Fairfax or Berkshire?

[Guest swf83]

Which is the better buy for the long-term at current levels? If FFH gets back to the $300 level I am going to load up, but BRKB under 3K sounds appealing to me as well.

 

Thoughts?

 

What about L (Loews)? I have become increasingly interested in this one as well.

[Viking]

We have had this discussion before and it went something like this: What do you prefer: blondes or brunettes?

 

My simple answer is it depends on what your risk/return profile is:

- FFH: smaller, more volatile, much less diversified, much higher risk, larger potential return over next 10 years (12 to 15% growth per year in BV is possible)

- BRK: larger, less volatile, much more diversified, much lower risk, smaller potential return over next 10 years (8 to 10% growth per year in BV is possible)

 

Assumption: my guess is equity markets will grow 4 to 6% per year over the next 10 years.

And I am trying to be conservative but realistic with all my growth numbers.

[oldye]

We have had this discussion before and it went something like this: What do you prefer: blondes or brunettes?

 

My simple answer is it depends on what your risk/return profile is:

- FFH: smaller, more volatile, much less diversified, much higher risk, larger potential return over next 10 years (12 to 15% growth per year in BV is possible)

- BRK: larger, less volatile, much more diversified, much lower risk, smaller potential return over next 10 years (8 to 10% growth per year in BV is possible)

 

Assumption: my guess is equity markets will grow 4 to 6% per year over the next 10 years.

And I am trying to be conservative but realistic with all my growth numbers.

 

Why does everyone keep low balling Buffett?  He just put what seems like 40 billion dollars to work at 15+% on average.  Last year aside, Berkshire has been putting up amazing numbers for a company its size.  Far north of 10% a year...now you add a huge chunk of capital earning satisfactory returns and we'll probably see returns in the mid teens for the foreseeable future.  Of course those buying below intrinsic value may very well enjoy a significant boost to their returns. 

That said, you can't beat youth!

 

 

[Viking]

Berkshire increase in book value per share:

5 year = 7.34%

10 year = 6.9%

15 year = 15.98% (they has one hell of a run from 1994-1999)

 

6.9% is quite good given what the S&P has done. It is not anywhere near close to what Buffett produced in previous years.

 

Oldye, Buffet is good but the law of large numbers are beginning to work against him. 10% growth in BV every year is a massive number for a company that size. Their size is also a strength. Wonderful company.

 

I simply think that because of their much smaller size FFH has a better chance of outperforming BRK over the next 10 years.

[ERICOPOLY]

6.9% is quite good given what the S&P has done. It is not anywhere near close to what Buffett produced in previous years.

 

 

Book value growth at Berkshire does not matter.

 

What does matter is this:

 

From the 1999 AR

Reported operating earnings of Berkshire 1,318

Total look-through earnings of Berkshire $ 1,926

 

 

[oldye]

Last year really hammered their average returns.  Take a look at the numbers since 2002,

 

Berkshire’s Corporate Performance vs. the S&P 500

Annual Percentage Change

 

Relative

Results

(1)-(2)                                                                                           Berkshire   S&P 500 Difference

1965 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.8 10.0 13.8

1966 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.3 (11.7) 32.0

1967 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.0 30.9 (19.9)

1968 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.0 11.0 8.0

1969 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.2 (8.4) 24.6

1970 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.0 3.9 8.1

1971 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.4 14.6 1.8

1972 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.7 18.9 2.8

1973 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7 (14.8) 19.5

1974 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5 (26.4) 31.9

1975 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.9 37.2 (15.3)

1976 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59.3 23.6 35.7

1977 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.9 (7.4) 39.3

1978 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.0 6.4 17.6

1979 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.7 18.2 17.5

1980 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.3 32.3 (13.0)

1981 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.4 (5.0) 36.4

1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40.0 21.4 18.6

1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.3 22.4 9.9

1984 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.6 6.1 7.5

1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48.2 31.6 16.6

1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.1 18.6 7.5

1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.5 5.1 14.4

1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.1 16.6 3.5

1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44.4 31.7 12.7

1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4 (3.1) 10.5

1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39.6 30.5 9.1

1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.3 7.6 12.7

1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.3 10.1 4.2

1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.9 1.3 12.6

1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43.1 37.6 5.5

1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.8 23.0 8.8

1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.1 33.4 .7

1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48.3 28.6 19.7

1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 21.0 (20.5)

