The Berkshire Special
Our journey continues: the pilgrimage to Omaha
Welcome to the third edition of the Guru Gems Newsletter! A newsletter focused on unearthing investment wisdom from the world’s long-term investing masters. In case you missed it:
My goal is to build a portfolio of 8-12 stocks (the ‘Guru Gems’) that will hopefully beat the index in the long run.
Here is what’s in store for today:
Warren Buffett, Master Guru, retires
Guru in the spotlight: Chris Bloomstran
Should we add Berkshire Hathaway to our portfolio?
Let’s dive in …
The Master Guru
“You can learn a lot from other people. In fact I think if you learn reasonably well from other people, you don’t have to get too many ideas on your own. You can just apply the best of what you see.” —Warren Buffett
“I believe in the discipline of mastering the best that other people have figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.” —Charlie Munger
This weekend was Berkshire Hathaway’s annual shareholder meeting. An event that brings thousands of Buffett fans to Omaha to hear from the Oracle himself.
At 94 years old, Buffett announced this weekend that he plans to retire and will ask the board to have Greg Abel replace him as CEO at year end.
Buffett said he would still ‘hang around’ and in doing so he could become a sort of Charlie Munger for Greg Abel (Munger passed away in 2023).
If you’re on FinTwit or following Finance/Investing writers on Substack, you will have probably been bombarded with updates, articles, reviews and opinions about the meeting or about Buffett’s legacy.
So rather than writing up yet another analysis of Berkshire, Buffett or the annual meeting, I thought I would just share what I think are the best resources to learn about Buffett.
Whether you’re a Buffett expert or a novice, there is plenty to learn or rediscover from the following sources:
Berkshire Hathaway shareholder letters (1977 - 2024)
CNBC’s ‘Warren Buffet Archive’ with videos of the full Berkshire Hathaway annual meetings since 1994
‘Buffett & Munger Unscripted’ book by Alex Morris (bonus is a TIP podcast episode that was just released about this book)
‘Richer Wiser Happier’ book by William Green; Chapter 1 (“The Man Who Cloned Warren Buffett”)
Kingswell’s ‘The Berkshire Beat’ newsletter
The disciple
Buffett, considered a god in the value investing community, made many of his disciples who applied his principles, very successful.
One of those disciples is Chris Bloomstran. He is the President and Chief Investment Officer of Semper Augustus (named after a crazily overvalued tulip in the 17th century).
Here is how William Green introduced Chris in his Richer Wiser Happier podcast interview:
“[…] If you want to outperform over the long term as a stock picker, I think Chris is an excellent person to study because he shows what it takes to win this game of beating the market and truly just how hard it is. […]
He also has a relentless passion for analyzing businesses and solving the investment puzzle, which really is not just about wanting to get rich but about just being fascinated intellectually by companies and business models. Equally important, he’s a profoundly skeptical investor. […]”
Bloomstran is famous for writing a comprehensive annual letter with his own very detailed analysis of Berkshire’s intrinsic value.
Semper Augustus’ largest position? You guessed it: Berkshire Hathaway. No less than a third of the Semper fund is invested in Berkshire.
And Bloomstran is certainly not the only Guru who has made Berkshire a significant position in his fund.
A quick look at the Gurus covered in our first 2 editions shows that most have Berkshire in their portfolio:
The last Guru on the above table is Tom Gayner, a great long-term investor and CEO of Markel Group. I’ve added him here because Markel is sometimes referred to as a mini-Berkshire. We will definitely cover Tom Gayner in more detail in a future newsletter.
To buy or not to buy
This is the part where we decide whether to add Berkshire to our Guru Gems portfolio or not. For this, let’s apply Terry Smith’s approach like we did for Alphabet in our previous letter:
1/ Buy Good Companies
With many Gurus owning the stock for many many years and some even at a significant size of their portfolio, I think it is safe to assume that Berkshire is a Gem.
2/ Don’t Overpay
This is a tricky one. Classic valuation ratios like P/E or EV/EBITDA may not be ideal for valuing Berkshire, which has a complex portfolio of businesses with varying earnings characteristics.
Buffett himself has a couple of times referred to Price-to-Book* (P/B) as a measure to assess the company's intrinsic value. And looking at this metric, together with the Price-to-Sales (P/S) ratio which can provide an alternative perspective on valuation, we see that the stock price is currently at a 5-year high valuation:
*The price-to-book (P/B) ratio measures the market's valuation of a company relative to its book value. A P/B ratio under 1.0 is sometimes seen as an indication that the company is undervalued.
This high valuation of Berkshire is also confirmed by Chris Bloomstran. Here is what he said in a recent podcast: “So here in the last year we’ve not been buying it [Berkshire] fully as a model weight for us. We’ve been with new capital coming in, we’re not buying much of it, and I’m buying very little of it at present because it’s fully valued. We like buying things at a discount.”
3/ Do Nothing
Based on the above, I will literally do nothing and won’t add Berkshire to the Guru Gems portfolio for now. Berkshire is still a Gem, so I’ll add it to my ‘Watchlist’ and will be ready to buy if the price were to drop (significantly). I will also closely monitor the Gurus’ portfolio changes (May 15th is the deadline for the Q1 filings).
So for now, our portfolio still consists of LVMH and Alphabet and around 90% of cash to deploy. I will share a more detailed update on the portfolio with average purchase prices in a following newsletter.
Learn more about the Gurus
I hope you enjoyed this newsletter. If you are new to investing or curious to learn more about investing Gurus, I would highly recommend William Green's book Richer, Wiser, Happier. It's a fantastic book about how the world's greatest investors win in markets and life. There is also a podcast under the same name (the episodes are featured on The Investor’s Podcast Network). Here is the episode with Chris Bloomstran (linked here is part 1 of a 2-part episode):
Nice article!