2020 Berkshire Hathaway Annual Letter [pdf] | Hacker News Reader

2020 Berkshire Hathaway Annual Letter [pdf]

berkshirehathaway.com

92 pointskarl1185 comments

While I'm not of these meme investors who thinks Buffett is "washed up", I confess that I've increasingly wondered if it's just sorta over. In some sense, it's not his fault. Berkshire has grown so large that it has significant scale problems. I joke that Buffett found the investing equivalent of the Donkey Kong kill screen, he basically broke the game. It's incredible.

But there have been self-inflicted issues. The seemingly unconditional refusal to explore technology companies. (While his Apple investment was great, even Buffett would tell you this is a consumer company and not a tech company) The allowing of the two new managers to keep breaking Berkshire's rules, such as not investing in IPO's, or not investing in airlines. The large write down in PCP. The double-speak about "never bet against America" while remaining paralyzed during the COVID panic. Maybe these things are moot compared to the scale problem.

But I think the more disheartening issue is Buffett's last 5-6 letters have been forgettable, and today's was really just a recap of Berkshire's main assets, not offering anything particularly insightful or interesting. I think he's still doing an admirable job but Berkshire just isn't what it used to be. Everything has a cycle.

I think investors over the past year have grown so accustomed to something new and shiny and revolutionary coming every week to get excited about that they've forgotten that making money in markets successfully is about a long term focus and a LOT of boring details and unsexy businesses.

I, like a lot of people LOVE trading stocks and derivatives, and trying to beat the market -- more so as a hobby and as an opportunity to learn more about the more esoteric components of financial markets and how things operate. I've been doing it for over 15 years and I've paid my dues in terrible trades, and seen some great plays work out. The process of options pricing, managing ex-dividend dates and options, derivatives plays, trading styles like position and swing etc all are enormously fun to learn the nuances of. It's a fascinating world.

At the same time, the vast majority of the money that I save for retirement is your standard run of the mill dollar cost aversaging (DCA) into targeted funds based on my risk tolerance, age, and retirement objectives. Really boring stuff that works over 20 years, not 3 months.

Buffet is one of those guys that gets less sexy when volatility is increased, and more realistic when things are boring and people are licking their wounds.

Berkshire is going to be just fine. And they're doing just fine.

Fair enough. But if his letters are not so insightful anymore, whose are?

In the last few years I've enjoyed reading letters (Annual Reports as they call it) written by Frank Martin of Martin Capital Management LLC.

https://www.mcmadvisors.com/newsmaterials/

It's a different kind of stuff but I find Jeremy Grantham pretty insightful. Grantham does more overall market levels rather than individual stocks, Buffett the reverse. Here's a recent one https://www.gmo.com/americas/research-library/waiting-for-th... on how things are a bit pricey now. Though he's not a perma bear - this is one he put out saying things were cheap almost exactly at the 2009 bottom https://www.gmo.com/americas/research-library/reinvesting-wh... Grantham is mostly retired but has popped up recently to comment on the current situation. He's on youtube a bit too if you google.

I'd say he broke his own game of investing, rather than the game in general.

Given what he thinks he understand there's not enough opportunities to allocate this amount of capital.

I guess that's why he hired the two new managers. By the way they did come up with some of the best ideas in recent years like Apple and Snowflake.

> best ideas in recent years like Apple and Snowflake.

Are these really the best ideas. Bought apple only couple of years ago, snowflake was arguably the most hyped stock of all time. I don't see what the insight was here.

They are certainly very successful ideas in terms of outcomes. Apple went up more than 3X since he bought it in 2016.

> In some sense, it's not his fault. Berkshire has grown so large that it has significant scale problems.

I hear this often that berkshire isn't what it used to be because of 'scale'. What does this even mean. At what point does it become too big. Is there a general logic that after X billion $$, investment firms become inefficient?

If you have one billion dollars and find a $100 million opportunity, you have an ROI of 10%. If you have one hundred billion dollars and find a $100 million opportunity, you have an ROI of 0.1%. He needs to search for very large opportunities to attain a good return because he has so much capital. This is why some funds return money to investors if they get too big--it's very difficult to generate returns with that much money.

> If you have one hundred billion dollars and find a $100 million opportunity

Why would they always be finding one opportunity. Can't they find 100 $100 million opportunities. Why doesn't "finding opportunists" model scale ?

