuouzA
- Charlie's 2021 Shareholder Meeting "slip-up": https://www.youtube.com/watch?v=6gyqElEG6Uo
Carve Outs:
- Common Stocks and Uncommon Profits: https://www.amazon.com/Common-Stocks-Uncommon-Profits-Writings/dp/0471445509
- Xbox Game Pass: http://xbox.com/gamepass
- Goodfellas: https://www.imdb.com/title/tt0099685/
- The Goodfellas soundtrack: https://open.spotify.com/playlist/0xVpgEngjrg6FOw5vEFHRp
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