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2020 Berkshire Hathaway Annual Letter [pdf]

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Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#71

Post by JesseMeyer »

whb07 wrote: post #63
JesseMeyer wrote: post #62

Earlier quoted context omitted.

What would you expect a 'present day champion' to do during the most volatile market since just prior to the Great Depression?

Go on cnbc, cry about the world ending and being scared for your life and then buy up everything circa march. Also Buffet is old enough to have remembered other "pandemias" and times of volatility. He was there during the hong kong flu of 69. He was around when Polio was a thing. Hes been through Black Monday and 9/11. Tons of money to be made in volatility. You're using that word in a negative manner. Volatility up…

And volatile down is no worry sitting on a huge pile of cash.

Buffet is well known to play long, big, safe, predictable bets, with recent exception with airlines with bad COVID timing. All this is consistent with his personality and history as an investor.

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#72

Post by moistly »

nfjrbrnnffk wrote: post #24
whb07 wrote: post #5

Like every lion in the savanna, it must relinquish its reign at some point. Buffet talks pridefully about holding $250+ BILLION in cash, as if it were pegged to a gold standard. Nearly half his life was based on such a system, and so it’d be hard to remove that idea. Yet he sits on it proudly seemingly unaware that sitting on such an amount has eaten up 3%+ via the printing press of the FED. That and you know... not…

Anyone knows why he doesn't buy real estate in highly desirable locations, which will always be in demand, given that he has a really long view?

I believe Berkshire owns both realtor and a home builder/community builder companies.

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#73

Post by rsj_hn »

dominotw wrote: post #70
from wrote: post #69

Earlier quoted context omitted.

If you have one billion dollars and find a $100 million opportunity, you have an ROI of 10%. If you have one hundred billion dollars and find a $100 million opportunity, you have an ROI of 0.1%. He needs to search for very large opportunities to attain a good return because he has so much capital. This is why some funds return money to investors if they get too big--it's very difficult to generate returns with that m…

> If you have one hundred billion dollars and find a $100 million opportunity Why would they always be finding one opportunity. Can't they find 100 $100 million opportunities. Why doesn't "finding opportunists" model scale ?

Because the market is finite in size, so nothing can outperform the market forever. It's the same thing as a company not being able to grow faster than the economy forever.

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#74

Post by dominotw »

rsj_hn wrote: post #73
dominotw wrote: post #70

Earlier quoted context omitted.

> If you have one hundred billion dollars and find a $100 million opportunity Why would they always be finding one opportunity. Can't they find 100 $100 million opportunities. Why doesn't "finding opportunists" model scale ?

Because the market is finite in size, so nothing can outperform the market forever. It's the same thing as a company not being able to grow faster than the economy forever.

>Because the market is finite in size

How though? How can the market stay a same size while berkshire size went from 1 billion to 100 billion. Where is 100 fold investment coming in if the market stays at a constant size. That doesn't compute. Why wouldn't the market also expand at like the investments.

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#75

Post by rsj_hn »

dominotw wrote: post #74
rsj_hn wrote: post #73

Earlier quoted context omitted.

Because the market is finite in size, so nothing can outperform the market forever. It's the same thing as a company not being able to grow faster than the economy forever.

>Because the market is finite in size How though? How can the market stay a same size while berkshire size went from 1 billion to 100 billion. Where is 100 fold investment coming in if the market stays at a constant size. That doesn't compute. Why wouldn't the market also expand at like the investments.

I didn't say the same size, I said finite size.

If the market grows at a rate of 6% and your company is growing at 8%, then your company will eventually slow down to 6% or else the market will speed up to 8%, but in neither situation will you "outperform" the market forever.

In the case of Buffet, Berkshire Hathaway has about $800 billion in assets under management. If the market size is 50 Trillion, and let's say that 10% of that consists of reliably undervalued companies then the size of the market for companies that Berkshire can buy is 5 Trillion. This market will grow at 6%, if you think Berkshire can have 8% returns, then it will own half of all undervalued companies in 63 years, 2/3 of all undervalued companies in 78 years, and all undervalued companies in 100 years. But of course Buffet can't find 100% of all undervalued companies and there are other people also trying to find them.

And of course each individual company that Buffet buys will itself stop making above average returns as it itself grows, and therefore every year, the returns on the companies in Buffet's own portfolio will go closer to the market average even as new undervalued companies are harder to find. Thus the overall return of Buffet's fund will be dragged down to the market return much sooner than the theoretical limits I outlined above.

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#76

Post by dominotw »

rsj_hn wrote: post #75
dominotw wrote: post #74

Earlier quoted context omitted.

>Because the market is finite in size How though? How can the market stay a same size while berkshire size went from 1 billion to 100 billion. Where is 100 fold investment coming in if the market stays at a constant size. That doesn't compute. Why wouldn't the market also expand at like the investments.

