[HN Gopher] 2020 Berkshire Hathaway Annual Letter [pdf]
___________________________________________________________________
2020 Berkshire Hathaway Annual Letter [pdf]
Author : karl11
Score : 79 points
Date : 2021-02-27 14:51 UTC (8 hours ago)
(HTM) web link (www.berkshirehathaway.com)
(TXT) w3m dump (www.berkshirehathaway.com)
| rajivjain wrote:
| It's inspiring to see that Buffett and Munger remain so
| wonderfully optimistic about the future of the US even when both
| are 90+ in the current sociopolitical environment. Reading this
| letter certainly lifted my spirit and put me in a different mood.
| smurda wrote:
| "When people are fearful, be greedy. When people are greedy, be
| fearful." -Buffet quote I think about a lot over the last 12
| months
| ethbr0 wrote:
| The key point from that quote is "when people are fearful, a
| pessimistic future is currently priced in" and "when people are
| greedy, an optimistic future is currently priced in."
|
| So, effectively, it's setting up a win/tie dynamic on
| change/expected. Vs a lose/tie dynamic on change/expected when
| investing with the current sentiment.
| tuna-piano wrote:
| Just an interesting sidenote. It does feel like the letter is
| shorter than it used to be, so I plotted the number of pages by
| year in the PDF fils on their site. Looks like there was a
| decrease from 20 pages to 15 starting in 2017.
|
| Graph:
|
| https://imgur.com/a/TQ2oewY
| gwern wrote:
| This is a shockingly boring and cursory annual letter. Most of
| it reads like a copy-paste from all of the previous letters
| (retained earnings, bonds bad, why non-Berk conglomerates suck,
| insurance float is awesome, etc). OK, it's nice that Apple did
| some stock buybacks, and that they did too. Uh, what else? It
| was a whole year.
|
| And _what_ a year - what it doesn 't say is far more important
| than what it does. Where's the grappling with the fact that
| their 2020 return was only 2% when the indexes are up 20%? (Did
| I read that right?!) For that matter, shouldn't the fact that
| their return in _2020_ was so low be grounds for very serious
| soul-searching? Buffett has always justified the cash reserves
| and passive investing as enabling him to make awesome deals
| during the proverbial rainy day. Well, was not 2020 the mother
| of all rainy days? Where are his deals? If he couldn 't do
| anything with his bankroll in 2020, when is he ever going to be
| able to do anything with it? What did they _do_ all year? Does
| he really have no thoughts about how the pandemic was handled?
| About Western governance and economics? Is it not astonishing
| that the sole and only reference I noticed to coronavirus is a
| throwaway clause about some furniture stores being closed? WTF.
| This is not at all the letter I was expecting.
|
| Has anyone seen Buffett in person recently? Are we sure he
| wasn't kidnapped and replaced with Deepfaked Zoom calls a year
| ago?
| skybrian wrote:
| I suspect he and his ghostwriters are saying less and less on
| purpose. Why take a stand on an even mildly controversial
| issue at this point? (And everything is controversial now.)
| He has nothing to prove.
|
| We might as well ask why his shareholder letters were
| interesting before? It's a fairly unusual tradition.
|
| Maybe the next CEO will have something to say, but it's
| pretty optional.
| GrantZvolsky wrote:
| Your graph could be improved by avoiding interpolation.
| Interpolation is misleading in this case because the
| observations are complete without it.
| nfjrbrnnffk wrote:
| Still two long.
|
| And they should have an Instagram account with the same letter
| tl;dr to a 5 image post, for young investors.
| ethbr0 wrote:
| :accountant: :chart: :no-sign: :rocket:
|
| That would sum most of it up.
| fuzzfactor wrote:
| not my downvote, but
|
| It doesn't look like they are trying to attract young
| investors.
|
| And when a young investor does become attracted to Berkshire,
| they would be likely to review more than just one single
| letter.
|
| Which is actually pretty short for what it has to say.
| pacman2 wrote:
| Alternative paper: https://ourfiniteworld.com/wp-
| content/uploads/2021/02/Tverbe...
