Ponder the Bear Case Scenario for Berkshire Hathaway (NYSE:BRK.B). Yes even Warren Buffett’s legendary investment vehicle has some potential Black Swan events which may hurt it. The main points are:
Insurance Operations are large-scale risk factories. Statistics says you cannot win every day. Large catastrophic events such as whether or geo-political can destroy the best risk manager and actuary. That includes Warren Buffett and Charlie Munger.
Berkshire Hathaway is so large it is hard to do new deals which are sizeable enough to impact overall operations. The classic value investment is to get in when it’s bad and dirty and sell when its pretty and lovely. More easily said than done. But at this point $100 million deals are too small to be of consequence.
Leadership. Both Warren Buffett and Charlie Munger are very very olde. They can go any minute and doctors would not be surprised. Or worse they can become cognitively or physically impaired and linger creating anxiety and confusion. While they seem to have many able lieutenants only Croesus matches the Brand Power and investors will be disappointed.
Most of Warren Buffett’s wealth will go to that wonderful charity that Bill Gates is running. Charities spend money to fund worthwhile causes. They have the same problem all charities have. More causes than money. There will be a huge danger to become a net seller and depress the stock value.
The charity will also be looking to diversify its investment for all the classic reasons touted by Warren Buffett. Again a net selling dynamic will come into play.
Watch for a large financially engineered scheme to reshape Berkshire Hathaway and satisfy the Gates Foundation needs for good investment governance.
George Gutowski writes from a caveat emptor perspective.