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Money Managers and the Berkshire Hurdle

Good points Nadav and Najdorf. When you invest in a fund you pay the net asset value of the holdings and agree to forego a share of future performance returns through fees. With BRK, the market is theoretically valuing the assets/holdings plus or minus a premium/discount based on assumptions about the future performance returns on those assets. That cost/premium for BRK could translate into a cost much greater than a hedge funds 2/20 fees if the the market's growth assumptions for BRK are high enough (e.g say the share price requires a 40% annual return on assets/holdings just to justify the price). In other words, just because BRK shareholders don't pay a traditional fee for management's expected ALPHA generation, it doesn't mean they aren't paying an equal or greater fee/cost through a high share price premium to asset values.

Money Managers and the Berkshire Hurdle

Hedge fund fees are, indeed, ridiculously high, but there's one flaw in your argument with respect to Berkshire: You don't take into account Berkshire's massive size relative to most, if not all, hedge funds. If Warren Buffet was running a small to medium-sized fund it would be different. However, the Berkshire entity has grown so massive, that they need to invest multiple billions in any one investment idea, just to make a dent in performance returns. I think anyone would agree that this creates prohibitive scale/liquidity/techni... issues for most potential investment ideas and reduces profit potential. Also, on what basis do you suggest that Berkshire's stock is not overly or fairly valued? Buffet's investment acumen is certainly no secret, so shouldn't his skills be already priced onto the stock? Berkshire is an extremely difficult stock to value, not least because it's hard to determine how you discount Buffet's advanced age when considering longer-term future performance. Berkshire is a great company, but as it's said: "a great company is not necessarily a great investment, but it's a good place to start looking". Disclosure: I am, in fact, long Berkshire.