AdjustedEarnings

It's a possibility since anything is a possibility. But that'd be a taxable transaction to the shareholder AND to the C-Corp. So Warren would have to compare it to a cash dividend to see what makes most sense. The first question is do they want to do a capital return. Then, do they want to do buyback or dividend. After that, whether it makes sense to distribute securities/stocks or cash and the tax implications of each. If the stock is held within insurance subsidiaries then there's a few more considerations depending on domicile of the particular insurer. Insurers have some other weird tax quirks too, but these are minor.

Retiring/canceling shares is merely a procedural matter. It will not make any difference to how much stock they can issue in an acquisition. At this price, I don't think a stock acquisition is a possibility because sellers don't impute value to an undervalued stock (and so they don't accept a lower multiple). Nor is a stock transaction necessary, given the issue we're discussing here being too much cash.

That works in theory but cash in your hands means you can invest in anything else you like (even if not now but in the future) v/s your cash inside BRK means it can only go into their restricted universe of 50-60 companies, of which none are cheap. Or it has to go into deals like OXY. I think CM was correct to predict that they'll get more liberal w/ repurchases. There's simply no other alternative. But I do think Buffett will fight it for a good while (as he has) before eventually it's done. I have a good size personal position in BRK, but not huge.

This situation has become really silly where WEB is anchored to his idea (and passion) of turning one dollar into more than a dollar, without actually doing so. On one hand he says the market is really undervalued if rates are sub-2%. On the other hand, he buys little (in the market, public or private, or on the repurchase). For their own purchases and repurchases they're probably using a 9-10% threshold or something in that range which, of course, will not be met in a sub-2% world. Waiting for a deal amounts to betting on rates and/or cycles (which they say they don't do). Central banks are now driving DOWN rates. So it may well be another 5 years before BRK does a deal. If that deal (in 2024) is anything less than $200 billion, ROE from this point on will be disappointing. I've written on this topic before but it just keeps getting sillier each year. Warren is right to think that BRKB is probably not worth more than $220, probably because they will always have a cash drag and not enough opportunities. He loves the buybacks at AAPL and loved them at IBM, but the same logic doesn't seem to apply to BRKB. We have to adjust our prospective ROEs down accordingly. It's probably heretical to say to the group here but I feel it's not totally rational of WEB to act this way. He just doesn't believe in shrinking the base when it comes to his own company. This view has been held since at least 1995 (when they said they wouldn't buy it back even at a 25% discount): https://www.thehobbyistinvestor.com/berkshire-hathaway-1995-annual-meeting-audience-question-39/ I think his passion, desire to invest, and getting larger is getting in the way of "per share" results. In many of these situations, he has always said in hindsight that they should've acted differently (e.g. when they didn't buy back after 1999, when they raised the threshold from 1.1x to 1.2x, etc.). Frankly, if they're not going to do a buyback at these prices, they should pay a dividend. I know the tax argument, but would you rather pay 15%-20% and invest the money in the rest of our portfolio or have BRK keep it in cash for you. The opportunity cost seems higher than the tax you'd pay. The OXY deal has a nice coupon but I cannot say with certainty that these seemingly attractive coupons are necessarily that attractive looking at the price and structure of the transaction. It seems like something they got into where the like the terms but not the business because they cannot find anything else (like Salomon and US Air back in the day). Leveraged Kraft deal as well as TXU all did not go as well as anticipated and were ones where the terms were attractive but the business dicey. What do the others here think?

Insurance overall is already negative yielding. Other than volume, the second problem is why go through the trouble of shutting something down that works very well? What if rates turn positive in Europe at the time of refinancing the initial issue negative interest debt (they'll have to refi occasionally)? Are they then going to rebuild insurance from scratch? The negative rates are also not negative enough to the degree of income provided by insurance. Cash flows are wildly different too (take a read on how negative rate bonds work). Plus, the way insurance liabilitis work, you can't simply pay them off from a bond issue any way. They have their own attrition based on paid losses. So this process would take forever given the long tail. It would make no sense to shut down Geico, etc. which are shorter duration, shorter tail segments but is profitable and growing. So, for many reasons, this is not a very practical idea.

