Barron’s: Letter to the Editor on Berkshire Hathaway

In advance of Warren Buffett’s letter to shareholders to be released tomorrow morning, Barron’s this evening published my Letter to the Editor relating to their cover story on Berkshire published last week:
To the Editor:

Although I agree with Andrew Bary’s positive outlook for Berkshire Hathaway, I disagree with the suggestion of a corporate breakup.

Buffett has stated that a CEO’s primary role is to allocate capital. Under Berkshire’s current structure, the free cash flow generated by each of its numerous businesses can be quickly distributed internally to those businesses with the highest expected return on capital. Furthermore, by being under the Berkshire umbrella, each business can focus on maximizing its long-term profits without being subject to the pressure of meeting short-term targets set by activist investors and analysts.

On a second issue, although the author mentions that Berkshire gets only 20% of its earnings from its investments, its $240 billion equity portfolio represents 44% of its market capitalization of $550 billion. Berkshire’s common stock portfolio, led by its largest investment, its stake in Apple ($81 billion), substantially outperformed the S&P 500 index in 2019, while its own common stock underperformed this benchmark. This is a further indication of Berkshire being undervalued. Buffett’s two portfolio managers, Todd Combs and Ted Weschler, have outstanding track records and are likely to continue outperforming the S&P 500 in the future.

David I. Kass, Clinical Professor of Finance, University of Maryland, College Park, Md. 

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