Because the market is finite in size, so nothing can outperform the market forever. It's the same thing as a company not being able to grow faster than the economy forever.

>Because the market is finite in size

How though? How can the market stay a same size while berkshire size went from 1 billion to 100 billion. Where is 100 fold investment coming in if the market stays at a constant size. That doesn't compute. Why wouldn't the market also expand at like the investments.

I didn't say the same size, I said finite size.

If the market grows at a rate of 6% and your company is growing at 8%, then your company will eventually slow down to 6% or else the market will speed up to 8%, but in neither situation will you "outperform" the market forever.

In the case of Buffet, Berkshire Hathaway has about $800 billion in assets under management. If the market size is 50 Trillion, and let's say that 10% of that consists of reliably undervalued companies then the size of the market for companies that Berkshire can buy is 5 Trillion. This market will grow at 6%, if you think Berkshire can have 8% returns, then it will own half of all undervalued companies in 63 years, 2/3 of all undervalued companies in 78 years, and all undervalued companies in 100 years. But of course Buffet can't find 100% of all undervalued companies and there are other people also trying to find them.

And of course each individual company that Buffet buys will itself stop making above average returns as it itself grows, and therefore every year, the returns on the companies in Buffet's own portfolio will go closer to the market average even as new undervalued companies are harder to find. Thus the overall return of Buffet's fund will be dragged down to the market return much sooner than the theoretical limits I outlined above.

> I didn't say the same size, I said finite size.

Not sure how you are defining "market". How is it finite size? What is the number after which it stops growing?

> If the market grows at a rate of 6% and your company is growing at 8%

Total market valuation of Dow has grown at faster pace than Berkshire portfolio size. your 6% , 8% example doesn't hold at all. Not sure where you got your your "market size" numbers from. Did you do an actual analysis of market size growth or are you just pulling these theories out of thin air.

You are assuming that there is no such thing as a "rate" of growth. Things are either growing or not. Thus if the market is "growing" at 6%, then it's OK for a member of the market to double in size every year because both are "growing" and aren't "fixed".

Numbers matter here, you cannot have one member of the market grow at a faster rate than the market forever.

Not sure what else I can do to explain this more clearly. Try using a spreadsheet or calculator to work out some examples for yourself.

> Total market valuation of Dow has grown at faster pace than Berkshire portfolio size. your 6% , 8% example doesn't hold at all.

Right because Berkshire stopped overperforming. In fact it has been underperforming the last 10 years, and Buffet was trying to explain why. https://investorplace.com/2020/10/berkshire-hathaway-stock-u...

But what what I was doing was explaining a counterfactual to show why every firm must stop outperforming. It's not just Berkshire, or 6%, 8%.

So I ran some numbers to explain to you how if A is part of B than the compound growth rare of A cannot forever be greater than the compound growth rate of B.

(Please do not reply to this comment with an argument that you are not talking about any stock called "A" and "B", just as the 6/8 seems to have tripped you up)

Berkshire is part of the market, thus it cannot outperform the market forever. In fact you expect reversion to the mean -- companies that outperform then underperform and vice versa. Why is there reversion to the mean? Because the special techniques discovered by the company are copied and disseminated, key people are poached, ideas that used to work reliably stop working, etc. So these social constraints kick in long before mathematical constraints, but even if in theory you can overcome the social constraints, you can never overcome mathematical constraints, and thus Berkshire and all other investment holding companies must eventually stop overperforming, and most only eek out a few years of net overperformance.

> Berkshire is part of the market, thus it cannot outperform the market forever. In fact you expect reversion to the mean -- companies that outperform then underperform and vice versa. Why is there reversion to the mean? Because the special techniques discovered by the company are copied and disseminated, key people are poached, ideas that used to work reliably stop working, etc. So these social constraints kick in long before mathematical constraints, but even if in theory you can overcome the social constraints, you can never overcome mathematical constraints, and thus Berkshire and all other investment holding companies must eventually stop overperforming, and most only eek out a few years of net overperformance.

Understood. Thank you!

Now I wonder why brekshire investors keep holding the stock. Shouldn't the stock crash and burn. What is their logic ? Sunk cost bias?

I can't seem to read this in any other way than you are asking something like "why is it harder to find one hundred $100 million opportunities than one?"

Finding one such opportunity is hard, finding two is harder because you have to find the first and then do more work to find the second. This pattern continues indefinitely for as many opportunities as you'd like to find.

