In Buffett We Trust

As Berkshire Hathaway (BRK.A, BRK.B) gets bigger, investors increasingly need to rely on Warren Buffett's reputation rather than data, says KBW's Meyer Shields. "It's a critical issue ... You don't really know what you're getting with Berkshire Hathaway."  It's no big deal right now, says Jeff Matthews, but "once [Buffet's] gone, people are going to say, 'What's here? What do I really own?'"

Take Lubrizol, for instance, writes Noah Buhayar. Until being purchased by Berkshire in 2011, the company filed long, detailed annual reports with regulators. Now its results are lumped in with several other Berkshire manufacturing businesses.

Regulators have noticed and have successfully pushed Buffett for more disclosure as it relates to insurance operations. “The fact that they wouldn’t on their own reflects an attitude of very, very limited disclosure,” says Shields.

There are no bright lines as to what constitutes material information, says a top securities lawyer. Instead there are rules of thumb, such as whether a unit contributes more than 10% of total revenue. Going back to Lubrizol, its 2012 revenues were $6.1B, well below the $16B that would make up 10% of Berkshire's top line.

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Comments (14)
  • CStar
    , contributor
    Comments (117) | Send Message
    Very good point...:) As a long time Berkshire shareholder, I do realize that much of the confidence we have is in Mr. Buffett (I think well deserved). Having read each of the partner and shareholder letters Mr. Buffett has sent as he built up his partnership (a collection is available on the Kindle for 2.99, and includes the nine partnership letters that are NOT available on the website), I am *fairly* familiar with many of the acquisitions of significance at the time... however, it is remarkable how many smaller companies are being bought up by the subsidiaries constantly.


    20 Feb 2014, 09:56 AM Reply Like
  • Hubert Biagi
    , contributor
    Comments (862) | Send Message
    As always, with Mr. Buffet, it's do as I say, not as I do.
    20 Feb 2014, 10:02 AM Reply Like
  • Philip Marlowe
    , contributor
    Comments (1582) | Send Message
    20 Feb 2014, 10:31 AM Reply Like
  • RandFan
    , contributor
    Comments (16) | Send Message
    Those who have done what he has said have done pretty good for themselves, just as Buffet did what Benjamin Graham, Phillip Fischer, Charlie Munger and other great value investors have said over the years. Market wisdom is not created or owned by anyone. It is learned. Making Buffet out to be a hypocrite doesn't obviate the facts. Buffet is successful for the same reason his acolytes are successful: clear-headed and shrewd reasoning about the market.
    22 Feb 2014, 09:57 AM Reply Like
  • Jalb
    , contributor
    Comments (140) | Send Message
    Mr Buffet doesn't want to tell his competitors which of his subsidiaries are making fabulous margins each particular year because that will attract competition into that firm's market.
    Just because he is old, he does not need to be senile.
    20 Feb 2014, 10:17 AM Reply Like
  • RandFan
    , contributor
    Comments (16) | Send Message
    For God's sake, people, learn to fish and stop whining about your favorite seafood restaurant which, by the way, still carries a four-star rating.
    22 Feb 2014, 10:08 AM Reply Like
  • 3WallPaul
    , contributor
    Comments (1052) | Send Message
    I've had a chance to talk to Meyer and we have been on a number of the same conference calls. I respect his obvious intelligence but at the end of the day as Berkshire gets bigger Warren becomes less important.


    The biggest concerns I had regarding BRK have been satisfied by the two excellent money managers Warren has hired and Warren's answer to questions I posed relative to Berkshire being the go to company for the types of deals Warren struck during the crisis.


    BTW let me amplify something Hubert said ... Buffett has a finely crafted image. Reality deviates massively.


    a. While Buffett was railing against hedge funds and fees Berkshire had money invested in a hedge fund run by a old pal's son.
    b. While Buffett was railing against derivatives he was selling derivative contracts.
    c. While Buffett preaches understanding your investments he makes his largest investment in a company [IBM] where you could make a case most of the key executives don't really understand it...
    d. While Buffett preaches about the ill's of credit card debt, he praised the "easy credit rip offs" (please sing that to the theme of "Good Times") at Nebraska Furniture Mart.


    Personally, I love the Warren Buffett Warren Buffett wants to be...
    20 Feb 2014, 11:49 AM Reply Like
  • mostserene1
    , contributor
    Comments (3697) | Send Message
    I dispute your mischaracterization. I recognize the language as typical anti-Buffett propaganda.
    20 Feb 2014, 05:11 PM Reply Like
  • 3WallPaul
    , contributor
    Comments (1052) | Send Message
    Sorry I don't understand how a pro Buffett pro BRK comment ranks as anti Buffett... In fact the hedge fund investments were warranted and the derivative contracts were pure genius. Warren's investment in IBM will eventually work for Buffett since he has a secret weapon which I may write about in another venue. The credit offerings at NFM are shameless - I guess you like that sort of thing...


    I just think you can like the stock and the record without drinking the Koolaide.
    21 Feb 2014, 08:47 AM Reply Like
  • Frosty Pride
    , contributor
    Comments (8) | Send Message
    Seems very sensationalist to me. I bought BRK.B knowing that Buffett likely won't be around much longer, because I trust the managers he hired. As a young investor I also like the diversification Berkshire provides.


    If the house that Buffett built crumbles after he leaves us, that's just a valuable lesson to have learned. But I don't think that's what will happen.
    20 Feb 2014, 01:36 PM Reply Like
  • mostserene1
    , contributor
    Comments (3697) | Send Message
    As a long time investor in Berkshire (Class A and B), I am confident in the people running the company, and have sufficient transparency for my own decisions. Nothing new in the above article. What would life on SA be without a negative article on Berkshire or Apple?
    20 Feb 2014, 05:15 PM Reply Like
  • Kyle Fishman
    , contributor
    Comments (715) | Send Message
    Buffett has successors in place who will apply the same investing principles.


    Will there be a short term panic sell off when Buffett leaves? It's possible, but the company is so diverse so probably not that big of an impact. I recall Apple stock was up on the day that Steve Jobs died.


    I'm not concerned about the competence of Buffett's successors.
    What I am concerned about:
    1. Size. Berkshire is too big to grow at fast rates.
    2. Lack of dividends.


    Markel is a better buy than Berkshire because it's so much smaller in size and has more room to grow.


    Even Buffett himself admits Berkshire won't generate the same returns it did in the past. However, it's still possible it could outperform the S & P 500. But it would have a tall benchmark to meet because most index funds give you a 2 percent dividend yield while Berkshire pays no dividends.


    If you want to apply Buffet's principles in a smaller size holdings company, go with Markel. Markel doesn't pay dividends either but at least they are small enough to grow. Berkshire is large cap, and large caps should produce dividends.
    20 Feb 2014, 08:28 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (7060) | Send Message
    The question is, what happens to (BRK.B) when Buffett goes?
    21 Feb 2014, 01:30 AM Reply Like
  • 3WallPaul
    , contributor
    Comments (1052) | Send Message
    BRK goes down after Buffett...way down. He's probably going to do a smoother transition like what occurred at MSFT with John T and Bill Gates. BTW many years ago Warren stated the day to buy would be the day he leaves...


    FYI, 80% of the shares are held by people with a cost basis under $1,000/A share. These are the most conservative people on the face of the planet --- they don't like change ... but they don't like taxes even more.
    21 Feb 2014, 01:01 PM Reply Like
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