Hacker News Reader

Comment by jimnotgym | Hacker News Reader

I read somewhere that Bershire Hathaway had sort of finished it's mission. 40 years ago there were lots of large companies who were very 'inefficient' and BH would come along, invest a lot, and start demanding changes. Company performance would improve and BH would make big $$$$.

Now there are few of these and it is hard to do.

I don't know enough to know whether it is right or wrong. but I think that is what I read.

View on HN

That wasn't their main thing. The main one was to buy stocks or companies for less than they were worth, either because the market mispriced them or because company owners wanted to retire and sell to Berkshire. They also were big into insurance float which is getting insurance premium money that doesn't have to be paid out for a while which provides a kind of free leverage. Buffett did a lot of other things too.

I think over the last few decades, he could make deals just because the Buffett name held so much influence. If Buffett was investing, then others could assume that the company won't go bankrupt.

That's certainly part of it, but in the "buying mispriced assets" category, Buffer made some very smart, large bets. During the Great Financial Crisis, BH made a $5 billion investment in Goldman Sachs that eventually made them billions in profit when everyone else was running for the hills.

I actually think this is a deal only Buffett could have made. By bringing on Buffett as an investor, it sent a signal to the market that the bank was solvent and improved confidence in the company. Another investor would not have brought the same calm so would not have had the same return even if they bought the same amount at the same time.

Isn't that the model of every private equity? It was always hard to do well.

Although it doesn't seem that way, there are lot of companies that have become large recently, it is best time ever historically for companies to be able to grow large quickly much more so than 50 years ago in the early days of BH.

There are 1000+ unicorns today, about 50 of the fortune 500 are founded > 2000, a large number of companies that have chosen to remain private with revenues in excess of >$10B like Stripe or SpaceX etc

While it is true that lot of the action has been in sectors BH has never been comfortable holding large assets in such as SaaS, new fin-tech(i.e. crypto etc), or gig econ(Airbnb/Uber etc), social media(tiktok et al.) etc, that doesn't mean the principles are no longer needed or there aren't opportunities to take stake in these now mature companies and drive value.

Berkshire had a pivot where, decades back, Munger convinced Buffett to switch from investing in bad companies at a great price to good companies at a good price. Their new strategy is still active.

That said, the turnaround 'mission' you mention about still happens, but is more associated with private equity than Berkshire.

Not quite right. The pivot was from good companies at a great price to great companies at a good price (unless you can get a great price, but that’s unlikely).

Over the long run the latter is a better and more scalable strategy.

They also have a history of buying good private companies at a good price and then let the management keep cooking. This is especially relevant to family businesses that want liquidity for the heirs and good long-term (indefinite) stewardship rather than selling to some PE vulture that will destroy their legacy.

Well, many companies are still mispriced, but stock markets today look a lot more like voting machines than weighing machines - so it takes more time to be proven right (or wrong).

Seems inaccurate to me. What I've heard is that BRK is famous for being hands-off. Their management team is too small anyway to have done much micromanaging.

Correct. Berkshire only buys well-functioning businesses. '“Turnarounds” seldom turn'.

https://www.berkshirehathaway.com/letters/1979.html

Reply on news.ycombinator.com