I’ve accumulated a sizeable position in Berkshire Hathaway. I had been sheltering significant sums in T-bills which paid a nice, risk-free 5.5%. At the time I purchased the T-bills, my wife and I thought we might be buying a house/condo (or two–one in AZ and one in CA) within the the next year or so. We have since decided we have no desire to buy real estate in the foreseeable future. Accordingly, I had the green light to redeploy significant capital into something more volatile than T-bills.
Berkshire will be subject to the whims of Mr. Market. However, Berkshire is the most solid company in the history of the world. It is a mosaic masterpiece carefully crafted over decades by two of the best business minds ever to grace the planet: Charlie Munger and Warren Buffett. Charlie left us last November. Warren celebrated his 94th birthday on August 30th, and as an apt pupil of actuarial tables, he has acknowledged that his time with us is drawing to a close.
Nevertheless, even after Warren is gone, he and Charlie designed Berkshire to run without either of them. As a conglomeration of independent businesses and investments, Berkshire does not require a “strong man” at the helm. Rather, Berkshire can run to a large degree on autopilot. Not content to rest on that structure; however, Charlie and Warren put a succession plan in place years ago. They built a capable team that already has been doing much of the important work: Greg Abel (Non-insurance Operations/Successor CEO), Ajit Jain (Insurance Operations), Todd Combs (Investment Manager), and Ted Weschler (Investment Manager).
The market capitalization of Berkshire is around one trillion dollars. Approximately $600 billion of that valuation is matched dollar for dollar with a portfolio consisting of about half and half tradable equities and fixed-income securities (mostly T-bills). Accordingly, for the $400 billion or so remaining, an investor gets the roughly 70 diversified companies owned by Berkshire that produced nearly $40 billion in operating earnings last year. Berkshire seems to me a “wonderful business at a fair price,” especially when I think in terms of decades.
My overall plan is to hold Berkshire for the next few decades, while adding to my position from time to time. However, markets are volatile. September is historically negative, there’s fussing about interest rate cuts, and an emotional election season is upon us. Accordingly, I sold some 18 OCT Calls with a 480 strike price against my position in BRK-B and collected a nice premium for that. My hunch and hope is that the stock closes below 480 on 18 OCT, and I keep the shares backing those calls. Nevertheless, if the stock closes above 480 and my shares are called away, I’ll be grateful for my winnings, capped as they would be, and will look for a re-entry point. No worries!
With Love,
P. Gustav Mueller, author of The Present