CaptainJJack

Berkshire Hathaway Stock Portfolio: At Risk of Resembling an Index Fund?

I own BNI, and I disagree with Berkowitz and the critics of Buffet's deal.

Yes, he paid a lot. But, in my opinion, you get a lot when you become an insider.

But, by far, the overriding dynamic is that railroads are now clear monopolies in most of the areas they operate. Just look at a railroad map of the US, and you find little overlap.

The main competition is trucking, and if you look at the economics of that business, you find it turns on finding and holding on to truck drivers.

Their key constraint is capital: They have to find a way to fund the initial costs of a trucker getting into the business. I haven't seen much on this lately, but I am guessing that banks are reluctant to loan person enough money to buy a rig and finance their first years in operation.

So, I think the railroads will be very profitable in the future, and I am willing to bet rates will rise even if other prices are falling.

Buffett's Holdings Outperforming in Q4

I believe the market values of the banks will fluctuate a lot, and we should expect to see prices fall for a while.

But, for me, there is a difference between market fluctuation and risk. Real risk is actually losing money, and the ONLY way you deal with this is not to overpay.

For example, anyone who bought at the 1999 top ACTUALLY lost money.

I deal will market fluctuations differently. Here the issue is psychology and the fact that humans are hard wired to sell when the market bottoms and buy at market tops. The issue is not the value of my portfolio, it is how disciplined I am.

Most investors due far worse than either the pros or the overall market because they tend to buy at market tops and sell at market bottoms. Even a little of this kind of trading will KILL your overall returns.

As Graham pointed out often, it is relatively easy for a disciplined individual investor to consistently achieve adequate (i.e. market plus some nominal amount) returns, but it is very, very difficult to achieve superior (defined as > market + 5%, annually) returns.


On Nov 18 12:17 PM Crude Oil Trader wrote:

> I admit, even though I am a day trader I am sitting on some BRK.B
> in my Roth IRA and have been surprised it has held up as well as
> it has. My concern is the collapse of Wells Fargo and Bank of America
> taking the fund down. SP 500 @ 1130 is an area of great concern for
> all of these names.

Buffett's Holdings Outperforming in Q4

I have owned BRK for years, now, and I am amazed at how few people understand it.

Many, many years ago, conglomerates were all the rage. The sale was that you got "top managers" to oversee the business and allocate capital. Since "management skills" were guided more by the financial results than process results, you did not need to have industry experts, the argument went, you just needed people with discipline.

The reality was much different. They performed well, initially, as management skills and discipline really do make a difference, but it wasn't long before things fell apart.

First, there was a tendency to centralize, and this created massive bureaucracy and decisions often became political more than analytical, especially since the founder was usually charismatic and tended toward empire building.

Secondly, and related, overhead and "home office" staffs and costs skyrocketed.

Third, in order to keep the party going, they had to keep buying at ever higher prices.

Wall Street started to figure out, that the investor could do his/her own capital allocation without all this, and that conglomerates were adding nothing. They were, in effect closed end mutual funds with far higher costs.

But. what if you could hire one of the world's greatest capital allocators for $100,000/year, and he was so sure of his own skills, he put virtually ever dime he had into the deal.

What if, instead of having a huge bureaucracy, you had a "home office" consisting of 18 people.

What if the person almost never over paid for a business or a CEO to run the business ( the main exception being Conoco).

What if the person managed the businesses with far more discipline than any other manager you know -- again for $100,000/year, e.g. sitting on $50 Billion in very low yielding cash even when it clearly hurt.

I own Buffet's stock because it is by far the lowest cost mutual fund I can buy, and that he manages businesses as though he personally owns them.

For the most part, he does.

Enough with the Buffett Critics

I own BRK, and while I do not idolize Buffet, I find the criticism of Buffet laughable. He is doing today what he has done for the last 30 years.

It was no accident that Goldman sought him out last fall, and they gave BRK a great deal..or...should I say, Buffet demanded a great deal.

Yes he had a lot of cash, but ask yourself why. Ask why Buffet has always been in a great position.

Once you answer to that, you will understand BRK, and once you understand that, you will understand why the critics will always end up wrong.

Burlington Northern Santa Fe: What's Buffett's Strategy?

I own both BRK.A and BNI. BNI is not a company Buffet would normally buy because it is so capital intensive. Buffet likes companies that have low capital and low R&D because he measures success of an investment against what he, as an owner has to put into it --i.e. he looks at ROE.

So, why BNI? I think he sees that the monopoly margins that are now built into the division of the country's rail infrastructure into five railroads means that BNI can more than cover its capital costs.

Further, there is more to the rail story than just energy efficiency. Look at the side of any long haul truck on the highway, and you see advertisements for owner operators.

The trucking industry is not able to keep enough truckers, and there has been a big labor shortage developing. This is more than just finding someone to drive a truck; they want someone who will drive HIS OWN truck for them.