Infinite lines were written and words spoken for decades about Warren Buffett and Charlie Munger on how they choose their investments.
Books, papers, articles, interviews, you name it.. All incredibly fascinating. Of course I tried to read and hear as many as I could to see if at least a nano-percentage of their modjo could get stuck to my long term investment criteria.
Although the Oracle from Omaha said at a press conference, a day after an annual shareholder meeting "A very low-cost index is going to beat a majority of the amateur-managed money or professionally-managed money", I decided to do my way.
Then one day, after choosing a few stocks to build my 'learning' portfolio, I decided to do my due diligence with the mythic (NYSE:BRK.B).
Buffet and Munger are famous for thinking that you simply have to own high-quality Business with a great Management and a competitive advantage; and If you happen to be enchanted with Buffett's words as I am, you'll know that Return On Equity (ROE) is for him a good way to measure the rate with which the shareholders earn income on their shares and a good rule of thumb would be to look for a ROE of around 15%. So here my surprise: has never passed 12% in the last 10 years.
So can someone kindly explain me how can this happen ? Does the sum of the parts worth less than the whole ?
Of course no single characteristic of a stock is determinant for buying or not but definitely it is something very important for my stock choices too.
Profit Margins are quite low too but I am not sure if it has to do with the nature of the insurance business.
My conclusion anyway is that investing in Berkshire Hathaway is like investing in an index fund with the best Money Manager you could ever have and with the best track record in the market.
Its Book Value keeps increasing year after year and $10K invested in 1969 would be worth dozens of Millions today.
Now, what will happen after Mr. Buffett does not run the Company anymore ? Nobody can know I guess, but well, we choose wonderful Companies with great Management and clear Competitive Advantage (in this case its CEO) so then we will have to re-assess if the 'story' changed as Peter Lynch smartly states.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.