Berkshire Hathaway, United States, Jake discussed on We Study Billionaires - The Investors Podcast

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Your stock selection process and how has or hasn't been influenced by Warren Buffett and Talamante her. My investment process is kind of difficult to explain because it tends to be just looking for things that makes sense to me and that there's no real morningstar style box that you can check. That says you know buying things that make sense to me so I ended up being very opportunistic and going into a lot of different places whether it's just buying outright cheap assets when they're available like a net net all the way up to hang up a little bit more for a good company that has good cap allocation and along runway to redeploy capital at essentially high return. So obviously buffet early on was very quantitative based investor and off only very cheap things and for most of my career. I've been more that way and it's only until recently that I felt a little bit more comfortable paying up for a good culture. And what am I thinking is evolved in that is one. I think you have to read a lot and been in the game for quite a while to have the trust in yourself that you can recognize those kinds of opportunities. The other problem is that it's very difficult to get to that point in this particular market for me because it seems like that's kind of whatever one is realizing recently compounders have become very popular and for good reason it makes business and investing sense is just the price is. I feel like maybe have gotten the little out in front of what might project into good returns for a lot of these businesses so while I recognize it I've been pretty slowed actually implemented because the price I felt like hasn't quite been there yet. Another interesting thing I've been thinking about lately on that Front. Is Everyone's looking for companies that have really high returns on invested capital and? I've been wondering if perhaps that you might be better off looking for ones. That are more moderate. Maybe like the ten to fifteen percent range. My thinking of that is that few have extraordinarily high returns on capital that is a signal that other entrepreneurs may WanNa come and compete those away from you and or at least share in some of that high return maybe at the ten percent range your side of flying under the radar and you're able to compound for a really long time at ten percent as opposed to a short period of time. Let's say fifty percent and the better bet is to take the longer duration ten percent one most likely so it's Kinda like I've heard Peter. Thiel talk about how companies who are actually monopolies. They don't advertise it. They're trying to hide it. Google will talk about how they're only a certain percentage of the entire advertising industry. They won't frame it as online advertising or search even worse right so in the same vein maybe the editor bet is to look for more mid range kind of Roi. See and see what you can find there. As opposed to like the highest flyer ones so jake on February twenty-second buffet sent out his annual shareholder letter. And I'm just curious what your key takeaways. Where from the letters this year? I thought it was interesting that he removed the Book Value Column. For the first time. Which kind of tells you how much value maybe as a metric for Berkshire has decayed in buffets mine. He's been talking about it for a while but he finally stopped reporting on that. I mean you just look at that. Market value though from nineteen sixty five to twenty nineteen at twenty point three percent return versus the SMP's ten percent and it's like it's such an amazing testament to doing something right for a really long time and the just the obscene compounding that can take place. It's just truly incredible to actually see it. Spelled out look at the float number nineteen seventy thirty nine million dollars today. Hundred Twenty nine billion dollars absolutely unreal. How Big Berkshire has got? And then my last one was interesting to see him. Say That g chain and Greg able will be more involved in the meeting this year which I think gives some hints about succession. Planning and I thought it was actually a little bit odd that todd and Ted wouldn't be included as much. He didn't mention them. At least so those were my takeaways from this year's letter but in general I would have probably given it an average rating other ones. I've liked more but anytime you can hear what's on buffets mind is worth taking a few minutes to Rita for someone like you have been reading all his letters. It is interesting to see how especially the last safe ten letters. I think he's giving away less and less. I guess that's how I look at it. They're still good lessons to learn but it seems like he's a different mode. It seems like he's a bit more in legacy mode than he is in the. Let me educate you about business mode. But it's definitely worth a read and we'll make sure she'll linked to that later in the show notes but jake. Could you talk to us about Berkshire Hathaway and no? We're going to talk about the evaluation the end. So we'll get to that but talk to us about berkshire-hathaway how would you outline the for someone who is not too familiar with the company in my mind? It's a supercharged S. and P. Five hundred it's very. Us centric Bat. They insurance operations are way above average the industry and then you have somewhat doing cap allocation. That's the greatest of all time. And typically you're buying it for less than the markets typical price due to some kind of a conglomerate discount so in my mind. It's not a bad plug in or an S. and P. five hundred exposure. If you wanted that instead could you talk to us about the five major segments of the business? Sure Yeah I mean you have the insurance operations which are big you have a railroad inside of their Burlington northern you have Berkshire hathaway energy. Which is we used to be mid American and now is growing quite a bit. They put a lot of money to work in both energy and railroads and earned that interesting ten percent regulatory return. Likely we're talking about return on capital and then you have a marketable securities portfolio of a lot of blue chip companies. That are baked inside of there. Then you have what's called the MSN. Which is the manufacturing service and retail and those are a bunch of grab bag of different businesses. Some bigger some smaller all the way down from precision cast parts which is making high tech aircraft manufacturing all the way down to shakes and Burgers at dairy queen. And everything in between so you have the whole swath of the US economy..

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