| soheil wrote:
| So Berkshire now owns about 10% of Apple, if I buy a $1,000
| Macbook $100 of that money goes to Berkshire, what are they doing
| with that money since Apple is the one doing the R&D and building
| these products? I know at least some of that money is driving up
| the business value of Berkshire, it's a great investment on their
| part but is it good for customers that Macbooks are 11% more
| expensive than they should be?
| intev wrote:
| This is a fundamental misunderstanding of how the stock market
| works. You buying a stock of a company doesn't entitle you to
| any of the money a company makes unless they choose to hand out
| dividends. A lot of companies just choose to just reinvest all
| the money instead. Last quarter apple approved a $0.205
| dividend per share (costs $121) which is an abysmal return on
| capital. It's still a great investment because the stock itself
| will appreciate in value, so the dividend is just a cherry on
| top. There have been many quarters where apple has paid no
| dividends.
|
| The stock price also in no way impacts the price of a a
| company's product. If that was the case, Teslas would be some
| of the most expensive cars in the world. There is literally no
| correlation because they are independent things that don't
| affect each other.
| mxschumacher wrote:
| Apple pays its employees, utilities, insurance, taxes,
| bondholders, suppliers etc, their margin is not 100%, more like
| 25%. Profits ultimately drive company valuations. The cash does
| not just flow through to Berkshire, the dividend yield is
| relatively low.
|
| I don't understand what you are trying to say about MacBooks
| being 11% more expensive?
| soheil wrote:
| Sure it may not flow directly to Berkshire, but let's take
| employee compensation for example. If the business value of
| Apple is 10% higher because it had retained the value it
| created instead of Berkshire owning it then wouldn't Apple's
| stock in turn be 10% higher in theory? If so then if I'm an
| employee at Apple I would be happy with 10% less stock as
| part of my compensation package and that's money Apple would
| have had to pay me if that were not the case. So wouldn't
| this affect the price of Macbook?
| intev wrote:
| It never works out like that in theory or practice. A
| company cannot retain it's value all by itself. Value is
| assigned to the company by 3rd parties. If you started a
| company and claimed that your stock is worth $100 per
| share, and there are no buyers, are you really worth $100?
| However, if you claim to be worth $100, and I offer you
| $120, you would sell to me because you think you're worth
| less than what I'm paying for it. The moment I bought it I
| actually created value for your company because I just
| demonstrated to the entire market that you are worth more
| than you think. Then everyone else will start pricing you
| higher. It has huge knock on implications. Buffet buying
| Apple was basically a huge buy signal for many investors,
| and that action itself increased its value.
| fairity wrote:
| > So Berkshire now owns about 10% of Apple, if I buy a $1,000
| Macbook $100 of that money goes to Berkshire
|
| No, BRK would (eventually) receive 10% of net income, not
| revenue.
|
| > Is it good for customers that Macbooks are 11% more expensive
| than they should be?
|
| Would it be better for consumers if the price was cheaper?
| Well, yes....but the fact that customers are willingly paying
| for Macbooks implies that they are receiving more value from
| the product than the cash they pay. Not sure what point you're
| trying to make.
| H8crilA wrote:
| If you like them you can read other letters, in particular older
| letters. The letters for the later part of the 1970s are
| especially instructive in terms of what is it like to live in an
| inflationary regime.
|
| Buffett is one of the few people that have "seen it all", from
| deflationary 30s, war 40s, greatest 50s, cultural 60s,
| inflationary 70s, capitalist 80s, excessive 90s, normal then
| excessive again 00s, deflationary 10s and whatever the 20s will
| be.
| newsclues wrote:
| The roaring 20s last century came about after a global pandemic
| secfirstmd wrote:
| Um and a world war?
| geoduck14 wrote:
| And before a crash
| newsclues wrote:
| War on drugs and war on terror have been waged worldwide
| for at least two decades
| votepaunchy wrote:
| The Great War predated (and may have been a large factor in
| causing) the 1918-19 pandemic.
| umeshunni wrote:
| Interesting that you describe the 10s as deflationary when
| there was a large amount of monetary and asset inflation.
| H8crilA wrote:
| Well that was the response ("this time we'll do it
| differently"; Bernanke's "how to make sure 'it' doesn't
| happen here"), and the jury is still out on the consequences,
| IMHO.
