The results will not be spectacular going forward. Berkshire is simply too big for that. However, the result are likely to be quite satisfactory. I think it is rational to assume (as Buffett himself believes) that Berkshire can still beat the S&P 500 over a complete business cycle, something few managers can do. Moreover, in Berkshire’s case you have a high probability of selecting the manager BEFORE you invest, a rarity.
Buffett has put together a collection of businesses that are not only highly profitable, but also remarkably immunized from creative destruction, which provides a margin of safety. It is not a stretch to assume that one hundred years from now BNSF will still be riding the rails, BH power will be providing energy in one form or another and BH insurance companies will be underwriting. This also is rare.
The key question that will drive Berkshire’s results going forward is whether Buffett or his successors will be able to intelligently put to work the enormous capital the company generates.
For now, Berkshire has shown that it still has this capacity to do this given the following options.
- Tuck-in acquisitions and organic growth, i.e. NFM Texas store
- Large cap-ex investments in rails and energy. Tens of billions can be put to work here over time at satisfactory returns, i.e. 11%-12%.
- Stakes in publicly traded companies
- An occasional whale (this may be aided by 3G Capital)
- “Special Deals” (such as those done with Goldman, GE, BOA, etc.) – Buffett thinks these will still be available after he is gone, based on Berkshire’s reputation and its ability to write a huge check.
- Something we are not thinking about. This may seem a bit of a stretch (and certainly not something to count on) but Buffett is an investing genius who has surprised many times in the past by coming up with new ways to deploy capital.
Another positive is that Berkshire is one the few companies that will have both the firepower – cash, operating profits, borrowing capacity, liquid securities – and investing philosophy to exploit Mr. Market when he goes into a future depressed state. Moreover, confidence is growing that Todd Combs and Ted Weschler are skilled investors who could have a long and successful run ahead of them at Berkshire.