This commentary originally appeared on Real Money Pro on Nov. 15 at 11:00 a.m. EST.
Owning (or selling) a security is not synonymous with respecting (or not respecting) management and its past corporate accomplishments.
If we distill owning equity to only one factor -- to me, is whether the forward-looking reward relative to risk in a company's share price is attractive.
Size Creates Its Own Performance Anchor; Investments May Become More PedestrianBerkshire's past growth and successes are one of its greatest enemies to future growth. Ever-larger investments/acquisitions are required to produce an impact and provide differentiated returns for shareholders. At the time of Buffett's acquisition of Berkshire Hathaway in 1965, the company's market value was under $20 million; it stands today closer to $190 billion. Yesterday's $10 billion investment in IBM (IBM) is, to this observer, a reflection that larger deals are needed to move the needle and that more ordinary and plain vanilla investments will be the feature of Berkshire's portfolio strategy in the future. Vice Chairman Charles Munger has previously talked about the inevitability of less-than-special investments for the past two years or so. Moreover, size reduces the marginal benefit of preferential $5 billion PIPE deals (private investments in public entities) -- such as those previously effected by Berkshire Hathaway in Goldman Sachs (GS), General Electric (GE) and Bank of America (BAC). I would add that the share prices of Goldman Sachs and General Electric have massively underperformed the markets after Berkshire purchased their preferreds, meaning that it was the sweetener (i.e., the attached warrants) that gave Berkshire Hathaway the true value to Buffett's investments in those companies.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV