We examine the holdings of the famed conglomerate.
Investment conglomerate Berkshire Hathaway
At this year's Berkshire Hathaway annual meeting, also known as the Woodstock for Capitalists, Buffett indicated that he would be happy with 10% annual returns out of Berkshire's equity portfolio. I think these lower return expectations are largely due to Berkshire's now-massive size, which confines the conglomerate's investable universe to only some of the largest companies in the world, with growth expectations that are naturally lower because of their large size. While, on balance, I agree with this viewpoint, I'll also note that, by and large, the returns from Berkshire's equity portfolio have done better than these more-tempered expectations over the last few years, which I think is indicative of Berkshire's long-term investing philosophy, as well as Buffett's skills as a stock-picker.
Alternatively, Buffett also said that individuals who are managing vastly smaller amounts of money have an advantage, since their investable universe is much greater than most money managers. He went on to say that by diligently poring over thousands of these smaller securities, investors could potentially uncover some mispricings, although it is increasingly difficult these days, given the amount of eyes constantly scanning the world for new investments.
One other investing tidbit from this year's meeting that I found incredibly insightful was a comment from Buffett's partner, Charlie Munger, who said, "The whole secret of investment is to find places where it's safe and wise not to diversify." Essentially this means putting the most money in your best ideas, or those areas where you think you have an edge over your peers. I certainly try to follow this axiom while managing the Ultimate Stock-Picker's Portfolio, which is one of the reasons I try to limit the number of positions I have at any one time--presently, there are only 13 stocks in the portfolio.
The Ultimate Stock Picker's Portfolio presently owns three stocks that are also in the Berkshire Hathaway portfolio: American Express
Morningstar equity analyst Michael Kon discussed American Express' first-quarter results last month, recently writing, "Despite the tough operating environment in the United States, American Express reported a solid start for the year. The firm earned $991 million in the first quarter, down 6% from last year. We were pleased to see that the bank was able to increase card-billed business by a healthy 14% from the year-ago quarter, most of it on the back of very strong growth in foreign markets. In the United States, card-billed business grew only 9% from last year, compared with 27% growth in card-billed business in foreign markets. Amex had to bump up its provision for loan losses by 48% from the first quarter of 2007, but this increase is in line with our expectations. We were pleased to see that some of the rise in credit costs was offset by an increase in the net revenue margin and higher fee income."
Morningstar equity analyst Damien Conover provided his overall take on J&J in the following snapshot from his Analyst Report, "Johnson & Johnson stands alone as a leader across the major health-care industries. The company maintains a diverse revenue base, a robust research pipeline, and exceptional cash-flow generation that together create a wide economic moat. Patent losses on antipsychotic Risperdal and neuroscience drug Topamax, as well as recent side-effect concerns with anemia drug Procrit, will weigh on near-term performance. However, we remain confident that the company's breadth can overcome these issues."
Morningstar Equity Analyst Ann Gilpin provided her opinion on A-B's potential acquisition by InBev, recently writing the following Analyst Note: "We've commented in the past on a possible InBev/A-B merger and have always believed that InBev would have to pay a substantial premium for A-B, which has the number-one and number-two beer brands in the world and controls half of the most profitable beer market in the world. Any proposal would also have to be substantial enough to convince A-B's board to end the independence of what has been a 150-year-old multigenerational family-run business. Given the lackluster performance of A-B's stock over the past five years, though, the family and the board may view a takeover by InBev as a good opportunity to cash out. In theory, an InBev/A-B merger makes sense, as A-B is entrenched in the very profitable U.S. market and InBev's strength lies in faster-growth emerging and developing markets. A merger of the two would create a beer powerhouse, generating roughly $20 billion in annual revenues and surpassing SABMiller