Many of the recent buys might be great additions to Berkshire's portfolio of companies, however, the relatively high prices paid for these investments could potentially result in a lower return on invested capital. In the past you hunted gazelles, but now you are hunting elephants.
To me, the recent buys look like preparation for your legacy, creating a more mature, slower-growing enterprise. Is Berkshire morphing into a stock that has begun to resemble an index fund that is more appropriate for widows and orphans rather than past investors who sought out differentiated and superior compounded growth?
In the past, you have quoted Benjamin Graham, saying "price is what you pay -- value is what you get." Are your recent deals and large investments bringing Berkshire less value than the deals done previously?
A: Warren admitted that Berkshire won't grow as rapidly in the future as it has in the past but it will still generate a lot of incremental value. "We think we will do better than the giants of the past," he said. Charlie chimed in and said much of the same. Warren then exclaimed, "Doug, you haven't convinced me to sell the stock, but keep trying!"
Question No. 2 -- The Buffett Factor
"Warren," I said.
"Doug," he responded.
"Warren," I remarked again.
"Doug," he repeated.
And I felt that this exchange set the stage for a more relaxing repartee between us over the balance of the day.
Q: Much of Berkshire's returns over the past decade have been based on your reputation and your ability to extract remarkable deals from companies in duress as compared to the past when you conducted yourself more as a value investor, digging and conducting extensive analysis.
What gives you confidence that your successors' imprimatur will be as valuable to Berkshire as yours has been?
A: Warren responded by saying that when he is gone, Berkshire will remain the investor of last resort -- the company will remain the refuge for distressed companies, as Berkshire will possess large amounts of capital and will be positioned to react quickly. "They will call Berkshire. And Berkshire's reputation will become only more solidified for providing capital in sound deals, when other people are frozen. When it happens when I'm not around, it will become more tied to the Berkshire brand." Charlie agreed.