2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 (9.1) 15.6

2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6.2) (11.9) 5.7

2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.0 (22.1) 32.1

2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.0 28.7 (7.7)

2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5 10.9 (.4)

2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 4.9 1.5

2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.4 15.8 2.6

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.0 5.5 5.5

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9.6) (37.0) 27.4

Compounded Annual Gain – 1965-2008 . . . . . . . . . . . . . . . . . . . . . . . 20.3% 8.9% 11.4

Overall Gain – 1964-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362,319% 4,276%

 

2001 and 2008 were outliers years, if you cherry pick and go 2002-2007 you'll see what happens when they put money to work!  Now they are in the outliers business so we're sure to see bumpy numbers but double digit long term returns is what Buffett is working for. Also wanted to add that 2008 is also when the disparity between GAAP BV and reality widened due to the index insurance which is as good as equity.

[scorpioncapital]

" law of large numbers are beginning to work against him"

 

If this is true why did the Russell 2000 index (presumably an index of 2000 small to mid cap cap stocks) underperform Berkshire B shares from 12/31/98 to 12/31/08, a ten year period by a factor of 2 according to Yahoo

 

[rranjan]

" law of large numbers are beginning to work against him"

 

If this is true why did the Russell 2000 index (presumably an index of 2000 small to mid cap cap stocks) underperform Berkshire B shares from 12/31/98 to 12/31/08, a ten year period by a factor of 2 according to Yahoo

 

 

I am kinda confused .

 

Why do you think a index, which is proportionate collection of all 2000 businesses should be compared to BRK-B as far as law of large number is concerned? If there are two investment companies having similar skills for capital allocation then we can say that smaller one has better chance due to law of large numbers working against the bigger one. But we can't say that total world index has xyz Trillion capitalization and BRK-B has outperformed the index so law of large number doesn't seems to work against BRK. We need to compare performance of BRK when it had very small capital to work with and performance of later years when it has lot more capital. If performance is similar then we can say law of large number is not affecting it so far.

 

If you meant it is still doing better than index in rolling 10 year period then that is true but we can't use it to argue that law of large number is not catching up with BRK.

 

Personally I think ,its difficult( nearly impossible) to produce earlier performance as BRK keeps growing but it will still do decent on risk adjusted basis. Buffet got the oppurtunity to deploy huge cash recently but as it gets bigger it will become increasingly difficult to deploy the cash with high returns.

[ERICOPOLY]

We went through a period where Berkshire held huge positions in stocks like KO that are worth less in price today than they were 10 years ago, even though the earnings power of KO has grown significantly.

 

I think if you look at their look through earnings of today vs 10 years ago it will show that Berkshire's intrinsic value has grown much faster than book value.

 

This law of large numbers isn't what happened to Berkshire the past 10 yrs.  Instead, it was the law of compressing equity portfolio valuations.

 

 

[rranjan]

Agree with you Eric. I used 10 year rolling window just to use some longer time frame. We can extend/reduce it but I was only trying to convey that it will be more difficult to deploy the cash with same expected result as BRK keeps getting bigger. You are right about their intrinsic value growing faster than book value in previous 10 year.

[ERICOPOLY]

Agree with you Eric. I used 10 year rolling window just to use some longer time frame. We can extend/reduce it but I was only trying to convey that it will be more difficult to deploy the cash with same expected result as BRK keeps getting bigger. You are right about their intrinsic value growing faster than book value in previous 10 year.

 

Viking mentioned the 6.9% book value growth over the past 10 years and law of large numbers in the same post.  I was really referring to that.  In an parallel world, where KO and similar stocks were dirt cheap 10 years ago and expensive today, then book value growth over past 10 years would have possibly been 15%, but we would not be able to draw any conclusions from that regarding the size of Berkshire and how it impacted performance, only that the market P/E expanded. 