|
| I'm going by CPI and other similar measures around the world.
| Almost all US yearly CPI prints have been below 3%, with a
| small exception of late 2011.
|
| Also, if (some) corporate profits stay on the same trajectory
| and interest rates fall, those stocks will rally like crazy.
| Interest rates are _the_ most important prices in any market.
| xeromal wrote:
| I always love to make sure their site is still bare bones. Love
| the raw HTML look.
| nabla9 wrote:
| The modern corporate website:
|
| * ethnically diverse happy people stock photos (80% of the page
| content)
|
| * carousels and pages with vague two sentence statements and a
| link. Link leads to missions statements and values and maybe a
| short paragraph.
|
| * detailed information about what the company sells hidden
| behind 3-4 clicks at minimum (can be omitted).
| ethbr0 wrote:
| Ironically, this was my exact experience trying to figure out
| what OutSystems [0] sold.
|
| I get it's expected in the B2B "we sell to idiot VPs" world,
| but jesus... have at least one page somewhere with a tech
| stack and platform summary.
|
| [0] https://outsystems.com
| aseembehl wrote:
| Came here to write exactly this. Berkshire is special
| libertine wrote:
| Well I think that's the case when your company has so much
| notoriety that your website isn't used to sell, or get new
| clients, or capture/retain the attention of anyone, or try to
| monetize itself with a user base.
|
| It's basically a place to distribute information about them.
| outoftheabyss wrote:
| Is Buffett really still the gold standard, Berkshire has been
| outdone by the s and p 10 year rolling average over the last
| evade and that was true before the pandemic.
|
| I get that 20% annual returns aren't sustainable as you get into
| managing hundreds of billions but it seems to me the make up of
| the market has changed dramatically over the 2010s and Buffett
| hasn't adapted or evolved.
| mxschumacher wrote:
| when using the S&P500 as a yardstick, we have to remind
| ourselves what environment we are living in. Interest rates are
| very low (though this is currently changing) and equity
| valuations are at or close to all time highs both in absolute
| an relative terms.
|
| Berkshire generates more operating profit than Salesforce has
| revenue; it generates 6x more profit than Nvidia and those
| numbers ignore both the gigantic stock portfolio and the cash
| position.
|
| Valuations will eventually trend back to historical norms.
| Given that GDP is relatively stagnant (there is modest growth
| in real terms), it is impossible for all of these companies to
| grow indefinitely.
|
| Both before the .com crash and the 2008 financial crisis lots
| of companies have vastly outperformed Berkshire, a wave of
| bankruptcies and 95% declines ensued.
| jcims wrote:
| Given the shape of those two curves I'd give it a bit more time
| before counting Buffet out.
| whb07 wrote:
| Like every lion in the savanna, it must relinquish its reign at
| some point.
|
| Buffet talks pridefully about holding $250+ BILLION in cash, as
| if it were pegged to a gold standard. Nearly half his life was
| based on such a system, and so it'd be hard to remove that idea.
|
| Yet he sits on it proudly seemingly unaware that sitting on such
| an amount has eaten up 3%+ via the printing press of the FED.
|
| That and you know... not buying when everyone was selling back in
| March. Selling out of the airlines seems like a rookie mistake
| but to a 90 yo, flying again is actually a "never again" due to
| his age.
| JesseMeyer wrote:
| Do you honestly believe that Warren does not understand
| inflation?
| whb07 wrote:
| I believe the mind of a 90 yo Buffet is not the same as the
| 30 yo Buffet.
|
| My general point being that even if he's aware and picks some
| number less than 5% inflation (which is debatable), sitting
| on a giant cash pile and getting fear paralysis or whatever
| it is he's waiting on (clearly not a buying opportunity)
| isn't what a present day champion would do. But thats fine.
| Just can't expect him to be the past champion he once was.
| JesseMeyer wrote:
| What would you expect a 'present day champion' to do during
| the most volatile market since just prior to the Great
| Depression?
| whb07 wrote:
| Go on cnbc, cry about the world ending and being scared
| for your life and then buy up everything circa march.
