Fairfax or Berkshire?

[hyten1]

hmmm i am getting sentimental here. :(

 

i guess it is both a honor and a bid sad that people would be talking about someones impending farewell ... it'll truly be a sad day when the day comes that WEB is no longer with us.

 

one of my rules in life is to always find a mentor and learn everything you can from that person (WEB is one of those guys for me). since i haven't found anyone i actually know.

 

 

 

[Kiltacular]

On the subject of CEO's of the various Berkshire subsidiaries, I tend to think this will work out okay.

 

Off the top of my head, I can think of the following: CEO of Shaw has retired since Berk acquisition...replacement seems to be okay.  Same can be said of Gen Re.  CEO's of Borsheim's, See's, Fechheimer, Nebraska Furniture Mart, Ben Bridge, NetJets, and Mid-American (where Abel took over for Sokol) have all been replaced at various points over the years.

 

Granted, we don't know how Sokol will work out at NetJets and we don't know how the replacement at Ben Bridge will work out.  We do know that the replacement at See's took their earnings up 50% in short order.

 

Obviously, the bigger operations matter most...but I suspect that the bench is deep at Iscar, Marmon, GEICO, Mid-Am and even at Jain's shop BHRG.

 

I think the cultures that get built up over the years at these places help develop deep benches.  Yes, it is true that people want to impress Buffett but I don't see how that won't happen when Sokol is in charge.....if you have the right person at the top, decent people will want to impress him or her.

 

As for Berkshire's size, I agree with Ericopoly that what has slowed down Berkshire has been the overvaluation of the equity market since the late 1990's.  Obviously, a smaller Berkshire wasn't handicapped in the same way by an overvalued stock market when it was small.  Still, the market was never as overvalued during all of Buffett's career as it was in the late 1990's....who knows how a much small Berkshire would have done in the face of such vast overvaluation. 

 

And, it only took Buffett about 6 months to put to work all his excess capital after stockpiling it for 5 to 10 years.  I mean, he himself said: "I'm tapped out".

 

All that said, given the leverage that FFH carries, I think it is likely that it increases intrinsic value per share slightly faster than Berkshire.  I would go with much faster IF FFH had the kind of insurance operations as Berkshire...particularly GEICO (which I feel will triple its market share over the next 15 to 20 years....which would still only put it at 20% of the auto market....there's a reason they're spending $700 million per year at GEICO just on advertising). 

 

Also, I can see how in, say, 5 years, Brk's position in Wells Fargo is at $20 to 30 billion, position at Goldman worth $12 to 15 billion, KO at $15 to 20 billion (I think they're back on track and have followed them for years), AXP at $12 to 15 billion, Burlington at $12 billion or more, PG, USB, JNJ all have good to decent prospective 5 year returns from here, in my opinion.

 

Large cap., super high quality companies like Berkshire owns have not been this cheap in a long time.  Even if you check out the lows in the '70's.....and look at the PE's on companies like KO and JNJ at the bottom....they're weren't much lower.  Prospective returns on the Berkshire equity portfolio are a heck of a lot better than they've been in a long, long time....probably since the late '80's or early '90's.

 

My 2cents

[Munger_Disciple]

Excellent post, Kiltacular! I agree wholeheartedly. I would also add that Berkshire has significantly less leverage in their insurance ops than FFH (as measured by premiums written/networth) which gives them a lot more flexibility to underwrite  a great amount of business when the insurance mkt hardens. Here is my 2 cents: I think Berkshire will outperform FFH in the next 5 years. Full disclosure: I own Berkshire.