> you have to find the first and then do more work to find the second.

Isn't this typical scaling problem though? I wasn't imagining they go one by one. I guess your Implication here is that because there only one warren buffet. I guess that makes sense if Berkshire is ultimately one man Buffet show that can only scale as much as that one man can perform. That probably explains the recent under performance, age catches up to everyone.

Everyone else is in the same boat as well. Low interest rates have made it harder and harder to hit high rates of return. Softbank ended burning a fair amount of money from its $100B Vision Fund, and a good chunk of that was the oil wealth of the Saudis.

> The seemingly unconditional refusal to explore technology companies. ... The allowing of the two new managers to keep breaking Berkshire's rules

If you think they are stagnating with their current mindset, then shouldn't breaking their existing rules be a good thing?

The original comment is pretty entertaining. The commentator assumes that they better understand business than the two men with the best record in recent American history. Buffet continues to follow his general principles very well of buying great businesses for reasonable prices and holding pretty much forever. Not following BS trends and buying wildly overpriced tech stocks like Zoom, Zillow, or meme stocks like Gamestop or AMC is a huge plus in most value investors minds.

That's a fair point. Let me clarify by saying that the IPO's and airlines were two things that Buffett was repeatedly adamant and proud about over many years. These were more hard and fast rules.

The tech thing is different, that was more Buffett just admitting it was outside his area of expertise. I think it's been especially confounding since Buffett has for a long time professed a deep admiration for Bezos and Amazon, yet never really acted on it.

Investing and poker have some fun commonalities. One that I want to focus one in this particular case is: always play the game you know well and know how you're going to win it [nuances, 0]

In Poker: find the fish, understand why they're fish and exploit it [example, 1].

In investing: find underpriced assets, understand why they're underpriced and exploit it [examples, 2, 3].

From this perspective, Buffett doesn't understand how price movement works in tech companies.

And that's ok.

[0] You can't win everything of course, but if you're going to play a losing game by default then you're basically buying information. Once you have enough information, then it's all about execution. I daresay that Warren Buffett has enough information on a particular method of successful investing. That's all he needs, so he needs to focus on games that he knows how to win.

[1] E.g. through math/theory or math/data -- if you can get your hands on it -- (random player vs tight aggressive player)

[2] E.g. through math/theory or math/data (population will grow to 11 Billion --> economic productivity will therefore grow because bigger global work force --> world economy will grow in the long-term)

[3] Buffett's famous example is of course his own brand of value investing. The central thesis of value investing is: if a company is going to close shop, the scrap value of that company will be higher than the market cap of that company. There's a lot more to it, but that's the gist of it. One nuance, for example, is that you then try to pick the companies that are the most severely underpriced, have amazing management and a solid competitive domination strategy (e.g. crazy brand recognition or a certain asset that has a really high barrier of entry).

Obligatory Buffett paraphase: there are no called strikes in investing (ie if you choose not to swing at an opportunity, that then turns out to be good, nobody penalizes you)

As much of Berkshire's success has been based on limiting losses as pushing successes. "Buffett declines to invest in company" is a less sexy headline than "Buffett buys large stake in X" though.

Maybe Buffett's old. Maybe Berkshire is played out. Maybe they miscalled the pandemic churn. Or maybe the market is just so screwed up now that they're declining to swing.

I believe Berkshire has always been a macro-trend company? If we're looking for someone who traded in and out of pandemic dips and bubbles, that's very much not-Berkshire.

Buffett has always said he ignores the macro stuff and just focuses on acquiring great businesses.

He did dump airline stocks at the start of the pandemic on the basis that their business wasn't going to do great for a while.

Your point 3, a la Graham-Dodd, is how Buffett started. But later he realized that did not scale when you own businesses forever instead of trading them. Buying a whole dollar for 50 cents is great if you can quickly sell it for 75. Not so much if you hold it forever and it does not grow. So basically acquiring Berkshire Hathaway the textile maker on the cheap was an investment mistake that he acknowledged in his annual letters.

Price movement is not relevant if your stated goal is to hold the business and earn an income from its operations. Technology eventually becomes obsolete or commoditized.

>From this perspective, Buffett doesn't understand how price movement works in tech companies.

For someone who allegedly doesn't understand that the recent $89bn gain on Apple stock is nice going. Luck perhaps?