See also: WEB's investment in Seritage. Large, high conviction investment equaling over 10-15% of his non-BRK portfolio. It has under-peformed badly. Now he has more than $1mm in that portfolio, to be sure. But it's less than a billion. I believe that portfolio looks something like: 10-15% SRG 10-12ish% WFC 10-12ish% JPM Some other REITs he uses for income and US Treasuries He could be in smaller investments, if he wanted to be, had time to find them, and actually found them.

This 50% thing is back again! This was around almost 20 years ago (Businesweek interview) and people kept on asking WEB about it every chance they got. As far as I know, no one has achieved 50% a year even on small sums since then (if they did, they'd have a large fund by now or at least be famous). I think back then WEB just said 50% to pick a number that would indicate large returns v/s small returns. To think that WEB, CM, or anyone could do 50% for even 5 years in a row without leverage is almost silly, hopeful, and not grounded in reality (given where asset prices and rates are today). It's been 20 years but the 50% refuses to go away! It seems some part of the audience is just awed by that 50% number and wants to achieve it without much practical consideration. What do you guys/girls think?

Can everybody throw out an estimate of what they think the buyback was and we'll see how close our consensus is when the real number comes out? I was waaaay off last time. Given that, through Feb 14, there had not been much in the way of the buyback, I think it's going to be light AGAIN. Maybe 300mm to 800mm, probably closer to the lower end of that. One thing I'm learning is (I posted on this before) that while WEB's rationale and his actions are mostly in sync, but not always. And the buyback is one of those anomalies where he'll tell you stocks are not expensive if rates are low, that BRK is not expensive, then the whole discourse he gave Steve Jobs about buybacks, etc. etc. and then not do anything about BRK's own buyback. The reasons leave a lot to be desired: Don't want to take advantage of our partners.... well is it fair to take advantage of those who are staying for the sake of those who would leave? Do they not feel bad taking advantage of shareholders of companies where they're buying stock, such as Delta. I don't buy this taking advantage argument at all. When you buy back $1.4 billion of stock, is it okay to take advantage of some shareholders if it's on a small scale? Or that some or other acquisition is in the offing.... when you are WEB, you always have deals you are looking at. There simply are not enough 50bn+ dollar deals out there in companies that BRK can/will buy. The cash balance is truly getting silly now. There have been too many mistakes when they have done something (General Re, IBM, not selling KO, GOOG, etc.) Yet, I'm almost certain nothing will be done about it, except a lot of talk about what SHOULD be done. In fact, when they didn't follow through on the 2000 and 2011 buybacks, both times WEB/CM said that it was a mistake not to do so. And yet, here we are. I feel like I'm turning into a cynic here but I think WEB has given folks a lot of reasons to feel that way. We'll soon be at 1 yr anniversary of the buyback announcement, the stock has been cheap during that time, and nothing of consequence has been done. Just imagine if Apple stopped their buyback because of the pending TV service. I don't think WEB would be very happy about that. With rates now at sub 3% for much longer, WEB/CM must really reconsider their priorities here. What are your estimates on the buyback?

It is now mid March... has any one seen the 2018 letter yet? I don't think 2017 was ever found. Some suspected it was because of poor performance. Others thought it was because of the scam allegations that they kept them private. 2018 performance has to have been horrid given what they owned. 2019 looks like it's off to a bad start too. Maybe its true what they say... 10-year manager of the year type performances tend to go down the tubes later. Berkowitz certainly did, as did Miller. Let's hope Mecham does not join that team.

I'm not saying there's safety in the coupon either. Safety is in the strength of the issuer. I'm thinking generally of US Govt bonds, but I'll use AAA if you prefer that. So, if we use that math on your numbers, 30 year AAA bond at 3.8% yield, 10% compounded growth in BRK, contending that the proper discount rate for BRK is 3.8%, then are you saying that the fair value today ought to be $1151? i.e. 202*(1.1^30)/(1.038^30)? Or do you have a slower growth rate for BRK after a few years from now? If the AAA is long-term assumed to be at 3.8%, we're assuming rates stay very low. In that environment BRK will find it difficult to get 10% even if Buffet WANTS IT. Just because he wants it doesn't mean he can get it (e.g. last few years) or that it can become our assumption (in my opinion anyway).

