Berkshire Hathaway: Cracks Visible In This Grecian Urn
Updated: May 23
Warren Buffett’s celebratory annual meeting differs markedly from its annual report which is a boring composition that goes on and on in nearly unreadable small type size.
The written presentation is a pure exercise in hubris. “You want to read everything about us? Here it is.” But, shareholders deserve something more on pivotal issues that impact operating earnings.
What is the huge cash bundle waiting for? Over $127 billion, some 20% of assets stays fallow. Obviously, Buffett’s not insanely bullish today on stocks, but recently he upped his position in energy properties like Occidental Petroleum.
I’ve sold out Exxon Mobil and Occidental Petroleum. Not bullish on the price for crude oil in a world economy that is stuttering in a setting of high interest rates, and still buoyant, inflation with no end in sight. Exxon is niggardly with its dividend payout ratio while management awards itself tens of millions in cash largesse.
Meantime, Buffett’s mum on why he’s keeping cash of $127 billion. The portfolio of stocks tots up past $328 billion. So there’s 40% in cash. Operating cash flow is up, modestly, from $6.8 billion to $8.7 billion but it’s meaningless considering the equity base is over $500 billion.
Flattish insurance earnings suggest Geico is a folksy name that once drove BRK in past decades, but no longer is crucial to its future. I bought Geico, too, at $4 a share some 60 years ago, but I sold it at $12 after a couple of years holding. Buffett bought up the whole thing and has lived happily thereafter.
Accounting conventions on how Berkshire must report capital gains and losses quarterly, on a $300 billion plus portfolio easily distorts reported results and needs to be xed-out of quarterly operating numbers. Portfolio prowess should be measured on a five-year average, nobody’s perfect as the chart below indicates.
There're several sides to Buffett's businesses that take up space, and we dealt with in a folksy style. I wouldn’t care too much about how even their Burlington Northern Railroad fares along with retail holdings and specialty manufacturers.
Keep in mind balance sheet goodwill is sizable in the tens of billions. I’ll stop reading BRK’s annual report. After the 45 footnotes in horrendously small type size, I’m punchy Normally, readable type is 7 point, but Berkshire’s looks like 4 point, a needless imposition on it’s readership who thirst for data interpretation of operations, not raw figures.
I am nearly as old as Warren, but I'll no longer try to digest his music sheets. After all, Berkshire-Hathaway is a stock to be owned by passive investors, looking for a genius to run their money. They could do much worse. Apple had a great year. Compare this elegant play with what Renaissance Technologies does with its portfolio, a total annual turnover striving for eighths and quarters.
I’m totally against pie chart investment constructs that major banks adhere to, year-after-year. Past year, the construct of 60% in equities, 40% fixed income properties, cost passive, wealthy investors 16%. Very rarely do wealth managers at banks outperform their construct. Frankly, their diversification is a sham to make them look savvy, acquainted with offshore investment categories. I’ve never seen anyone even overweight the NASDAQ 100 at a timely entry point, like a year ago.
At least, Buffett will never bury you. The overweight in Apple defies textbook investing, but it’s a liquid asset. I am not so keen on the huge play in energy, namely, Occidental Petroleum if recession lurks around the corner, we could see oil futures sluff off from $70 a barrel to $60.
Sizable cash at BRK, north of a hundred billion speaks louder than words. Putting excess capital to work is never easy. A bad entry point can cost you serious money. In previous years’ reports BRK’s comparative equity performance, year by year for 50 or so years, ran with the S&P 500. Why has this keen entry stopped?
I won’t read another Berkshire annual until it turns user-friendly. Same goes for all corporate proxy statements.To hell with fine print! Let the lawyers win this one. I pass.