Incidentally he's also talked about poker as a model for investing. After telling the Mr Market story in the 1987 letter he goes on:

>But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren't certain that you understand and can value your business far better than Mr. Market, you don't belong in the game. As they say in poker, "If you've been in the game 30 minutes and you don't know who the patsy is, you're the patsy."

> For someone who allegedly doesn't understand that the recent $89bn gain on Apple stock is nice going. Luck perhaps

From an investor point of view, you can't categorize companies as one label. You can categorize companies as tags. This is because every perspective that allows you to give you an edge and make money in a fairly reliable manner is a valid perspective.

Apple can be seen as a consumer/physical product company. Warren knows a lot about consumer behavior and branding. If he finds from that perspective that Apple is underpriced, then he can still make a bet while having a limited understanding of the technology by simply saying: a laptop is a laptop, it allows you to do laptop things (i.e. they're interchangeable), but Apple has an amazing brand like Coca Cola.

Of course, this isn't fully true (e.g. Windows enables different things than Apple in some cases like gaming) but combining it with superior knowledge in branding, it's good enough to make a bet.

> The central thesis of value investing is: if a company is going to close shop, the scrap value of that company will be higher than the market cap of that company. There's a lot more to it, but that's the gist of it.

There's enough "more to it", to make this statement incorrect.

You're describing Graham's style of value investing, Buffet's style is significantly different.

In fact the term "value investing" has now a very loose definition, since so many different styles are grouped under this term.

I'd say this is the most appropriate definition: "Investment is most intelligent when it is most businesslike" (straight from the Intelligent Investor).

In other terms, any type of investing that's not based on speculation is value investing.

> While I'm not of these meme investors who thinks Buffett is "washed up", I confess that I've increasingly wondered if it's just sorta over. In some sense, it's not his fault.

I also think that value investing has been 'automated away' to a certain extent such that him doing it (with staff help) no longer can compete with other market players.

> Berkshire has grown so large that it has significant scale problems.

This topic has actually been studied: (mutual) fund performance of top performing funds can be based on a manager's skill, but after a certain point that skill reaches the end of the runway. The more skilled the manager, the larger the AUM they can still get returns for, but at some point it's just too much.

> For an average fund in the cross-section, we estimate a drop in alpha of 20 basis points if the fund doubles its size over one year. We also find a non-negligible impact of the size of the fund industry, although its magnitude is significantly smaller than the impact of individual fund scale. We reconcile our findings with existing empirical studies. Taken as a whole, our results lend considerable support to theoretical models that build on the premise of decreasing return to scale for active portfolio management.

* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2872385

Discussed in the Rational Reminder podcast:

* https://rationalreminder.ca/podcast/136 (~15m30)

* https://www.youtube.com/watch?v=LhluPwDaNAQ&t=18m30s

Something to consider for anyone piling into (e.g.) ARK:

* https://awealthofcommonsense.com/2020/12/a-short-history-of-...

> seemingly unconditional refusal to explore technology companies

Don't forget they bought a truckload of IBM in 2015, leaving everyone scratching their heads. Probably lots of IBM'ers on here with better insight, but from the outside it appeared they were pooping where they slept: selling off hardware units, dabbling badly in cloud, offshoring key consulting operations and in general hurting their brand. Of course Berkshire sold it all in 2018 and bought more Apple.

Please tell me they didn't think IBM was a consumer company, as an alternate play to Apple in the same space as Apple? Right now it seems to be a poor services company.

I think not investing in technology was a sort of inflection point for buffet. His mantra was to understand what he was investing in, and he didn't understand most tech markets. Tech markets got too big to sit out.

5 of the top 10 most profitable companies are technology companies. The rest are financial firms (BRK is actually the most profitable). Most of these tech companies' value is related to network effects, platform control and such. These are "moats" that WB doesn't understand.

So yeah... I think times overtook the man. The space he was operating in shrank. That said, BRK is still doing fine, well run, etc. They also impact the world in ways a vanguard or softbank don't.

Warren has addressed not investing in tech. Automobiles were a major tech advancement, but car companies always have struggled. Airplanes were also a major advancement but always struggled. A top technology company can usurped by a new company with better tech. Facebook is faddish, requires acquisitions of Instagram and Whatsapp to stay on top, but that not Warren’s idea of creating value.