|
| Also Buffet is old enough to have remembered other
| "pandemias" and times of volatility. He was there during
| the hong kong flu of 69. He was around when Polio was a
| thing. Hes been through Black Monday and 9/11.
|
| Tons of money to be made in volatility. You're using that
| word in a negative manner. Volatility up is a great
| thing.
| JesseMeyer wrote:
| And volatile down is no worry sitting on a huge pile of
| cash.
|
| Buffet is well known to play long, big, safe, predictable
| bets, with recent exception with airlines with bad COVID
| timing. All this is consistent with his personality and
| history as an investor.
| vlovich123 wrote:
| Perhaps you can understand inflation and still make a
| mistake?
| nfjrbrnnffk wrote:
| Anyone knows why he doesn't buy real estate in highly desirable
| locations, which will always be in demand, given that he has a
| really long view?
| throwaway98797 wrote:
| He knows what he knows.
| fuzzfactor wrote:
| not my downvote, but
|
| Realistically his cash liquidity has been dramatically rising
| but has not ever topped $150 billion:
|
| https://ycharts.com/companies/BRK.A/cash_on_hand
|
| So you're about $100 billion off-target in paper value, but
| what's $100 billion betwen friends?
|
| OTOH your perception could be quite accurate as to how powerful
| an effect he may be able to enjoy with so much cash.
|
| Probably _could_ get more accomplished than someone having
| "only" $250 billion worth of credit.
|
| Of course one is parking lots full of 18-wheelers full of
| hundred-dollar bills, and the other is a promissory note.
|
| A convoy like that coming in to any city could initiate changes
| that could not be stopped.
|
| Look at what drug cartels are doing and they usually don't even
| fill one semi-trailer with cash.
|
| Buffet's huge stake in America itself puts him at an order of
| magnitude not often seen, not much differently than when the
| dollars were backed by gold, and for him his position in the US
| does not come under threat even as the currency becomes
| devalued. He can stll afford to build cash reserves faster than
| they are being devalued internationally.
|
| For the Saudis and their convoys of world currencies, there
| would be pressure to sell the lowest performing one(s) so they
| could buy more of the notes having a more positive outlook.
| tim333 wrote:
| $250bn is a lot of cash but markets are expensive and may not
| remain so forever. He also had a lot of cash in the run up to
| 2008 and it came in quite handy.
| bedhead wrote:
| While I'm not of these meme investors who thinks Buffett is
| "washed up", I confess that I've increasingly wondered if it's
| just sorta over. In some sense, it's not his fault. Berkshire has
| grown so large that it has significant scale problems. I joke
| that Buffett found the investing equivalent of the Donkey Kong
| kill screen, he basically broke the game. It's incredible.
|
| But there have been self-inflicted issues. The seemingly
| unconditional refusal to explore technology companies. (While his
| Apple investment was great, even Buffett would tell you this is a
| consumer company and not a tech company) The allowing of the two
| new managers to keep breaking Berkshire's rules, such as not
| investing in IPO's, or not investing in airlines. The large write
| down in PCP. The double-speak about "never bet against America"
| while remaining paralyzed during the COVID panic. Maybe these
| things are moot compared to the scale problem.
|
| But I think the more disheartening issue is Buffett's last 5-6
| letters have been forgettable, and today's was really just a
| recap of Berkshire's main assets, not offering anything
| particularly insightful or interesting. I think he's still doing
| an admirable job but Berkshire just isn't what it used to be.
| Everything has a cycle.
| TheAlchemist wrote:
| While I'm also somewhat disappointed he doesn't discuss
| important topics as much as he used too, I think there are some
| hidden gems in this letter - especially this one:
|
| "Investing illusions can continue for a surprisingly long time.
| Wall Street loves the fees that deal-making generates, and the
| press loves the stories that colorful promoters provide. At a
| point, also, the soaring price of a promoted stock can itself
| become the "proof" that an illusion is reality.
|
| Eventually, of course, the party ends, and many business
| "emperors" are found to have no clothes. Financial history is
| replete with the names of famous conglomerateurs who were
| initially lionized as business geniuses by journalists,
| analysts and investment bankers, but whose creations ended up
| as business junkyards."
|
| He is using the example of conglomerates, but to me, it sounds
| like a warning about current valuations.
