Last weekend was Cinco de Mayo, the Kentucky Derby and more importantly, the annual Berkshire Hathaway (NYSE:BRK.A) shareholders meeting presided over by Warren Buffett and attended by some 40,000 shareholders and other spectators. However and while Warren Buffett is a legendary investor, are his and Bershire Hathaway's (BRK.A) best days already behind them? Consider the following:
- Shares of Berkshire Hathaway (BRK.A) have failed to keep pace with the Standard & Poor's 500 index over the past three years with the usually explanations being "we always lag in strong markets" and "we only care about long-term performance." On the other hand, Buffett has always stated that the goal for Berkshire is for its per-share gain in intrinsic value to outperform the S&P 500 over time - a calculation that is more art than science. Nevertheless, Buffett uses book value as a proxy and in last year's annual report, he pointed out that in the 42 rolling five-year periods since he took over, the stock's book value has outpaced the S&P 500 every time. Of course, investors don't directly invest in book value as they instead buy shares that have a book value.
- Warren Buffett himself is 81 and won't be at the helm forever. And while who his successor will be makes a great Wall Street cocktail party conversation topic, whoever that person is won't be able to just pick up the phone and make a sweetheart deal. On the other hand, Berkshire Hathaway (BRK.A) is now less reliant on investments and more dependent (for better or for worst) on the operations of its subsidiaries.
- And speaking of successors to Warren Buffett, David L. Sokol may or may not have eliminated his chances by buying shares in Lubrizol two months before Berkshire Hathaway (BRK.A) announced a $9 billion deal for the company. Buffett did defend Sokol by saying that he did not believe any unlawful occurred and that "Dave's purchases were made before he had discussed Lubrizol with me and with no knowledge of how I might react to his idea…" but the affair left an otherwise rare mark on Berkshire's along with Buffett's squeaky-clean images.
- Likewise and given today's Internet age and the need to make regulatory disclosures, its difficult for someone as well known as Warren Buffett or Berkshire Hathaway (BRK.A) to make an investment without everyone suspecting a buyout and then piling in. No doubt that is a reason why Buffett has shifted Berkshire Hathaway's focus to the operations of its subsidiaries rather than doing investment deals.
- Finally and for someone whose name has been lent to the so-called "Buffett Rule," the New York Post has pointed out that Warren Buffett's Berkshire Hathaway (BRK.A) openly admits to still owing taxes for years 2002 through 2004 and 2005 through 2009. And according to page 56 of the Berkshire Hathaway 2010 Annual Report: "At December 31, 2010… net unrecognized tax benefits were $1,005 million" meaning the company's potential future obligation to the IRS and other taxing authorities is over $1 billion. Having a cozy personal relationship with the current occupant of the White House may keep the IRS at bay but it does not keep them away indefinitely.
So what does all of the above mean for Berkshire Hathaway (BRK.A) shareholders? Obviously it does not look as though the sky is going to fall - especially when Buffett is out of the picture. However and if Berkshire Hathaway (BRK.A) stock continues to lag the S&P, it might be time to look else where if you are a shareholder who is lucky enough to be a long-term owner of a few shares.
NOTE: THIS PIECE WAS JUST POSTED ON THE NEXTCANDLE.COM BLOG.