Stand Up for Bastards: Berkshire vs. Apple

The quote is from King Lear. The subject is succession.

I suspect there aren't many people comparing the fortunes of Berkshire Hathaway (NYSE: BRK-B  ) and Apple (Nasdaq: AAPL  ) . But I'm going to today, because these are two extraordinary American companies. Combined, they account for more than $400 billion of market capitalization. Berkshire Hathaway accumulated that gradually over the last 30 years. Apple stormed to its present valuation over just the past five years.

I know it's an unnecessary hypothetical, but I'm wondering, "Which would you invest in today -- Berkshire Hathaway or Apple?"

Naturally, you'd want to know what time frame you'd be holding the shares. So let me take this hypothetical one step further. Let's say we're going to buy shares and hold them for the next 15 years. What then? Warren Buffett will be 95 years old. Steve Jobs will be 70 years old. It's possible that both will still be the CEOs of the companies they created -- the companies into which they've put nearly every ounce of their creative energy and their professional career. But even in that event, the market will only more seriously and intensively focus on the next generation of leadership.

Let me explain why, in this scenario, I would buy shares of Berkshire Hathaway. For more than 15 years, Buffett has had to answer to questions about his successor. And everything Buffett has done has been geared toward creating permanent value for all the partners of his company.

He has proven out his approach through economic mayhem and misery, through magic and sweet music. And I know that during the multi-decade growth of Berkshire's market capitalization, Mr. Buffett has been musing on how to create an everlasting gobstopper for his partners. (Frankly, I think he should name his next CEO, act as a strong-hand chairman, and prepare the marketplace for the next 50 years of greatness. But one thing is for sure: He's been thinking a lot about this for a long time.)

Against this, you have Steve Jobs -- the greatest innovator of our generation. A mastermind. A fierce and fearless leader. A man who demands the very best of everyone who works at Apple. A man who has led his company to some of the most dramatically rapid growth in cash flow, customer counts, customer satisfaction, employee rewards, and shareholder gains in American history. But the danger of such rapid growth is that the culture cannot keep up with it. The long-term danger is that the replication of this genius and of this culture of growth could prove extraordinarily difficult to achieve over the next 15 years.

Two world-beating American companies. Two astoundingly great leaders. But for long-term buy-and-hold investors, I think the choice is relatively easy. For decades, Berkshire Hathaway has built its culture to sustain greatness.

Agree or disagree in the comments section below. Perhaps we should bet a Fool ballcap on it!

Fool co-founder Tom Gardner does not own shares of any companies mentioned. Berkshire Hathaway is a Motley Fool Inside Value recommendation. Apple and Berkshire Hathaway are Motley Fool Stock Advisor picks. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (15)

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  • Report this Comment On July 22, 2010, at 7:14 PM, mmarantz wrote:

    I would agree to some extent, but given your scenario of 15 years, take into account the growth rate and share appreciation that will continue to happen even if Steve Jobs were no longer with Apple. The road map is laid out, the innovation is still happening, the new iphone, the iphone 5, heck even the iphone 6 is probably being tested as we speak, next generation ipads, not to mention the top secret data center in North Carolina that no one even knows about yet or what it is really for. None of this even accounts for top secret products we cannot even dream of. Products you don't even know you need yet. Trust me, these are all in development, on the drawing board, being tested. The next 15 years will be here before you know it. So given this information, even if Apple's share price tripled or quadrupled and then fell by half, it could still be greater than the overall appreciation of Berkshire over the next 15 years. My bets are on Apple.

  • Report this Comment On July 22, 2010, at 11:02 PM, pmvflyer wrote:

    Your decision is based on the selection of a single person in the corporate structure. I agree this is important, but I argue that what is more important is the culture and collection of talent that both companies have. I am bullish on both AAPL and BRK-[A-B] because both companies have a culture, and employee base, with a long view and a vision of quality. There are a lot if people that work for Berkshire-Hathaway and Apple that keep the company afloat because of a good value/quality vision. The specific leader of each company may be less important than you think. Look at LUV, which had it's visionary retire in the last decade.