Automobiles and airlines have always had slim margins and are slow to grow. It shouldn’t take a Warren Buffett to see the differences between this old technology advancement and more recent ones (from an investment perspective).

While I'm also somewhat disappointed he doesn't discuss important topics as much as he used too, I think there are some hidden gems in this letter - especially this one:

"Investing illusions can continue for a surprisingly long time. Wall Street loves the fees that deal-making generates, and the press loves the stories that colorful promoters provide. At a point, also, the soaring price of a promoted stock can itself become the “proof” that an illusion is reality.

Eventually, of course, the party ends, and many business “emperors” are found to have no clothes. Financial history is replete with the names of famous conglomerateurs who were initially lionized as business geniuses by journalists, analysts and investment bankers, but whose creations ended up as business junkyards."

He is using the example of conglomerates, but to me, it sounds like a warning about current valuations.

Regarding his investing performance, I think we should never judge his N last years - he's definitely looking longer term (which is amazing, given his advanced age). Berkshire is sitting on a huge pile of money, waiting for the bubble to pop. It may take a year, maybe 5, maybe even 10 - nobody knows. But when it does, we can safely bet that Buffett will put this money to work - and secure exceptional returns for the following 10-20 years.

Well, the guy is 90. He's doing pretty well considering.

If you like them you can read other letters, in particular older letters. The letters for the later part of the 1970s are especially instructive in terms of what is it like to live in an inflationary regime.

Buffett is one of the few people that have "seen it all", from deflationary 30s, war 40s, greatest 50s, cultural 60s, inflationary 70s, capitalist 80s, excessive 90s, normal then excessive again 00s, deflationary 10s and whatever the 20s will be.

The roaring 20s last century came about after a global pandemic

Um and a world war?

And before a crash

The Great War predated (and may have been a large factor in causing) the 1918-19 pandemic.

War on drugs and war on terror have been waged worldwide for at least two decades

Interesting that you describe the 10s as deflationary when there was a large amount of monetary and asset inflation.

Well that was the response ("this time we'll do it differently"; Bernanke's "how to make sure 'it' doesn't happen here"), and the jury is still out on the consequences, IMHO.

I'm going by CPI and other similar measures around the world. Almost all US yearly CPI prints have been below 3%, with a small exception of late 2011.

Also, if (some) corporate profits stay on the same trajectory and interest rates fall, those stocks will rally like crazy. Interest rates are the most important prices in any market.

Just an interesting sidenote. It does feel like the letter is shorter than it used to be, so I plotted the number of pages by year in the PDF fils on their site. Looks like there was a decrease from 20 pages to 15 starting in 2017.

Graph:

https://imgur.com/a/TQ2oewY

Your graph could be improved by avoiding interpolation. Interpolation is misleading in this case because the observations are complete without it.

Still two long.

And they should have an Instagram account with the same letter tl;dr to a 5 image post, for young investors.

:accountant: :chart: :no-sign: :rocket:

That would sum most of it up.

not my downvote, but

It doesn't look like they are trying to attract young investors.

And when a young investor does become attracted to Berkshire, they would be likely to review more than just one single letter.

Which is actually pretty short for what it has to say.

This is a shockingly boring and cursory annual letter. Most of it reads like a copy-paste from all of the previous letters (retained earnings, bonds bad, why non-Berk conglomerates suck, insurance float is awesome, etc). OK, it's nice that Apple did some stock buybacks, and that they did too. Uh, what else? It was a whole year.

And what a year - what it doesn't say is far more important than what it does. Where's the grappling with the fact that their 2020 return was only 2% when the indexes are up 20%? (Did I read that right?!) For that matter, shouldn't the fact that their return in 2020 was so low be grounds for very serious soul-searching? Buffett has always justified the cash reserves and passive investing as enabling him to make awesome deals during the proverbial rainy day. Well, was not 2020 the mother of all rainy days? Where are his deals? If he couldn't do anything with his bankroll in 2020, when is he ever going to be able to do anything with it? What did they do all year? Does he really have no thoughts about how the pandemic was handled? About Western governance and economics? Is it not astonishing that the sole and only reference I noticed to coronavirus is a throwaway clause about some furniture stores being closed? WTF. This is not at all the letter I was expecting.

Has anyone seen Buffett in person recently? Are we sure he wasn't kidnapped and replaced with Deepfaked Zoom calls a year ago?

