Berkshire's record run

Many Indian companies fit its mould

The annual Berkshire Hathaway (BH) shareholders’ conference in Omaha, Nebraska, is an eagerly awaited event. BH is a behemoth of a holding company with a standalone market capitalisation of over $870 billion, making it the eighth-most valuable company in the world. It was, until recently, run by two investing legends, Vice-Chairman Charlie Munger and Chairman Warren Buffett. Every casual quip or chance remark in their joint interactions with shareholders was parsed in excruciating detail for clues as to future strategies. One such remark at the 2024 meet suggests Berkshire may be interested in future India exposure. Munger passed away recently at the age of 99, and Mr Buffett, at 93, cast a sombre note when he said he hoped he would be there in 2025 to chair the annual meet. The succession strategy was obviously a matter of debate. Most probably it will be one of the two vice-chairmen, Greg Abel or Ajit Jain.

BH has an incredible investment record with a compound return of around 20 per cent per annum since 1965 — that’s over twice the growth rate of the S&P 500. It is one of the world’s largest general insurers, and owns large stakes in many other Fortune 500 businesses as well as controlling stakes in many smaller businesses. A single BH voting share trades for $600,000 because the company doesn’t believe in stock splits, or paying dividends. The strategy is logical only if a company believes that it can earn a high return on retained earnings. In BH’s case, it has beaten the market by a massive margin over six decades. One of the many unusual features of the Buffett-Munger partnership has been transparency. They have taken the trouble to explain investment decisions and confess their mistakes to shareholders, usually with humour and self-deprecation thrown in. The Buffett-Munger investment philosophy has been to find growth businesses they understand, and to invest in those for the long term if they reckon the price is right.

This philosophy lent itself to another logical extension that seems an eccentricity at first glance: A reluctance to invest in tech companies since neither of them self-confessedly understood tech. The internet boom and bust was ignored by BH, although it has, at various times, owned stakes in IBM and Apple among other tech plays. The two have also indulged in trenchant criticism of complex financial derivatives, instruments both understood very well since they were experts in insurance, which thrives on such complexities. Mr Buffett’s comment about “unexplored opportunities” in India was in response to a query by Rajeev Agarwal of Doordashi Advisers, a US hedge fund. BH’s last-known transaction in India occurred in November 2023, when it sold a 2.5 per cent stake in Paytm (One97 Communications) for a loss.

Mr Buffett also pointed out that BH would want to have “any advantage or insights into those businesses in India or any contacts that will make possible transactions” before it entered India in a meaningful way. The presence of Mr Jain may, of course, give BH a headstart in this regard. But given the philosophy, India’s overt thrust on digitisation may actually be a drawback when it comes to attracting BH. The 93-year-old chairman has pulled back from day-to-day management and it’s possible there could be a radical shift in investment attitude as new management takes over. There are plenty of Indian companies that fit the BH mould and it could be a formidable player.