“group of companies that are extraordinary“
I realise on social media the extreme views tend to surface but I don’t get the impression that the world views the Berkshire businesses as extraordinary?
If you graphed the world’s largest businesses by historic (5, 10, 20 years) free cash flow growth rates against current adjusted price to owner earnings multiple. Berkshire would look odd. It would look like a growth company with a relatively low market ratings I presume?
Is Berkshire extraordinary?
Apply - yes (although reflected in price)
Energy - regulated 9% returns with lots of opportunity to grow. (Pretty good! But not extraordinary. But suits a whale like Berkshire perfectly. Master stroke by Buffett and co).
Railroad - I don’t know enough about this. I can see how it’s hard too impossible to replace. But takes a lot of capex to maintain? Not sure about extraordinary? Clearly another master stroke by Buffett and Munger. Post acquisition, profits and value of this business exploded. Not really sure why but I remember something about double stacking and all kinds of efficiency tricks. But that feels like a one off boost.
Insurance - I have heard the view that this is a dangerous business and requires brilliant management. But I personally think of Berkshire’s insurance businesses as extraordinary. There are just too many advantages and momentum now. The strategy is very well understood by all stakeholders so I see no reason why it does not continue for a very long time and perhaps deserves the extraordinary label.
Lots of other extraordinary businesses and stocks but not large enough to matter.
But perhaps it’s the whole Berkshire Hathaway capital allocation machine and network that is deserving of the extraordinary business label. If you are looking at the performance over multiple business and economic cycles it produces extraordinary results.
Imagine if the only information you had on the company was the annual operating free cash flow from when Buffett took over and how it was allocated. You might wonder if this extraordinary growth can continue. What is the total addressable market? And then you realise this extraordinary business has unlimited capital allocation opportunities. Any business, any asset class and any country. Anything and everything is under consideration. That a pretty big TAM.
But then you notice that the returns on capital have been declining. And that’s the rub. It’s maybe an ‘extraordinary large business’. An elephant that can dance better than the other elephants.
Diversification, sustainability, anti fragile and not a fraud are other features.
No matter what way I cut it, I agree with Sandy Gottesman, I can’t think of a better investment going into the next few decades for me personally.