Sunday, December 12, 2010

Selling Berkshire

In 1987 I bought Berkshire Hathaway at $3785 per share.  This week I sold the position at $120K per share.   That amounts to a bit more than a 30 bagger.  But in the last couple of years I've gotten the distinct impression that the investment potential has declined significantly.

The story of BRK.A begins with the legendary business professor Benjamin Graham who spent his career inspiring students at Columbia.  In the 1920s Graham led a movement to improve the quality of accounting information released by corporations.  His basic insight (in Security Analysis) was that when you buy a stock you are buying a set of assets.  But later on he had a group of students, including Warren Buffett and the founder of the Sequoia Fund, who figured out how to beat the market by applying some basic principles to investing.

Had you bought into Berkshire when Buffett took over the company you would be very wealthy today.  But in the last five years the stock has been a lousy proxy for the S&P.  The CEO has been caught up in becoming a public figure rather than an investor.  So while I admire the past performance of the stock, it's inspiration has been caught up in the hype of being a media figure.

What annoys me the most about Buffett's recent performances has been the hypocrisy.   Buffett has been one of the major proponents of keeping estate taxes high.  Yet, a good deal of his success over his career has been based on finding family owned business and buying them in a way that delays or denies the impact of estate taxes.  Ultimately, sound tax policy should not allow those kinds of manipulations.   We should, as the President's tax deal does, set rates for inheritance in the low range and at a high enough cap so that most taxpayers should not get caught.  One could make a case for the complete elimination of estate taxes but if there is to be a tax it should be lower than it could be next year and at a fairly high exclusion.

In all of his public statements the Sage of Omaha has never acknowledged that part of his wealth has been based on a public policy which hurts people with fewer resources than he has.

No comments: