Berkshire Hathaway
It’s wild that I haven’t talked about Berkshire Hathaway yet. Warren Buffett is my hero which is super basic and very un-sexy, but it’s true. I respect him not for the investing, although that’s also amazing, but for pulling himself up. I think Warren Buffett’s story is one of the coolest in America. Warren Buffett runs Berkshire Hathaway, one of the best-run companies in the world. As any of my readers would know, in a macro sense, leadership is all I care about. Berkshire Hathaway is a naturally good fit for my money because of this and for a couple of other reasons.
First of all, I’ll be talking about Berkshire Hathaway Class B stock, not A. Congratulations to you if you own Class A stock, but as a fifteen-year-old, I don’t have $560,000 in my piggy bank. They aren’t very different, just that one share of the B class holds 1/10,000th the equity and power of the A class. A class shares typically outperform B class slightly.
Okay, I’ll give a quick rundown on what Berkshire Hathaway is. Berkshire Hathaway is one of the biggest conglomerates in the world. They own a ton of private companies like GEICO, Duracell, and Dairy Queen. They also have significant stakes in several public companies: Apple, American Express, and famously Coca-Cola. Berkshire Hathaway is built on the idea of value-investing, an extremely unsexy form of making money in the market. It’s so unsexy, that despite being one of the wealthiest men in the history of human civilization and managing the greatest growth of money in the history of this country, people still hate on Warren Buffett.
One of the main tenets of value investing is using intrinsic value to analyze whether a stock is overvalued or undervalued. For example, Disney stock has an intrinsic value of $130 meaning it is undervalued right now. Nvidia on the other hand has an intrinsic value of $208, meaning it is hilariously overpriced. Intrinsic value can be calculated in a couple of different ways, but the main objective is to calculate the real value of a stock by removing external market pressures. Now this is a tool, not the ball game. Apple for example, which makes up 45.7% of Berkshire Hathaway’s portfolio, has an intrinsic value far below its current value. Yet I think it’s still a great buy, and obviously (more importantly) so does Warren Buffet. I write all of this to say, that Warren Buffett’s whole thing is that what he does can be done by any other, they just have to be patient. I believe Berkshire Hathaway is perennially overlooked, and that it is one of those few companies that you should buy at any time.
Berkshire Hathaway isn’t sexy, but that shouldn’t matter. Actually, that’s a major benefit, the lack of flashiness means they can do whatever is expected of them. They don’t have to make insane promises like Elon, and they can use a basic amount of logic, unlike Cathie Wood. They continually make money, only changing when required, never forcing. The only concern that comes to mind is succession.
Warren Buffett has been the guide of this company, since its inception. How much of their recent success is him, and how much is the people who would succeed him? If it’s the people around him, who have gradually picked up the reins over the past decade or so, then that’s great. You can continue to invest in Berkshire Hathaway with no undue fear. If he’s still the driving force in Berkshire Hathaway however, that may be a little worrying. If I had to bet on one, I’d bet on the first option. I think Warren Buffett is smart enough to pick the right guys for the job.
His hand-picked successor is a man named Greg Abel. Abel is purportedly going to keep the culture of the company, which is one of the best things to hear. He's been at Berkshire for the past 23 years; I love that they’re not bringing in anything outside. He also ran Berkshire’s energy business successfully, bringing in successful acquisition after successful acquisition. Abel has direct control of all of Berkshire's railroad, auto utilities, manufacturing, and retail subsidiaries, which amounts to over ninety companies. Abel is a dealmaker, a very good one at that. This guy seems like he knows what he’s doing. To be honest, I knew very little about Berkshire succession before this article. The research I’ve done on Abel leads me to believe this isn’t a Chapek situation. What I know about Buffett leads me to believe that he won’t pull an Iger either, and undermine his successor at every turn.
Either way, you should trust in Berkshire Hathaway, and more importantly you should trust in Warren Buffett.
To summarize my thoughts on Warren Buffett:
In 2018, when I was 10 I remember looking up “best stocks to buy in 2018.” I scrolled down to the message board, and some keyboard warrior was saying that Warren Buffett was past his prime (since 2018, BRK-A 72%, S&P 53%). Obviously, his opinion was completely insignificant, but if I remember right I responded to him with something I thought at the time was biting. I think it was something like “You’re an idiot.” While not too different from what I do now, the stupidity of his statement has always stuck out to me. In the same way that Michael Jordan was a champion of his lifetime as were Alexander and Napoleon, so is Warren Buffett. It is so rare to get to experience such domination of one’s field, and while it is human nature to seek a fall, to reject such genius is the height of ignorance.
“They found you amusing for a while, the people of this city. But the one thing they love more than a hero...is to see a hero fail, fall, die trying.”-Dafoe (Green Goblin)
The formula for calculating intrinsic value, Discounted Cash Flow (from Investopedia):
DCF = CF1/(1+r)1 + CF2/(1+r)2 + . . . + TV/(1+r)n
CF = the expected cash flow for a specific period (e.g., CF1 = cash flow year one)
r = the discount rate
TV = the terminal value (estimated cash flow after the projection period)
n = the specific period (e.g., years, quarters, months, etc.)
