Berkshire Hathaway in case of market collapse

[Dod101]

I wouldn't consider BRK to have any sort of special hedging characteristics that would help it fare a bear market any better. Right now with 47% in AAPL, BRK is about as concentrated in any single stock as I have ever seen it, and because AAPL has held up so well and there has been a rotation into value, BRK has weathered the selloff reasonably well... but these factors can just as easily unwind. AAPL is very much a consumer discretionary stock, and in a recession I could easily see their earnings falling and the stock getting derated.

I do not know what is meant by '47% in Apple'. I doubt very much that 47% of BK's assets are in Apple nor does it own 47% of Apple shares. I do not follow BK all that closely for all sorts of reasons but I do read the literature.

Dod

Well it seems like he explained pretty clearly, 47.6% of the BH funds invested in equities are in Apple, see post 2. If that is indeed the case, I wouldn't go near that with a barge pole.

That 47% is of the quoted equity investments, not of BK's total vale and, as SH has said (and he knows more about BK than I do), the wholly owned subsidiaries are no doubt undervalued in BK's accounts so if they were to be valued as publicly quoted companies they would be shown to be 'worth' a great deal more I am sure. Seeing the numbers printed out of course shows the staggering valuation for Apple.

So maybe it is just vand's phraseology, but BK does not have '47% in AAPL', although it will still be a very high figure by most people's standards, I have no doubt.

Dod

[Padders72]

I wouldn't consider BRK to have any sort of special hedging characteristics that would help it fare a bear market any better. Right now with 47% in AAPL, BRK is about as concentrated in any single stock as I have ever seen it, and because AAPL has held up so well and there has been a rotation into value, BRK has weathered the selloff reasonably well... but these factors can just as easily unwind. AAPL is very much a consumer discretionary stock, and in a recession I could easily see their earnings falling and the stock getting derated.

I do not know what is meant by '47% in Apple'. I doubt very much that 47% of BK's assets are in Apple nor does it own 47% of Apple shares. I do not follow BK all that closely for all sorts of reasons but I do read the literature.

Dod

Well it seems like he explained pretty clearly, 47.6% of the BH funds invested in equities are in Apple, see post 2. If that is indeed the case, I wouldn't go near that with a barge pole.

That 47% is of the quoted equity investments, not of BK's total vale and, as SH has said (and he knows more about BK than I do), the wholly owned subsidiaries are no doubt undervalued in BK's accounts so if they were to be valued as publicly quoted companies they would be shown to be 'worth' a great deal more I am sure. Seeing the numbers printed out of course shows the staggering valuation for Apple.

So maybe it is just vand's phraseology, but BK does not have '47% in AAPL', although it will still be a very high figure by most people's standards, I have no doubt.

Dod

I know that, which is why I said it pretty clearly above. A believable 25% of total assets in Apple was suggested earlier in the thread by poster greg. That too is a figure that makes me head for the hills.

[Dod101]

I know that, which is why I said it pretty clearly above. A believable 25% of total assets in Apple was suggested earlier in the thread by poster greg. That too is a figure that makes me head for the hills.

It is probably a good deal less than 25% but whatever it is it is probably more than is comfortable for most people, including me. However, I do not and never have held BK I am sorry to say.

Dod

[Padders72]

I know that, which is why I said it pretty clearly above. A believable 25% of total assets in Apple was suggested earlier in the thread by poster greg. That too is a figure that makes me head for the hills.

It is probably a good deal less than 25% but whatever it is it is probably more than is comfortable for most people, including me. However, I do not and never have held BK I am sorry to say.

Dod

Fair enough. We are in agreement then.

[vand]

Sorry, it is not 47%. I just read that, but I didn't do any double checking. However I think we can all agree that it's still a high concentration.

my rough back of a packet of fag calcs:

- Berkshire's current p/b is 1.46, and its market value is $700bn, therefore book value is around $480bn
- We also know form 13Fs that they own 887m AAPL shares, which has a market value of $148bn

148/480 = 31%

[SalvorHardin]

Sorry, it is not 47%. I just read that, but I didn't do any double checking. However I think we can all agree that it's still a high concentration.

my rough back of a packet of fag calcs:

- Berkshire's current p/b is 1.46, and its market value is $700bn, therefore book value is around $480bn
- We also know form 13Fs that they own 887m AAPL shares, which has a market value of $148bn

148/480 = 31%

The problem is that the main determinants of book value are the portfolio value plus the accounting value of the subsidiaries.

Taking the value an operating business as being its net asset value in the accounts is very unreliable. Especially American accounting where the value of property in the accounts is Purchase price plus cost of improvements minus depreciation, not estimated market value.

E.g. Using NAV, Unilever shares are worth only £6 as that's roughly the NAV.

I view Berkshire as being 1 part Apple, 1 part BNSF and 3 parts everything else. Berkshire represents roughly 5% of my portfolio so Apple is roughly 1%.

Using book value used to be reliable when Berkshire owned very few operating companies. Nowadays it's a poor measure.

[vand]

Well as I warned, BRK's concentration in AAPL and the late rotation into value which was holding it up has turned and its now down as much as the wider market.

