Buffett and Berkshire: Patience and vision
The Oracle of Omaha's holding company remains a low-risk buy for investors with a long-term horizon.
By Stephen Leeb, The Complete Investor
U.S. investors often focus on the short term -- fixating, for example, on quarterly results and day-to-day news. As a result, most companies also have shorter-term horizons, potentially at the expense of greater longer-term payoffs.
A focus on the shorter term doesn't preclude success, and clearly many of these companies flourish. But we're particularly drawn to those rare companies that, led by individuals of supreme self-confidence and vision, hew to a longer-term outlook.
One of these, which is found in the low-risk category of our model Growth Portfolio, is Berkshire Hathaway class B (BRK.B).
Berkshire's Warren Buffett likes to say his favorite holding period is forever. He may exaggerate, but he doesn't just talk the talk, he walks the walk. He has preternatural patience and equanimity.
He bought one of his first major stocks, Washington Post (WPO), in 1973 just before it plunged in the overall market collapse.
Buffett didn't blink, telling Post chairperson Katherine Graham that its price was irrelevant to the franchise value, which he figured at many times the stock price. He was right.
More recently, when Berkshire stock dropped 50% during the 1998-2000 Internet bubble, Buffett held his ground, refusing to buy tech stocks that he did not completely understand.
By 2004, Berkshire shares were at new highs, while most of the former tech high flyers had shrunk to almost nothing, if not bankrupt altogether.
Since 2000, in the latest incarnation of his long-term approach, Buffett has been shifting Berkshire's focus from consumer products to capital-intensive industries.
At the start of the century, Berkshire's market value largely reflected its stock portfolio of consumer franchises.
Its operating assets included a collection of major insurance companies. Today, while Berkshire's stock portfolio remains huge, book value drives the shares' market value far less than in the past.
Insurance is still the most important operating segment. But the key to Berkshire's future lies in Buffett's big bets on utilities and railroads, including Burlington Northern.
We think this shift shows that Buffett is betting on global growth, especially from developing countries. These emerging economies will be avid consumers of resources, leading to resource scarcities.
And all of Buffett's three major operating businesses benefit from resource scarcities along with urbanization, which is another inevitable consequence of growth in developing nations.
Railroads, for instance, haul resources much more cost-effectively than trucks, giving them an ever greater edge as energy prices rise. Buffett's utility, Mid-American, is already the U.S. renewable energy leader, with a long-term lead over rivals.
Meanwhile, the dominant role of insurance on Berkshire's balance sheet ensures Berkshire's financial leadership in a world in which urbanization is likely to lead to rising premiums.
Rounding out the picture, its massive stake in Wells Fargo (WFC), the company's largest equity holding, means that Berkshire holds an unassailable position in four long-term growth industries.
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