It has already been mentioned above, but it is not correct to compare bottom to top since down years are also part of the market. Such a top to top comparison would yield different results. I would choose 2007 to 2017 as a much more accurate comparison. This would lead to a BRK CAGR of 9.46 vs 8.1% for Vanguard500. In fact, this BRK return is more or less in line with what most of us (and WEB) expect of Berkshire: a little under 10% IV CAGR for BRK unless interest rates go up Edit: I used IV and it might not be correct because of discount rates. However, this a "a little under 10% return" stems from the fact that WEB himself seems to be using a 10% hurdle for his investments. In the old days he would ask for a first day 15%, he now seems to ask for 10%. Cash and bond drag together with some comission mistakes explain the underperformance to his hurdle rate. This is why 9-10% tends to be the discount rate applied to berkshire (IMO this discount rate is inappropriate and the motive for the permanent discount in the stock price: if you get almost bond like safety you must have an almost bond like discount rate. The same happens with the sp500 in the long run. On the first point, there are many stats you could consider that would support either way of looking at it. E.g. For 10 years after the 1973-74 bottom, BRK's performance over the index was higher than it had been before because they'd been able to put money to work before and around this period... so when people say WEB's going to bag elephants in the next recession, I'm looking at 2008-2018 period for evidence of that as that presented a pretty big opportunity. But we can simply leave both approaches (yours and mine) aside and consider these 9 year increments and BRK's out-performance over the SP500 since inception: 1965-1973 17.6% 1974-1982 19.8% 1983-1991 14.3% 1992-2000 9.6% 2001-2009 3.8% 2010-2018 1.6% Here you've got tops, bottoms, and middles, everything and you can see where things are headed. Size is of course the big problem, but also cash-drag (which is related to size but has a solution in repurchases and/or dividends), and some mistakes of commission. Of course, we don't make money from the past performance of the stock, so when we look to the future period, what factors need to get better? And how much out-performance can we expect realistically in the NEXT 9 year period? I'm more and more becoming convinced that while outperformance may exist, it probably will continue this trend we're seeing here. Now, whether 1% outperformance is worth the risk of not achieving that outperformance is up to debate. 1% can do a lot over decades, but remember 1% will go to 0.5% etc. unless they shrink the capital base (which was the subject of my prior post where I gave reasons for my thinking why it won't happen on any decent timeline). They have not been short of capital in the 2010-2018 period. So, repurchases would've made these results better. That was probably also true in the period before that, 2001-2009. Only ways to shrink the capital base are sizeable repurchases, dividends (when appropriate), and occasional acquisitions when they can be found. I do feel that the time has come to make acquisitions the "special case" rather than the default case and move repurchases up to default case when the stock is not overvalued: As to bond-like safety, I'm not sure why you'd assume that. What exactly is providing bond-like safety here? It's not a bond. It might be safe in our minds but that doesn't make it a bond. (Every borrower thinks they're going to pay their mortgages/debt, but that doesn't make them all AAA/FICO 800+ either. Same logic) Also, bonds pay coupons, Berkshire doesn't; and that is what is being discounted in the bond price. So you're relying on reinvestment and the results of that re-investment skill is what you're seeing in the table above. If BRK had traded at bond yield type discount rates in 2010, you can imagine what the outperformance profile would look like. BTW, "stocks discount rates should equal bond yields" was also the reasoning given for buying SP500 in 1999 in the book Dow 36,000. It seems logical on the surface, but it's not right just from a plain mathematical standpoint.

I'm as much of a fanboy as anyone else on this board so it took me longer than it should have to realize/accept that BRK is simply too big for anyone to run, including Buffett. I don't care about short term stock performance but on a longer term basis, it has under performed for the last 10 years and also the last 17 years (if that's not long term then I don't know what is). I picked these dates to coincide roughly with the last two stock market bottoms. No one can handle this much cash (which is why I picked the bottoms because that's when you're ideally positioned to put it to work). The problem gets worse on a daily basis and, despite their advice to others, they've been quite stubborn on returning any kind of cash at all... which means the problem only gets worse. Buffett is rational but also human. He's had tremendous success investing in and acquiring businesses. So I think there's some inertia to move the thought process along (the switch from net-nets to good businesses also took a LONG time for the same reason; difficult to change what's working). Every fact would tell you that the ability to put money to work is behind them... Ted/Todd under performing with smaller books, WEB under performing, major mistakes in IBM and KHC with large commitments (counting opportunity cost here as I know they didn't lose $$), Coca Cola (this used to be a good investment but total return since investing is now pedestrian given that the stock has been flat since 1998 so the only return is the dividend; their own advice to not do anything for tax reasons appears to have been ignored here since WEB has complained that if they sell KO they'll have a large tax bill and would need a much better investment to make up the tax hit), General Re IRR most likely not good though difficult to quantify, BAC worked out great, but GE didn't. GS was just okay. So taken together, the fall of 2008 investments were just okay. Probably under performed the SP500. BNSF was terrific. But PCP was only slightly above average. Add to that, the mistakes of omission as told by WEB: Google, AMZN, MA/V, etc. How will they do better with MORE money? Honest hypothetical question: If any name other than WEB was associated with this collection of assets and performance, how fast would investors be screaming A C T I V I S T? In fact, if you ignore size, isn't this the type of thing that WEB attacked in his partnership days (Sanborn map, separating business from securities) I know I'm going to invite a lot of criticism here. I like WEB/CM and their whole philosophy more than most but I'm just trying to state the facts, to be clear eyed, and view these things outside of WEB and CM's quips and quotes. At this point, it seems Berkshire will plod along with subpar returns on assets due to, size and cash drag. Best that we can hope for is a nice deal for $80 billion+ but that just seems kind of foolish (or two deals for $40 billion but tough to imagine 10 deals for $8 billion in any reasonable time frame). How many $80 billion+ deals are there? and how many of them go for prices that WEB will pay? Deals at that size (when they come around once every 5 years) are heavily negotiated. So, in my mind, I simply adjust long-term ROE down (unfortunately) by 200 bps on a forward basis, which means 1.3x BV may well be the right price. That's my view anyway.

Price is below $200 again. I can almost imagine them buying...$300k of stock today... sarcastic obviously. But point being, I doubt we're going to have any large buy backs this quarter. What do you all think?