I suspect he and his ghostwriters are saying less and less on purpose. Why take a stand on an even mildly controversial issue at this point? (And everything is controversial now.) He has nothing to prove.

We might as well ask why his shareholder letters were interesting before? It’s a fairly unusual tradition.

Maybe the next CEO will have something to say, but it’s pretty optional.

Is Buffett really still the gold standard, Berkshire has been outdone by the s and p 10 year rolling average over the last evade and that was true before the pandemic.

I get that 20% annual returns aren’t sustainable as you get into managing hundreds of billions but it seems to me the make up of the market has changed dramatically over the 2010s and Buffett hasn’t adapted or evolved.

Given the shape of those two curves I’d give it a bit more time before counting Buffet out.

when using the S&P500 as a yardstick, we have to remind ourselves what environment we are living in. Interest rates are very low (though this is currently changing) and equity valuations are at or close to all time highs both in absolute an relative terms.

Berkshire generates more operating profit than Salesforce has revenue; it generates 6x more profit than Nvidia and those numbers ignore both the gigantic stock portfolio and the cash position.

Valuations will eventually trend back to historical norms. Given that GDP is relatively stagnant (there is modest growth in real terms), it is impossible for all of these companies to grow indefinitely.

Both before the .com crash and the 2008 financial crisis lots of companies have vastly outperformed Berkshire, a wave of bankruptcies and 95% declines ensued.

I always love to make sure their site is still bare bones. Love the raw HTML look.

The modern corporate website:

* ethnically diverse happy people stock photos (80% of the page content)

* carousels and pages with vague two sentence statements and a link. Link leads to missions statements and values and maybe a short paragraph.

* detailed information about what the company sells hidden behind 3-4 clicks at minimum (can be omitted).

Ironically, this was my exact experience trying to figure out what OutSystems [0] sold.

I get it's expected in the B2B "we sell to idiot VPs" world, but jesus... have at least one page somewhere with a tech stack and platform summary.

[0] https://outsystems.com

Came here to write exactly this. Berkshire is special

Well I think that's the case when your company has so much notoriety that your website isn't used to sell, or get new clients, or capture/retain the attention of anyone, or try to monetize itself with a user base.

It's basically a place to distribute information about them.

“When people are fearful, be greedy. When people are greedy, be fearful.” -Buffet quote I think about a lot over the last 12 months

The key point from that quote is "when people are fearful, a pessimistic future is currently priced in" and "when people are greedy, an optimistic future is currently priced in."

So, effectively, it's setting up a win/tie dynamic on change/expected. Vs a lose/tie dynamic on change/expected when investing with the current sentiment.

It’s inspiring to see that Buffett and Munger remain so wonderfully optimistic about the future of the US even when both are 90+ in the current sociopolitical environment. Reading this letter certainly lifted my spirit and put me in a different mood.

See Annual Report as well.

https://news.ycombinator.com/item?id=26284669

Looks like the two URLs are different.

Alternative paper: https://ourfiniteworld.com/wp-content/uploads/2021/02/Tverbe...

Like every lion in the savanna, it must relinquish its reign at some point.

Buffet talks pridefully about holding $250+ BILLION in cash, as if it were pegged to a gold standard. Nearly half his life was based on such a system, and so it’d be hard to remove that idea.

Yet he sits on it proudly seemingly unaware that sitting on such an amount has eaten up 3%+ via the printing press of the FED.

That and you know... not buying when everyone was selling back in March. Selling out of the airlines seems like a rookie mistake but to a 90 yo, flying again is actually a “never again” due to his age.

Do you honestly believe that Warren does not understand inflation?

Perhaps you can understand inflation and still make a mistake?

I believe the mind of a 90 yo Buffet is not the same as the 30 yo Buffet.

My general point being that even if he's aware and picks some number less than 5% inflation (which is debatable), sitting on a giant cash pile and getting fear paralysis or whatever it is he's waiting on (clearly not a buying opportunity) isn't what a present day champion would do. But thats fine. Just can't expect him to be the past champion he once was.

What would you expect a 'present day champion' to do during the most volatile market since just prior to the Great Depression?

Go on cnbc, cry about the world ending and being scared for your life and then buy up everything circa march.

Also Buffet is old enough to have remembered other "pandemias" and times of volatility. He was there during the hong kong flu of 69. He was around when Polio was a thing. Hes been through Black Monday and 9/11.

