Investing in the company already valued the highest in the market seems odd from the old version of BRK that I thought I understood.
I think Berkshire is very willing to pay a premium for a company that meets their requirements in generating excess capital while maintaining some sort of advantage (moat) over their competitors.
The challenge in the past decade or so for Berkshire has been that everything has, from a value-investor perspective, been substantially overpriced, making deploying new cash challenging.
AAPL was one of the exceptions -- at the time that they bought it, as I recall, it had a P/E of 9 and a substantial competitive moat. The geopolitics risk remains, however, scary.
The Munger article on the Register offers his opinion of the Taiwan situation:
Speaking of China, Munger offered his opinion that the prospects of the Middle Kingdom invading Taiwan have fallen greatly since Russia's illegal invasion of Ukraine. In Munger's estimation, China felt Russia's invasion would succeed, but has changed its assumptions after Ukraine's successful defense.
"I think it's off the table … for a long, long, time," he said, and that makes investment in China more attractive.
It also means worries that China could disrupt global semiconductor supply chains are reduced. But Munger isn't keen on semiconductors because they're too capital intensive.
https://www.theregister.com/2023/02/16/charlie_mumger_slams_...
Fyi... That's the opposite of Warren Buffet's preferred approach. He's made it known that he's not a "turnaround artist" that buys distressed companies and fixes them. Some private equity firms specialize in that type of buy-and-flip but that's not Berkshire's preferred method.
Warren's approach is to buy great companies generating free-cash-flow and with excellent management already in place.
Honestly Berkshire's management of the companies it wholly owns has been surprisingly bad lately. They've been taken over by narcissistic internal parasites, the same people who always chase prestige and money. Buffett and Munger have lost control of the ship and are not able to prevent the internal rot. This isn't reflected in their share price because SO much of their share price is just AAPL (currently APPL composes 20% of their market cap, was even more before AAPL prices dropped in the tech crash)
Look at Lubrizol, with three CEO's in less than a year. Berkshire installed Chris Brown, formerly the COO of Detroit for <2 years (both "Detroit" and "<2 years" are very strong anti-signals...). He got into yelling matches with front-line lowest-level engineers over tiny projects (<$3 million) that he wanted to micromanage and was quickly let go for what people presume were "HR issues" (bit of a euphemism there, his replacement is a woman). His behavioral issues and "emotionally charged leadership" with all types of employees were obvious -- front and center, constantly.
The damning part is how did Berkshire appoint a guy that bad? Where are the internal controls?
It wasn't just the CEO either. Berkshire ended up replacing basically the entire C-suite in less than a year. [2] vs. [3]. Don Grafton as head of Operations was also a complete disaster for similar reasons, minus the rumored HR violations. He constantly refused common sense ROI improvement proposals and critical maintenance projects, but approved and championed really dumb high-capital, low ROI work and micromanaged down to the level of "The storage tank needs to be this size and shape." At no other large company would the projects that he micromanaged even have been reviewed for approval by the C-suite. They were shockingly low-level, low-impact work, far below what C-suites should even be aware of, let alone spending half their time on.
I've heard better things about the current CEO but Brown was so bad that "better" is pretty relative.
Plus the new CEO has very little to work with at this point due to truly unbelievable attrition. The C-suite told everyone in an all-hands sitewide roundtable "We're not adjusting salaries for inflation, if you feel you're underpaid then find another job". About 1/3rd of the Lubrizol engineers took them up on that and now its pretty bleak inside their plants with a huge loss of expertise and nothing replacing it. Multiple people who worked there (people from both their HQ in Ohio and also in their largest chemical plant in Texas) have told me they can't come up with a single colleague that they professionally respected who didn't leave and move on.
