Sitting here on my couch at around 5pm reading Warren Buffett’s latest letter to shareholders, and I feel compelled to look up the Berkshire Hathaway stock.
The stock closed above $315,000 per share giving the company a market capitalization over $500 billion. This was the second time in the last 6 years where the growth in Berkshire’s book value (Buffett’s main KPI) outpaced the growth on the S&P 500.
While some companies trade above 20x earnings with nowhere near the financial power of Berkshire, Buffett’s conglomerate is still expensive. It has a flat net cash position (cash/debt), a large ownership in other marketable securities ($170 billion), and the majority of its assets tied to old properties of yesterday’s economy.
And, while I’m definitely not an advocate of cryptocurrencies, I do believe blockchain, machine learning, and other new technologies will not necessarily build on old business models, rather replace them and the companies tied to them entirely.
This is bad news for companies like Berkshire, which should be around for another century considering its current assets. Will it continue to grow at 2x the broad market? NO. The company’s annual growth in book value will only decline. However, the returns achieved in the stock will likely beat the S&P 500 over 5 and 10 year periods for some time.