Do Berkshire Bears Have a Good Argument?

Join The Motley Fool for a conversation with author, investor and philanthropist, Whitney Tilson. In addition to managing Kase Capital, Whitney has coauthored More Mortgage Meltdown: 6 Ways to Profit in These Bad Times, Poor Charlie's Almanack, and most recently The Art of Value Investing, a collection of interviews with over 200 successful value investors.

A full transcript follows the video.

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Brendan Byrnes: What's your biggest worry about Berkshire (NYSE: BRK-B  ) ? Did Doug Kass bring up anything on the bearish side that made you say, "Wow?" It seemed like more he regurgitated a lot of the bear argument: "Warren Buffett, at some point, is going to be gone." "It's so big, how much bigger can it get?" Are you buying those?

Whitney Tilson: I think he raised the fair concerns. There was nothing there I hadn't heard before. Doug's a friend, and I've corresponded with him about Berkshire, so there wasn't anything that surprised me. I think he did a good job with a thankless task, which is trying to rain on what is one of the most incredible parades of all time.

The annual meeting was on Saturday. On Friday the stock closed at an all-time high, and Berkshire reported probably its all-time best quarter. That's what Doug had to try and poke holes in, right?

A company run by two of the greatest, highest integrity, smartest investors of all time, on top of that.

I think the most important questions he raised were, number one, is size going to be an anchor for you, and what kind of returns can we expect going forward, given how large Berkshire is? Buffett and Munger have been saying this for years, that size is going to be a huge anchor for us, like it is for everyone, so keep your expectations modest but we still think we can beat the S&P 500 and index funds, which in turn beats 80% of active managers.

The second question he raised is a fair question about Berkshire post-Buffett. I do worry about that. Warren Buffett is unique. He is irreplaceable, and I'm sure he has a great person lined up to fill his shoes, but that person will not be Warren Buffett.

What gives me comfort there are two things. One, my valuation metric assumes no Buffett premium. Cash investments, a multiple on the current earnings...none of that is there a Warren Buffett premium built in.

The second reason is Buffett, I think, is in great health. Mentally, I've never seen him sharper, and I think it's almost certain that he will be running Berkshire the next 5 years, and there's a decent chance he might be running it for another 10 years. If I don't have to worry about something until 5 or 10 years out, that's pretty good.


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  • Report this Comment On June 18, 2013, at 11:46 AM, st0815 wrote:

    Health-wise a lot can happen to an 82 year-old in 5 years. To assume he'll still be alive at 92 is a risky bet, to assume he'll still be able to run the business at that stage ... I don't think that's reasonably described as "nothing to worry about".

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