Why Should Berkshire Hathaway Survive?
Board: Berkshire Hathaway
Looking at Doug Kass' 'bear' questions from last year, the wsj article says:
Mr. Buffett argued, as he has before, that Berkshire's size—80-odd subsidiary businesses, $264 billion in market value and over 288,000 employees—makes it tougher to do as well as the company did in past decades.
Looking at this it struck me, just what is the point of having all these businesses under one roof? Is there a synergy? Or would a BRK broken up in to 5 or 10 or even 50 pieces have equal value?
One plausible synergy is that Buffett plays the role that an absolutely top-notch chairman-of-the-board would play if these subs were independent. He keeps good management in place, keeps incentives right-on, and even serves to keep successful businesses from spending their excess earnings on underperformers until they dumb themselves down to merely average businesses.
But the price of that synergy is underperformance as an investor. With fewer subs saved, and much less cash to need to deploy every year, Buffett says and we generally believe him that he would have higher fractional returns.
SO is the Buffett management plus greater than or less than the Buffett investor minus?
Personally, I suspect it is a bit of a net minus. Maybe a wash. But still a better bet than most other companies, risk adjusted. And the fact that Buffett COULD do better for me than he is doing is hardly a reason not to enjoy and be grateful for what Buffett is doing for me.
Does any of this make BRK a short? Not at all. But it does reflect what I have thought will happen after Buffett, which I am not sure I have ever mentioned.
I expect the market price of BRK, its successor and assignees, to go UP a LOT after Buffett retires. It might take a few years. But I think that there is a Buffett Discount on the current price of BRK which the market assigns due to Buffett's idiosyncratic management features. Such as building a conglomerate with very little synergy, that is really more a managed portfolio than anything else. Such as never buying back because while for his coinvesotors it is only the per-share that matters, for Buffett it is the total pile that matters, even though he essentially says it doesn't in his annual reports.
I think management after Buffett will, perhaps over years, succumb to the value of being less idiosyncratic. Distributing extra cash might happen. Going more into minority ownerships and away from acquisitions. Possibly breaking major pieces away into independence.
Will there ever be another Warren Buffett? And if there was, would Berkshire hire him and put him in charge (even if he did only charge $100,000/year)? I think there will be other Buffett's, but I don't think that a Buffett could ever be hired and put in charge of something big, I think the essence is that a Buffett will always have built the thing he runs.
Anyway this is rambly and wierd but I put it out there to see whether there is anything to the idea that a lot of value will be unlocked by an almost-certainly-less-idiosyncratic management at Berkshire following Buffett.