I didn't say the same size, I said finite size. If the market grows at a rate of 6% and your company is growing at 8%, then your company will eventually slow down to 6% or else the market will speed up to 8%, but in neither situation will you "outperform" the market forever. In the case of Buffet, Berkshire Hathaway has about $800 billion in assets under management. If the market size is 50 Trillion, and let's say th…

> I didn't say the same size, I said finite size.

Not sure how you are defining "market". How is it finite size? What is the number after which it stops growing?

> If the market grows at a rate of 6% and your company is growing at 8%

Total market valuation of Dow has grown at faster pace than Berkshire portfolio size. your 6% , 8% example doesn't hold at all. Not sure where you got your your "market size" numbers from. Did you do an actual analysis of market size growth or are you just pulling these theories out of thin air.

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#77

Post by jsweojtj »

dominotw wrote: post #70
from wrote: post #69

Earlier quoted context omitted.

If you have one billion dollars and find a $100 million opportunity, you have an ROI of 10%. If you have one hundred billion dollars and find a $100 million opportunity, you have an ROI of 0.1%. He needs to search for very large opportunities to attain a good return because he has so much capital. This is why some funds return money to investors if they get too big--it's very difficult to generate returns with that m…

> If you have one hundred billion dollars and find a $100 million opportunity Why would they always be finding one opportunity. Can't they find 100 $100 million opportunities. Why doesn't "finding opportunists" model scale ?

I can't seem to read this in any other way than you are asking something like "why is it harder to find one hundred $100 million opportunities than one?"

Finding one such opportunity is hard, finding two is harder because you have to find the first and then do more work to find the second. This pattern continues indefinitely for as many opportunities as you'd like to find.

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#78

Post by dominotw »

jsweojtj wrote: post #77
dominotw wrote: post #70

Earlier quoted context omitted.

> If you have one hundred billion dollars and find a $100 million opportunity Why would they always be finding one opportunity. Can't they find 100 $100 million opportunities. Why doesn't "finding opportunists" model scale ?

I can't seem to read this in any other way than you are asking something like "why is it harder to find one hundred $100 million opportunities than one?" Finding one such opportunity is hard, finding two is harder because you have to find the first and then do more work to find the second. This pattern continues indefinitely for as many opportunities as you'd like to find.

> you have to find the first and then do more work to find the second.

Isn't this typical scaling problem though? I wasn't imagining they go one by one. I guess your Implication here is that because there only one warren buffet. I guess that makes sense if Berkshire is ultimately one man Buffet show that can only scale as much as that one man can perform. That probably explains the recent under performance, age catches up to everyone.

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#79

Post by rsj_hn »

dominotw wrote: post #76
rsj_hn wrote: post #75

Earlier quoted context omitted.

I didn't say the same size, I said finite size. If the market grows at a rate of 6% and your company is growing at 8%, then your company will eventually slow down to 6% or else the market will speed up to 8%, but in neither situation will you "outperform" the market forever. In the case of Buffet, Berkshire Hathaway has about $800 billion in assets under management. If the market size is 50 Trillion, and let's say th…

> I didn't say the same size, I said finite size. Not sure how you are defining "market". How is it finite size? What is the number after which it stops growing? > If the market grows at a rate of 6% and your company is growing at 8% Total market valuation of Dow has grown at faster pace than Berkshire portfolio size. your 6% , 8% example doesn't hold at all. Not sure where you got your your "market size" numbers fro…

You are assuming that there is no such thing as a "rate" of growth. Things are either growing or not. Thus if the market is "growing" at 6%, then it's OK for a member of the market to double in size every year because both are "growing" and aren't "fixed".

Numbers matter here, you cannot have one member of the market grow at a faster rate than the market forever.

Not sure what else I can do to explain this more clearly. Try using a spreadsheet or calculator to work out some examples for yourself.

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#80

Post by guantanamo_bob »

appleiigs wrote: post #45
bedhead wrote: post #6

While I'm not of these meme investors who thinks Buffett is "washed up", I confess that I've increasingly wondered if it's just sorta over. In some sense, it's not his fault. Berkshire has grown so large that it has significant scale problems. I joke that Buffett found the investing equivalent of the Donkey Kong kill screen, he basically broke the game. It's incredible. But there have been self-inflicted issues. The…

Warren has addressed not investing in tech. Automobiles were a major tech advancement, but car companies always have struggled. Airplanes were also a major advancement but always struggled. A top technology company can usurped by a new company with better tech. Facebook is faddish, requires acquisitions of Instagram and Whatsapp to stay on top, but that not Warren’s idea of creating value.

Automobiles and airlines have always had slim margins and are slow to grow. It shouldn’t take a Warren Buffett to see the differences between this old technology advancement and more recent ones (from an investment perspective).
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