Total return on BRK since the 2009 low has been lower than the S&P500 (dividends reinvested). If that low period following the recession was not good enough to find enough opportunity to outperform for a value seeker like BRK, will a garden variety recession provide the opportunity to put out $100 billion and then outperform? Increasingly, I'm skeptical that they'll EVER get all the money out and the cash drag has to be thought of as permanent. If we are waiting for MAJOR panics to put out $50 billion, we'll get one every 30 years or so. So even if you have good returns on that deployment, over that period of time it hardly makes a good showing. To this cash pile is added $25 billion per year. So one argument is they'll buy more stocks. Here, they are restricted to large companies only... hence (in my view) the need to go into AAPL, IBM, KHC, ORCL, etc. and the corresponding mistakes. Buffett is as rational as they come, but I'm wondering whether it's possible that his historical success and love of investing is coloring his judgment? (Didn't CM say something like it's hard to change things when they have worked). When he was doing net-nets, it took him a LONG time to shift approaches. How much longer before he decides the size is now just too big and it's time to finish the "painting"? Second option is a buyback. Here, it also seems the possibility is not very high. At any given time they are showed all types of transactions, so they'll always be considering some purchase or another. This was also the case in 2017...remember the "hyena" reference v/s the elephant?... if bankers call them every time there's a large transaction and WEB wants to have money on hand, the possibility of seriously seeing large buybacks is low low low. He says it right there... his pulse is racing just writing about acquisitions. That didn't sound like someone who would suddenly buy back $10 billion of stock... EVEN THOUGH they've said multiple times that the decisions to not buy back in the past were mistakes. At this multiple for BRK, it's hard to imagine a large negotiated transaction with a premium giving a better return. Yet he didn't say his pulse races thinking of buying back BRK. I can't reconcile the two except to think that he loves acquisitions and is 'hoping' for a price so good so as to make this cash drag and opportunity cost of not buying back BRK worth it. The idea that we want to share more information with "shareholder partners" doesn't quite sit right either. They said this in the year... 2000! and again in 3Q2018... At what point does your quest to be fair to LEAVING shareholders become UNFAIR to CONTINUING shareholders? I seriously wonder (but don't have a conclusion yet) whether Buffett's combination of success, love of investing, acquisitions, tax efficiency (witness the opportunity cost of Coca cola), and general mental make up ever allow him to do any type of capital return (just talking about it doesn't count) in size. Third possibility is a dividend. If a buyback at today's price is not something WEB will do, we don't need to talk about a dividend much. Not going to happen. Several years ago, he said that getting up to $100 or $150 billion would be kind of silly and, yet, that's where we are headed. I don't mean this is criticism of Buffett. I admire him as much as you guys do but we do have to look at the facts clearly and decide what future returns on BRK will look like. If they are not good, we'll pay a serious opportunity cost as well.

Extremely light buyback! $BRKB repurchased $418 million worth of $BRKA and $BRKB and another $14 million through Feb 14.

I'm going to go out on a limb and suggest that we should expect a fairly big buyback for the quarter ($5 bn +, maybe even $7bn), given the following fact pattern: 1. First quarter: S&P -0.76%, net equity purchases of $10.5 billion 2. Second quarter: S&P 3.43%, net equity purchases of $1.3 billion 3. Third quarter: S&P 7.71%, net equity purchases of $12.6 billion, buyback $0.9 billion 4. Fourth quarter: S&P -13.52%, net equity purchases of $0.9 billion (the lowest of the year at the most attractive point and it's not like they didn't have cash). 5. Much of the additions during the year were banks and Apple. These fell even more than the market in Q4. None of the major holdings were materially reduced (except to remain below 10%, etc.) so the attractiveness of these to WEB seems to continue. Yet, they were not purchased even at lower prices. In fact, it was the lowest quarter for net equity purchases. So there must've been an alternative to get the cash out. 6a. Stock was below 3Q18 buyback levels. One could question, does the buyback threshold come down because of the fall in the market value of the portfolio. It's possible, but nothing changes on a look-through earnings basis. From that view, buying back BRK becomes a better way (than purchasing stocks) to increase exposure to the same portfolio. 6b. Ajit Jain purchased $30mm of stock for his personal account, which would seem to support 6a. Jain is also on the board and, hence, familiar with WEB's valuation and buyback level. 7. Daily volume considerations would easily allow a buyback of $5-$10 billion. If BRK didn't buy back and just let cash build and build despite the market fall and the flagging share price, we'll have to revisit our assumptions on long-term ROE. On the other hand, if they buy back a lot of stock, it's a clear indication that they think this is the best large cap opportunity out there (and JPM?). So there... that's what I think will happen. We'll find out soon enough. Also, even though remote, I think the possibility of a dividend is higher now, especially if it turns out they haven't bought back much. Otherwise cash levels will become simply unmanageable/ridiculous and we'll have a permanently low ROE due to the drag. In a regular recession, they could not get $100 billion invested.

Under current US-GAAP, goodwill is NOT amortized. It has been that way for a LONG time. US Tax law allows deduction of goodwill, depending on how the deal is structure. As to FX, foreign subs must first remeasure their financial statements (if needed) and then translate them (if needed). This is what produces the change to goodwill from quarter to quarter. The offset is in the cumulative adjustment in AOCI. It's not a big deal at all, unless all yours subs are in Venezuela. Both of these are minor things that generally don't affect your analysis of a company at all.