 

Lastly, suppose we were talking about KO in isolation and not mentioning Berkshire.  Would we even be impressed with measuring KO's book value growth?  Doubt it.  That's because KO is an operating company and we would be more interested in rate of profit growth.  Likewise, Berkshire is increasingly more so every year just a consolidated balance sheet of operating companies and the right way to measure it is earnings growth, not book growth.

 

Fairfax is different because it's operating companies are just shells that hold publicly priced securities, so book value is far more relevant.  For example, you don't amortize the cost at which you hold JNJ stock, but if you bought the company outright you would amortize the goodwill.  The value of JNJ within Fairfax grows as the earnings at the company grow, this grows book value for Fairfax.  Now, if Berkshire took JNJ private the value of JNJ on Berkshire's balance sheet would not grow along with the profits -- you would have instead the amortizing goodwill.

 

Lastly, Fairfax trades them to generate profit in excess of the look-through earnings of those underlying stocks.  Berkshire trades to a far lesser extent, largely because of size, but of heavy importance due also to culture (won't trade privately held subsidiaries).

 

On a relative basis Berkshire's results are driven much less by trading.

[oldye]

Agree with you Eric. I used 10 year rolling window just to use some longer time frame. We can extend/reduce it but I was only trying to convey that it will be more difficult to deploy the cash with same expected result as BRK keeps getting bigger. You are right about their intrinsic value growing faster than book value in previous 10 year.

 

Viking mentioned the 6.9% book value growth over the past 10 years and law of large numbers in the same post.  I was really referring to that.  In an parallel world, where KO and similar stocks were dirt cheap 10 years ago and expensive today, then book value growth over past 10 years would have possibly been 15%, but we would not be able to draw any conclusions from that regarding the size of Berkshire and how it impacted performance, only that the market P/E expanded. 

 

Lastly, suppose we were talking about KO in isolation and not mentioning Berkshire.  Would we even be impressed with measuring KO's book value growth?  Doubt it.  That's because KO is an operating company and we would be more interested in rate of profit growth.  Likewise, Berkshire is increasingly more so every year just a consolidated balance sheet of operating companies and the right way to measure it is earnings growth, not book growth.

 

Fairfax is different because it's operating companies are just shells that hold publicly priced securities, so book value is far more relevant.  For example, you don't amortize the cost at which you hold JNJ stock, but if you bought the company outright you would amortize the goodwill.  The value of JNJ within Fairfax grows as the earnings at the company grow, this grows book value for Fairfax.  Now, if Berkshire took JNJ private the value of JNJ on Berkshire's balance sheet would not grow along with the profits -- you would have instead the amortizing goodwill.

 

Lastly, Fairfax trades them to generate profit in excess of the look-through earnings of those underlying stocks.  Berkshire trades to a far lesser extent, largely because of size, but of heavy importance due also to culture (won't trade privately held subsidiaries).

 

On a relative basis Berkshire's results are driven much less by trading.

 

I forgot the year but you don't amortize goodwill anymore, you perform a goodwill impairment test each year but only do a write down if the test is failed.

 

 

[ERICOPOLY]

Agree with you Eric. I used 10 year rolling window just to use some longer time frame. We can extend/reduce it but I was only trying to convey that it will be more difficult to deploy the cash with same expected result as BRK keeps getting bigger. You are right about their intrinsic value growing faster than book value in previous 10 year.

 

Viking mentioned the 6.9% book value growth over the past 10 years and law of large numbers in the same post.  I was really referring to that.  In an parallel world, where KO and similar stocks were dirt cheap 10 years ago and expensive today, then book value growth over past 10 years would have possibly been 15%, but we would not be able to draw any conclusions from that regarding the size of Berkshire and how it impacted performance, only that the market P/E expanded. 

 

Lastly, suppose we were talking about KO in isolation and not mentioning Berkshire.  Would we even be impressed with measuring KO's book value growth?  Doubt it.  That's because KO is an operating company and we would be more interested in rate of profit growth.  Likewise, Berkshire is increasingly more so every year just a consolidated balance sheet of operating companies and the right way to measure it is earnings growth, not book growth.

