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No. of Recommendations: 12
Yeahitme cites good reasons for the 3% growth rate of Berkshire's wholly owned companies. The FAANG companies along with a few other internet/cloud/data/software companies have been the growth standouts in the post-2008/2009 recession era.

Rich's (Haywool)recent comments: "I don't compare my portfolio with any other ... as long as it is doing what I require of it, I don't care what others' are doing."

Like many of you, I read lots of stuff from lots of sources and try to keep conformation bias and other biases out of my decisions. Note I said "try to keep bias out of my decisions". I also participate in a small manufacturing enterprise. While I can never equate myself to Warren Buffett, I do understand his oft made comment to the effect: because he is an investor, he is a better business owner and because he is a business owner, he is a better investor. From my vantage point, Berkshire's 3% growth in its wholly owned companies correlates with what we are seeing in our business network associations. I've been studying Berkshire's quarterly internal company numbers and those companies are consistently growing albeit slower than what we children of the 60s feel is normal growth rates. Yes, I feel the managers of those Berkshire companies do have the green light for high ROE internal re-investment. I also know from our industry experience high ROE internal re-investment opportunities are hard to find.

While I do not think Dr. Robert J. Gordon has all of the growth trend stuff completely figured out, he does provide some technical insights as to why all developed economies will be slow-growth for a long time to come. The first link is a brief synopsis of a 2016 article he wrote and the second link is the article.

Like Haywool, I have my portfolio objectives and they are capital preservation with sufficient growth to outpace inflation, period. Thank goodness we had our 15 to 20% capital appreciation years and can now bump along with 4% annual returns (2% above inflation) while hoping for averaging 6% (4% above inflation)for the next decade or two. Yes, I agree, this sounds paltry. It is paltry. It also may be realistic expectations for at least the next ten years. I jump on a handful of understood companies like Berkshire when they get relatively cheap, like about 2 1/2 years ago when Berkshire B shares were selling at $184 and last year when they were selling at $200. Yes, they did not grow as much as the S&P in the same period. I am ok with trading growth for margin of safety.

The big internet, cloud and data developments have gone to a handful of companies. Much like the USA textile companies in the 1960s - 1980s could not keep their earnings because they had to constantly redeploy it into buying faster and faster production equipment, many companies are having to redeploy their earnings into adapting to keep pace. Lots of companies across many industries are presently spending large sums of money adapting traditional equipment for working in an IOT environment or a $15/hour service worker environment or an non-traditional sales person environment or a predominately inexperienced employee workforce environment (this is a silent drain on profitability that was also seen in the late 70s and early 80s as inexperienced Boomers entered the workforce). Couple all that with the huge numbers of retirees who will also live into their 90s but will not be spending much money as they have to become more frugal to make ends meet with a steadily declining birthrate environment and you get substantial headwinds for continued GDP growth. There are no big bangs coming for propelling GDP growth. We have to temper our expectations and up our investor game with better margin of safety assessments. A mental model to consider: when bank loans were made at 9% and the bad loan loss percentage was 3%, a bank could make 97 loans that earned 9% on passbook savings/demand deposit costs of an average 3% and could shoulder the losses of the the three bad accounts because the net interest rate margin number of 6% worked beautifully. Today those net interest rate margins are less than 3% and if you have more than 1 or 2% bad loans, the bank's bottom line gets hurt bad fast. We investors are in the same situation as the banks. In the old days we could have one investment out of ten be a total dog and the other nine investments would have sufficient appreciation to enable us to see healthy portfolio growth. Today, with a much lower appreciation environment in the 2020s, we cannot stand to suffer a big setback. I think there will be index investors who are counting on the past ten years appreciation that are going to be real unhappy over the next ten years. This is why the folks on this board are likely to do somewhat better than index investors as we temper our expectations, occasionally buy quality companies at fair prices and then keep those holdings a long, long time.

About two years ago I read an article with charts displaying GDP growth vs quality of life aspects of various countries. There were several countries having twenty years of 0.5% to 1.5% GDP growth that also had high quality of life scores. Japan and Western European countries are likely proxies for where the USA is now or will be experiencing in the future. Hurray for 3% growth and cheering for 4% growth!!
Woe to the index investors who are expecting 8% growth in their holdings forever. At least we have the prospect of Berkshire's huge cash holdings being put into investments likely to earn 10% or more in their first decade.
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