Some goodwill is deductible for tax purposes based on how the transaction was structured. This will reduce your goodwill at the time of the initial recording of the transaction, with the corresponding change to the net deferred tax assets or liabilities. Financial statement goodwill is not deductible. But, when deductible for tax purposes, it improves cash flows in the years deducted. Foreign currency impact here might just be translation differences at reporting dates of goodwill of the foreign subs.

My view is that it absolutely bodes well for the buyback. I was as surprised as anyone that the level of purchases was not higher. But, if I put myself in WEB's shoes, my two options to spend funds are: 1. Buy more of all the securities I like at better prices. Should they gain, I've got to pay a corp-level capital gains tax (which is higher than individuals for the LT rate) and have to worry about running up against 10% ownership in many of the holdings. 2. Increase the per-share ownership of that same exact portfolio, but with a further discount, AND on a leveraged basis (through insurance). This option is the buyback. From the continuing shareholders standpoint, they end up much better with option 2 and their economic exposure to the equity portfolio does increase. On a per-share basis, they DO own more of all of the securities, even if BRK didn't explicitly purchase them. Philosophically, this would not be dissimilar from repurchases at LSXMA v/s SIRI. LSXMA owns SIRI on leverage. Let me know what you all think. Something that I don't understand is certainly going on with the JPM stake. I was expecting at least as large a buy as in Q3, but that turned out wrong. He really is very hard to predict. Maybe this bodes well for buyback volumes, but I wouldn't be too sure about that either. Really is peculiar.

KHC! It's got all the elements: 1. Cash cow but not growing... means good candidate for reinvestment of its profits elsewhere 2. Already own some of it, so premium need only be paid on the balance 3. A management team that excels in controlling costs and would probably be better able to do their thing "privately" than publicly. 4. A management team that wouldn't mind sending cash flows elsewhere Problem of course is could Berkshire handle all that cash? I understand the feeling that in the next "big one" Warren is supposed to put all of this to work, but if they get up to $150 or $200 billion, it may well be impossible and it'll just simply drag on returns. If they have to pay dividends then there's no point paying a premium for KHC and returning its cashflow along with others in dividends. KHC can just pay their own dividend and BRK won't have to pay a premium.

Regardless of whether Howard's hobbies are mainstream or not, it just would've been great if WEB's always-super-rational thought process didn't lead to his son being on the board. Even before this thing (which I'm not even sure is a "thing"), it felt odd that out of the entire corporate world, WEB found the most capable board member among his children. Not Dimon, not Gates, not Bob Hamman (kidding, but probably still better than Howard... but seriously look this guy up. He's a genius and Buffett looks up to him), but Howard Buffett. Just seems odd for someone who preaches AGAINST the ovarian lottery. Now, I know Howard is not actually get a ton of personal money from Buffett so the ovarian lottery reference is not super accurate, but still, I'm at a loss for understanding why Howard is the best candidate (regardless of the merits of this article). Any and everything out there about Howard indicates he's a fairly average businessperson. Should not be too difficult to find someone better for that job, like, say Marc Hamburg who has worked super hard for a (comparatively) low salary for MANY years. I mean, that ought to show dedication to Berkshire?

Dynamic (and others), where in this spreadsheet can one see the drop in the BV attributable to the equity portfolio since the last reporting date? I'm calculating about a $9.3 (net of tax) per share reduction from the portfolio and then a $2.45 (everything is per B-share) increase from operations, for a total of $6.85 reduction. But mine is a rough calculation and this sheet seems a lot more detailed. Would love to know where I can see this info. Thank you!

