Look at the list of the ten most valuable companies traded on the US stock market, and something immediately jumps out. The nine companies form the coolest and most exclusive club in the business world, the most fascinating technology company. the apple (No. 1) and Nvidia (No. 2), along with it Microsoft, the alphabetand more And then, there it is Berkshire Hathaway. As they sang Sesame Streetnone of these things are like the others. It’s like seeing a typewriter company on a hot IPO list. Who let Berkshire slip the velvet rope? He owns a company called Acme Brick, for heaven’s sake. It appears that their website has not changed materially since 1998. Its CEO is 94 years old. But the market cap rose by more than $1 trillion a few months ago without anyone noticing, and now it’s under. Tesla and over Taiwan Semiconductor.
So what does it give? The deeper you delve into the strange Berkshire anomaly, the more remarkable it appears and the more valuable the explanations. The company is literally in a class of its own. It’s not a tech company, but its market share exceeds that of all other non-tech companies by such a wide margin that it doesn’t even seem like one; runner-up in that group, WalmartIt would have to get 41% more valuable to match Berkshire’s market cap.
Another way to consider the magnitude of Berkshire’s achievement: So far this tech-related year, Berkshire’s stock has outperformed shares of Apple, Microsoft and Alphabet. It’s a technology-heavy win Nasdaq as well as the S&P Dowand the Russell 2000. It’s hard to remember CEO Warren Buffett telling his shareholders last February, “In total, we have no the opportunity to have a spectacular performance.”
But then, performance can be measured in many ways, and market capitalization is not Buffett’s favorite way to evaluate a company. The market cap measures market expectations, not measurable financial results, and as Buffett has often pointed out, Mr. Market has mood swings. Buffett instead relies on net worth as calculated by generally accepted accounting principles (GAAP). The concept is simple: add up a company’s assets and then subtract its liabilities. All that remains is the net worth. Apple’s net worth is $57 billion. Nvidia’s is $66 billion. Berkshire’s is $663 billion. Other tech giants have a higher net worth than Apple and Nvidia, but none come close to half of Berkshire’s. As Buffett also told investors in February, “Berkshire now has…far awayhighest recorded GAAP net worth any American business”.
Berkshire students may object that the company is more of a tech business than it appears, since it owns a lot of Apple stock. But the argument does not hold. Berkshire owns several insurance companies (GEICO is the best known) and invests its customers’ premiums in huge portfolios of stocks, with Apple as its largest holding. But Berkshire has been offloading its Apple stock for nearly a year, with about 70% of its shares gone so far. That is, Berkshire shares are soaring as companies exit tech, dumping its Apple stock and reaping huge gains.
Which brings us to the decades-old secret of Berkshire’s extraordinary performance, highlighted by the stock market events of the past year. It is not, of course, a secret. Buffett is a fiercely independent and highly intelligent manager. It often seems out of step with the world, like when Apple sells shares in a rising market. Other business bromides he despises:
· Everyone knows that diversified conglomerates are a terrible idea. Countless studies over decades have shown that they perform poorly. But in 2015, Buffett told his shareholders: “Berkshire is now an expanding conglomerate that is constantly trying to expand further….Used wisely, the conglomerate form is an ideal structure for maximizing long-term capital growth.” the phrase is a polite way of saying “as good as I use it”.
· CEOs don’t despise their company’s stock. But over the years Buffett has told shareholders when he thinks Berkshire’s stock is overpriced, and has warned them of potential problems, as he did this year. Berkshire is always looking for companies to buy, but it has grown so much, he said, that “there are very few companies left in this country that can really move the Berkshire needle,” and for a variety of reasons he is not interested. when buying them. Outside the US “there are basically no candidates significant options…” Therefore, he said that the “eye performance” will not happen. However, the shareholders did not escape. Just the opposite. They have the confidence to find their way.
· Companies use them to promote the products they sell. Berkshire often does, but not always. It sells directors and officers insurance, which indemnifies board members against personal liability for their actions. But not in Berkshire. “We do not offer (board members) directors’ and officers’ liability insurance, which is provided at nearly all other large public companies,” Buffett said in the 2011 letter. “If they mess with your money, they lose money too.”
It may seem surprising that Buffett somehow made it into the jamboree of tech queens, but it shouldn’t be. He has been so fearlessly unconventional for so many years that little should surprise us. If it were otherwise, Berkshire’s stock would not have risen 4,384,748% during its 60-year tenure.
Buffett never ceases to amaze. This is just his latest brain teaser: a 94-year-old CEO joins his tech bros and somehow outdoes them.