 

Fairfax is different because it's operating companies are just shells that hold publicly priced securities, so book value is far more relevant.  For example, you don't amortize the cost at which you hold JNJ stock, but if you bought the company outright you would amortize the goodwill.  The value of JNJ within Fairfax grows as the earnings at the company grow, this grows book value for Fairfax.  Now, if Berkshire took JNJ private the value of JNJ on Berkshire's balance sheet would not grow along with the profits -- you would have instead the amortizing goodwill.

 

Lastly, Fairfax trades them to generate profit in excess of the look-through earnings of those underlying stocks.  Berkshire trades to a far lesser extent, largely because of size, but of heavy importance due also to culture (won't trade privately held subsidiaries).

 

On a relative basis Berkshire's results are driven much less by trading.

 

I forgot the year but you don't amortize goodwill anymore, you perform a goodwill impairment test each year but only do a write down if the test is failed.

 

 

That's an improvement.  I should have known this, and I probably read it before and forgot it.

 

This leaves only the problem of a goodwill item that doesn't grow along with the prospects of the company.  Oh well, I suppose the Goodwill item serves a purpose as a placeholder so companies like Fairfax don't have a huge immediate drop in book value if they pay a large P/B premium for an acquisition.

 

[Rabbitisrich]

" law of large numbers are beginning to work against him"

 

If this is true why did the Russell 2000 index (presumably an index of 2000 small to mid cap cap stocks) underperform Berkshire B shares from 12/31/98 to 12/31/08, a ten year period by a factor of 2 according to Yahoo

 

 

I am kinda confused .

 

Why do you think a index, which is proportionate collection of all 2000 businesses should be compared to BRK-B as far as law of large number is concerned? If there are two investment companies having similar skills for capital allocation then we can say that smaller one has better chance due to law of large numbers working against the bigger one. But we can't say that total world index has xyz Trillion capitalization and BRK-B has outperformed the index so law of large number doesn't seems to work against BRK. We need to compare performance of BRK when it had very small capital to work with and performance of later years when it has lot more capital. If performance is similar then we can say law of large number is not affecting it so far.

 

If you meant it is still doing better than index in rolling 10 year period then that is true but we can't use it to argue that law of large number is not catching up with BRK.

 

Personally I think ,its difficult( nearly impossible) to produce earlier performance as BRK keeps growing but it will still do decent on risk adjusted basis. Buffet got the oppurtunity to deploy huge cash recently but as it gets bigger it will become increasingly difficult to deploy the cash with high returns.

 

 

It's one thing to say that size will increasingly weigh on Berkshire's performance, but it's another thing to predict the actual future performance. When you beat the S&P by more than 10% a year, you have room to slow down without actually being slow.

 

One thing we should also keep in mind is Munger's statement that Brk's capabilities in the 70's wouldn't have sufficed in the 80's, nor the 80's the 90's, etc... In as much as the performance from the 90's were juiced by the doubling productivity growth rate, the 00's were subdued by excessive liquidity, and by private equity and hedge fund "competition" (although it turns out that they were playing a different game called drinking the kool-aid). In this period of deep uncertainty, Berkshire might surprise people in the 2010's, for better or for worse.

[oldye]

 

 

I'm telling you right now that they're going to do very well, this stuff isn't rocket science.  I'm not sure how well they'll do in any given year, but overall their record is going to be excellent.  You get the safest business in the world at a healthy discount to intrinsic value...I'd make a bad money manager because I'd be fully invested most of the time...managing assets with volatility in mind and not total absolute returns doesn't really make sense.  Berkshire owns something like 15% of the worlds float and everytime there is a shortage of capital Berkshire will always be called.  Usually that means every 3-4 years they'll have the opportunity to put capital to work at satisfactory returns somewhere in the world.  In Berkshire's world financial strength is moat.

[Zorrofan]

The problems with BRK are:

 

1. WEB - he is a genius and irreplaceable. Once he is gone, BRK will never be the same

2. Size - BRK has grown to $150 billion, it is simply going to be harder and harder to deploy future cashflows from that at the high rates WEB did when BRK was much smaller. Couple that with the fact that in the future we won't have WEB to deploy that cash.