If I'm qualified to recommend anything to anyone at all, I'd recommend COLLEGE level courses... basic, intermediate, and advanced. It'll take a year or so, but commit yourself to it. There just aren't any short cuts. If you had a lot of time and were very diligent, you could teach yourself from the Internet alone, but it could take several years. Accounting today is incredibly complicated in ways that are difficult to imagine if you aren't already familiar with it. For e.g. I could almost guarantee you that more than 50% of the investors you meet will not know how to make sense of the Income Taxes footnote (not just the gross value of DTAs and DTLs, which many Berkshire investors understand but Unrecognized Tax Benefits, effective rate reconciliations, valuation allowances, etc.) which plays into FCF big time... or the effect of stock option exercises on the income statement now v/s two years ago. Just look at the new revenue standards and all the changes that has brought with it, particularly on industries which will be dominant in our investing lifetimes. Beyond the basics, accounting for financial institutions (banks, insurance, etc.) is a specialized area of study where you won't find any college courses but you'll find a lot of 'industry practices' and guides. In fact, many issues are not addressed in US GAAP at all and are simply a matter of industry practice. Good luck!

It's possible to be successful in many different ways. This is about 'likelihood', particularly 'forecast-able likelihood'. Let me start with examples. There are tons on both sides: 1. Good management, tough business that didn't work out... may I start with the obvious.. the original Berkshire Hathaway. I think WEB had said the opportunity cost of not having started with NIC has been about 100% of BRK's market value (i.e. they could be double the size now as that early capital invested in BRK didn't compound for a long time). So not all 'failures' of tough businesses look like Sears, you can do badly in opportunity cost as well. Anyway, then we've got General Re (for the first 5 years after purchase), Platform Specialty, Spectrum Brands, Axalta, Nordstrom, Crown Crafts, etc. etc. 2. Good management, tough business that did work out... the obvious one here being Amazon. Others include Mainfreight, Walmart, Costco, Old Dominion, many small regional banks, Meritage Group, Tropicana Casinos, etc. 3. Average management, great business that did not work out.. it's tough to think of examples here of a truly extraordinary business that just failed due to management. Over-leverage/BK is not a consideration (so not Charter, etc.), I'm speaking of permanent operational deterioration and beaten by competition (not technological change, which is beyond management control). 4. Average management, great business that did work out... there are many here and I'm sure you are all aware of the names so I won't repeat them. The problem also is when things go very well, it's really hard to tell whether the management is average or better. Example, Moodys and S&P Global have both done well. The have had so much wind at their back, it's almost impossible to say if either management team is truly extraordinary. Interesting examples are also where management goes from a good business to a bad one and to see whether the SAME person could again perform as well. I wish the track record on this gave only one answer, but it doesn't. Someone said Ron Johnson and that's a great recent example of what he did at Apple could not save JCP. On the other hand Frank Bisignano did 'save' First Data and has kind of changed the trajectory of the businesses. One ongoing example will be Ed Breen's experiment at Dow-Dupont. The founders/leaders of Arch Capital all came from Berkshire and have been able to repeat their success in a tough industry. I wish there was just one answer, but I doubt there's such a thing. BUT! What we do care about is not so much the likelihood, but rather the predictable likelihood, on basis of which you can invest. So while it is POSSIBLE to have a great result from a great management in a mediocre or worse business, could you see this and bet on it ahead of time or is it only recognizable in hindsight? It appears much easier to bet on a strong business continuing to be strong rather than a weak business becoming stronger. But both are within the realm of possibility and it's possible to bet on both if you know enough about the business and the people involved (John Byrne?). I think Buffett's quote is right AND has placed his chips accordingly. The MAJOR businesses of Berkshire are more on the side of 'good' rather than 'average'. (It's not right to say "insurance", as there are many kinds. GEICO is about as straightforward as they come and execution is key, underwriting is mostly competitive and automated. Ajit does not write each auto policy... General Re, etc. are a little different.) BNSF and the utilities are clearly less reliant on management. Even major investments, Coca Cola, AmEx, Wells, etc. have gone through management changes and have done fine (over his period of ownership). He has not sold because of those changes. This is getting long, so I'll stop and let others respond to it before I write more.

Has anyone found this letter? It has been a year, it has got to be out there on the web somewhere! But I can't seem to find it. It also looks like he's going to have a not-great-at-all 2018 (not that I care about one year, but it could make his underlying investments worth looking at if they've come down materially from where he concluded they were cheap). Hopefully, we'll get that letter. Generally comes in February/March, I think?