  • Report this Comment On July 23, 2010, at 12:32 AM, TMFTomGardner wrote:

    Both of your responses are excellent and force me to think more deeply. What makes for a truly great organization is changing, and I do agree, the CEO simply HAS to become less important. That said, I really need to see the principles of succession and the core beliefs of the culture that cannot be overcome by a rogue ego-driven short-sighted and petty leader.

    In my observation, the world is FILLED with that sort of leader. And they aren't immediately apparent. It's easier than we think to hide personality traits. AND, frankly, I think most people have enough good in them to be worthy of support. But, it takes a true genius and a true -- dare I say -- FOOL to lead such a massive organization to enduring success.

    Steve Jobs has an ego. He has subordinated that ego in service to Apple. Apple is more important than "Jobs". I feel certain of that. But, how difficult will it be for the culture to find someone equally talented and equally committed? I think it will be difficult. Particularly because I think Apple's true culture is only 7-10 years old.

    Berkshire's is 30+ years old. Further, I think Buffett is less urgent for recognition that he has put a dent in the universe. I think Buffett genuinely feels that what Berkshire does 75 years from now is more important that what happens this year or in his lifetime. It may be a subtle distinction. But i don't think Jobs feels that yet PLUS...I think it is substantially harder to weave your way through the shifts in technology than it is to find great investors to allocate capital.

    I still say my money is on Berkshire for the next 15 years. But I'd love to be wrong and to buy you both coffee in 15 years for being wrong. Fool on.

  • Report this Comment On July 23, 2010, at 2:43 AM, baldheadeddork wrote:

    Berkshire, and it's not even close. Forget about succession. Apple is riding the lightning. It's going great for them now, but styles change and consumer passion never lasts forever. (See Harley-Davidson, Levi's, Gap, etc.)

  • Report this Comment On July 23, 2010, at 12:39 PM, TMFtheEdge wrote:

    Berkshire for sure.

    And I agree - I tend to view Steve Job as the genius with a million helpers. Brilliant? Absolutely yes. 15 years sustainable culture? Maybe not.

    AAPL is a short term stock for me for this very reason.

  • Report this Comment On July 23, 2010, at 12:53 PM, craigr11 wrote:

    I agree with Tom. While both company's growth has been a result of leadership, Apple is less likely to have long term success without Jobs, we already have an example of what happens when he leaves Apple.

  • Report this Comment On July 27, 2010, at 11:32 AM, japeel wrote:

    If you’re saying you only have a choice out of these two companies to invest a significant portion of my wealth, I’d have to go with Berkshire, and Tom your choice and reasoning are spot on here.

    My reasons:

    Value: on a projected 8% growth rate for Berkshire my intrinsic value calculations come out at between $120 000 and $140 000 a share. For Apple basically I can’t call it. The growth rates have been so stellar for so long, I just couldn’t put rational value on it. I did come up with a value of $200 a share and toyed with buying it while Steve Jobs was in hospital and the prices was under $100. That was a while back and I just have no idea now, and I’m not even going to run the numbers. However, when those growth rates ease off, and during 15 years, that in my book is more certainty than less, it will be very messy.

    The CEOs: Warren Buffet is a legend, and I watched with glee as he tore up the market during the financial crisis, whilst taking flack from the investing press for every move. At the same time he’s steadily grooming his successor(s) and references his capital allocators performances in his last two letters, (2008 dismal, 2009 stellar, with one managing 200% returns)

    Steve Jobs is obviously very intense and very driven, but what would Apple be within five years without him, I don’t know and I’ve no wish to find out.

    The Moats: Berkshire, a carefully chosen group of market leaders nearly all with intact moats. Apple, a fantastic brand, but it’s under attack from, well everybody else. Microsoft will hit back, so will Nokia, so will HTC, so will Google. Apple is an immense and impressive economic castle, but the armies amassing to attack are formidable, and they’re bringing siege engines in the form of tens of billions of dollars of excess cash.

    In summary, Berkshire offers a kind of intrinsic value based, free cash flow index fund that I’m sure will give “satisfactory returns” over 15 years, Apple, well I just ain’t sure and I work too hard for my money to think it could be anything like a fifteen year investment.

    (btw: I don’t own either Apple or Berkshire but I have great admiration for both)

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