FYI:
Regards,
Ted
August 29, 2019
Dear WEALTHTRACK Subscriber,
Volatile U.S trade relations with China are immediately reflected in the financial markets but what about the economic impact? Could they push the U.S. into recession? On our website this week we have a podcast on the topic with leading global economist and strategist Nick Sargen.
On the television program this Labor Day weekend we are revisiting a recent Great Investor show with a global value manager. He is a long time holder of Berkshire Hathaway, even though the stock has badly lagged the S&P 500 so far this year. It’s basically flat vs. the market’s around 15% gain. On a total return basis Berkshire’s stock has trailed for the past decade. Berkshire doesn’t pay a dividend. The S&P 500 does which makes a difference. Berkshire’s stock has risen by nearly 260% versus the market’s more than 300% total return advance in the decade ended in 2018.
Despite Berkshire’s stunning record since 1965, 21% compounded annualized gains, this is not the first time that the company’s shares have underperformed the market for a decade. It has happened several times in recent years.
Berkshire has outperformed the market by double digits in every trailing ten year period since 1978, but it hasn’t had a double- digit advantage since 2002, and in recent years it has underperformed the market in three ten-year spans.
Even Warren Buffett himself admitted the company’s glory days of outperformance might be over. In an interview in the Financial Times his response to the question: if Berkshire would be a better investment than the S&P 500 he said “I think the financial result would be very close to the same.” He went on to say “…if you want to join something that may have a tiny expectation of better (performance) than the S&P, I think we may be about the safest.”
At a $507 billion market capitalization and few places to deploy it in enough size to make a discernible difference to the bottom line, is Berkshire just too big?
Over the years Berkshire Hathaway has benefitted from sizable stock buybacks in some of its major holdings. In Berkshire’s 2018 annual report Buffett cited American Express where its holdings “remained unchanged over the past eight years,” but our “ownership increased from 12.6% to 17.9% because of repurchases…”
In the same his 2018 Letter to Shareholders, Buffett said the company itself “will be a significant repurchaser of its shares…at prices… below our estimate of intrinsic value.”
What else does Buffett have up his sleeve to enhance shareholder returns?
The company has never purchased a tech stock. It recently bought Amazon and Buffett heaped praise on CEO Jeff Bezos. Berkshire has also never paid a dividend. Could that be next?
We’ll hear from Tom Russo, an avid student of Buffett’s style of value investing with no intention of changing his approach. Russo is Managing Partner of investment advisory firm, Gardner Russo & Gardner where he oversees around $11 billion including his Semper Vic Partners fund which he launched in 1984 after hearing Buffett address his class at Stanford. Semper Vic has generated 14% compound annual returns since inception, handily outperforming the S&P 500’s 11% returns.
The global value manager focuses on owning a small group of exceptionally well managed brand name firms - 19 at last count - with dominant, almost unassailable positions in their mostly consumer-oriented businesses and then holding them pretty much forever. Berkshire Hathaway has consistently been one of his largest positions.
On this week’s show I asked Russo, given Buffett’s modest expectations for the stock’s future performance, if he is rethinking the position.
Don’t forget, if you are away this weekend, it’s easy to take WEALTHTRACK with you! The WEALTHTRACK podcast is available on TuneIn, Stitcher, and SoundCloud as well as iTunes and Spotify.
Thank you for watching. Have a great Labor Day weekend, and make the week ahead a profitable and a productive one.
Best regards,
Consuelo
Nick Sargen Podcast:
https://wealthtrack.com/trade-war-impact-the-markets-economy/ 
Comments
Russo discussed the value of investing in family owned businesses
US List:
businessinsurance.org/the-10-biggest-family-businesses-in-the-u-s/
International List:
https://businessinsider.com/the-worlds-21-biggest-family-owned-businesses-2015-7
The World's Top 750:
https://famcap.com/the-worlds-750-biggest-family-businesses/
and,
5 Mutual Fund that are holders of BRKA and /or BRKB:
https://investopedia.com/articles/investing/090215/5-mutual-funds-hold-berkshire-hathaway-stock.asp
Why Own Berkshire Hathaway rather than a Mutual Fund:
4-reasons-to-buy-berkshire-instead-of-a-mutual-fund-and-buffett-aint-one-of-them/
Regards,
Ted