|
| Regarding his investing performance, I think we should never
| judge his N last years - he's definitely looking longer term
| (which is amazing, given his advanced age). Berkshire is
| sitting on a huge pile of money, waiting for the bubble to pop.
| It may take a year, maybe 5, maybe even 10 - nobody knows. But
| when it does, we can safely bet that Buffett will put this
| money to work - and secure exceptional returns for the
| following 10-20 years.
| shawnz wrote:
| > The seemingly unconditional refusal to explore technology
| companies. ... The allowing of the two new managers to keep
| breaking Berkshire's rules
|
| If you think they are stagnating with their current mindset,
| then shouldn't breaking their existing rules be a good thing?
| silexia wrote:
| The original comment is pretty entertaining. The commentator
| assumes that they better understand business than the two men
| with the best record in recent American history. Buffet
| continues to follow his general principles very well of
| buying great businesses for reasonable prices and holding
| pretty much forever. Not following BS trends and buying
| wildly overpriced tech stocks like Zoom, Zillow, or meme
| stocks like Gamestop or AMC is a huge plus in most value
| investors minds.
| bedhead wrote:
| That's a fair point. Let me clarify by saying that the IPO's
| and airlines were two things that Buffett was repeatedly
| adamant and proud about over many years. These were more hard
| and fast rules.
|
| The tech thing is different, that was more Buffett just
| admitting it was outside his area of expertise. I think it's
| been especially confounding since Buffett has for a long time
| professed a deep admiration for Bezos and Amazon, yet never
| really acted on it.
| mettamage wrote:
| Investing and poker have some fun commonalities. One that I
| want to focus one in this particular case is: always play the
| game you know well and know how you're going to win it
| [nuances, 0]
|
| In Poker: find the fish, understand why they're fish and
| exploit it [example, 1].
|
| In investing: find underpriced assets, understand why they're
| underpriced and exploit it [examples, 2, 3].
|
| From this perspective, Buffett doesn't understand how price
| movement works in tech companies.
|
| And that's ok.
|
| [0] You can't win everything of course, but if you're going to
| play a losing game by default then you're basically buying
| information. Once you have enough information, then it's all
| about execution. I daresay that Warren Buffett has enough
| information on a particular method of successful investing.
| That's all he needs, so he needs to focus on games that he
| knows how to win.
|
| [1] E.g. through math/theory or math/data -- if you can get
| your hands on it -- (random player vs tight aggressive player)
|
| [2] E.g. through math/theory or math/data (population will grow
| to 11 Billion --> economic productivity will therefore grow
| because bigger global work force --> world economy will grow in
| the long-term)
|
| [3] Buffett's famous example is of course his own brand of
| value investing. The central thesis of value investing is: if a
| company is going to close shop, the scrap value of that company
| will be higher than the market cap of that company. There's a
| lot more to it, but that's the gist of it. One nuance, for
| example, is that you then try to pick the companies that are
| the most severely underpriced, have amazing management and a
| solid competitive domination strategy (e.g. crazy brand
| recognition or a certain asset that has a really high barrier
| of entry).
| tim333 wrote:
| >From this perspective, Buffett doesn't understand how price
| movement works in tech companies.
|
| For someone who allegedly doesn't understand that the recent
| $89bn gain on Apple stock is nice going. Luck perhaps?
|
| Incidentally he's also talked about poker as a model for
| investing. After telling the Mr Market story in the 1987
| letter he goes on:
|
| >But, like Cinderella at the ball, you must heed one warning
| or everything will turn into pumpkins and mice: Mr. Market is
| there to serve you, not to guide you. It is his pocketbook,
| not his wisdom, that you will find useful. If he shows up
| some day in a particularly foolish mood, you are free to
| either ignore him or to take advantage of him, but it will be
| disastrous if you fall under his influence. Indeed, if you
| aren't certain that you understand and can value your
| business far better than Mr. Market, you don't belong in the
| game. As they say in poker, "If you've been in the game 30
| minutes and you don't know who the patsy is, you're the
| patsy."
