End Game for Berkshire Hathaway?
Berkshire Hathaway

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By tetmiller
January 25, 2007

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Has Berkshire Hathaway Peaked?

All of us believers/owners certainly are betting and hoping the answer is "no". The problem is (as Warren Buffett himself has lamented for many years) the drag size inevitably places on the portfolio of any investor. With a $165 billion market cap Berkshire is now one of the largest companies in the world. Warren likes to proclaim with a $1 million portfolio he could surely make 50% returns...But how does he intend to have BRK grow at an acceptable rate with $165 Billion?

In recent years Warren has achieved growth at Berkshire through acquisitions: General Re, Pampered Chef, Business Wire, Iscar, Forest River, Clayton, Fruit of the Loom and many small bolt on purchases. Earnings at Berkshire have exploded upward-but for the most part the stock market has not paid a lot of attention and BRK trades at one of the largest discount to fair value in it's history. Last years large bet on catastrophe insurance provided a big boost as has the strong internal growth at Geico in recent years. But even huge wins in things like Petrochina do little to move the needle much at Berkshire anymore. With about $45 Billion of cash sloshing around what is the ultimate end game fro BRK Investors? What are we waiting for?

There have been a great many companies in the past whose asset value were unquestionably greater than their stock price (Teledyne, St Joe Paper, Newhall Land & Farming) the question is how and when will this be realized if the market continues to place a discount on the huge diverse house Warren has built?

Warren has done little to improve the situation, refusing share buybacks and keeping the "knowledgeable shareholder/owner base" very small for a company it's size. The problem is that it has resulted in almost a "minority discount" of sorts being placed on the surviving shareholders. Dividends we are told are out. Increased competition from Private Equity groups makes good acquisitions even more difficult. Where will BRK go from here? What is the end game for Berkshire?

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