Page 23 - Investment Advisor June 2021

Buffett reportedly has sold nearly all of certainly enough lower tech opportuni- outside of Chicago, and tried to repli-
his position in Wells Fargo after holding ties out there for them, too. But every- cate it in Miami. But that venture was
the stock since the 1980s. Please discuss. thing is valued sky-high, and Buffett disastrous. [However, the worst invest-
Buffett and [vice chairman] Charlie won’t commit capital if a company isn’t ing mistake was] Dexter Shoe, probably.
Munger stood by Wells when it had the at the right price. The discipline they The value of the business quickly went
accounts-opening scandal. Their posi- have is superhuman. It’s just a matter of down. A recent mistake was Precision
tion was that Wells had learned its les- Berkshire waiting out the current inter- Castparts, a business they bought for
son — they paid the price for the [sales] est rates and valuation landscape. $35 billion in 2016. Buffett has said he
incentives they had put in place. But, overpaid. They wrote down the value by
then, when other things were happening Does Buffett regret not having invested $10 billion.
at Wells, they [finally] said, “We’re not in tech earlier?
comfortable with this.” And their atten- He’s said that he should have bought One Berkshire strategy is buying
tion shifted to Bank of America, which Google stock. So it’s not just things that companies that have little growth
they saw as a better investment. you do but the things you don’t do, potential but that generate cash they
which is the full opportunity cost. can use. Please discuss.
Last year, many observers thought that They take the cash from a business
Buffett had lost his mojo. Was there What’s been the main secret to that doesn’t grow as long as the capi-
anything to that, do you think? Berkshire’s success? tal they invest in that business is still
Yes and no. It’s accurate only insofar as The real secret is in plain sight: Berkshire earning a good return. They do dif-
Berkshire’s size prevents it from growing had a long runway to compound, a CEO ferent things with the cash that are
as much as it had in the past. Berkshire in place for 55 years and continually beneficial to growth. In a conglomerate
has largely continued the same playbook operating within their circle of compe- structure, you can take that cash and
over the years. They stick to their knit- tence. It’s a business masterpiece. They move it elsewhere and re-invest it to
ting, [but] the world changes. So some grew what they knew over time but its highest potential — and without tax
thought Berkshire might have lost its way. maintained a level of conservatism as consequences, though they have to pay
the years went along. income taxes on the profits.
What about the growth aspect?
The universe of companies that fits their You write that Buffett’s legacy is “a “It will be hard for corporate raiders
criteria has shrunk, and it’s really hard to formula for long-term sustainable to break up the conglomerate” after
grow [a conglomerate so large] especial- success that maximizes human Buffett’s death if Berkshire‘s successors
ly when they retain all their earnings and potential.” What’s the formula? follow the same strategies as he has
haven’t paid out a dividend, although Berkshire looks for good old-fashioned and the company “doubles in size,” you
they repurchased shares this past year. values. They take the high road. They write. Why would it?
Berkshire has this reputation for buy- push the individuals [managing their Berkshire has tied so many things
ing lower-tech companies. If they don’t companies] to go forward — they moti- together in such a way — some inten-
grow or if they’re cyclical or boring, it vate them with autonomy and trust. tionally, some not — that will make it
really doesn’t matter so much as how They’re careful whom they trust, but very hard to break up the company.
they’re doing in terms of earning returns once they find someone they trust, they If Berkshire becomes a trillion-dollar
on the capital they’ve [deployed] — it’s give them really wide discretion as to company, it would be very difficult to
the cash that an investment can give running their business. raise that much capital. Insiders and
you. Berkshire has picked up companies What’s the roughest patch that major shareholders would be against
[a breakup]. So the numbers and the
Christopher Goodney/Bloomberg off cash and are generally secure in their The early ’80s through early ’90s — a up Berkshire.
that might not be exciting — like Acme
Brick, really low tech — but that throw
Berkshire has experienced?
owners’ feelings bode against breaking
whole decade’s worth of underwrit-
economic position.
ing insurance losses that really chal-
Jane Wollman Rusoff is a contributing
lenged them. Berkshire is still very
But Berkshire now has big investments
editor who specializes in interviews with
much an insurer. But in that decade,
in high tech; Apple, in particular.
thought leaders. An author and prolific
Yes. Apple was the largest investment in
they had some mishaps. For example,
journalist, Jane is founder of www.
they bought Home & Auto Insurance,
terms of actual dollars outlaid. There are
FamilyStarProductions.com.
JUNE 2021 INVESTMENT ADVISOR 21