| fspeech wrote:
| Your point 3, a la Graham-Dodd, is how Buffett started. But
| later he realized that did not scale when you own businesses
| forever instead of trading them. Buying a whole dollar for 50
| cents is great if you can quickly sell it for 75. Not so much
| if you hold it forever and it does not grow. So basically
| acquiring Berkshire Hathaway the textile maker on the cheap
| was an investment mistake that he acknowledged in his annual
| letters.
|
| Price movement is not relevant if your stated goal is to hold
| the business and earn an income from its operations.
| Technology eventually becomes obsolete or commoditized.
| ethbr0 wrote:
| Obligatory Buffett paraphase: there are no called strikes in
| investing (ie if you choose not to swing at an opportunity,
| that then turns out to be good, nobody penalizes you)
|
| As much of Berkshire's success has been based on limiting
| losses as pushing successes. "Buffett declines to invest in
| company" is a less sexy headline than "Buffett buys large
| stake in X" though.
|
| Maybe Buffett's old. Maybe Berkshire is played out. Maybe
| they miscalled the pandemic churn. Or maybe the market is
| just so screwed up now that they're declining to swing.
|
| I believe Berkshire has always been a macro-trend company? If
| we're looking for someone who traded in and out of pandemic
| dips and bubbles, that's very much not-Berkshire.
| tim333 wrote:
| Buffett has always said he ignores the macro stuff and just
| focuses on acquiring great businesses.
|
| He did dump airline stocks at the start of the pandemic on
| the basis that their business wasn't going to do great for
| a while.
| imglorp wrote:
| > seemingly unconditional refusal to explore technology
| companies
|
| Don't forget they bought a truckload of IBM in 2015, leaving
| everyone scratching their heads. Probably lots of IBM'ers on
| here with better insight, but from the outside it appeared they
| were pooping where they slept: selling off hardware units,
| dabbling badly in cloud, offshoring key consulting operations
| and in general hurting their brand. Of course Berkshire sold it
| all in 2018 and bought more Apple.
|
| Please tell me they didn't think IBM was a consumer company, as
| an alternate play to Apple in the same space as Apple? Right
| now it seems to be a poor services company.
| dalbasal wrote:
| I think not investing in technology was a sort of inflection
| point for buffet. His mantra was to understand what he was
| investing in, and he didn't understand most tech markets. Tech
| markets got too big to sit out.
|
| 5 of the top 10 most profitable companies are technology
| companies. The rest are financial firms (BRK is actually the
| _most_ profitable). Most of these tech companies ' value is
| related to network effects, platform control and such. These
| are "moats" that WB doesn't understand.
|
| So yeah... I think times overtook the man. The space he was
| operating in shrank. That said, BRK is still doing fine, well
| run, etc. They also impact the world in ways a vanguard or
| softbank don't.
| blantonl wrote:
| I think investors over the past year have grown so accustomed
| to something new and shiny and revolutionary coming every week
| to get excited about that they've forgotten that making money
| in markets _successfully_ is about a long term focus and a LOT
| of boring details and unsexy businesses.
|
| I, like a lot of people LOVE trading stocks and derivatives,
| and trying to beat the market -- more so as a hobby and as an
| opportunity to learn more about the more esoteric components of
| financial markets and how things operate. I've been doing it
| for over 15 years and I've paid my dues in terrible trades, and
| seen some great plays work out. The process of options pricing,
| managing ex-dividend dates and options, derivatives plays,
| trading styles like position and swing etc all are enormously
| fun to learn the nuances of. It's a fascinating world.
|
| At the same time, the vast majority of the money that I save
| for retirement is your standard run of the mill dollar cost
| aversaging (DCA) into targeted funds based on my risk
| tolerance, age, and retirement objectives. Really boring stuff
| that works over 20 years, not 3 months.
|
| Buffet is one of those guys that gets less sexy when volatility
| is increased, and more realistic when things are boring and
| people are licking their wounds.
|
| Berkshire is going to be just fine. And they're doing just
| fine.
| [deleted]
| the-dude wrote:
| Fair enough. But if his letters are not so _insightful_
| anymore, whose are?
| tim333 wrote:
| It's a different kind of stuff but I find Jeremy Grantham
| pretty insightful. Grantham does more overall market levels
| rather than individual stocks, Buffett the reverse. Here's a
| recent one https://www.gmo.com/americas/research-
| library/waiting-for-th... on how things are a bit pricey now.
| Though he's not a perma bear - this is one he put out saying
| things were cheap almost exactly at the 2009 bottom
| https://www.gmo.com/americas/research-library/reinvesting-
| wh... Grantham is mostly retired but has popped up recently
| to comment on the current situation. He's on youtube a bit
| too if you google.
| ivanche wrote:
| In the last few years I've enjoyed reading letters (Annual
| Reports as they call it) written by Frank Martin of Martin
| Capital Management LLC.
|
| https://www.mcmadvisors.com/newsmaterials/
| appleiigs wrote:
| Warren has addressed not investing in tech. Automobiles were a
| major tech advancement, but car companies always have
| struggled. Airplanes were also a major advancement but always
| struggled. A top technology company can usurped by a new
| company with better tech. Facebook is faddish, requires
| acquisitions of Instagram and Whatsapp to stay on top, but that
| not Warren's idea of creating value.
| simo7 wrote:
| I'd say he broke his own game of investing, rather than the
| game in general.
|
| Given what he thinks he understand there's not enough
| opportunities to allocate this amount of capital.
|
| I guess that's why he hired the two new managers. By the way
| they did come up with some of the best ideas in recent years
| like Apple and Snowflake.
| dominotw wrote:
| > best ideas in recent years like Apple and Snowflake.
|
| Are these really the best ideas. Bought apple only couple of
| years ago, snowflake was arguably the most hyped stock of all
| time. I don't see what the insight was here.
| dominotw wrote:
| > In some sense, it's not his fault. Berkshire has grown so
| large that it has significant scale problems.
|
| I hear this often that berkshire isn't what it used to be
| because of 'scale'. What does this even mean. At what point
| does it become too big. Is there a general logic that after X
| billion $$, investment firms become inefficient?
| from wrote:
| If you have one billion dollars and find a $100 million
| opportunity, you have an ROI of 10%. If you have one hundred
| billion dollars and find a $100 million opportunity, you have
| an ROI of 0.1%. He needs to search for very large
| opportunities to attain a good return because he has so much
| capital. This is why some funds return money to investors if
| they get too big--it's very difficult to generate returns
| with that much money.
| dominotw wrote:
| > If you have one hundred billion dollars and find a $100
| million opportunity
|
| Why would they always be finding one opportunity. Can't
| they find 100 $100 million opportunities. Why doesn't
| "finding opportunists" model scale ?
| throw0101a wrote:
| > _While I 'm not of these meme investors who thinks Buffett is
| "washed up", I confess that I've increasingly wondered if it's
| just sorta over. In some sense, it's not his fault._
|
| I also think that value investing has been 'automated away' to
| a certain extent such that him doing it (with staff help) no
| longer can compete with other market players.
|
| > _Berkshire has grown so large that it has significant scale
| problems._
|
| This topic has actually been studied: (mutual) fund performance
| of top performing funds _can_ be based on a manager 's skill,
| but after a certain point that skill reaches the end of the
| runway. The more skilled the manager, the larger the AUM they
| can still get returns for, but at some point it's just too
| much.
|
| > _For an average fund in the cross-section, we estimate a drop
| in alpha of 20 basis points if the fund doubles its size over
| one year. We also find a non-negligible impact of the size of
| the fund industry, although its magnitude is significantly
| smaller than the impact of individual fund scale. We reconcile
| our findings with existing empirical studies. Taken as a whole,
| our results lend considerable support to theoretical models
| that build on the premise of decreasing return to scale for
| active portfolio management._
|
| * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2872385
|
| Discussed in the _Rational Reminder_ podcast:
|
| * https://rationalreminder.ca/podcast/136 (~15m30)
|
| * https://www.youtube.com/watch?v=LhluPwDaNAQ&t=18m30s
|
| Something to consider for anyone piling into (e.g.) ARK:
|
| * https://awealthofcommonsense.com/2020/12/a-short-history-
| of-...
| neogodless wrote:
| See Annual Report as well.
|
| https://news.ycombinator.com/item?id=26284669
| chmaynard wrote:
| Looks like the two URLs are different.
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