The podcast covers topics such as the impact of technology on investments, commodity investments and cable television, Berkshire Hathaway's investment in property and casualty vs. life insurance, the value of trust in online transactions, analyzing the academic approach and the puzzling behavior of smart people, understanding the relationship between Berkshire Hathaway A and B stocks, trends in the insurance industry and emerging markets for consumer franchise companies, growth and opportunities in the blade and razor business and the soft drink business, investing and book recommendations, investment decisions and learning from mistakes, and transparency and concerns in Berkshire's annual report.
Berkshire Hathaway prioritizes growing its float at a low cost, which has contributed to its success over the years.
Berkshire Hathaway has avoided the life insurance business and prefers to focus on businesses they understand and where they can generate reasonable profits.
Berkshire A and B shares trade at different prices but are treated similarly by the company, other than voting power and shareholder designated contributions.
Reading extensively, learning from past mistakes, analyzing investment outcomes, and gathering information from various sources are key to educating oneself in accounting and finance.
Deep dives
The importance of growing float at low cost
Berkshire Hathaway prioritizes growing its float at a low cost, which has contributed to its success over the years. The company continually looks for opportunities to increase its float, although the rate of growth is difficult to forecast.
Not venturing into life insurance
Berkshire Hathaway has avoided the life insurance business due to its lack of profitability and its focus on equity-related activities, which goes against the company's investment approach. They prefer to focus on businesses they understand and where they can generate reasonable profits.
Berkshire A and B shares
Berkshire A and B shares trade at different prices but are treated similarly by the company, other than voting power and shareholder designated contributions. The B shares should theoretically sell at a slight discount to the A shares, but may occasionally trade at a premium due to market fluctuations. Berkshire always honors the 1:30 ratio between A and B shares.
Importance of Trust and Health in Investments
Trust and health are mentioned as important aspects in investments. The trust associated with the Berkshire Hathaway brand is recognized. In terms of health, the healthcare services sector is considered to be relatively depressed. The question of whether Berkshire has considered buying a health insurance business is raised, but no specific action in this area has been taken so far.
Approach to Educating Yourself in Accounting and Finance
When it comes to educating oneself in accounting and finance, the key is consistent reading and learning from various sources. While no specific texts are recommended, it is suggested to read business magazines, newspaper articles, and the Berkshire Hathaway annual reports. Understanding various businesses, studying their products, and analyzing their financials can help develop investment knowledge. Additionally, conducting interviews and gathering information from competitors, employees, and industry experts is advised to gain insights.
Reflecting on Past Mistakes and Continuous Learning
Reflecting on past mistakes is mentioned as a valuable practice. The example of selling McDonald's, which was considered a mistake, is mentioned to highlight the importance of learning from investment decisions. The need for continuous learning and the evaluation of purchase decisions against sale decisions is emphasized. It is also stated that the best way to become a better investor is by reading extensively and critically analyzing investment outcomes.
Berkshire Hathaway's Value-Adding Approach
Berkshire Hathaway adds value to its wholly owned companies by providing a rational ownership environment, allowing managers to focus on what they do best and eliminating distractions often associated with running a publicly owned business. This enables managers to spend more time and energy on productive activities, resulting in higher efficiency and performance.
The Role of Derivatives and Intrinsic Value Calculation
The use of derivatives in General Re's operations, while potentially risky, is carefully evaluated and monitored by Berkshire Hathaway. In terms of intrinsic value, Berkshire tends to use market prices for its securities, but in some cases where market prices are significantly lower, Berkshire may assign a higher value. The company is mindful of the importance of accurate accounting and transparency in reporting.
