What are Berkshire’s best stock holdings, and what are Berkshire’s best operating companies?
Buffett says Apple is the best business on the planet. Within Berkshire, I would say the Insurance division
Within Berkshire, I would say the Insurance division
I think Berkshire’s is arguably the best insurance business around, but the insurance business in general isn’t as good a business as it used to be.
I would bump it out of first place for that.
Float isn’t worth what it used to be.
My first though is I’d pick the railway, as it has essentially infinite longevity to its stream of earnings and a perpetual moat.
But maybe the utilities–nearly as infinite in longevity, but it can soak up a lot more capital, less of cash cow.
Burlington Northern is the best business in my opinon.
Nominees for best wholly-owned business and best stock investment:
So far, we have two votes for the railway and one for insurance, and I guess one for Apple.
Jim makes the good point that “Float isn’t worth what it used to be”, and it’s hard to argue with that.
On the other hand, this too shall pass, so if we take the long-term view, some day there are likely to be opportunities for getting more mileage out of float.
And conversely, the genius of the railway and the utility business is that Berkshire is allowed a return on equity, traditionally about 10%, based on the argument that regulators have to give utilities an incentive to keep investing in the business, so the returns should be competitive with other uses of capital. As interest rates and dividend yields of bonds and stocks have come down and down and down, the allowed ROE seems to have remained mostly the same. A business that returns 10% didn’t seem very exciting 10-20 years ago, but with the S&P now yielding about 3%, that 10% is looking juicier and juicier, at the same time that the returns available on Berkshire’s huge float are more and more meagre.
But ROE is not really guaranteed to remain at 10%: regulators could, at some point, reduce the allowed return, arguing that a lower rate would still be competitive against alternative investments that themselves now have lower projected returns.
Anyways, I would say that the railway (and the utilities) look great now, but that insurance may still be the crown jewel. So I would vote for insurance - now it’s 2 to 2.
And as for stock investments, I guess it depends on whether or not the current price matters. Apple may well be the best business on the planet but I would say Google, Microsoft and Facebook all have even tighter moats, and if you include growth rates (since we are talking about the future stream of earnings) and the price you pay for that, Apple’s high price, slow growth and, perhaps, higher potential for threats from competitors makes me think those other AMAMA (Apple-Microsoft-Alphabet-Meta-Amazon) stocks might be better. based on how quickly each one is growing, there are probably better businesses in that list than Apple, at today’s prices. Since the only other one Berkshire has on the list is Amazon, I’ll go with Amazon, but I wish Berkshire would buy some Google too.
Berkshire Hathaway Energy (BHE) might be a dark horse candidate?
With the rise of EV’s and solar/wind power, the need to store it, the need to deliver grid energy and the opportunity to arbitrage electricity costs, etc.
I saw a headline the other day that BHE and BYD were teaming up to offer energy storage (batteries) and grid energy arbitrage - in California, IIRC. But, I can’t find a link to that, so it might have been a mirage. The headline specifically mentioned BHE.
There is lots of angst about ‘all those EVs, where is the electricity going to come from?’.
BHE seems positioned to benefit over then next decade?
When Buffett first began buying Burlington, he bought a matching position in Union Pacific. Market acquisitions of publicly traded fortune 500 corporations bristle with uncertainty. As Buffett’s positions grew, it appeared to some that BRK would be interested in acquiring either one of them.
Thank you all for sharing your thoughts. I have to agree.
One thought regarding the utilities and railroads. Buffett has called these “good businesses but not great businesses.” The certainty of return for them is very high (They’re government granted monopolies.), but the magnitude of return is less impressive (They’re allowed 9%-10% ROE). It would be nice if Berkshire could find a couple of great business for which both the certainty and magnitude of return were high. Something like a dentist group (which only medical professionals are allowed to own) or a company with high profitability and very high market share (like GOOGL). If we can have only one of the two, certainty of return or magnitude of return, I think Buffett will always choose certainty of return.