This is a tough letter to write. For 15 years, you and I shared our lives. Now I’m heading out the door.
Could you have done something different? Should we have gone to counselling? In all honesty, I don’t think so. We can still be friends, but I’m no longer dazzled by your “greatest investor in history” aura.
Please, please don’t be upset. I’ll still read your annual reports and chuckle at your corny jokes, and I’ll think back to our good times together.
I first invested in Berkshire Hathaway during the mad, bad dot-com days of 1999. I was just a novice investor; you were the Oracle of Omaha, a market genius who had, time and time again, proven to be the smartest guy in any room.
Not that people gave you a lot of credit back then. The Wall Street wise guys sneered at you for not jumping into Global Crossing, Pets.com or other brain rot of the era.
How you proved them wrong! And how you made me money! As tech turned to wreck, Berkshire shone brighter than ever. My shares are now worth nearly three times what I paid.
So why have I just sold them? As with the breakdown of any relationship, the answer is somewhat complicated.
Part of it, quite frankly, is that you’ve grown old. As much as I love you, you’re 83. Barring a breakthrough in cloning, you’re unlikely to be at the helm of Berkshire much longer.
But it’s not just your age. Put it this way: We’ve grown apart. More precisely, you’ve grown apart. When I bought Berkshire shares, it was still a middleweight, with a stock market capitalization of $85 billion (U.S.) and annual revenue of about $24 billion. Nowadays, it ticks in at a mammoth market cap of more than $300 billion and has a revenue of $182 billion.
The weight gain puts me off. Sure, I know— it’s all muscle. But the simple fact is that it’s a lot easier for a smaller company to beat the market than it is for a giant conglomerate. When you’re the fifth-biggest U.S. public company by revenue, there aren’t many potential acquisitions that can make a meaningful difference to your bottom line.
Size has other disadvantages as well. When I first bought Berkshire shares, I could get a reasonable overview of the company’s operations from your annual reports. But your enterprise has sprawled in so many directions, I no longer understand you. The Warren I knew was a stock picker and insurer; the Buffett you’ve become is a railroader, an energy provider and a guy who doesn’t mind making long-term derivative bets on market indexes.
Maybe all of this will work out, but one thing’s for sure: You’re no longer the nimble dancer I once knew. In earlier decades, you could waltz past the S&P 500 while chugging your favourite Cherry Cokes and gobbling See’s Candies. Over the past 10 years, though, you’ve earned returns that look too much like those of a typical index fund.
Even you now seem to doubt that Berkshire can keep beating the market. In your most recent annual report, you revealed that 90% of the money that will be left to your widow will be invested in an S&P 500 index fund.
As usual, you’re being realistic. I’ll always treasure that about you. But it’s time to go.
A former Berkshire shareholder