Berkshire Hathaway doesn’t pay a dividend, its cash pile keeps growing, and Buffet says it’s gotten too big to make acquisitions that can impact the company. Meanwhile, utility ETFs have a steady 3.5% dividend yield. Which will be the better-performing investment going forward?
Topics covered include:
- How has Berkshire Hathaway performed relative to the S&P 500 Index and other active managers
- Why Warren Buffett believes Berkshire’s electric utility holdings were a mistake
- Why California has some of the highest utility rates in the U.S.
- Why Berkshire Hathaway will eventually need to pay a dividend even though it doesn’t currently
- Going forward, will it be more profitable to invest in Berkshire Hathaway, a utility ETF, or an index fund
Show Notes
Berkshire Hathaway 2023 Shareholder Letter
Active vs Passive Investment Management Barometer Report—Morningstar
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Investments Mentioned
Berkshire Hathaway Inc Class B (BRK.B)
Vanguard Utilities ETF (VPU)
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Transcript
Welcome to Money for the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I’m your host, David Stein. Today is episode 469. It’s titled, “Which Will Be a Better Investment, Berkshire Hathaway or Utility Stocks?”
Five years ago in episode 242, we released an episode titled “Should You Let Warren Buffett Manage Your Money?”
In the episode, we evaluated Berkshire Hathaway as we would an outside money manager that we were going to hire. I spent over 15 years as an asset manager but also co-led a research group that researched money managers. Long-only stock managers, hedge funds, and other asset classes. Our process focused on the people–who’s making the portfolio decisions, what is their process, and what has the performance been?
Berkshire Hathaway’s Business
Back in 2019 when we released that episode, Berkshire Hathaway’s B class shares were selling for $200. One could have effectively Warren Buffett, Charlie Munger, and the other leaders of Berkshire Hathaway manage your money. Every February, Berkshire Hathaway releases their annual letter, that Warren Buffett writes. In that February 2019 episode, we referenced the 2018 annual letter, in which Buffett wrote with Ajit Jain and Greg Abel running operations, a great collection of businesses, a Niagra of cash generation, a cadre of talented managers, and a rock-solid culture, your company is in good shape for whatever the future brings.”
In that annual letter, Buffett talked about how he and his longtime partner Charlie Munger evaluated companies, evaluated the stocks to purchase. Now five years have passed. Charlie Munger passed away late last year at age 99. Buffett is 93. He is still the chairman and CEO of Berkshire Hathaway. He has revealed that Greg Abel is his pick to succeed him as the CEO eventually, although Buffett is still very much involved. Buffett wrote “Greg will be more successful than I have been. And if I said otherwise, my nose would grow.”
Abel is now 61. He is in charge of all Berkshire’s non-insurance businesses. Berkshire Hathaway owns 65 companies, including insurance companies such as Geico, railroads, utilities, which we’ll talk about some in this episode.
In reading the 2023 annual letter that came out last month, there was one paragraph that really stood out to me, that I very much appreciated. Buffett wrote “Nevertheless, managing Berkshire is mostly fun, and always interesting. On the positive side, after 59 years of assemblage, the company now owns either a portion or 100% of various businesses that on a weighted basis have somewhat better prospects than exist at most large American companies.
By both luck and pluck, a few huge winners have emerged from a great many dozens of decisions. And now we have a small cadre of longtime managers, who never muse about going elsewhere, and who regard 65 as just another birthday.”
Many of Berkshire Hathaway’s leaders enjoy what they do and aren’t retiring anytime soon. They live like they’re already retired. And that has led to Berkshire Hathaway’s success. There are some challenges though, which is why we’re sort of looking at “What about going forward? How will Berkshire Hathaway do? Would it be better to purchase a utility ETF?” Is Berkshire Hathaway becoming more like a utility because of their huge cash-generating ability, and the sheer size and scale of the company?
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