While I don't necessarily think that's a reason to avoid them, the fact that they seem to trade their position in and out of some companies at a rate that would make your average hedge fund blush is more of a concern for me.

For an investor who's favourite holding period is supposedly "forever" they seem to have flipped a lot of stocks in more recent years. While this is probably not Buffett's doing but rather his Lieutenants, it doesn't look good if they're continually changing their mind so quickly over new holdings.

[Dod101]

Well as I warned, BRK's concentration in AAPL and the late rotation into value which was holding it up has turned and its now down as much as the wider market.

While I don't necessarily think that's a reason to avoid them, the fact that they seem to trade their position in and out of some companies at a rate that would make your average hedge fund blush is more of a concern for me.

For an investor who's favourite holding period is supposedly "forever" they seem to have flipped a lot of stocks in more recent years. While this is probably not Buffett's doing but rather his Lieutenants, it doesn't look good if they're continually changing their mind so quickly over new holdings.

Buffett is probably issuing a few 'I told you so' notes to his other self, as he never really showed any great enthusiasm for shares like Apple in the first place.

Dod

[SalvorHardin]

Buffett is probably issuing a few 'I told you so' notes to his other self, as he never really showed any great enthusiasm for shares like Apple in the first place.

IMHO it's fairly certain that initially Apple was a Todd and Ted pick. But scaling up Berkshire's shareholding to a fraction of the current size had to be a joint Buffett and Munger decision. Charlie Munger has been particularly forthcoming with praise for Apple over the years. From May 2018:

"Charlie Munger: I wish Berkshire had bought Apple even more aggressively"

https://www.cnbc.com/2018/05/07/charlie-munger-i-wish-berkshire-bought-apple-even-more-aggressively.html

Buffett is rather keen on Apple. From the 2022 annual letter to shareholders:

"Warren Buffett in annual letter calls Apple one of ‘Four Giants’ driving Berkshire Hathaway’s value"
https://www.cnbc.com/2022/02/26/warren-buffett-in-annual-letter-calls-apple-one-of-four-giants-driving-the-conglomerates-value.html

As to the recent share price falls, the long-term shareholders are used to it. Several of the senior posters on The Motley Fool's Berkshire Hathaway board have recently topped up, or are champing at the bit (that several valuation threads have recently appeared is a strong indicator of this attitude).

https://boards.fool.com/back-of-the-envelope-2y-35132354.aspx?sort=whole#35132354

https://boards.fool.com/confidential-35132808.aspx?sort=whole#35132808

[Kantwebefriends]

The non-Covid excess deaths for working age people in the US: is this going to hurt their life insurance businesses?

I assume nobody knows, or nobody is prepared to say, what fraction of these excess deaths has been a side-effect of lockdown and so forth, and what fraction is death by vaxx. Either way I don't suppose it's good news for life insurers. The question is, I suppose, whether it will prove to be transitory or whether we are facing Long Lockdown and/or Long Vaxx.

[vand]

I don't have a problem with Berkshire's AAPL position.

It's far more difficult for me to understand their recent holding in Verizon or Snowflake(!).. I mean, wtf... it's like they blatently violated one of 10 Commandments of Value with that one (thou shalt not invest in IPOs)

[SalvorHardin]

I don't have a problem with Berkshire's AAPL position.

It's far more difficult for me to understand their recent holding in Verizon or Snowflake(!).. I mean, wtf... it's like they blatently violated one of 10 Commandments of Value with that one (thou shalt not invest in IPOs)

Snowflake was a Todd and Ted pick, since Berkshire only bought $250 million in the IPO. Todd and Ted aren't restricted in any way as to how they manage the money they have been allocated.

Verizon was a Buffett pick, since the initial investment into Verizon was about $8 billion. Todd and Ted aren't given amounts like that (yet). It's possible that Todd and Ted gave him the idea to invest in Verizon. It could be that Verizon was sold because he wants to invest the money elsewhere and doesn't want to reduce Berkshire's cash reserves at the moment (he's done this quite often). I expect that many of us have sold shares in the past, not particularly because we wanted to sell them but because we'd spotted a more attractive investment and didn't want to draw on our cash reserves (or didn't have the cash!).

Berkshire does from time to time buy big and lose big. Buffett isn't infallible and he does change his mind from time to time. For many years Buffett said that he preferred to avoid asset heavy companies because they tended to have low returns on capital and high replacement costs (as depreciation tended to be faster than expected). Then he went out and paid $44 billion for a railroad (BNSF), a business which uses a lot of capital and experiences a lot of wear-and-tear.

I've not come across any public pronouncement about Verizon, though there was quite a bit of speculation that maybe he saw similarities between BNSF and Verizon. I think that's nonsense if only because BNSF has a superb geographical moat where competitors can't exactly build a new railroad alongside it, whereas Verizon is forever going to have competitors running right alongside it and all it really has is economies of scale to deter new entrants (but not those already in the market). Also mobile communications is increasingly a commoditised business (incumbent producers have little or no pricing power).

[paulnumbers]

) In the event of a serious / sustained market fall, the massive amounts of cash they have will be deployed to pick up other companies on the cheap. This is what happened in 2008, and there's no reason why it wouldn't happen again.

It didnt' happen during covid, while Warren sat there sucking his thumb.