3. The shares WEB is gifting to the BIll & Melinda Gates Foundation - as the foundation sells the shares who is going to buy them? Long-term thinking "partners" or short-term mutual or hedge funds? How long after WEB is gone can the BRK culture truly remain?

4. After WEB is gone will family owned companies that willingly sell to WEB today be so willing to sell to BRK in the future?

 

I am not saying that BRK will not be one of the best companies around, for a while at least, but after WEB is gone it just won't be the same. WEB has already said that size is having an impact. The future while bright, is not going to be as bright as the past. Prem and the team at FFH are younger and have a smaller capital base to grow. While FFH will be riskier than BRK it should outperform BRK IMHO over the next 20 years.

 

Cheers

Zorro

[benhacker]

My argument for BRK:

 

1) After Buffett is gone, is the human, and business capital in place better or worse than average?  By how much?

2) Is the valuation on the BRK set of businesses above or below average?  By how much?

 

The answers to the above make me at least think that BRK will be a much better than market investment going forward.  I will miss Buffett dearly when he is gone, but great businesses don't turn to shit overnight... they turn to average first, and that will take a long time in my opinion.... and you are not paying up for anything, quite the opposite.

 

Ben

[rranjan]

 

It's one thing to say that size will increasingly weigh on Berkshire's performance, but it's another thing to predict the actual future performance. When you beat the S&P by more than 10% a year, you have room to slow down without actually being slow.

 

 

Here is what I think.

 

- We might not be able to predict exact future performance but we can definitely agree that next 20 years is unlikely to be same as past 20 years due to its size even if Buffet is still here. Having said that we have also seen Buffet deploying huge cash at attractive rate of return recently so they can get good overall return without making additional investment in near future but new cash will keep piling up and it will become increasingly difficult to deploy the cash due to its size.

 

- BRK is likely to do better than index for long time due to quality of business it is holding as well as recent opportunity to deploy huge cash but I doubt that they will be able to attract the business in similar way when Buffet is gone. Having said that it might be still 20 years before buffet is gone.

 

- BRK  will keep getting opportunities due to human greed/fear factor in future as well but total number of opportunities to move its needle will become less and less in future due to increasing size of BRK.

 

- Having additional BRK-B shares in market due to Gates foundation is not going to change its prospect or business value so point is irrelevant except the fact that BRK will become more volatile and all shareholders won't get similar returns. I suspect most members of this forum will get better returns than average shareholders when it becomes more volatile.

 

- I think BRK will do more than decent in near future due to its current share price as well as huge deployment of cash by Buffet.

 

I feel we are blessed to be able learn from Buffet when he is still alive. His inclination to selflessly share has helped so many of us. I also appreciate the forum members sharing their thoughts here. Always there is something to learn. May be less new things as you keep learning more but it’s very helpful. Big cheers for Sanjeev to provide us this platform which made it possible to share thoughts.

 

Disclosure: Holding BRK-B with average cost basis around 2500

[bookie71]

The big problem is that after WEB leaves can his replacement keep his hands out of the operating companies.  It is easy for someone to say they will but doing it is alomost impossible for most people.  It'll start with small things, perhaps a monthly or weekly report then something else until it becomes just another big company.

[rmitz]

The big problem is that after WEB leaves can his replacement keep his hands out of the operating companies.  It is easy for someone to say they will but doing it is alomost impossible for most people.  It'll start with small things, perhaps a monthly or weekly report then something else until it becomes just another big company.

 

You seem to think that WEB is more hands off than he actually is.  He gets daily reports from some subsidiaries, and at least quarterlies at a high level.  He will only step in if there's a very high magnitude error being made, true.  But he is pretty familiar with operations on a daily basis.  He's talked about this at least tangentially during several interviews at least.

[Zorrofan]

 

- Having additional BRK-B shares in market due to Gates foundation is not going to change its prospect or business value so point is irrelevant except the fact that BRK will become more volatile and all shareholders won't get similar returns. I suspect most members of this forum will get better returns than average shareholders when it becomes more volatile.

 

It doesn't affect intrinsic value until, at some point in the future, some hedge fund comes along, buys 10% and argues (for short-term gain) that BRK should be selling off this company or that, or propose some other jackass idea?  Oh go ahead, spin off See's Candy......