They've had two huge industrial accidents in that time which, in this case, was a direct result of top-level mismanagement and failure to invest in maintaining equipment and failure to retain any of their top talent. Rouen, France [0]. Rockton, IL [1]. It's not clear that France will even let them re-open the plant, its rumored they've lost their "license to operate" there. "License to operate" isn't a literal technical thing, its an industry term for the confluence/totality of all political and regulatory barriers to proceed with construction and operation of facilities in a particular jurisdiction.
It doesn't reflect well on the board of directors at all.
I will say the new CEO is focusing hard on attracting new top talent and looking at grand improvement projects and potential restructuring deals to change up ownership of particular production units. She's making the right moves now but it's a really, really tough place to begin from.
0: https://en.wikipedia.org/wiki/Lubrizol_factory_fire_in_Rouen
1: https://chicago.suntimes.com/2021/6/25/22549407/chemtool-che...
2: https://web.archive.org/web/20211208153334/https://www.lubri...
3: https://www.lubrizol.com/Our-Company/CEO-and-Leadership/Lead...
It's one of those "go to the right school and know the people in the room" things. Everything I've mentioned is stuff that tons of low-level people are fully knowledgeable about and commonly known to the chemical engineering community around Houston, but I also know people who work with the C-suite and these issues are absolutely reflecting in the top-level business reporting as well. Which I could be bullshitting because when you see "The direct economic consequences resulted from companies partially ceasing their activity (e.g. neighboring chemical manufacturers in the area, and/or customers, or suppliers, etc) and farmers that had to destroy their harvests." in Wikipedia, any business intelligence service could do some research to estimate the potential damages and obviously these things "would reflect in the top-level business reporting as well", whatever that means.
One of BRK's huge advantages is its ability to obfuscate individual company performance in combination with its historical reputation for excellence. Its quarterly reports don't break out how well each company performs so if AAPL goes up 25% it makes up for a lot of mismanagement and performance issues across BRK's portfolio companies. So people just assume its constituent subsidiaries are continuing to be managed well.
But BRK has a huge influence on rail regulation, and we can also see how forward-thinking they are there as well. Inferences can be made from the risky practices they're implementing and what reliability innovations they're resisting. Who in the upcoming generation are going to want to go into the rail industry? Even for the degreed civil or transportation engineers, the rail industry lifestyle is now unappealing when compared to other markets they can apply their talents. The pay absolutely doesn't make up for the constant travel and lack of any social life, unlike, say oilfield engineering compensation which has a similar lifestyle.
That said, do I think BNSF is at risk for losses? No. They clearly fit the BRK model of a business with a "natural moat" and in these times of extremely constrained shipping capacity, they will be able to charge whatever they need to, in order to maintain healthy BNSF profitability. The point is more:
1) This is a concerning pattern in how BRK manages its subsidiaries. Some of its other holdings won't be able to tolerate it and stay above water.
2) Some of the individual things are so bad and reflect on BRK so directly (appointment of obviously terrible C-suite leaders) that it's prima facie evidence of BRK deterioration. We would need strong counter-evidence to reject that conclusion.
Perhaps a bit concerning when Buffett has been telling everyone that if they just sharpen their skills and work to be the best in their field, they won't have to worry about inflation. Either his companies don't hire very well, or he doesn't want to have to pay to retain good, experienced workers.
“If you’re the best teacher, if you’re the best surgeon, if you’re the best lawyer, you will get your share of the national economic pie regardless of the value of whatever the currency may be,” the then-78-year-old said [in 2009].
https://www.cnbc.com/2021/07/16/warren-buffett-best-protecti...
Just because Apple has the highest market cap does not mean it’s overvalued. I added AAPL at $125 and $127 in early January because I thought the market was undervaluing Apple, just like Berkshire. Today it’s trading at $151/share.
Tl;dr, market cap != ‘value’
They say that explicitly here, in their Acquisition Criteria https://www.berkshirehathaway.com/2000ar/acq.html
> if there's lots of technology, we won't understand it
> We are not interested, however, in receiving suggestions about purchases we might make in the general stock market.
Even if Berkshire did that, and they don't, isn't that also good investing?