Gongol.com Archives: February 2015
February 27, 2015
Berkshire Hathaway at 50 years under current management
The widely-read annual shareholder letter from Berkshire Hathaway will be released tomorrow morning, and this one is attracting unusual interest because it will be larger and longer than usual, owing to its significance as an anniversary edition. Some speculation as to its contents: ■ Warren Buffett will discuss the type of shareholder he likes. Over its first 50 years, the company's patient, low-turnover shareholder base was a huge benefit to the company. It didn't hurt that Buffett himself controlled, directly or by significant personal influence, enough votes to keep the company doing what he thought was best for the long-term, rather than for a quarterly report. As his shares are converted to less-influential Class B shares and turned over to charity, the voting power of the remaining Class A shareholders will become proportionally greater -- and he undoubtedly hopes they will remain a solid voting bloc in favor of long-term principles. But now that Berkshire is part of the broad S&P 500 index, it has more institutional shareholders than ever, and they categorically fail to show the same kind of long-term vision that individual Berkshire shareholders used to have. The change in the culture of ownership is one of the biggest threats -- probably the biggest of all -- to Berkshire's next 50 years. ■ Charlie Munger will ponder the merit and virtues of the next generation of managers. He quite likely worries a lot about the risk of future generations of managers lacking the kinds of virtues and rationality that he so publicly espouses on behalf of the company and the culture at large. More so than Buffett, Munger tends to worry about the dark side of human nature and its tendency to do things like hoarding the perquisites of office. Munger will almost undoubtedly discuss how hard (and vitally important) it will be to recruit and keep managers who live up to exceptional moral standards. This will undoubtedly be extra-difficult in light of Berkshire's size: The larger it gets, the more likely it is to turn to the professional managerial class rather than the owner/operator/proprietor/entrepreneur class who have historically dominated Berkshire's management roster. ■ Breakup speculation is hilariously wrong. Some analysts, apparently incapable of seeing the most obvious things right in front of them, think the company may drift over time towards a breakup from its conglomerate status. It's a ridiculous guess for two reasons: First, the obvious evidence, which includes the use of the Berkshire parent company name over the company's media holdings, real-estate enterprise, automotive dealerships, and energy companies. (A company planning a spinoff of those interests or any others wouldn't double-down on the use of the brand name like never before.) Second, the considerable benefit the company gains from its position as a buyer of choice for sellers who don't want their heirloom businesses to be broken up or sold off. That reputation gets Berkshire deals that it wouldn't get otherwise, and whatever costs it pays by holding on to lesser-performing subsidiaries for "too long" by Wall Street standards, it makes up many times over by burnishing the company's reputation and standing as a buyer. ■ The cost of capital weighs heavily on the present, but that won't last. The company's low cost of capital (driven mainly by float developed by its insurance subsidiaries), historically a huge advantage, hasn't been much help over the last several years as the Federal Reserve has pushed borrowing prices to near-zero. That's been compounded by the fact that terrible markets for investments like bonds have pushed lots of capital into stock markets and private-equity investments, which has made it more expensive than usual for Berkshire to find good deals on common stocks and whole companies to buy. But that won't last forever -- rates will someday go up, and Berkshire's huge capacity to generate cash (now from operating subsidiaries in addition to the insurance float) will at some point in the foreseeable future become a huge advantage again. Anyone who barks about wanting a big dividend from the cash-rich Berkshire isn't seeing the long-term future -- that cash may not be doing much today, but the time will come again in the course of another boom/bust cycle when the company will be able to put huge amounts of money to work for eye-popping returns.
US government intelligence review says cyberattack is a bigger threat than terrorism
And it calls out Russia as a particular source of trouble, both from state action and from "unspecified" aggressors. Falling oil prices play a part.
Google unveils 225-page plan for Mountain View headquarters
They propose lots of public access to spaces in and around their campus, which would also include buildings designed to transform and re-shape themselves with the help of robotics. Some of the structures would be encased in a flexible glass-like skin.
