During Berkshire Hathaway's (NYSE: BRK-A) (NYSE: BRK-B) annual meeting this past weekend, Warren Buffett and his second-in-command, Charlie Munger, had me -- along with 40,000 other shareholders -- on the edge of my seat as they answered questions on anything and everything.
Over the course of more than five hours, it became clear that as long as Buffett is as the helm, there are three things he will never do. Those three things also help make Berkshire Hathaway one of the best investments you can choose today.
1. Break up Berkshire Hathaway
As Buffett explained during the meeting, "We have the ideal operation." There is roughly a 0% probability that the company will be broken up. One of the reasons, as Buffett pointed out, is that there are "a lot of benefits to having the companies on the same tax return."
For example, in his 2014 letter to shareholders, Buffett explained that See's Candies creates consistently huge earnings and that "we would have loved, of course, to intelligently use those funds to expand our candy operation." But the efforts didn't pan out, and now See's Candies' excess earnings are put to work more effectively in other places.
Think of this as an alternative funding source. While many other companies are forced to take on large amounts of debt to fund growth, Berkshire can funnel money from one of its 60 subsidiaries to another. Best of all, because of Berkshire's structure, it can do so without paying tax.
These are massive advantages. Berkshire saves millions of dollars a year in taxes, and as some companies hit their growth ceiling, money can instantly be transferred elsewhere. This ability gives Berkshire almost unlimited potential to efficiently scale in size.
2. Worry about macroeconomics
Not only does Buffett insist on keeping Berkshire in one piece, but he also plans to continue adding new and wonderful businesses to the mix. When selecting these companies, Buffett made it clear that he will "never make an acquisition based on macro factors."
That may sound foreign to investors who consistently hear doom and gloom about interest rates, unemployment, or projections for weak economic growth.
Those things have no impact on his decision-making, because, as he put it, "We know we don't know." In other words, he believes that forecasting economic trends is nearly impossible and therefore useless. That's why he thinks that "any company that has an economist has one employee too many."
The acquisition of Burlington Northern Santa Fe in 2009 is a great example of Buffett's approach. No economic indicator, at least that I know of, would have suggested buying a railroad company in the middle of a recession. But what Buffett knew was that BNSF was among the leaders in its industry. He knew it was a well-run company, operating in an industry with high barriers to entry. He knew trains are a cost-efficient and effective way to transport goods, and he believed that would continue to be true decades from now.
It's that type of long-term thinking, along with a focus on acquiring great businesses, that has allowed Berkshire to be so successful. Today, BNSF accounts for 20% of Berkshire net income. Buffett referred to the company in his 2014 annual letter as "by far, Berkshire's most important non-insurance subsidiary."
Source: BNSF.com.
3. Treat Berkshire as his company
When Buffett thinks about the structure of Berkshire, or what businesses to acquire, he's thinking about what's in the best interest of shareholders.
This sentiment has been clear for decades, but Buffett took it a step further when he was asked about whether Berkshire -- the company, not Buffett personally -- will be getting involved in philanthropy. Buffett's reply: "I work for the shareholders [...] and they should make their own decisions about philanthropy." Munger added, "My taste for giving away someone else's money is also quite restrained."
Take a second to consider just how amazing that commentary really is. Over the course of 50 years, these two men turned Berkshire Hathaway from a textile company into a $300 billion insurance conglomerate, yet they don't view the company as theirs.
Moreover, Buffett holds 34% of the voting power at Berkshire, which makes him far and away the largest shareholder. So he could do just about anything he wanted, and no one could do anything about it -- but he doesn't. He, along with Munger, continues to treat shareholders as partners, and that is, perhaps, the simplest and most important reason I think Berkshire Hathaway is a great buy today.
That's also why I am delighted to be a shareholder, and why I plan to be for a long time.