That's the point (worry) i was making.

 

cheers

Zorro

 

[SharperDingaan]

 

- Why do you presume BRK will remain as is ? Is is not far better that it breaks up into 4-5 seperate companies each headed by an existing manager ? - no more size issues, greater flexibility, etc - & less concentrated risk from fewer buy bigger deals.

 

- Why do you also presume that everybody will want to stay as is ? Without the great one(s) its just not the same - so why wouldn't most of the crew not simply 'turn the page', & retire ? - or spread their wings & all turn into swans ? Hopefully, not too many black ones!

 

Just enjoy the time that they're here.

 

SD

 

[Guest longinvestor]

The big problem is that after WEB leaves can his replacement keep his hands out of the operating companies.  It is easy for someone to say they will but doing it is alomost impossible for most people.  It'll start with small things, perhaps a monthly or weekly report then something else until it becomes just another big company.

 

You seem to think that WEB is more hands off than he actually is.  He gets daily reports from some subsidiaries, and at least quarterlies at a high level.  He will only step in if there's a very high magnitude error being made, true.  But he is pretty familiar with operations on a daily basis.  He's talked about this at least tangentially during several interviews at least.

 

Being familiar with operations on a daily basis. Now, we know that is no accident, with his circle of competence drawn with a very fat marker. Of all the things that defines WEB's greatness, this is it. Knowing and accepting one's circle of competence. I have tried this myself but I swing like a pendulum between being the master of the universe at times and to being mentally deranged, when it comes to investing. After listening to WEB/Munger for a few years now, I have minimized those stupid decisions. But there is something really cool about feeling like the master of the universe and it is very hard to shake that one off. I'm settling in to an approach of not making too many decisions and just let folks like WEB/Prem e al make those for me. Prem may not be Buffett, but he has been terribly misunderstood, and we have profited greatly from that misunderstanding.

 

Really love it when Warren always says investing prowess is not different from one's worldview. Obviously Warren has a panoramic worldview, thanks to his mastery over the method of learning. This kind of wisdom is unlikely to be replicated in too many other people.

 

Back to the topic, FFH or BRK? Both for me. ..........And more importantly not too many other things.

 

 

 

 

 

 

 

 

 

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[ERICOPOLY]

Is is not far better that it breaks up into 4-5 seperate companies each headed by an existing manager ? - no more size issues, greater flexibility, etc - & less concentrated risk from fewer buy bigger deals.

 

 

There was a thread about Polish Re getting a negative ratings outlook earlier and it had something to do with the high equities concentration in the portfolio and the risk of potentially being in a compromised position regarding claims due to a global equities crash.  So the investment mix scares the ratings agency, which in turn may scare the customers (lower credit rating).

 

My understanding is that Berkshire can invest it's insurance subsidiaries into equities without that kind of a problem due to the wide and diverse number of cash generating operating subsidiaries within Berkshire.

 

I'm suggesting that keeping the operating subs intact within Berkshire allows the insurance subsidiaries to rake in more cash.  So it would seem that splitting it apart weakens the value of the insurance subs.  And keeping it together allows Berkshire to occasionally add an insurance sub that can make more money as a part of Berkshire than it could standing on it's own (it picks up the stronger credit rating and clients like that).

 

[value-is-what-you-get]

I'd say Fairfax then Berkshire then Fairfax again.

 

Given a hypothetical chunk of money with which one is to decide between the two, I would think Fairfax stands a much better chance of increasing value over time, both short term and long term, for the various reasons esteemed boardmembers have already posted. 

 

That said, we have a real gift (albeit bittersweet to say the least) in knowing that the day after Warren's death is announced, the Rock of Gibraltar will go on sale.  He's said as much himself as it's the only stock advice I've ever heard him give - "after my death is announced, buy Berkshire."

 

Then, after a price move back to reality and beyond, out of Berkshire and back into Fairfax. 

 

If ever there was a dip one could profit from, this must be it. 

 

Criticisms, thoughts welcomed.

 

Disclosure:  Own Berkshire and Fairfax