Tons of money to be made in volatility. You're using that word in a negative manner. Volatility up is a great thing.

And volatile down is no worry sitting on a huge pile of cash.

Buffet is well known to play long, big, safe, predictable bets, with recent exception with airlines with bad COVID timing. All this is consistent with his personality and history as an investor.

Anyone knows why he doesn't buy real estate in highly desirable locations, which will always be in demand, given that he has a really long view?

He knows what he knows.

I believe Berkshire owns both realtor and a home builder/community builder companies.

not my downvote, but

Realistically his cash liquidity has been dramatically rising but has not ever topped $150 billion:

https://ycharts.com/companies/BRK.A/cash_on_hand

So you're about $100 billion off-target in paper value, but what's $100 billion betwen friends?

OTOH your perception could be quite accurate as to how powerful an effect he may be able to enjoy with so much cash.

Probably could get more accomplished than someone having "only" $250 billion worth of credit.

Of course one is parking lots full of 18-wheelers full of hundred-dollar bills, and the other is a promissory note.

A convoy like that coming in to any city could initiate changes that could not be stopped.

Look at what drug cartels are doing and they usually don't even fill one semi-trailer with cash.

Buffet's huge stake in America itself puts him at an order of magnitude not often seen, not much differently than when the dollars were backed by gold, and for him his position in the US does not come under threat even as the currency becomes devalued. He can stll afford to build cash reserves faster than they are being devalued internationally.

For the Saudis and their convoys of world currencies, there would be pressure to sell the lowest performing one(s) so they could buy more of the notes having a more positive outlook.

$250bn is a lot of cash but markets are expensive and may not remain so forever. He also had a lot of cash in the run up to 2008 and it came in quite handy.

So Berkshire now owns about 10% of Apple, if I buy a $1,000 Macbook $100 of that money goes to Berkshire, what are they doing with that money since Apple is the one doing the R&D and building these products? I know at least some of that money is driving up the business value of Berkshire, it's a great investment on their part but is it good for customers that Macbooks are 11% more expensive than they should be?

Apple pays its employees, utilities, insurance, taxes, bondholders, suppliers etc, their margin is not 100%, more like 25%. Profits ultimately drive company valuations. The cash does not just flow through to Berkshire, the dividend yield is relatively low.

I don't understand what you are trying to say about MacBooks being 11% more expensive?

Sure it may not flow directly to Berkshire, but let's take employee compensation for example. If the business value of Apple is 10% higher because it had retained the value it created instead of Berkshire owning it then wouldn't Apple's stock in turn be 10% higher in theory? If so then if I'm an employee at Apple I would be happy with 10% less stock as part of my compensation package and that's money Apple would have had to pay me if that were not the case. So wouldn't this affect the price of Macbook?

It never works out like that in theory or practice. A company cannot retain it's value all by itself. Value is assigned to the company by 3rd parties. If you started a company and claimed that your stock is worth $100 per share, and there are no buyers, are you really worth $100? However, if you claim to be worth $100, and I offer you $120, you would sell to me because you think you're worth less than what I'm paying for it. The moment I bought it I actually created value for your company because I just demonstrated to the entire market that you are worth more than you think. Then everyone else will start pricing you higher. It has huge knock on implications. Buffet buying Apple was basically a huge buy signal for many investors, and that action itself increased its value.

> So Berkshire now owns about 10% of Apple, if I buy a $1,000 Macbook $100 of that money goes to Berkshire

No, BRK would (eventually) receive 10% of net income, not revenue.

> Is it good for customers that Macbooks are 11% more expensive than they should be?

Would it be better for consumers if the price was cheaper? Well, yes....but the fact that customers are willingly paying for Macbooks implies that they are receiving more value from the product than the cash they pay. Not sure what point you're trying to make.

This is a fundamental misunderstanding of how the stock market works. You buying a stock of a company doesn't entitle you to any of the money a company makes unless they choose to hand out dividends. A lot of companies just choose to just reinvest all the money instead. Last quarter apple approved a $0.205 dividend per share (costs $121) which is an abysmal return on capital. It's still a great investment because the stock itself will appreciate in value, so the dividend is just a cherry on top. There have been many quarters where apple has paid no dividends.

The stock price also in no way impacts the price of a a company's product. If that was the case, Teslas would be some of the most expensive cars in the world. There is literally no correlation because they are independent things that don't affect each other.

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